Document:

Unassociated Document

    Execution
      Version

    SECOND
      AMENDMENT TO

    RIGHTS
      AGREEMENT

     

    SECOND
      AMENDMENT TO RIGHTS AGREEMENT, dated as of October 31, 2008 (this “Amendment”),
      between ImClone Systems Incorporated, a Delaware corporation (the “Company”)
      and
      Computershare Trust Company, N.A. (formerly known as EquiServe Trust Company,
      N.A.) as Rights Agent (the “Rights
      Agent”).

     

    WHEREAS,
      on February 15, 2002, the Company and the Rights Agent entered into the Rights
      Agreement, and on May 4, 2006, the Company and the Rights Agent entered into
      the
      first amendment to the Rights Agreement (as so amended, the “Rights
      Agreement”);

     

    WHEREAS,
      pursuant to Section 23 of the Rights Agreement, at any time prior to the
      occurrence of a Section 8(a)(ii) Event (as defined in the Rights Agreement),
      the
      Company may, and the Rights Agent shall if the Company so directs, supplement
      or
      amend any provision of the Rights Agreement in any respect without the approval
      of any holders of Rights (as defined in the Rights Agreement);

     

    WHEREAS,
      the board of directors (the “Board”)
      of the
      Company has approved an Agreement and Plan of Merger (the “Merger
      Agreement”)
      by and
      among the Company, Eli Lilly and Company, an Indiana corporation (“Lilly”),
      and
      Alaska Acquisition Corporation, a Delaware corporation wholly owned by Lilly
      (“Merger
      Sub”),
      pursuant to which, among other things, Merger Sub shall commence a cash tender
      offer (the “Offer”)
      to
      purchase all of the outstanding shares of the common stock, par value $0.001
      per
      share (the “Common Stock”) of the Company and the associated Rights (as defined
      in the Rights Agreement); and following the consummation of the Offer, Merger
      Sub will merge with and into the Company (the “Merger”)
      and
      the Common Stock shall be converted into the right to receive $70.00 per share
      in cash; and

    

    WHEREAS,
      the Board has determined that it is in the best interest of the Company and
      its
      stockholders to amend the Rights Agreement so that in connection with the Merger
      Agreement and the transactions contemplated thereby (i) each of Lilly, Merger
      Sub or any of their Affiliates and Associates shall not become an Acquiring
      Person under the Rights Agreement, (ii) neither a Distribution Date nor a Stock
      Acquisition Date shall occur or be deemed to occur, (iii) a Section 8(a)(ii)
      Event shall not have occurred, (iv) a Section 10 Event shall not have occurred,
      and (v) the Expiration Date shall be immediately prior to the Effective Time
      (as
      defined in the Merger Agreement).

    

    NOW,
      THEREFORE, the parties hereto agree as follows:

     

    Section
      1.01.  Definitions.
      Capitalized terms used but not defined herein that are defined in the Rights
      Agreement shall have the meanings ascribed to them in the Rights
      Agreement.

     

    Section
      1.02.  Amendments
      to Original Agreement.

     

    (a)  The
      definition of “Acquiring
      Person”
is
      hereby amended by: (i) deleting the word “and” from the end of clause (v)
      thereof; (ii) adding the word “and” at the end of clause (vi) thereof; and (iii)
      adding the following text as clause (vii) thereof:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    “(vii) Eli
      Lilly
      and Company, Alaska Acquisition Corporation, or any of their Affiliates or
      Associates, individually or collectively, in connection with: (1) the
      approval, adoption, execution or delivery of the Agreement and Plan of Merger
      (as it may be amended and supplemented, the “Merger
      Agreement”)
      among
      the Company, Eli Lilly and Company, an Indiana corporation (“Parent”),
      and
      Alaska Acquisition Corporation, a Delaware corporation and a wholly-owned
      subsidiary of Parent (“Merger
      Sub”),
      (2) the commencement or consummation of a tender offer by Merger Sub or any
      of its Affiliates to purchase all of the shares of Common Stock and the Rights
      pursuant to the Merger Agreement (the “Offer”),
      (3) the exercise of the option to purchase shares of Common Stock granted
      pursuant to Section 1.8 of the Merger Agreement (the “Top-Up
      Option”),
      (4) the consummation of the merger of Merger Sub or any of its Affiliates
      and the Company (the “Merger”),
      (5) the approval, execution or delivery of the Support Agreements or any
      amendments thereof or (6) the consummation of any of the other transactions
      contemplated by the Merger Agreement or the Support Agreements; provided,
      however,
      that if
      the Merger Agreement is terminated prior to the Acceptance Time (as defined
      in
      the Merger Agreement), this sub-clause (vii) shall be of no further force and
      effect; provided,
      further,
      that
      unless approved by the Board, this sub-clause (vii) shall not apply to any
      purchases prior to the Acceptance Time by Parent, Merger Sub or any Affiliate
      or
      Associate of Parent other than pursuant to the Merger Agreement.”

     

    (b)  The
      definition of “Final
      Expiration Date”
is
      hereby deleted and replaced in its entirety with the following
      text:

     

    ““Final
      Expiration Date” shall mean the earlier of (i) the close of business on
      February 15, 2012 and (ii) the Effective Time, as such term is defined in
      the Merger Agreement. In the event that the Final Expiration Date means the
      Effective Time, the Company shall promptly notify the Rights Agent after the
      occurrence of such Effective Time.”

     

    (c)  The
      definition of “Distribution
      Date”
is
      hereby amended to add the following new sentence at the end
      thereof:

     

    “Notwithstanding
      anything in this Agreement to the contrary, no Distribution Date shall be deemed
      to occur or have occurred in connection with (u) the approval, adoption,
      execution or delivery of the Merger Agreement, (v) the commencement or
      consummation of the Offer, (w) the exercise of the Top-Up Option,
      (x) the consummation of the Merger, (y) the approval, execution or
      delivery of the Support Agreements or any amendments thereof or (z) the
      consummation of any of the other transactions contemplated by the Merger
      Agreement or the Support Agreements.”

     

    (d)  The
      definition of “Stock
      Acquisition Date”
is
      hereby amended to add the following new sentence at the end
      thereof:

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    “Notwithstanding
      anything in this Agreement to the contrary, no Stock Acquisition Date shall
      be
      deemed to occur or have occurred in connection with (u) the approval,
      adoption, execution or delivery of the Merger Agreement, (v) the
      commencement or consummation of the Offer, (w) the exercise of the Top-Up
      Option, (x) the consummation of the Merger, (y) the approval,
      execution or delivery of the Support Agreements or any amendments thereof or
      (z) the consummation of any of the other transactions contemplated by the
      Merger Agreement or the Support Agreements.”

     

    (e)  Section
      1
      is hereby amended to add the following definition between the definitions of
      “Subsidiary”
and
      “Trading
      Day”:

     

    ““Support
      Agreements” means the Tender and Support Agreements, dated on or about
      October 6, 2008, between Parent and each of the respective stockholders of
      the Company party thereto.”

    

    (f)  Section
      8(a)(ii) is hereby amended to add the following sentence at the end
      thereof:

     

    “notwithstanding
      anything in this Agreement to the contrary, a Section 8(a)(ii) Event shall
      be deemed not to occur or have occurred, and the provisions of such section
      shall not be made or given effect, in connection with (u) the approval,
      adoption, execution or delivery of the Merger Agreement, (v) the
      commencement or consummation of the Offer, (w) the exercise of the Top-Up
      Option, (x) the consummation of the Merger, (y) the approval,
      execution or delivery of the Support Agreements or any amendments thereof or
      (z) the consummation of any of the other transactions contemplated by the
      Merger Agreement or the Support Agreements.”

     

    (g)  Section
      10(c) is hereby amended by adding the following sentence at the end
      thereof:

     

    “Notwithstanding
      anything in this Agreement to the contrary, a Section 10 Event shall be
      deemed not to occur or have occurred, and the provisions of such section shall
      not be made or given effect, in connection with (u) the approval, adoption,
      execution or delivery of the Merger Agreement, (v) the commencement or
      consummation of the Offer, (w) the exercise of the Top-Up Option,
      (x) the consummation of the Merger, (y) the approval, execution or
      delivery of the Support Agreements or any amendments thereof or (z) the
      consummation of any of the other transactions contemplated by the Merger
      Agreement or the Support Agreements.”

