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      EXHIBIT
        10.3

       

      THE
        SECURITIES REPRESENTED BY THIS WARRANT WERE ISSUED IN AN OFFSHORE TRANSACTION
        TO
        PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S PROMULGATED
        PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") PURSUANT TO
        REGULATION S. ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS WARRANT HAVE
        NOT
        BEEN REGISTERED UNDER THE ACT, OR ANY U.S. STATE SECURITIES LAWS, AND MAY
        NOT BE
        OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF (I) EXCEPT
        IN
        ACCORDANCE WITH THE PROVISIONS OF REGULATION S, (II) PURSUANT TO AN EFFECTIVE
        REGISTRATION STATEMENT UNDER THE ACT OR (III) PURSUANT TO AN EXEMPTION WHICH
        IS
        CONFIRMED IN AN OPINION OF COMPANY COUNSEL. IN ADDITION, HEDGING TRANSACTIONS
        INVOLVING THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE CONDUCTED
        UNLESS
        IN ACCORDANCE WITH THE ACT.

       

      THIS
        WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS
        REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS
        AVAILABLE.

       

      THIS
        WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME (U.S.) ON THE EXPIRATION
        DATE
        (AS DEFINED HEREIN).

      

      No.
        __________

      

      

      TRACEGUARD
        TECHNOLOGIES, INC.

      

      WARRANT
        TO PURCHASE _______ SHARES OF

      COMMON
        STOCK, PAR VALUE $0.001 PER SHARE

      

      For
        VALUE
        RECEIVED, ______ (“Warrantholder”), is entitled to purchase, subject to the
        provisions of this Warrant, from TraceGuard Technologies, Inc., a Nevada
        corporation (“Company”), at any time not later than 5:00 p.m., Eastern time
        (U.S.), on July __, 2011 (the “Expiration Date”), at an exercise price per share
        equal to $0.80 (the exercise price in effect being herein called the “Warrant
        Price”), ______ shares (“Warrant Shares”) of the Company’s common stock, par
        value $0.001 per share (“Common Stock”). The number of Warrant Shares
        purchasable upon exercise of this Warrant and the Warrant Price shall be
        subject
        to adjustment from time to time as described herein.

      

      Section
        1. Transfers.
        As
        provided herein, this Warrant may be transferred only pursuant to (i) an
        effective registration statement filed under the Securities Act of 1933,
        as
        amended (the “Securities Act”), (ii) an exemption from such registration, or
        (iii) the provisions of Regulation S promulgated under the Securities Act.
        Subject to such restrictions, the Company shall transfer this Warrant from
        time
        to time upon the books to be maintained by the Company for that purpose,
        upon
        surrender thereof for transfer properly endorsed or accompanied by appropriate
        instructions for transfer and such other documents as may be reasonably required
        by the Company, including, if required by the Company, an opinion of its
        counsel
        to the effect that such transfer is exempt from the registration requirements
        of
        the Securities Act, to establish that such transfer is being made in accordance
        with the terms hereof, and a new Warrant shall be issued to the transferee
        and
        the surrendered Warrant shall be canceled by the Company.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Section
        2. Exercise
        of Warrant.

      

      (a) Subject
        to the provisions hereof, the Warrantholder may exercise this Warrant in
        whole
        or in part at any time prior to its expiration upon surrender of the Warrant,
        together with delivery of the duly executed Warrant exercise form attached
        hereto as Appendix A (the “Exercise Agreement”) and payment by cash, certified
        check or wire transfer of funds for the aggregate Warrant Price for that
        number
        of Warrant Shares then being purchased, to the Company during normal business
        hours on any business day at the Company’s principal executive offices outside
        the United States (or such other office or agency of the Company as it may
        designate by notice to the Warrantholder). The Warrant Shares so purchased
        shall
        be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as
        the record owner of such shares, as of the close of business on the date
        on
        which this Warrant shall have been surrendered (or evidence of loss, theft
        or
        destruction thereof and security or indemnity satisfactory to the Company),
        the
        Warrant Price shall have been paid and the completed Exercise Agreement shall
        have been delivered. Certificates for the Warrant Shares so purchased,
        representing the aggregate number of shares specified in the Exercise Agreement,
        shall be delivered to the Warrantholder within a reasonable time, not exceeding
        ten (10) business days, after this Warrant shall have been so exercised.
        The
        certificates so delivered shall be in such denominations as may be requested
        by
        the Warrantholder and shall be registered in the name of the Warrantholder
        or
        such other name as shall be designated by the Warrantholder. If this Warrant
        shall have been exercised only in part, then, unless this Warrant has expired,
        the Company shall, at its expense, at the time of delivery of such certificates,
        deliver to the Warrantholder a new Warrant representing the number of shares
        with respect to which this Warrant shall not then have been exercised. As
        used
        herein, “business day” means a day, other than a Saturday or Sunday, on which
        banks in New York City are open for the general transaction of business.
        Upon
        exercise, the Warrantholder will be required to make the representations
        and
        warranties contained in the Exercise Agreement.