     

    (h)  The
      description of “Acquiring Person” contained in Exhibit B is hereby amended by:
      (i) deleting the word “and” from the end of clause (vi) thereof; and (ii) adding
      the following text at the end thereof:

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    “,
      and
      (vii) Eli Lilly and Company, Alaska Acquisition Corporation or any Affiliate
      or
      Associate of Eli Lilly and Company, in connection with (u) the approval,
      adoption, execution or delivery of the Merger Agreement, (v) the commencement
      or
      consummation of the Offer, (w) the exercise of the Top-Up Option, (x) the
      consummation of the Merger, (y) the approval, execution or delivery of the
      Support Agreements or any amendments thereof or (z) the consummation of any
      of
      the other transactions contemplated by the Merger Agreement or the Support
      Agreements; provided,
      however,
      that if
      the Merger Agreement is terminated prior to the Acceptance Time (as defined
      in
      the Merger Agreement), this sub-clause (vii) shall be of no further force and
      effect; provided,
      further,
      that
      unless approved by the Board of Directors of the Company, this sub-clause (vii)
      shall not apply to any purchases prior to the Acceptance Time by Eli Lilly
      and
      Company, Alaska Acquisition Corporation or any Affiliate or Associate of Eli
      Lilly and Company other than pursuant to the Merger Agreement.”

     

    Section
      1.03.  No
      Implied Amendments.
      Except
      as herein amended, all of the terms of the Rights Agreement shall remain in
      full
      force and effect and are ratified in all respects. On and after the
      effectiveness of this Amendment, each reference in the Rights Agreement to
“this
      Agreement”, “hereunder”, “hereof”, “herein” or words of like import, and each
      reference to the Rights Agreement in any other agreements, documents or
      instruments executed and delivered pursuant to the Rights Agreement, shall
      mean
      and be a reference to the Rights Agreement, as amended by this
      Amendment.

     

    Section
      1.04.  Governing
      Law.
      This
      Amendment shall be governed by and interpreted and enforced in accordance with
      the terms of the Rights Agreement.

     

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

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
      executed by their respective authorized officers as of the day and year first
      above written.

     

     

     

     

    
      	 	 	 
	 	IMCLONE
              SYSTEMS INCORPORATED
	 
 	 
 	 
 
	 	By:  	/s/ Gregory
              T. Mayes
	 	
              

              Name: Gregory
                T. Mayes

            
	 	
              
                Title: Vice
                  President, Deputy General Counsel

                180
                  Varick Street

                New
                  York, NY 10014

                Attention:
                  General Counsel

              

            

    

    

    
      	
            	 	 
	 	COMPUTERSHARE
              TRUST COMPANY, N.A.
	 
 	 
 	 
 
	 	By:  	/s/ Dennis
              V.
              Moccia
	 	
              

              Name: Dennis
                V. Moccia

            
	 	
              
                
                  Title: Managing
                    Director

                  250
                    Royall Street

                  Canton,
                    MA 02021

                  Attention:
                    Relationship ManagementUnassociated Document

    CHINA
      ENERGY RECOVERY STOCK OPTION PLAN

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      TABLE
        OF
        CONTENTS

    

     

    
      	 	 	 	Page
	 	 	 	 
	
              ARTICLE
                I

            	
              PURPOSE

            	 	
              1

            
	 	 	 	 
	
              ARTICLE
                II

            	
              DEFINITIONS

            	 	
              1

            
	
              2.1

            	
              Affiliate

            	 	
              1

            
	
              2.2

            	
              Board

            	 	
              1

            
	
              2.3

            	
              Cause

            	 	
              1

            
	
              2.4

            	
              Change
                of Control

            	 	
              1

            
	
              2.5

            	
              Code

            	 	
              4

            
	
              2.6

            	
              Committee

            	 	
              4

            
	
              2.7

            	
              Common
                Stock

            	 	
              4

            
	
              2.8

            	
              Company

            	 	
              4

            
	
              2.9

            	
              Consultant

            	 	
              4

            
	
              2.10

            	
              Director

            	 	
              4

            
	
              2.11

            	
              Effective
                Date

            	 	
              4

            
	
              2.12

            	
              Employee

            	 	
              4

            
	
              2.13

            	
              Exchange
                Act

            	 	
              4

            
	
              2.14

            	
              Fair
                Market Value

            	 	
              4

            
	
              2.15

            	
              Family
                Member

            	 	
              4

            
	
              2.16

            	
              Good
                Reason

            	 	
              5

            
	
              2.17

            	
              Group

            	 	
              5

            
	
              2.18

            	
              Holder

            	 	
              5

            
	
              2.19

            	
              Incentive
                Stock Option

            	 	
              5

            
	
              2.20

            	
              Non-Qualified
                Stock Option

            	 	
              5

            
	
              2.21

            	
              Option

            	 	
              5

            
	
              2.22

            	
              Option
                Agreement

            	 	
              5

            
	
              2.23

            	
              Plan

            	 	
              5

            
	
              2.24

            	
              Publicly
                Traded

            	 	
              5

            
	
              2.25

            	
              Rule
                16b-3

            	 	
              5

            
	
              2.26

            	
              Section
                162(m)

            	 	
              5

            
	
              2.27

            	
              Section
                409A

            	 	
              5

            
	
              2.28

            	
              Ten
                Percent Shareholder

            	 	
              6

            
	
              2.29

            	
              Total
                and Permanent Disability

            	 	
              6

            
	
               

            	 	 	 
	
              ARTICLE
                III

            	
              EFFECTIVE
                DATE OF PLAN

            	 	
              6

            
	 	 	 	 
	
              ARTICLE
                IV

            	
              ADMINISTRATION

            	 	
              6

            
	
              4.1

            	
              Composition
                of Committee

            	 	
              6

            
	
              4.2

            	
              Powers

            	 	
              6

            
	
              4.3

            	
              Additional
                Powers

            	 	
              6

            
	
              4.4

            	
              Committee
                Action

            	 	
              7

            
	
              4.5

            	
              No
                Exercise of Authority Resulting in Nonqualified Deferred
                Compensation

            	 	
              7

            

    

     

    
      	
              ARTICLE
                V

            	
              STOCK
                SUBJECT TO PLAN AND LIMITATIONS THEREON

            	 	
              7

            
	
              5.1

            	
              Stock
                Grant and Option Limits

            	 	
              7

            
	
              5.2

            	
              Stock
                Offered

            	 	
              8

            

    

     

    
      
        -i-

      

      
         

        
          

        

      

      
         

      

    

     

    TABLE
      OF CONTENTS

    (continued) 

     

    
      	 	 	 	Page
	 	 	 	 
	
              ARTICLE
                VI

            	
              ELIGIBILITY
                FOR OPTIONS; IMPACT OF TERMINATION OF EMPLOYMENT, DIRECTOR STATUS
                OR
                CONSULTANT STATUS ON OPTIONS

            	 	
              8

            
	
              6.1

            	
              Eligibility

            	 	
              8

            
	
              6.2

            	
              Termination
                of Employment

            	 	
              8

            
	
              6.3

            	
              Termination
                of Director Status

            	 	
              9

            
	
              6.4

            	
              Termination
                of Consultant Status

            	 	
              10

            
	
              6.5

            	
              Special
                Termination Rule

            	 	
              10

            
	 	 	 	 
	
              ARTICLE
                VII

            	
              OPTION
                TERMS

            	 	
              11

            
	
              7.1

            	
              Option
                Period

            	 	
              11

            
	
              7.2

            	
              Limitations
                on Exercise of Option

            	 	
              11

            
	
              7.3

            	
              Special
                Limitations on Incentive Stock Options

            	 	
              11

            
	
              7.4

            	
              Option
                Agreement

            	 	
              11

            
	
              7.5

            	
              Option
                Exercise Price and Payment

            	 	
              12

            
	
              7.6

            	
              Shareholder
                Rights and Privileges

            	 	
              12

            
	
              7.7

            	
              Options
                and Rights in Substitution for Stock Options Granted by Other
                Corporations

            	 	
              12

            
	 	 	 	 
	
              ARTICLE
                VIII

            	
              RECAPITALIZATION
                OR REORGANIZATION

            	 	
              13

            
	
              8.1

            	
              Adjustments
                to Common Stock

            	 	
              13

            
	
              8.2

            	
              Recapitalization

            	 	
              13

            
	
              8.3

            	
              Change
                of Control

            	 	
              13

            
	
              8.4

            	
              Other
                Events

            	 	
              14

            
	
              8.5

            	
              Powers
                Not Affected

            	 	
              14

            
	
              8.6

            	
              No
                Adjustment for Certain Options

            	 	
              14

            
	
              8.7

            	
              No
                Adjustment to Result in Nonqualified Deferred Compensation

            	 	
              14

            
	 	 	 	 
	
              ARTICLE
                IX

            	
              AMENDMENT
                AND TERMINATION OF PLAN

            	 	
              15

            
	
              9.1

            	
              Amendment

            	 	
              15

            
	
              9.2

            	
              Termination

            	 	
              15

            
	 	 	 	 
	
              ARTICLE
                X

            	
              MISCELLANEOUS

            	 	
              15

            
	
              10.1

            	
              No
                Right to Option

            	 	
              15

            
	
              10.2

            	
              No
                Rights Conferred

            	 	
              15

            
	
              10.3

            	
              Other
                Laws; Withholding

            	 	
              15

            
	
              10.4

            	
              No
                Restriction on Corporate Action

            	 	
              16

            
	
              10.5

            	
              Restrictions
                on Transfer

            	 	
              16

            
	
              10.6

            	
              Beneficiary
                Designations

            	 	
              16

            
	
              10.7

            	
              Rule
                16b-3

            	 	
              16

            
	
              10.8

            	
              Section
                162(m)

            	 	
              17

            
	
              10.9

            	
              Other
                Plans

            	 	
              17

            
	
              10.10

            	
              Limits
                of Liability

            	 	
              17

            
	
              10.11

            	
              Governing
                Law

            	 	
              17

            
	
              10.12

            	
              Severability
                of Provisions

            	 	
              17

            
	
              10.13

            	
              No
                Funding

            	 	
              17

            
	
              10.14

            	
              Headings

            	 	
              17

            

    

    

      
        
          -ii-

        

        
           

          
            

          

        

        
           

        

      

    

     

    CHINA
      ENERGY RECOVERY STOCK OPTION PLAN

    

    ARTICLE
      I

    PURPOSE

     

    The
      purpose of this Plan is to benefit the shareholders of the Company by assisting
      the Company to attract, retain and provide incentives to Employees and Directors
      of, and non-employee Consultants to, the Company and its Affiliates, and to
      align the interests of such Employees, Directors and Consultants with those
      of
      the Company’s shareholders. Accordingly, the Plan provides for the granting of
      Incentive Stock Options and Non-Qualified Stock Options, as provided herein,
      as
      may be best suited to the circumstances of the particular Employee, Director
      or
      Consultant.

     

    ARTICLE
      II

    DEFINITIONS

     

    The
      following capitalized words and phrases, when used in the text of this document,
      shall have the meanings set forth below. Except where otherwise clearly
      indicated by the context, words in the masculine gender include the feminine
      gender, and vice versa, and, wherever any words are used in the singular form,
      they shall be construed as if they were also used in the plural form in all
      cases where the plural form would so apply, and vice versa. Any term used herein
      without an initial capital letter that is used in a provision of the Code or
      the
      Exchange Act with which the Plan must comply to meet the requirements of such
      provision of the Code or the Exchange Act shall be interpreted as having the
      meaning used in such provision of the Code or Exchange Act, if necessary for
      the
      Plan to comply with such provision. Where a definition includes rules regarding
      the definition, those rules shall apply.

     

    
      	
              2.1

            	
              “Affiliate”
                shall mean any person or entity which, at the time of reference,
                directly,
                or indirectly through one or more intermediaries, controls, is controlled
                by, or is under common control with, the Company.
                

            

    

     

    
      	
              2.2

            	
              “Board”
                shall mean the Board of Directors of the
                Company.

            

    

     

    
      	
              2.3

            	
              “Cause”
                shall have the meaning set forth in an Option Agreement or, if not
                specifically defined in the Option Agreement, shall mean, with respect
                to
                an Employee, the Employee’s (a) failure to substantially perform his
                duties in connection with his employment by the Company, as determined
                by
                the Board in its sole discretion, (b) willful engagement in conduct
                which is injurious to the business or reputation of the Company,
                as
                determined by the Board in its sole discretion, (c) violation of any
                Company policy, as determined by the Board in its sole discretion,
                or
                (d) felony conviction.

            

    

     

    
      	
              2.4

            	
              “Change
                of Control”
                shall mean one or more of the
                following:

            

    

     

    
      	 	
              (a)

            	
              A
                change in the ownership of the Company.
                A
                change in the ownership of the Company occurs on the date that any
                one
                person, or more than one person acting as a group (as determined
                under
                Subsection (d), a “Group”),
                acquires ownership of stock of the Company that, together with stock
                held
                by such person or Group, constitutes more than fifty percent (50%)
                of the
                total fair market value or total voting power of the stock of the
                Company.
                However, if any one person or a Group is considered to own more than
                fifty
                percent (50%) of the total fair market value or total voting power
                of the
                stock of the Company, the acquisition of additional stock by the
                same
                person or persons is not considered to cause a change in the ownership
                of
                the Company (or to cause a change in the effective control of the
                Company
                (within the meaning of Subsection (b), below)). An increase in the
                percentage of stock owned by any one person, or a Group, as a result
                of a
                transaction in which the Company acquires its stock in exchange for
                property will be treated as an acquisition of stock for purposes
                of this
                Section 2.6. This Subsection (a) applies only when there is a transfer
                of
                stock of the Company (or issuance of stock of the Company) and stock
                in
                the Company remains outstanding after the transaction (see, Subsection
                (c)
                for rules regarding the transfer of assets of the
                Company).

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	
              (b)

            	
              A
                change in the effective control of the Company.
                

            

    

     

    
      	 	
              (1)

            	
              Notwithstanding
                that the Company has not undergone a change in ownership, as described
                in
                Subsection (a), above, a change in the effective control of the Company
                occurs on either of the following dates:

            

    

     

    
      	 	
              (A)

            	
              The
                date any one person, or a Group, acquires (or has acquired during
                the
                twelve- (12-) month period ending on the date of the most recent
                acquisition by such person or persons) ownership of stock of the
                Company
                possessing thirty percent (30%) or more of the total voting power
                of the
                stock of the Company; or 

            

    

     

    
      	 	
              (B)

            	
              The
                date a majority of members of the Board is replaced during any twelve-
                (12-) month period by directors whose appointment or election is
                not
                endorsed by a majority of the members of the Board before the date
                of the
                appointment or election, provided that for purposes of this paragraph
                (B),
                the term Company refers solely to (i) the corporation for whom a
                Holder is
                performing services at the time of the Change in Control event, (ii)
                the
                corporation that is liable for the payment of nonqualified deferred
                compensation (or all corporations liable for the payment if more
                than one
                corporation is liable) to Holders, or (iii) a corporation that is
                a
                majority shareholder of a corporation identified in paragraph (i)
                or (ii),
                or any corporation in a chain of corporations in which each corporation
                is
                a majority shareholder of another corporation in the chain, ending
                in a
                corporation identified in paragraph (i) or
                (ii).

            

    

     

    In
      the
      absence of an event described in paragraph (A) or (B), a change in the effective
      control of the Company will not have occurred.

     

    
      	 	
              (2)

            	
              Acquisition
                of additional control.
                If any one person, or a Group, is considered to effectively control
                the
                Company (within the meaning of this Subsection (b)), the acquisition
                of additional control of the Company by the same person or persons
                is not
                considered to cause a change in the effective control of the Company
                (or
                to cause a change in the ownership of the Company within the meaning
                of
                Subsection (a)).

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	 	
              (c)

            	
              A
                change in the ownership of a substantial portion of the Company’s
                assets.

            

    

     

    
      	 	
              (1)

            	
              A
                change in the ownership of a substantial portion of the Company’s assets
                occurs on the date that any one person, or a Group, acquires (or
                has
                acquired during the twelve- (12-) month period ending on the date
                of the
                most recent acquisition by such person or persons) assets from the
                Company
                that have a total “gross fair market value” equal to or more than forty
                percent (40%) of the total “gross fair market value” of all of the assets
                of the Company immediately before such acquisition or acquisitions.
                For
                this purpose, “gross fair market value” means the value of the assets of
                the Company, or the value of the assets being disposed of, determined
                without regard to any liabilities associated with such assets.
                

            

    

     

    
      	 	
              (2)

            	
              Notwithstanding
                paragraph (1), there is no Change in Control event under this Subsection
                (c) when there is a transfer to an entity that is controlled by the
                shareholders of the transferring corporation immediately after the
                transfer, as provided in this paragraph (2). A transfer of assets
                by a
                corporation is not treated as a change in the ownership of such assets
                if
                the assets are transferred to: 

            

    

     

    
      	 	
              (A)

            	
              A
                shareholder of the Company (immediately before the asset transfer)
                in
                exchange for or with respect to its stock;

            

    

     

    
      	 	
              (B)

            	
              An
                entity, fifty percent (50%) or more of the total value or voting
                power of
                which is owned, directly or indirectly, by the Company;
                

            

    

     

    
      	 	
              (C)

            	
              A
                person, or a Group, that owns, directly or indirectly, fifty percent
                (50%)
                or more of the total value or voting power of all the outstanding
                stock of
                the Company; or 

            

    

     

    
      	 	
              (D)

            	
              An
                entity, at least fifty percent (50%) of the total value or voting
                power of
                which is owned, directly or indirectly, by a person described in
                paragraph
                (C). 

            

    

     

    For
      purposes of this paragraph (2) and except as otherwise provided, a person’s
      status is determined immediately after the transfer of the assets. 