      

      (b) Notwithstanding
        anything herein to the contrary, this Warrant may be exercised in whole or
        in
        part at any time prior to the Expiration Date by means of a “cashless exercise”
in which the Warrantholder shall be entitled to receive a certificate for
        the
        number of Warrant Shares equal to the quotient obtained by dividing [(A-B)
        (C)]
        by (A), where:

      

      (A)
        = the
        VWAP on the business day immediately preceding the date of such
        election;

      

      (B)
        = the
        Warrant Price of this Warrant, as adjusted; and

      

      (C)
        = the
        number of Warrant Shares issuable upon exercise of this Warrant in accordance
        with the terms of this Warrant by means of a cash exercise rather than a
        cashless exercise.

      

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      For
        purposes hereof, “VWAP” means, for any business day, the volume weighted average
        price of the Common Stock for the nearest preceding business day on the OTC
        BB
        or other principal exchange or market on which the Common Stock trades as
        reported by Bloomberg Financial L.P. (based on a trading day from 9:30 A.M.
        to
        4:02 P.M. Eastern Time (U.S.). In connection with a cashless exercise of
        this
        Warrant, the Warrantholder shall deliver a duly executed Exercise Agreement
        and
        this Warrant. The Company’s delivery of shares of Common Stock and, if
        applicable, the delivery of a replacement Warrant shall conform to the
        requirements set forth in Section 2(a) herein.

      

      Section
        3. Compliance
        with the Securities Act of 1933.
        The
        Company may cause the legend set forth on the first page of this Warrant
        to be
        set forth on each Warrant or similar legend on any security issued or issuable
        upon exercise of this Warrant, unless counsel for the Company is of the opinion
        as to any such security that such legend is unnecessary.

      

      Section
        4. Payment
        of Taxes.
        The
        Company will pay any documentary stamp taxes attributable to the initial
        issuance of Warrant Shares issuable upon the exercise of the Warrant; provided,
        however, that the Company shall not be required to pay any tax or taxes which
        may be payable in respect of any transfer involved in the issuance or delivery
        of any certificates for Warrant Shares in a name other than that of the
        Warrantholder in respect of which such shares are issued, and in such case,
        the
        Company shall not be required to issue or deliver any certificate for Warrant
        Shares or any Warrant until the person requesting the same has paid to the
        Company the amount of such tax or has established to the Company’s reasonable
        satisfaction that such tax has been paid. The Warrantholder shall be responsible
        for income taxes due under federal, state or other law, if any such tax is
        due.

      

      Section
        5. Mutilated
        or Missing Warrants.
        In case
        this Warrant shall be mutilated, lost, stolen, or destroyed, the Company
        shall
        issue in exchange and substitution of and upon cancellation of the mutilated
        Warrant, or in lieu of and substitution for the Warrant lost, stolen or
        destroyed, a new Warrant of like tenor and for the purchase of a like number
        of
        Warrant Shares, but only upon receipt of evidence reasonably satisfactory
        to the
        Company of such loss, theft or destruction of the Warrant, and with respect
        to a
        lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect
        thereto, if requested by the Company.

      

      Section
        6. Reservation
        of Common Stock.
        The
        Company hereby represents and warrants that there have been reserved, and
        the
        Company shall at all applicable times keep reserved until issued (if necessary)
        as contemplated by this Section 7, out of the authorized and unissued shares
        of
        Common Stock, sufficient shares to provide for the exercise of the rights
        of
        purchase represented by this Warrant. The Company agrees that all Warrant
        Shares
        issued upon due exercise of the Warrant shall be, at the time of delivery
        of the
        certificates for such Warrant Shares, duly authorized, validly issued, fully
        paid and non-assessable shares of Common Stock of the Company.

      

      Section
        7. Adjustments.
        Subject
        and pursuant to the provisions of this Section 7, the Warrant Price and number
        of Warrant Shares subject to this Warrant shall be subject to adjustment
        from
        time to time as set forth hereinafter.

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      (a) If
        the
        Company shall, at any time or from time to time while this Warrant is
        outstanding, pay a dividend or make a distribution on its Common Stock in
        shares
        of Common Stock, subdivide its outstanding shares of Common Stock into a
        greater
        number of shares or combine its outstanding shares of Common Stock into a
        smaller number of shares, then the number of Warrant Shares purchasable upon
        exercise of the Warrant immediately prior to the date upon which such change
        shall become effective, shall be adjusted by the Company so that the
        Warrantholder thereafter exercising the Warrant shall be entitled to receive
        the
        number of shares of Common Stock which, if the Warrant had been exercised
        immediately prior to such event, (i) the Warrantholder would have owned upon
        such exercise and been entitled to receive by virtue of such dividend,
        distribution or subdivision, or (ii) in the case of a combination, such number
        of shares into which the number of shares the Warrantholder would have owned
        upon such exercise would have been reduced to as a result of such combination.
        Whenever the number of shares of Common Stock purchasable upon exercise of
        this
        Warrant is adjusted as provided in this Section 7(a), then the Warrant Price
        shall also be adjusted by multiplying the Warrant Price in effect immediately
        prior to such adjustment, by a fraction, the numerator of which shall equal
        to
        the number of shares subject to this Warrant immediately prior to such
        adjustment, and the denominator of which shall equal to the number of shares
        subject to this Warrant immediately after such adjustment. Such adjustments
        shall be made successively whenever any event listed above shall
        occur.

      

      (b) In
        case
        the Company shall reorganize its capital, reclassify its capital stock (other
        than as provided in Section 7(a)), recapitalize, consolidate with, or merge
        with
        or into, another corporation, and pursuant to the terms of such reorganization,
        reclassification, recapitalization, merger, or consolidation, stock, securities,
        property or other assets is to be received by or distributed to the holders
        of
        Common Stock in lieu of or with respect to shares of Common Stock, then in
        each
        such case, the Warrantholder, upon exercise of this Warrant, shall be entitled
        to receive in lieu of the Warrant Shares or other securities and property
        receivable upon exercise of this Warrant prior to the consummation of such
        reorganization, reclassification, recapitalization, consolidation or merger,
        or
        if the Common Stock is not changed, exchanged or extinguished in such
        transaction then in addition to the rights specified herein, the stock or
        other
        securities, property or assets to which the Warrantholder would have been
        entitled to had it exercised this Warrant immediately prior to such consumation,
        by a holder of the number of shares of Common Stock for which this Warrant
        is
        exercisable immediately prior to such event. In case of any such reorganization,
        reclassification, recapitalization, merger or consolidation, the successor
        or
        acquiring corporation (if other than the Company) shall expressly assume
        the due
        and punctual observance and performance of each and every covenant and condition
        of this Warrant to be performed and observed by the Company and all the
        obligations and liabilities hereunder, subject to such modifications as may
        be
        deemed appropriate (as determined in good faith by resolution of the Board
        of
        Directors of the Company) in order to provide for adjustments of shares of
        Common Stock for which this Warrant is exercisable which shall be as nearly
        equivalent as practicable to the adjustments provided for in this Section
        7(b).
        The foregoing provisions of this Section 7(b) shall similarly apply to
        successive reorganizations, reclassifications, recapitalizations, mergers
        or
        consolidations.

      

      (c) An
        adjustment to the Warrant Price or the number or type of securities issuable
        upon exercise of this Warrant shall become effective immediately after the
        payment date in the case of each dividend or distribution and immediately
        after
        the effective date of each other event which requires an
        adjustment.

      

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      (d) In
        the
        event that, as a result of an adjustment made pursuant to this Section 7,
        the
        Warrantholder shall become entitled to receive any shares of capital stock
        of
        the Company other than shares of Common Stock, the number of such other shares
        so receivable upon exercise of this Warrant shall be subject thereafter to
        adjustment from time to time in a manner and on terms as nearly equivalent
        as
        practicable to the provisions with respect to the Warrant Shares contained
        in
        this Warrant.

      

      Section
        8. Fractional
        Interest.
        The
        Company shall not be required to issue fractions of Warrant Shares upon the
        exercise of this Warrant. If any fractional share of Common Stock would,
        except
        for the provisions of the first sentence of this Section 9, be deliverable
        upon
        such exercise, the Company, in lieu of delivering such fractional share,
        shall
        pay to the exercising Warrantholder an amount in cash equal to the Market
        Price
        of such fractional share of Common Stock on the date of exercise.

      

      Section
        9. Benefits.
        Nothing
        in this Warrant shall be construed to give any person, firm or corporation
        (other than the Company and the Warrantholder) any legal or equitable right,
        remedy or claim, it being agreed that this Warrant shall be for the sole
        and
        exclusive benefit of the Company and the Warrantholder.

      

      Section
        10. Notices
        to Warrantholder.
        Upon
        the happening of any event requiring an adjustment of the Warrant Price,
        the
        Company shall promptly give written notice thereof to the Warrantholder at
        the
        address appearing in the records of the Company, stating the adjusted Warrant
        Price and the adjusted number of Warrant Shares resulting from such event
        and
        setting forth in reasonable detail the method of calculation and the facts
        upon
        which such calculation is based. Failure to give such notice to the
        Warrantholder or any defect therein shall not affect the legality or validity
        of
        the event giving rise to, or the, subject adjustment.

      

      Section
        11. Notice
        of Corporate Action.
        If at
        any time:

       

      (a) other
        than pursuant to a split or combination pursuant to Section 7(a) hereof,
        the
        Company shall take a record of the holders of its Common Stock for the purpose
        of entitling them to receive a dividend or other distribution, or any right
        to
        subscribe for or purchase any evidences of its indebtedness, any shares of
        stock
        of any class or any other securities or property, or to receive any other
        right,
        or

      

      (b) there
        shall be any capital reorganization of the Company, any reclassification,
        other
        than pursuant to a split or combination pursuant to Section 7(a) hereof,
        or
        recapitalization of the capital stock of the Company or any consolidation
        or
        merger of the Company with, or any sale, transfer or other disposition of
        all or
        substantially all the property, assets or business of the Company to, another
        corporation, or

      