     

    
      	 	
              (d)

            	
              Persons
                acting as a Group.
                For purposes of the definition of “Change of Control,” persons will not be
                considered to be acting as a Group solely because they purchase assets
                of
                the same corporation at the same time, or as a result of the same
                public
                offering. However, persons will be considered to be acting as a Group
                if
                they are owners of a corporation that enters into a merger, consolidation,
                purchase or acquisition of assets, or similar business transaction
                with
                the corporation. If a person, including an entity shareholder, owns
                stock
                in both corporations that enter into a merger, consolidation, purchase
                or
                acquisition of stock, or similar transaction, such shareholder is
                considered to be acting as a Group with other shareholders in a
                corporation only to the extent of the ownership in that corporation
                before
                the transaction giving rise to the change and not with respect to
                the
                ownership interest in the other
                corporation.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	
              2.5

            	
              “Code”
                shall mean the Internal Revenue Code of 1986, as amended. References
                in
                the Plan to any section of the Code are deemed to include any amendments
                or successor provisions to such section and any regulation promulgated
                by
                the U.S. Department of Treasury under such
                section.

            

    

     

    
      	
              2.6

            	
              “Committee”
                shall mean a committee of not less than two (2) members of the Board
                who
                are selected by the Board as provided in
                Section 4.1.

            

    

     

    
      	
              2.7

            	
              “Common
                Stock”
                shall mean the Common Stock, par value $0.001 per share, of the
                Company.

            

    

     

    
      	
              2.8

            	
              “Company”
                shall mean China Energy Recovery, Inc., a Delaware corporation, and
                any
                successor thereto.

            

    

     

    
      	
              2.9

            	
              “Consultant”
                shall mean any individual who is neither an Employee nor a Director
                who is
                engaged by the Company or an Affiliate to perform consulting services
                therefor.

            

    

     

    
      	
              2.10

            	
              “Director”
                shall mean an individual who is a member of the Board or a member
                of the
                board of directors of an Affiliate but, in either case, who is not
                an
                Employee.

            

    

     

    
      	
              2.11

            	
              “Effective
                Date”
                shall mean October 29, 2008.

            

    

     

    
      	
              2.12

            	
              “Employee”
                shall mean any individual who is employed as a common law employee
                by the
                Company or an Affiliate. The determination of whether an individual
                is an
                Employee, an independent contractor or any other classification of
                worker
                or service provider and the determination of whether an individual
                is
                classified as a member of any particular classification of employees
                shall
                be made solely in accordance with the classifications used by the
                Company
                or Affiliate, as applicable, and shall not be dependent on, or change
                due
                to, the treatment of the individual for any purposes under the Code,
                common law or any other law, or any determination made by any court
                or
                government agency.

            

    

     

    
      	
              2.13

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

            

    

     

    
      	
              2.14

            	
              “Fair
                Market Value”
                shall mean, as of any specified date and at such time as the Common
                Stock
                is readily tradable on an established securities market, (a) the
                average
                of the reported high and low sales prices of the Common Stock on
                the stock
                exchange composite tape on that date, or if no sales prices are reported
                on that date, on the last preceding date on which such prices of
                the
                Common Stock are so reported or (b) if the Common Stock is traded
                over-the-counter at the time a determination of its Fair Market Value
                is
                required to be made hereunder, its Fair Market Value shall be deemed
                to be
                equal to the average between the reported high and low or closing
                bid and
                asked prices of the Common Stock on the most recent date on which
                the
                Common Stock was so traded.

            

    

     

    
      	
              2.15

            	
              “Family
                Member”
                shall mean any child, stepchild, grandchild, grandparent, parent,
                step-parent spouse, former spouse, sibling, niece, nephew, mother-in-law,
                father-in-law, son-in-law, daughter-in-law, brother-in-law, or
                sister-in-law, including adoptive relationships, any person sharing
                the
                Holder’s household (other than a tenant or the Holder), a trust in which
                such persons have more than fifty percent (50%) of the beneficial
                interest, a foundation in which such persons (or the Holder) control
                the
                management of assets, and any other entity in which such persons
                (or the
                Holder) own more than fifty percent (50%) of the voting
                interests.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	
              2.16

            	
              “Good
                Reason”
                shall have the meaning set forth in the Option Agreement or, if not
                specifically defined in the Option Agreement, shall mean: (a) the
                material
                reduction of an Employee’s base salary, (b) the material adverse change,
                without his or her consent, of an Employee’s title, authority, duties or
                responsibilities from those immediately prior to Change of Control,
                or (c)
                the material breach by the Company of any material terms of the Employee’s
                employment which has not been cured within thirty (30) days after
                a notice
                has been given by the Employee to the Company.

            

    

     

    
      	
              2.17

            	
              “Group”
                shall have the meaning set forth in Section
                2.6(a).

            

    

     

    
      	
              2.18

            	
              “Holder”
                shall mean an Employee, Director or Consultant who has been granted
                an
                Option.

            

    

     

    
      	
              2.19

            	
              “Incentive
                Stock Option”
                shall mean an Option which is an “incentive stock option” within the
                meaning of Section 422 of the Code.

            

    

     

    
      	
              2.20

            	
              “Non-Qualified
                Stock Option”
                shall mean an Option which is not an Incentive Stock
                Option.

            

    

     

    
      	
              2.21

            	
              “Option”
                shall mean an award granted under Article VII of the Plan of an option
                to
                purchase shares of Common Stock and includes both Incentive Stock
                Options
                and Non-Qualified Stock Options.

            

    

     

    
      	
              2.22

            	
              “Option
                Agreement”
                shall mean a written agreement between the Company and a Holder with
                respect to an Option, each of which shall constitute a part of the
                Plan.
                

            

    

     

    
      	
              2.23

            	
              “Plan”
                shall mean the China Energy Recovery Stock Option Plan, as set forth
                herein and as amended from time to time, together with each Option
                Agreement.

            

    

     

    
      	
              2.24

            	
              “Publicly
                Traded”
                shall mean that the Company or an Affiliates has issued any class
                of
                common equity securities required to be registered under section
                12 of the
                Exchange Act. 

            

    

     

    
      	
              2.25

            	
              “Rule
                16b-3”
                shall mean Rule 16b-3 promulgated by the Securities and Exchange
                Commission under the Exchange Act, as such may be amended from time
                to
                time, and any successor rule, regulation or statute fulfilling the
                same or
                a substantially similar function.

            

    

     

    
      	
              2.26

            	
              “Section
                162(m)”
                shall mean Section 162(m) of the Code and any related Treasury regulations
                promulgated or IRS guidance issued
                thereunder.

            

    

     

    
      	
              2.27

            	
              “Section
                409A”
                shall mean Section 409A of the Code and any related Treasury regulations
                promulgated or IRS guidance issued
                thereunder.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        5

        
          

        

      

      
         

      

    

     

    
      	
              2.28

            	
              “Ten
                Percent Shareholder”
                shall mean an Employee who, at the time an Option is granted to him
                or
                her, owns more than ten percent (10%) of the total combined voting
                power
                of all classes of stock of the Company or of any parent corporation
                or
                subsidiary corporations thereof (both as defined in Section 424 of
                the
                Code), within the meaning of Section 422(b)(6) of the Code.
                

            

    

     

    
      	
              2.29

            	
              “Total
                and Permanent Disability”
                shall mean one of the following:

            

    

     

    
      	 	
              (a)

            	
              the
                inability of the Holder to engage in any substantial gainful activity
                by
                reason of any medically determinable physical or mental impairment
                that
                can be expected to result in death or can be expected to last for
                a
                continuous period of not less than twelve (12)
                months;

            

    

     

    
      	 	
              (b)

            	
              the
                Holder is, by reason of any medically determinable physical or mental
                impairment that can be expected to result in death or can be expected
                to
                last for a continuous period of not less than twelve (12) months,
                receiving income replacement benefits for a period of not less than
                three
                (3) months under an accident and health plan covering employees of
                the
                Employer for whom the Employee performs services;
                or

            

    

     

    
      	 	
              (c)

            	
              the
                Holder is determined to be totally disabled by the Social Security
                Administration.

            

    

     

    Solely
      with respect to Incentive Stock Options, the term shall have the meaning set
      forth in Section 22(e)(3) of the Code.

     

    ARTICLE
      III

    EFFECTIVE
      DATE OF PLAN

     

    The
      Plan
      shall be effective as of the Effective Date, provided that the Plan is approved
      by the shareholders of the Company on or within twelve (12) months of the
      Effective Date. 

     

    ARTICLE
      IV

    ADMINISTRATION

     

    
      	
              4.1

            	
              Composition
                of Committee.
                The Plan shall be administered by the Committee, which shall be
                constituted so as to permit applicable Options under the Plan to
                constitute “performance-based compensation” for purposes of Section
                162(m).

            

    

     

    
      	
              4.2

            	
              Powers.
                Subject to the provisions of the Plan, the Committee shall have the
                sole
                authority, in its discretion, to determine which individuals shall
                receive
                an Option, the time or times when such Option shall be made, what
                type of
                Option shall be granted, the size of the Option and the number of
                shares
                of Common Stock which may be issued under such Option, as applicable.
                In
                making such determinations the Committee may take into account the
                nature
                of the services rendered by the respective individuals, their present
                and
                potential contribution to the Company’s (or the Affiliate’s) success and
                such other factors as the Committee in its discretion shall deem
                relevant.

            

    

     

    
      	
              4.3

            	
              Additional
                Powers.
                In addition to the powers described elsewhere in the Plan, the Committee
                specifically is given the discretionary authority and such powers
                as are
                necessary for the proper administration of the Plan, including, but
                not
                limited to, the duties and powers described in this Section 4.3.
                Subject to the express provisions of the Plan, the Committee is authorized
                to construe the Plan and the respective Option Agreements executed
                hereunder, to prescribe and enforce such rules and regulations relating
                to
                the Plan as it may deem advisable to carry out the intent of the
                Plan, and
                to determine and amend, subject to the provisions of Article VIII,
                (including but not limited to cashing out Options, extending the
                exercise
                period of Options and accelerating the vesting of Options) the terms,
                restrictions and provisions of each Option, including such terms,
                restrictions and provisions as shall be requisite in the judgment
                of the
                Committee to cause designated Options to qualify as Incentive Stock
                Options, and to make all other determinations necessary or advisable
                for
                administering the Plan. The Committee may correct any defect or supply
                any
                omission or reconcile any inconsistency in any Option Agreement in
                the
                manner and to the extent it shall deem expedient to carry it into
                effect.
                Except as set forth in Article VIII, the Committee may not reduce
                the
                exercise price of any outstanding Options. The determinations of
                the
                Committee on any Plan matters shall be conclusive and binding on
                all
                parties.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      	
              4.4

            	
              Committee
                Action.
                In the absence of specific rules to the contrary, action by the Committee
                shall require the consent of a majority of the members of the Committee,
                expressed either orally at a meeting of the Committee or in writing
                in the
                absence of a meeting.

            

    

     

    
      	
              4.5

            	
              No
                Exercise of Authority Resulting in Nonqualified Deferred
                Compensation.
                Notwithstanding any other provision of the Plan to the contrary,
                the
                Committee shall not exercise its authority with respect to the Plan
                or any
                Option in any manner that would result in such Option being considered
                “deferred compensation,” within the meaning of Section 409A, so as to
                cause such Option or the Plan to become subject to the requirements
                of
                Section 409A.

            

    

     

    ARTICLE
      V

    STOCK
      SUBJECT TO PLAN AND LIMITATIONS THEREON

     

    
      	
              5.1

            	
              Stock
                Grant and Option Limits.
                The Committee may from time to time grant Options to one or more
                Employees, Directors and/or Consultants who are determined by it
                to be
                eligible for participation in the Plan in accordance with the provisions
                of Article VI. Subject to Article VIII,

            

    

     

    
      	 	
              (a)

            	
              the
                aggregate number of shares of Common Stock that may be issued under
                the
                Plan shall not exceed 3,750,000 shares and

            

    

     

    
      	 	
              (b)

            	
              the
                aggregate number of shares of Common Stock that may be issued under
                the
                Plan as Incentive Stock Options, shall not exceed 3,750,000 shares.
                

            

    

     

    Shares
      shall be deemed to have been issued under the Plan solely to the extent actually
      issued and delivered pursuant to an Option. To the extent that an Option lapses
      or the rights of its Holder terminate, any shares of Common Stock subject to
      such Option shall again be available for the grant of a new Option.

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        7

        
          

        

      

      
         

      

    

     

    Notwithstanding
      any provision in the Plan to the contrary, the maximum number of shares of
      Common Stock that may be granted as Options under Article VII to any one
      Employee, Director or Consultant during any calendar year, shall be 3,750,000
      shares (subject to adjustment in the same manner as provided in Article VIII
      with respect to shares of Common Stock subject to Options then outstanding).
      If
      the Company is Publicly Traded, the limitation set forth in the preceding
      sentence shall be applied in a manner which shall permit compensation generated
      in connection with the exercise of Options to constitute “performance-based”
compensation for purposes of Section 162(m), including, but not limited to,
      counting against such maximum number of shares, to the extent required under
      Section 162(m), any shares subject to Options that are canceled or
      repriced.

     

    
      	
              5.2

            	
              Stock
                Offered.
                The stock to be offered pursuant to the grant of an Option may be
                authorized but unissued Common Stock, Common Stock purchased on the
                open
                market or Common Stock previously issued and outstanding and reacquired
                by
                the Company.

            

    

     

    ARTICLE
      VI

    ELIGIBILITY
      FOR OPTIONS; IMPACT OF TERMINATION OF

    EMPLOYMENT,
      DIRECTOR STATUS OR CONSULTANT STATUS ON OPTIONS

     

    
      	
              6.1

            	
              Eligibility.
                Options awarded under the Plan may be granted solely to persons who,
                at
                the time of grant, are Employees, Directors or Consultants. An Option
                may
                be granted on more than one occasion to the same Employee, Director
                or
                Consultant, and, subject to the limitations set forth in the Plan,
                such
                Option may include, a Non-Qualified Stock Option or, solely for Employees,
                an Incentive Stock Option.

            

    

     

    
      	
              6.2

            	
              Termination
                of Employment.
                Except to the extent inconsistent with the terms of the applicable
                Option
                Agreement and/or the provisions of Section 6.5, the following terms
                and conditions shall apply with respect to the termination of a Holder’s
                employment with the Company or an Affiliate, as applicable, for any
                reason, including, without limitation, retirement upon or after attaining
                age sixty-five (65), Total and Permanent Disability or death. 

            

    

     

    
      	 	
              (a)

            	
              Unvested
                Non-Qualified Stock Options and Incentive Stock Options.
                Options that are not vested at termination of employment shall lapse.
                

            

    

     

    
      	 	
              (b)

            	
              Vested
                Non-Qualified Stock Options.
                The Holder’s rights, if any, to exercise any then vested and exercisable
                Non-Qualified Stock Options shall
                terminate:

            

    

     

    
      	 	
              (1)

            	
              If
                such termination is for a reason other than the Holder’s retirement upon
                or after attaining age sixty-five (65), Total and Permanent Disability
                or
                death, on the earlier of (i) ninety (90) days after the date of such
                termination of employment and (ii) the expiration date of the
                Non-Qualified Stock Options. 

            

    

     

    
      	 	
              (2)

            	
              If
                such termination is on account of the Holder’s retirement upon or after
                attaining age sixty-five (65) or on account of the Holder’s Total and
                Permanent Disability, the earlier of (i) one (1) year after the date
                of
                such termination of employment and (ii) the expiration date of the
                Non-Qualified Stock Options. 

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        8

        
          

        

      

      
         

      

    

     

    
      	 	
              (3)

            	
              If
                such termination is on account of the Holder’s death, the earlier of
                (i) one (1) year after the date of the Holder’s death and (ii) the
                expiration date of the Non-Qualified Stock
                Options.

            

    

     

    Upon
      such
      applicable date the Holder (and such Holder’s estate, designated beneficiary or
      other legal representative) shall forfeit any rights or interests in or with
      respect to any such Non-Qualified Stock Options.

     

    
      	 	
              (c)

            	
              Vested
                Incentive Stock Options.
                The Holder’s rights, if any, to exercise any then vested and exercisable
                Incentive Stock Options shall terminate:

            

    

     

    
      	 	
              (1)

            	
              If
                such termination is for a reason other than the Holder’s Total and
                Permanent Disability or death, the earlier of (i) ninety (90) days
                after
                the date of such termination of employment and (ii) the expiration
                date of
                the Incentive Stock Options.

            

    

     

    
      	 	
              (2)

            	
              If
                such termination is on account of the Holder’s Total and Permanent
                Disability, the earlier of (i) one (1) year after the date of such
                termination of employment or (ii) the expiration date of the Incentive
                Stock Options.

            

    

     

    
      	 	
              (3)

            	
              If
                such termination is on account of the Holder’s death, the earlier of
                (i) one (1) year after the date of the Employee’s death and (ii) the
                expiration date of the Incentive Stock
                Options.

            

    

     

    Upon
      such
      applicable date the Holder (and such Holder’s estate, designated beneficiary or
      other legal representative) shall forfeit any rights or interests in or with
      respect to any such Incentive Stock Options.

     

    
      	
              6.3

            	
              Termination
                of Director Status.
                Except to the extent inconsistent with the terms of the applicable
                Option
                Agreement and/or the provisions of Section 6.5, the following terms
                and conditions shall apply with respect to the termination of a Holder’s
                Director status, for any reason, including, without limitation, retirement
                upon or after attaining age sixty-five (65), Total and Permanent
                Disability or death.

            

    

     

    
      	 	
              (a)

            	
              Unvested
                Non-Qualified Stock Options.
                Non-Qualified Stock Options that are not vested at termination of
                Director
                status shall lapse.