      (c) there
        shall be a voluntary or involuntary dissolution, liquidation or winding up
        of
        the Company;

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      then,
        in
        any one or more of such cases, the Company shall give to Warrantholder (i)
        at
        least 10 days’ prior written notice of the date on which a record date shall be
        selected for such dividend, distribution or right or for determining rights
        to
        vote in respect of any such reorganization, reclassification, merger,
        consolidation, sale, transfer, disposition, liquidation or winding up, and
        (ii)
        in the case of any such reorganization, reclassification, merger, consolidation,
        sale, transfer, disposition, dissolution, liquidation or winding up, at least
        10
        days’ prior written notice of the date when the same shall take place, and
provided,
        however,
        that
        the failure to mail such notice or any defect therein or in the mailing thereof
        shall not affect the validity of the corporate action required to be specified
        in such notice; and provided,
        further,
        that if
        any action is taken on written consent in lieu of a meeting, notice shall
        be
        made as soon as reasonably practicable thereafter. Such notice in accordance
        with the foregoing clause also shall specify, as applicable, (i) the date
        on
        which any such record is to be taken for the purpose of such dividend,
        distribution or right, the date on which the holders of Common Stock shall
        be
        entitled to any such dividend, distribution or right, and the amount and
        character thereof, and (ii) the date on which any such reorganization,
        reclassification, merger, consolidation, sale, transfer, disposition,
        dissolution, liquidation or winding up is to take place and the time, if
        any
        such time is to be fixed, as of which the holders of Common Stock shall be
        entitled to exchange their shares of Common Stock for securities or other
        property deliverable upon such disposition, dissolution, liquidation or winding
        up. Each such written notice shall be sufficiently given if addressed to
        Warrantholder at the last address of Warrantholder appearing on the books
        of the
        Company and delivered in accordance with Section 13 hereof.

       

      Section
        12. Identity
        of Transfer Agent.
        The
        Transfer Agent for the Common Stock is Nevada Agency and Trust Company. Upon
        the
        appointment of any subsequent transfer agent for the Common Stock or other
        shares of the Company’s capital stock issuable upon the exercise of the rights
        of purchase represented by the Warrant, the Company will mail to the
        Warrantholder a statement setting forth the name and address of such transfer
        agent.

       

      Section
        13. Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or
        communication is delivered via facsimile at the facsimile number specified
        in
        this Section prior to 6:30 p.m. Eastern time (U.S.) on a Trading Day,
        (b) the next Trading Day after the date of transmission, if such notice or
        communication is delivered via facsimile at the facsimile number specified
        in
        this Section on a day that is not a Trading Day or later than 6:30 p.m.
        Eastern time (U.S.) on any Trading Day, (c) the Trading Day following the
        date of mailing, if sent by U.S. nationally recognized overnight courier
        service, or (d) upon actual receipt by the party to whom such notice is
        required to be given. The address for such notices and communications shall
        be
        as follows:

       

      
        	
                If
                  to the Company:

              	TraceGuard Technologies, Inc.
                #6
                  Ravnitzki Street

                Petach
                  Tikva 49277 Israel 

                Fax
                  No.: 011-972-3-542-3710

                Attn: 
                  David Ben-Yair, CFO

              
	 	
                 

              

      

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      
        	
                With
                  a copy to:

              	Moses & Singer LLP
                The
                  Chrysler Building

                405
                  Lexington Avenue

                New
                  York, NY 10174-1299

                Fax
                  No.: 917-206-4381

                Attn:
                  Allan Grauberd, Esq.

              

      

       

      If
        to
        Warrantholder: To
        the
        address or facsimile number set forth in that certain Confidential Private
        Placement Subscription Agreement between the Warrantholder and the Company,
        dated as of July __, 2008; or such other address or facsimile number as may
        be
        designated in writing hereafter, in the same manner, by such
        Person.

       

      Section
        14. Successors.
        All the
        covenants and provisions hereof by or for the benefit of the Warrantholder
        shall
        bind and inure to the benefit of its respective successors and assigns
        hereunder. 

      

      Section
        15. Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Warrant shall be governed by and construed and enforced in accordance
        with the internal laws of the State of Nevada, without regard to the principles
        of conflicts of law thereof to the extent such principles would require the
        application of the laws of another jurisdiction.

      

      Section
        16. No
        Rights as Stockholder.
        Prior
        to the exercise of this Warrant, the Warrantholder shall not have or exercise
        any rights as a stockholder of the Company by virtue of its ownership of
        this
        Warrant.

      

      Section
        17. Amendment;
        Waiver.
        Any
        term of this Warrant may be amended or waived upon the written consent of
        the
        Company and the Warrantholder.

      

      Section
        18. Section
        Headings.
        The
        section headings in this Warrant are for the convenience of the Company and
        the
        Warrantholder and in no way alter, modify, amend, limit or restrict the
        provisions hereof.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Warrant to be duly executed,
        as of
        the __ day of July, 2008.

      

      TRACEGUARD
        TECHNOLOGIES, INC.

      

      

      

      By:___________________________

      Name:
        

      Title:
        

      

      The
        Warrantholder accepts and agrees to the terms and conditions of this Warrant,
        including, without limitation, the last sentence of Section 3
        hereof.

      

      

      

      

      Date:
        July __, 2008   By:___________________________

      Name:
        

      Title:
        

      

      

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      APPENDIX
        A

      TRACEGUARD
        TECHNOLOGIES, INC.

      WARRANT
        EXERCISE FORM

      

      To
        TraceGuard Technologies, Inc.:

      

      ___ The
        undersigned hereby irrevocably elects to exercise the right of purchase
        represented by the within Warrant (“Warrant”) for, and to purchase thereunder by
        the payment of the Warrant Price and surrender of the Warrant, _______________
        shares of Common Stock (“Warrant Shares”) provided for therein, and requests
        that certificates for the Warrant Shares be issued as follows: 

      

      _______________________________

      Name

      ________________________________

      Address

      ________________________________

      ________________________________

       

      and
        delivered to the above address (which must be outside the United States);
        

      

      and,
        if
        the number of Warrant Shares shall not be all the Warrant Shares purchasable
        upon exercise of the Warrant, that a new Warrant for the balance of the Warrant
        Shares purchasable upon exercise of this Warrant be registered in the name
        of
        the undersigned Warrantholder or the undersigned’s Assignee as below indicated
        and delivered to the address stated below.

      

      ___ The
        undersigned hereby irrevocably elects to exercise this Warrant by means of
        a
        cashless exercise pursuant to the terms of Section 2(b) of this Warrant.
        For
        purposes of calculating the number of shares of Common Stock issuable upon
        such
        cashless exercise, the Warrantholder has used the following
        factors:

      

      (A) the
        VWAP
        on the business day immediately preceding the date of such election =
        $__________

      (B) the
        Warrant Price of this Warrant, as adjusted = ________

      (C) the
        number of Warrant Shares issuable upon exercise of this Warrant in accordance
        with the terms of this Warrant by means of a cash exercise rather than a
        cashless exercise = __________

      

      Total
        number of shares of Common Stock issuable upon this cashless exercise of
        this
        Warrant = ____________

      

      The
        undersigned hereby represents and warrants to the Company that (check only
        one
        of the appropriate answers)

      

      ___
        A. the
        undersigned is not a U.S. Person and the Warrant is not being exercised on
        behalf of a U.S. Person; or

      

      
        
           

        

        
           

          
            

          

        

        
           

        

         

      

      ___
        B the
        undersigned is hereby furnishing a written opinion of counsel, in a form
        reasonably acceptable to the Company, to the effect that the Warrant and
        the
        Warrant Shares delivered upon exercise of the Warrant have been registered
        under
        the Securities Act or are exempt from registration thereunder.

      

      In
        addition, the undersigned acknowledges that this Warrant may not be exercised
        in
        the United States, and that the Warrant Shares may not be delivered in the
        United States upon exercise, other than in an offering deemed to meet the
        definition of "offshore transaction" pursuant to Rule 902(h) of Regulation
        S,
        unless registered under the Securities Act or an exemption from such
        registration is available.

      

      

      

      

      

      Dated:
        ___________________, ____

      

      Note:
        The
        signature must correspond with Signature:
        ______________________________

      the
        name
        of the Warrantholder as written

      on
        the
        first page of the Warrant in
        every                      
______________________________

      particular,
        without alteration or
        enlargement                
Name
        (please print)

      or
        any
        change whatever, unless the Warrant 

      has
        been
        assigned.                                                            
______________________________

                                                                                                    
        ______________________________

        
        Address

      
                                                                                                      
          ______________________________

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      APPENDIX
        B

      ASSIGNMENT
        FORM

      

      (To
        assign the foregoing warrant, execute

      this
        form
        and supply required information. 

      Do
        not
        use this form to exercise the warrant.)

      

      

      

      FOR
        VALUE
        RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
        assigned to

       

      

      _______________________________________________
        whose address is

      

      _______________________________________________________________.

      

      

      

      _______________________________________________________________

      

      Dated:
        ______________, _______

      

      

      Holder's
        Signature:  _____________________________

      

      Holder's
        Address:    _____________________________

       

      _____________________________

      

      

      

      Signature
        Guaranteed: ___________________________________________

      

      

      

      

      NOTE:
        The
        signature to this Assignment Form must correspond with the name as it appears
        on
        the face of the Warrant, without alteration or enlargement or any change
        whatsoever, and must be guaranteed by a bank or trust company. Officers of
        corporations and those acting in any fiduciary or other representative capacity
        should file proper evidence of authority to assign the foregoing
        Warrant.NEITHER
      THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT"),
      AND,
      ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
      SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
      EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 

     

    CHINA
      ENERGY RECOVERY, INC.