            

    

     

    
      	 	
              (b)

            	
              Vested
                Non-Qualified Stock Options.
                The Holder’s rights, if any, to exercise any then vested and exercisable
                Non-Qualified Stock Options shall
                terminate:

            

    

     

    
      	 	
              (1)

            	
              If
                such termination is for a reason other than the Holder’s retirement upon
                or after attaining age sixty-five (65), Total and Permanent Disability
                or
                death, on the earlier of (i) ninety (90) days after the date of such
                termination of Director status and (ii) the expiration date of the
                Non-Qualified Stock Options.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	 	
              (2)

            	
              If
                such termination is on account of the Holder’s retirement upon or after
                attaining age sixty-five (65) or on account of the Holder’s Total and
                Permanent Disability, the earlier of (i) one (1) year after the date
                of
                such termination of Director status and (ii) the expiration date
                of the
                Non-Qualified Stock Options.

            

    

     

    
      	 	
              (3)

            	
              If
                such termination is on account of the Holder’s death, the earlier of
                (i) one (1) year after the date of the Holder’s death and (ii) the
                expiration date of the Non-Qualified Stock
                Options.

            

    

     

    Upon
      such
      applicable date the Holder (and such Holder’s estate, designated beneficiary or
      other legal representative) shall forfeit any rights or interests in or with
      respect to any such Non-Qualified Stock Options.

     

    
      	
              6.4

            	
              Termination
                of Consultant Status.
                Except to the extent inconsistent with the terms of the applicable
                Option
                Agreement and/or the provisions of 6.5, the following terms and conditions
                shall apply with respect to the termination of a Holder’s Consultant
                status, for any reason: 

            

    

     

    
      	 	
              (a)

            	
              Unvested
                Non-Qualified Stock Options.
                Non-Qualified Stock Options that are not vested at termination of
                Consultant status shall lapse.

            

    

     

    
      	 	
              (b)

            	
              Vested
                Non-Qualified Stock Options.
                The Holder’s rights, if any, to exercise any then vested and exercisable
                Non-Qualified Stock Options shall
                terminate:

            

    

     

    
      	 	
              (1)

            	
              If
                such termination is for a reason other than the Holder’s death, on the
                earlier of (i) ninety (90) days after the date of such termination
                and
                (ii) the expiration date of the Non-Qualified Stock
                Options.

            

    

     

    
      	 	
              (2)

            	
              If
                such termination is on account of the Holder’s death, on the earlier of
                (i) one (1) year after the date of the Holder’s death and (ii) the
                expiration date of the Non-Qualified Stock
                Options.

            

    

     

    
      	
              6.5

            	
              Special
                Termination Rule.
                Except to the extent inconsistent with the terms of the applicable
                Option
                Agreement, and notwithstanding anything to the contrary contained
                in this
                Article VI: 

            

    

     

    
      	 	
              (a)

            	
              If
                a Holder’s employment with, Director status with or Consultant status with
                the Company or any Affiliate shall terminate and the Holder, during
                the
                period of time he is permitted to exercise Options under the provisions
                of
                the Plan (as set forth above in Sections 6.2, 6.3 and 6.4), is unable
                to sell Common Stock because of the likelihood of a violation of
                Rule
                10b-5 promulgated under the Exchange Act, which determination shall
                be
                made in the sole discretion of the Holder, the exercise period of
                the
                Options shall be automatically extended for a further ninety (90)
                days
                from the date the Options would otherwise lapse as determined pursuant
                to
                Sections 6.2, 6.3 and 6.4 above; provided, however, that Options may
                not be exercised after their expiration
                date.

            

    

     

    
      	 	
              (b)

            	
              In
                connection with any termination of employment, Director status, or
                Consultant status, the Committee has full power and authority to
                extend
                the term, accelerate vesting, extend the exercise period or to amend
                any
                other provisions of any Option, as it may determine in its sole
                discretion; provided, however, the Committee shall not exercise its
                discretion under this Section 6.5 with respect to any Option in any
                manner that would result in such Option being considered “nonqualified
                deferred compensation,” within the meaning of Section 409A, so as to cause
                such Option or the Plan to become subject to the requirements of
                Section 409A.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        10

        
          

        

      

      
         

      

    

     

    ARTICLE
      VII

    OPTION
      TERMS

     

    
      	
              7.1

            	
              Option
                Period.
                The term of each Option shall be as specified in the Option Agreement;
                provided, however, that the term of each Incentive Stock Option shall
                end
                no later than the tenth (10th) anniversary of such Option’s date of grant.
                

            

    

     

    
      	
              7.2

            	
              Limitations
                on Exercise of Option.
                An Option shall be exercisable in whole or in such installments and
                at
                such times as specified in the Option
                Agreement.

            

    

     

    
      	
              7.3

            	
              Special
                Limitations on Incentive Stock Options.
                

            

    

     

    
      	 	
              (a)

            	
              To
                the extent that the aggregate Fair Market Value (determined at the
                time
                the respective Incentive Stock Option is granted) of Common Stock
                with
                respect to which Incentive Stock Options are exercisable for the
                first
                time by an individual during any calendar year under all plans of
                the
                Company and any parent corporation or subsidiary corporation thereof
                (both
                as defined in Section 424 of the Code) which provide for the grant
                of
                Incentive Stock Options exceeds One Hundred Thousand Dollars ($100,000)
                (or such other individual limit as may be in effect under the Code
                on the
                date of grant), such Incentive Stock Options shall be treated as
                Non-Qualified Stock Options. The Committee shall determine, in accordance
                with applicable provisions of the Code, Treasury Regulations and
                other
                administrative pronouncements, which of a Holder’s Options, which were
                intended by the Committee to be Incentive Stock Options when granted
                to
                the Holder, will not constitute Incentive Stock Options because of
                such
                limitation and shall notify the Holder of such determination as soon
                as
                practicable after such determination.

            

    

     

    
      	 	
              (b)

            	
              No
                Incentive Stock Option shall be granted to an Employee if, at the
                time the
                Option is granted, such Employee is a Ten Percent Shareholder, unless
                (1) at the time such Incentive Stock Option is granted, the Option
                exercise price is at least one hundred ten percent (110%) of the
                Fair
                Market Value of the Common Stock subject to the Option, and (2) such
                Incentive Stock Option by its terms is not exercisable after the
                expiration of five (5) years from the date of
                grant.

            

    

     

    
      	
              7.4

            	
              Option
                Agreement.
                Each Option shall be evidenced by an Option Agreement in such form
                and
                containing such provisions not inconsistent with the provisions of
                the
                Plan as the Committee from time to time shall approve, including,
                but not
                limited to, provisions to qualify an Option as an Incentive Stock
                Option.
                In no event shall an Option be, or result in being, back-dated. Each
                Option Agreement shall, solely to the extent inconsistent with the
                provisions of Sections 6.2, 6.3 and 6.4, as applicable, specify the
                effect of termination of employment, Director status or Consultant
                status
                on the exercisability of the Option. An Option Agreement may provide
                for
                the payment of the Option exercise price, in whole or in part, by
                the
                delivery of a number of shares of Common Stock (plus cash if necessary)
                having a Fair Market Value equal to such Option exercise price. Moreover,
                an Option Agreement may provide for a “cashless exercise” of the Option by
                establishing procedures whereby the Holder, by a properly-executed
                written
                notice, directs (a) an immediate market sale or margin loan respecting
                all
                or a part of the shares of Common Stock to which he is entitled upon
                exercise pursuant to an extension of credit by the Company to the
                Holder
                of the Option exercise price, (b) the delivery of the shares of Common
                Stock from the Company directly to a brokerage firm and (c) the delivery
                of the Option exercise price from sale or margin loan proceeds from
                the
                brokerage firm directly to the Company. An Option Agreement may also
                include provisions relating to (a) subject to the provisions hereof,
                accelerated vesting of Options, (b) tax matters (including provisions
                covering any applicable Employee wage withholding requirements and
                requiring additional “gross-up” payments to Holders to meet any excise
                taxes or other additional income tax liability imposed as a result
                of a
                payment upon a Change of Control resulting from the operation of
                the Plan
                or of such Option Agreement) and (c) any other matters not
                inconsistent with the terms and provisions of the Plan that the Committee
                shall in its sole discretion determine. The terms and conditions
                of the
                respective Option Agreements need not be identical. Notwithstanding
                any
                other provision of the Plan to the contrary, an Option Agreement
                shall not
                contain any provision that would result in such Option being considered
                “nonqualified deferred compensation,” within the meaning of Section 409A,
                so as to cause such Option or the Plan to become subject to the
                requirements of Section 409A.

            

      
        
          CHINA
            ENERGY RECOVERY STOCK OPTION PLAN

           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    
      	
              7.5

            	
              Option
                Exercise Price and Payment.
                The price at which a share of Common Stock may be purchased upon
                exercise
                of an Option (the “exercise price”) shall be determined by the Committee,
                but such Option exercise price (a) in the case of an Option that
                is an
                Incentive Stock Option or that is intended to constitute performance-based
                compensation within the meaning of Section 162(m), shall not be less
                than the Fair Market Value of a share of Common Stock on the date
                such
                Option is granted and (b) shall be subject to adjustment as provided
                in Article VIII. The Option or portion thereof may be exercised by
                delivery of an irrevocable notice of exercise to the Company, which
                notice
                shall be in a form acceptable to the Company. The Option exercise
                price
                for the Option or portion thereof shall be paid in full in the manner
                prescribed by the Committee. Separate stock certificates shall be
                issued
                by the Company for those shares of Common Stock acquired pursuant
                to the
                exercise of an Incentive Stock Option and for those shares of Common
                Stock
                acquired pursuant to the exercise of a Non-Qualified Stock
                Option.

            

    

     

    
      	
              7.6

            	
              Shareholder
                Rights and Privileges.
                The Holder of an Option shall be entitled to all the privileges and
                rights
                of a shareholder of the Company solely with respect to such shares
                of
                Common Stock as have been purchased under the Option and for which
                certificates of stock have been registered in the Holder’s
                name.

            

    

     

    
      	
              7.7

            	
              Options
                and Rights in Substitution for Stock Options Granted by Other
                Corporations.
                Options may be granted under the Plan from time to time in substitution
                for stock options held by individuals employed by entities who become
                Employees as a result of a merger or consolidation of the employing
                entity
                with the Company or any Affiliate, or the acquisition by the Company
                or an
                Affiliate of the assets of the employing entity, or the acquisition
                by the
                Company or an Affiliate of stock of the employing entity with the
                result
                that such employing entity becomes an Affiliate; provided, however,
                that
                such grant is not made in a manner that would result in the Option
                being
                considered “nonqualified deferred compensation,” within the meaning of
                Section 409A, so as to cause such Option or the Plan to become subject
                to
                the requirements of Section 409A.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        12

        
          

        

      

      
         

      

    

     

    ARTICLE
      VIII

    RECAPITALIZATION
      OR REORGANIZATION

     

    
      	
              8.1

            	
              Adjustments
                to Common Stock.
                The shares with respect to which Options may be granted are shares
                of
                Common Stock as presently constituted; provided, however, that if,
                and
                whenever, prior to the expiration or distribution to the Holder of
                an
                Option theretofore granted, the Company shall effect a subdivision
                or
                consolidation of shares of Common Stock or the payment of a stock
                dividend
                on Common Stock without receipt of consideration by the Company,
                the
                number of shares of Common Stock with respect to which such Option
                may
                thereafter be exercised or satisfied, as applicable, (a) in the event
                of
                an increase in the number of outstanding shares, shall be proportionately
                increased, and the exercise price per share shall be proportionately
                reduced, and (b) in the event of a reduction in the number of
                outstanding shares, shall be proportionately reduced, and the exercise
                price per share shall be proportionately increased. Notwithstanding
                the
                foregoing, any such adjustment made with respect to an Option that
                is an
                Incentive Stock Option shall comply with the requirements of Section
                424(a) of the Code, and in no event shall any such adjustment be
                made
                which would render any Incentive Stock Option granted under the Plan
                to be
                other than an “incentive stock option” for purposes of Section 422 of the
                Code.

            

    

     

    
      	
              8.2

            	
              Recapitalization.
                If the Company recapitalizes or otherwise changes its capital structure,
                thereafter upon any exercise or satisfaction, as applicable, of a
                previously granted Option, the Holder shall be entitled to receive
                (or
                entitled to purchase, if applicable) under such Option, in lieu of
                the
                number of shares of Common Stock then covered by such Option, the
                number
                and class of shares of stock and securities to which the Holder would
                have
                been entitled pursuant to the terms of the recapitalization if,
                immediately prior to such recapitalization, the Holder had been the
                holder
                of record of the number of shares of Common Stock then covered by
                such
                Option.

            

    

     

    
      	
              8.3

            	
              Change
                of Control.
                Except to the extent otherwise provided in the applicable Option
                Agreement, in the event of the occurrence of a Change of Control,
                and
                within one (1) year following the Change of Control (a) an Employee’s
                employment is terminated by the Company without Cause or by the Employee
                with Good Reason or (b) a Director is removed from the Board without
                the
                approving vote of a majority of the directors in office immediately
                prior
                to the Change of Control, outstanding Options of the Employee or
                Director,
                as the case may be, shall immediately vest and become exercisable
                and/or
                required employment or Board membership periods with the Company
                or an
                Affiliate and/or performance goals and/or objectives shall be deemed
                to
                have been fully satisfied, as applicable. The Committee, in its discretion
                by unanimous action, may determine that upon the occurrence of a
                Change of
                Control, each Option outstanding hereunder shall terminate within
                a
                specified number of days after notice to the Holder, and such Holder
                shall
                receive, with respect to each share of Common Stock subject to such
                Option, cash in an amount equal to the excess of (i) the greater
                of (A)
                the Fair Market Value of such share of Common Stock immediately prior
                to
                the occurrence of such Change of Control or (B) the value of the
                consideration to be received in connection with such Change of Control
                for
                one share of Common Stock, over (ii) the Option exercise price per
                share,
                if applicable, of one share of Common Stock. If the consideration
                offered
                to shareholders of the Company in any transaction described in this
                Section 8.3 consists of anything other than cash, the Committee shall
                determine the fair cash equivalent of the portion of the non-cash
                consideration offered. The provisions contained in this Section 8.3
                shall not terminate any rights of the Holder to further payments
                pursuant
                to any other agreement with the Company following the occurrence
                of a
                Change of Control. The provisions contained in this Section 8.3 do
                not apply to Consultants.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        13

        
          

        

      

      
         

      

    

     

    
      	
              8.4

            	
              Other
                Events.
                In the event of changes to the outstanding Common Stock by reason
                of
                recapitalization, reorganization, mergers, consolidations, combinations,
                exchanges or other relevant changes in capitalization occurring after
                the
                date of the grant of any Option and not otherwise provided for under
                this
                Article VIII, any outstanding Options and any Option Agreements evidencing
                such Options shall be subject to adjustment by the Committee in its
                discretion as to the number and exercise price of shares of Common
                Stock
                or other consideration subject to such Option. In the event of any
                such
                change to the outstanding Common Stock, the aggregate number of shares
                available under the Plan may be appropriately adjusted by the Committee,
                the determination of which shall be
                conclusive.

            

    

     

    
      	
              8.5

            	
              Powers
                Not Affected.
                The existence of the Plan and the Options granted hereunder shall
                not
                affect in any way the right or power of the Board or of the shareholders
                of the Company to make or authorize any adjustment, recapitalization,
                reorganization or other change of the Company’s capital structure or
                business, any merger or consolidation of the Company, any issue of
                debt or
                equity securities ahead of or affecting Common Stock or the rights
                thereof, the dissolution or liquidation of the Company or any sale,
                lease,
                exchange or other disposition of all or any part of its assets or
                business
                or any other corporate act or
                proceeding.

            

    

     

    
      	
              8.6

            	
              No
                Adjustment for Certain Options.
                Except as hereinabove expressly provided, the issuance by the Company
                of
                shares of stock of any class or securities convertible into shares
                of
                stock of any class, for cash, property, labor or services, upon direct
                sale, upon the exercise of rights or warrants to subscribe therefor
                or
                upon conversion of shares or obligations of the Company convertible
                into
                such shares or other securities, and in any case whether or not for
                fair
                market value, shall not affect previously granted Options, and no
                adjustment by reason thereof shall be made with respect to the number
                of
                shares of Common Stock subject to Options theretofore granted or
                the
                exercise price per share, if
                applicable.

            

    

     

    
      	
              8.7

            	
              No
                Adjustment to Result in Nonqualified Deferred Compensation.
                Notwithstanding any other provision of the Plan to the contrary,
                no
                adjustment shall be made to any outstanding Option under the Plan
                that
                would result in such Option being considered “nonqualified deferred
                compensation,” within the meaning of Section 409A, so as to cause such
                Option or the Plan to become subject to the requirements of Section
                409A.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        14

        
          

        

      

      
         

      

    

     

    ARTICLE
      IX

    AMENDMENT
      AND TERMINATION OF PLAN

     

    
      	
              9.1

            	
              Amendment.
                The Board shall have the right to alter or amend the Plan and the
                Committee shall have the right to amend any Options, or any part
                hereof or
                thereof, whether or not vested, from time to time.
                

            

    

     

    
      	
              9.2

            	
              Termination.
                The Board in its discretion may terminate the Plan at any time with
                respect to any shares for which Options have not theretofore been
                granted.

            

    

     

    ARTICLE
      X

    MISCELLANEOUS

     

    
      	
              10.1

            	
              No
                Right to Option.
                Neither the adoption of the Plan by the Company nor any action of
                the
                Board or the Committee shall be deemed to give an Employee, Director
                or
                Consultant any right to an Option except as may be evidenced by an
                Option
                Agreement duly executed on behalf of the Company, and then solely
                to the
                extent and on the terms and conditions expressly set forth
                therein.