    WARRANT
      

    

    
      	
              Warrant
                No. [__]

            	
              Dated:
                June 20, 2008

            

    

    

     

    CHINA
      ENERGY RECOVERY, INC., a Delaware corporation (the "Company"),
      hereby certifies that, for value received, ARC China, Inc., a Delaware
      corporation, or its registered assigns (the "Holder"),
      is
      entitled to purchase from the Company up to a total of 750,000 shares of common
      stock, $0.001 par value per share (the "Common
      Stock"),
      of
      the Company (each such share, a "Warrant
      Share"
      and all
      such shares, the "Warrant
      Shares")
      at an
      exercise price equal to $2.16 per share (as adjusted from time to time as
      provided in Section
      9,
      the
      "Exercise
      Price").
      This
      Warrant (this "Warrant")
      shall
      vest and be exercisable in accordance with Section
      4
      and
      expire on the 60 month anniversary of the date hereof (the "Expiration
      Date").
      This
      Warrant is being issued pursuant to a Consulting Agreement dated as of June
      20,
      2008 by and between the Company and the Holder (the "Consulting
      Agreement").
      

     

    1.    Definitions.
      In
      addition to the terms defined elsewhere in this Warrant, capitalized terms
      that
      are not otherwise defined herein have the meanings given to such terms in the
      Consulting Agreement. 

     

    2.    Registration
      Rights.
      The
      Company shall register the Warrant Shares in accordance with the terms of the
      Consulting Agreement. The Company may deem and treat the registered Holder
      of
      this Warrant as the absolute owner hereof for the purpose of any exercise or
      registration hereof or any distribution to the Holder, and for all other
      purposes, absent actual notice to the contrary. 

     

    3.    Registration
      of Transfers.
      The
      Company shall register the transfer of any portion of this Warrant in the
      Company's books and records, upon surrender of this Warrant, with the Form
      of
      Assignment attached hereto duly completed and signed, to the Company’s transfer
      agent or to the Company at its address specified herein. Upon any such
      registration or transfer, a new warrant to purchase Common Stock, in
      substantially the form of this Warrant (any such new warrant, a "New
      Warrant"),
      evidencing the portion of this Warrant so transferred shall be issued to the
      transferee and a New Warrant evidencing the remaining portion of this Warrant
      not so transferred, if any, shall be issued to the transferring Holder. The
      acceptance of the New Warrant by the transferee thereof shall be deemed the
      acceptance by such transferee of all of the rights and obligations of the Holder
      of a Warrant. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    4.    Vesting;
      Exercise and Duration of Warrants.
      

     

    (a)    Vesting.
      Subject
      to Section
      4(b)
      below,
      the Warrant will vest and be exercisable according to the following
      schedule:

     

    (i)    Warrants
      to purchase 250,000 Warrant Shares shall vest and be exercisable on the date
      hereof;

     

    (ii)    Warrants
      to purchase 5,000 Warrant Shares shall vest and be exercisable on the date
      of
      the Company’s receipt of each $1,000,000 in gross proceeds in each Financing
      during the Term of the Consulting Agreement, up to a maximum of 250,000 Warrant
      Shares; provided that Warrants shall not vest for increments of less than
      $1,000,000 in gross proceeds received by the Company in a Financing during
      the
      Term of the Consulting Agreement (by way of example only, if $12,500,000 in
      gross proceeds are received by the Company in a Financing, Warrants to purchase
      60,000 Warrant Shares shall vest and be exercisable in connection with such
      Financing); and 

     

    (iii)    Warrants
      to purchase 250,000 Warrant Shares shall vest and be exercisable upon a transfer
      of the quotation of the Company's Common Stock from the OTCBB to the Nasdaq
      Stock Market or the American Stock Exchange. 

     

    (b)    Termination.
      In the
      event the Consulting Agreement is terminated by the Company for any reason
      or
      for no reason, all unvested portions of the Warrant on the effective date of
      such termination shall become fully vested and immediately exercisable. In
      the
      event that the Consulting Agreement is terminated by the Holder for any reason,
      all unvested portions of the Warrant on the effective date of such termination
      shall be forfeited by the Holder. 

     

    (c)    Exercise.
      Subject
      to the vesting requirements set forth in Section
      4(a)
      and the
      termination provisions set forth in Section
      4(b)
      above,
      this Warrant shall be exercisable by the registered Holder at any time and
      from
      time to time on or after the date hereof to and including the Expiration Date.
      At 5:00 P.M., Los Angeles, California time on the Expiration Date, the portion
      of this Warrant not exercised prior thereto shall be and become void and of
      no
      value. 

     

    (d)    Procedures
      for Exercise.
      A
      Holder may exercise this Warrant by delivering to the Company (i) an exercise
      notice, in the form attached hereto (the "Exercise
      Notice"),
      appropriately completed and duly signed, and (ii) payment of the Exercise Price
      for the number of Warrant Shares as to which this Warrant is being exercised
      (which may take the form of a "cashless exercise" if so indicated in the
      Exercise Notice and if a "cashless exercise" may occur at such time pursuant
      to
Section
      10
      below),
      and the date such items are delivered to the Company (as determined in
      accordance with the notice provisions hereof) is an "Exercise
      Date."
      The
      Holder shall not be required to deliver the original Warrant in order to effect
      an exercise hereunder. Upon the execution and delivery of the Exercise Notice,
      the Company shall issue a New Warrant to the Holder evidencing the right to
      purchase the remaining number of Warrant Shares. 

     

    5.    Delivery
      of Warrant Shares.
      

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (a)    Upon
      exercise of this Warrant, the Company shall promptly (but in no event later
      than
      three business days after the Exercise Date) issue or cause to be issued and
      cause to be delivered to or upon the written order of the Holder and in such
      name or names as the Holder may designate, a certificate for the Warrant Shares
      issuable upon such exercise, free of restrictive legends unless a registration
      statement covering the resale of the Warrant Shares and naming the Holder as
      a
      selling stockholder thereunder is not then effective and the Warrant Shares
      are
      not freely transferable without volume restrictions pursuant to Rule 144 under
      the Securities Act. The Holder, or any Person so designated by the Holder to
      receive Warrant Shares, shall be deemed to have become the holder of record
      of
      such Warrant Shares as of the Exercise Date. The Company shall, upon request
      of
      the Holder, use its best efforts to deliver Warrant Shares hereunder
      electronically through the Depository Trust Corporation or another established
      clearing corporation performing similar functions. 

     

    (b)    This
      Warrant is exercisable, either in its entirety or, from time to time, for a
      portion of the number of Warrant Shares. Upon surrender of this Warrant
      following one or more partial exercises, the Company shall issue or cause to
      be
      issued, at its expense, a New Warrant evidencing the right to purchase the
      remaining number of Warrant Shares. 

     

    (c)    The
      Company's obligations to issue and deliver Warrant Shares in accordance with
      the
      terms hereof are absolute and unconditional, irrespective of any action or
      inaction by the Holder to enforce the same, any waiver or consent with respect
      to any provision hereof, the recovery of any judgment against any Person or
      any
      action to enforce the same, or any setoff, counterclaim, recoupment, limitation
      or termination, or any breach or alleged breach by the Holder or any other
      Person of any obligation to the Company or any violation or alleged violation
      of
      law by the Holder or any other Person, and irrespective of any other
      circumstance which might otherwise limit such obligation of the Company to
      the
      Holder in connection with the issuance of Warrant Shares. Nothing herein shall
      limit the Holder's right to pursue any other remedies available to it hereunder,
      at law or in equity, including, without limitation, a decree of specific
      performance or injunctive relief with respect to the Company's failure to timely
      deliver certificates representing shares of Common Stock upon exercise of the
      Warrant as required pursuant to the terms hereof. 

     

    6.    Charges,
      Taxes and Expenses.
      Issuance and delivery of certificates for shares of Common Stock upon exercise
      of this Warrant shall be made without charge to the Holder for any issue or
      transfer tax, withholding tax, transfer agent fee or other incidental tax or
      expense in respect of the issuance of such certificates, all of which taxes
      and
      expenses shall be paid by the Company; provided, however, that the Company
      shall
      not be required to pay any tax which may be payable in respect of any transfer
      involved in the registration of any certificates for Warrant Shares or Warrants
      in a name other than that of the Holder or an Affiliate thereof. The Holder
      shall be responsible for all other tax liability that may arise as a result
      of
      holding or transferring this Warrant or receiving Warrant Shares upon exercise
      hereof. 

     

    7.    Replacement
      of Warrant.
      If this
      Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
      cause to be issued in exchange and substitution for and upon cancellation
      hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction and customary and reasonable bond or indemnity, if
      requested. Applicants for a New Warrant under

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    such
      circumstances shall also comply with such other reasonable regulations and
      procedures and pay such other reasonable third-party costs as the Company may
      prescribe. 

     

    8.    Reservation
      of Warrant Shares.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      the aggregate of its authorized but unissued and otherwise unreserved Common
      Stock, solely for the purpose of enabling it to issue Warrant Shares upon
      exercise of this Warrant as herein provided, the number of Warrant Shares which
      are then issuable and deliverable upon the exercise of this entire Warrant,
      free
      from preemptive rights or any other contingent purchase rights of persons other
      than the Holder (taking into account the adjustments and restrictions of
Section
      9).
      The
      Company covenants that all Warrant Shares so issuable and deliverable shall,
      upon issuance and the payment of the applicable Exercise Price in accordance
      with the terms hereof, be duly and validly authorized, issued and fully paid
      and
      nonassessable. The Company will take all such actions as may be necessary to
      assure that such shares of Common Stock may be issued as provided herein without
      violation of any applicable law or regulation, or of any requirements of any
      securities exchange or automated quotation system upon which the Common Stock
      may be listed. 

     

    9.    Certain
      Adjustments.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this
Section
      9.
      

     

    (a)    Stock
      Dividends and Splits.
      If the
      Company, at any time while this Warrant is outstanding, (i) pays a stock
      dividend on its Common Stock or otherwise makes a distribution on any class
      of
      capital stock that is payable in shares of Common Stock, (ii) subdivides
      outstanding shares of Common Stock into a larger number of shares, or (iii)
      combines outstanding shares of Common Stock into a smaller number of shares,
      then in each such case, the Exercise Price shall be multiplied by a fraction
      of
      which the numerator shall be the number of shares of Common Stock outstanding
      immediately before such event and of which the denominator shall be the number
      of shares of Common Stock outstanding immediately after such event. Any
      adjustment made pursuant to clause (i) of this paragraph shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution, and any adjustment pursuant to clause
      (ii) or (iii) of this paragraph shall become effective immediately after the
      effective date of such subdivision or combination. 