            

    

     

    
      	
              10.2

            	
              No
                Rights Conferred.
                Nothing contained in the Plan shall

            

    

     

    
      	 	
              (a)

            	
              confer
                upon any Employee any right with respect to continuation of employment
                with the Company or any Affiliate, 

            

    

     

    
      	 	
              (b)

            	
              interfere
                in any way with the right of the Company or any Affiliate to terminate
                the
                employment of an Employee at any time,

            

    

     

    
      	 	
              (c)

            	
              confer
                upon any Director any right with respect to continuation of such
                Director’s membership on the Board,

            

    

     

    
      	 	
              (d)

            	
              interfere
                in any way with the right of the Company or an Affiliate to terminate
                a
                Director’s membership on the Board at any time,

            

    

     

    
      	 	
              (e)

            	
              confer
                upon any Consultant any right with respect to continuation of his
                or her
                consulting engagement with the Company or any Affiliate, or
                

            

    

     

    
      	 	
              (f)

            	
              interfere
                in any way with the right of the Company or an Affiliate to terminate
                a
                Consultant’s consulting engagement with the Company or an Affiliate at any
                time.

            

    

     

    
      	
              10.3

            	
              Other
                Laws; Withholding.
                

            

    

     

    
      	 	
              (a)

            	
              The
                Company shall not be obligated to issue any Common Stock pursuant
                to any
                Option granted under the Plan at any time when the shares covered
                by such
                Option have not been registered under the Securities Act of 1933,
                as
                amended, and such other state and federal laws, rules or regulations
                as
                the Company or the Committee deems applicable and, in the opinion
                of legal
                counsel of the Company, there is no exemption from the registration
                requirements of such laws, rules or regulations available for the
                issuance
                and sale of such shares. No fractional shares of Common Stock shall
                be
                delivered, nor shall any cash in lieu of fractional shares be paid.
                

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        15

        
          

        

      

      
         

      

    

     

    
      	 	
              (b)

            	
              The
                Company shall have the right to deduct in cash (whether under the
                Plan or
                otherwise) in connection with all Options any taxes required by law
                to be
                withheld and to require any payments required to enable it to satisfy
                its
                withholding obligations. In the case of any Option satisfied in the
                form
                of shares of Common Stock, no shares shall be issued unless and until
                arrangements satisfactory to the Company shall have been made to
                satisfy
                any tax withholding obligations applicable with respect to such Option.
                Subject to such terms and conditions as the Committee may impose,
                the
                Company shall have the right to retain, or the Committee may, subject
                to
                such terms and conditions as it may establish from time to time,
                permit
                Holders to elect to tender Common Stock or have the Company withhold
                shares of Common Stock to satisfy, in whole or in part, the employer’s
                minimum statutory withholding (based on minimum statutory withholding
                rates for federal and state tax purposes, including payroll taxes,
                that
                are applicable to such supplemental taxable
                income).

            

    

     

    
      	
              10.4

            	
              No
                Restriction on Corporate Action.
                Nothing contained in the Plan shall be construed to prevent the Company
                or
                any Affiliate from taking any corporate action which is deemed by
                the
                Company or such Affiliate to be appropriate or in its best interest,
                whether or not such action would have an adverse effect on the Plan
                or any
                Option made under the Plan. No Employee, Director, Consultant, beneficiary
                or other person shall have any claim against the Company or any Affiliate
                as a result of any such action.

            

    

     

    
      	
              10.5

            	
              Restrictions
                on Transfer.
                Subject to the terms of the Option Agreement, no Option under the
                Plan or
                any Option Agreement and no rights or interests herein or therein,
                shall
                or may be assigned, transferred, sold, exchanged, encumbered, pledged
                or
                otherwise hypothecated or disposed of by a Holder except (a) by will
                or by
                the laws of descent and distribution or (b) except for an Incentive
                Stock
                Option, by gift to any Family Member of the Holder. Subject to the
                terms
                of the Option Agreement, an Option may be exercisable during the
                lifetime
                of the Holder only by such Holder or by the Holder’s guardian or legal
                representative unless it has been transferred by gift to a Family
                Member
                of the Holder, in which case it shall be exercisable solely by such
                transferee. Notwithstanding any such transfer, the Holder shall continue
                to be subject to the withholding requirements provided for under
                Section 10.3 hereof. 

            

    

     

    
      	
              10.6

            	
              Beneficiary
                Designations.
                Each Holder may, from time to time, name a beneficiary or beneficiaries
                (who may be contingent or successive beneficiaries) for purposes
                of
                receiving any amount which is payable in connection with an Option
                under
                the Plan upon or subsequent to the Holder’s death. Each such beneficiary
                designation shall serve to revoke all prior beneficiary designations,
                be
                in a form prescribed by the Company and be effective solely when
                filed by
                the Holder in writing with the Company during the Holder’s lifetime. In
                the absence of any such written beneficiary designation, for purposes
                of
                the Plan, a Holder’s beneficiary shall be the Holder’s
                estate.

            

    

     

    
      	
              10.7

            	
              Rule
                16b-3.
                It is intended that, at any time the Common Stock is registered under
                Section 12 of the Exchange Act, the Plan and any Option made to a
                person
                subject to Section 16 of the Exchange Act shall meet all of the
                requirements of Rule 16b-3. If any provision of the Plan or of any
                such
                Option would disqualify the Plan or such Option under, or would otherwise
                not comply with the requirements of, Rule 16b-3, such provision or
                Option
                shall be construed or deemed to have been amended as necessary to
                conform
                to the requirements of Rule 16b-3.

            

    

     

    
      
        CHINA
          ENERGY RECOVERY STOCK OPTION PLAN

         

      

      
        16

        
          

        

      

      
         

      

    

     

    
      	
              10.8

            	
              Section
                162(m).
                It is intended that, at any time when the Common Stock is Publicly
                Traded,
                the Plan shall comply fully with and meet all the requirements of
                Section 162(m) so that Options hereunder which are made to Holders
                who are “covered employees” (as defined in Section 162(m)) shall
                constitute “performance-based” compensation within the meaning of Section
                162(m). The performance criteria to be utilized under the Plan for
                such
                purposes shall consist of objective tests based on one or more of
                the
                following: earnings or earnings per share, cash flow, customer
                satisfaction, revenues, financial return ratios (such as return on
                equity
                and/or return on assets), market performance, shareholder return
                and/or
                value, operating profits, EBITDA, net profits, profit returns and
                margins,
                stock price, credit quality, sales growth, market share, comparisons
                to
                peer companies (on a company-wide or divisional basis), working capital
                and/or individual or aggregate employee performance. At such time
                the
                Company is Publicly Traded, if any provision of the Plan would disqualify
                the Plan or would not otherwise permit the Plan to comply with
                Section 162(m) as so intended, such provision shall be construed or
                deemed amended to conform to the requirements or provisions of Section
                162(m).

            

    

     

    
      	
              10.9

            	
              Other
                Plans.
                No Option, payment or amount received hereunder shall be taken into
                account in computing an Employee’s salary or compensation for the purposes
                of determining any benefits under any pension, retirement, life insurance
                or other benefit plan of the Company or any Affiliate, unless such
                other
                plan specifically provides for the inclusion of such Option, payment
                or
                amount received.

            

    

     

    
      	
              10.10

            	
              Limits
                of Liability.
                Any liability of the Company with respect to an Option shall be based
                solely upon the contractual obligations created under the Plan and
                the
                Option Agreement. Neither the Company nor any member of the Committee
                shall have any liability to any party for any action taken or not
                taken,
                in good faith, in connection with or under the
                Plan.

            

    

     

    
      	
              10.11

            	
              Governing
                Law.
                Except as otherwise provided herein, the Plan shall be construed
                in
                accordance with the laws of the State of
                Delaware.

            

    

     

    
      	
              10.12

            	
              Severability
                of Provisions.
                The provisions of the Plan are severable. If any provision of the
                Plan is
                held invalid or unenforceable in whole or in part by a court of competent
                jurisdiction, then solely for the purposes of the jurisdiction of
                that
                court, such provision shall be invalid or unenforceable and shall
                not in
                any manner affect such provision in any other jurisdiction, or any
                other
                provision of the Plan in any way, and the Plan shall be construed
                and
                enforced accordingly.

            

    

     

    
      	
              10.13

            	
              No
                Funding.
                The Plan shall be unfunded. The Company shall not be required to
                establish
                any special or separate fund or to make any other segregation of
                funds or
                assets to ensure the payment of any
                Option.

            

    

     

    
      	
              10.14

            	
              Headings.
                Headings used throughout the Plan are for convenience only and shall
                not
                be given legal significance.

            

    

     

    Adopted
      by the Board on October 29, 2009.

     

    
      
        
          CHINA
            ENERGY RECOVERY STOCK OPTION PLAN

           

        

        
          17

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