     

    (b)    Pro
      Rata Distributions.
      If the
      Company, at any time while this Warrant is outstanding, distributes to all
      holders of Common Stock (i) evidences of its indebtedness, (ii) any security
      (other than a distribution of Common Stock covered by the preceding Subsection
      (a)),
      (iii)
      rights or warrants to subscribe for or purchase any security, or (iv) any other
      asset (in each case, "Distributed
      Property"),
      then
      in each such case the Exercise Price in effect immediately prior to the record
      date fixed for determination of stockholders entitled to receive such
      distribution shall be adjusted (effective on such record date) to equal the
      product of such Exercise Price times a fraction of which the denominator shall
      be the average of the closing price of the Company’s Common Stock (as reflected
      on the OTCBB, the American Stock Exchange or the Nasdaq Stock Market) for the
      five trading days immediately prior to (but not including) such record date
      and
      of which the numerator shall be such average less the then fair market value
      of
      the Distributed Property distributed in respect of one outstanding share of
      Common Stock, as determined by the Company's independent certified public
      accountants that regularly examine

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    the
      financial statements of the Company (an "Appraiser").
      In
      such event, the Holder, after receipt of the determination by the Appraiser,
      shall have the right to select an additional appraiser (which shall be a
      nationally recognized accounting firm), in which case such fair market value
      shall be deemed to equal the average of the values determined by each of the
      Appraiser and such appraiser. As an alternative to the foregoing adjustment
      to
      the Exercise Price, at the request of the Holder delivered before the 90th
      day
      after such record date the Company will deliver to the Holder, within five
      business days after such request (or, if later, on the effective date of such
      distribution), the Distributed Property that the Holder would have been entitled
      to receive in respect of the Warrant Shares for which this Warrant could have
      been exercised immediately prior to such record date. If such Distributed
      Property is not delivered to the Holder pursuant to the preceding sentence,
      then
      upon expiration of or any exercise of the Warrant that occurs after such record
      date, the Holder shall remain entitled to receive, in addition to the Warrant
      Shares otherwise issuable upon such exercise (if applicable), such Distributed
      Property. 

     

    (c)    Fundamental
      Transactions.
      If, at
      any time while this Warrant is outstanding, (i) the Company effects any merger
      or consolidation of the Company with or into another Person, (ii) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (iii) any tender offer or exchange offer (whether by
      the
      Company or another Person) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their shares for other securities,
      cash or property, or (iv) the Company effects any reclassification of the Common
      Stock or any compulsory share exchange pursuant to which the Common Stock is
      effectively converted into or exchanged for other securities, cash or property
      (other than as a result of a subdivision or combination of shares of Common
      Stock covered by Section
      9(a)
      above)
      (in any such case, a "Fundamental
      Transaction"),
      then
      the Holder shall have the right thereafter to receive, upon exercise of this
      Warrant, the same amount and kind of securities, cash or property as it would
      have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the Holder of the number of Warrant Shares then issuable upon exercise in full
      of this Warrant (the "Alternate
      Consideration").
      The
      aggregate Exercise Price for this Warrant will not be affected by any such
      Fundamental Transaction, but the Company shall apportion such aggregate Exercise
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      exercise of this Warrant following such Fundamental Transaction. In the event
      of
      a Fundamental Transaction, the Company or the successor or purchasing Person,
      as
      the case may be, shall execute with the Holder a written agreement providing
      that: 

     

    (x)    this
      Warrant shall thereafter entitle the Holder to purchase the Alternate
      Consideration in accordance with this Section
      9(c);
      

     

    (y)    in
      the
      case of any such successor or purchasing Person, upon such consolidation,
      merger, statutory exchange, combination, sale or conveyance, such successor
      or
      purchasing Person shall be jointly and severally

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

     

    liable
      with the Company for the performance of all of the Company's obligations under
      this Warrant and the Consulting Agreement; and 

     

    (z)    if
      registration or qualification is required under the Securities Exchange Act
      of
      1934, as amended, or applicable state law for the public resale by the Holder
      of
      shares of stock and other securities so issuable upon exercise of this Warrant,
      all rights applicable to registration of the Common Stock issuable upon exercise
      of this Warrant shall apply to the Alternate Consideration. 

     

    If,
      in
      the case of any Fundamental Transaction, the Alternate Consideration includes
      shares of stock, other securities, other property or assets of a Person other
      than the Company or any such successor or purchasing Person, as the case may
      be,
      in such Fundamental Transaction, then such written agreement shall also be
      executed by such other Person and shall contain such additional provisions
      to
      protect the interests of the Holder as the Board of Directors of the Company
      shall reasonably consider necessary by reason of the foregoing. At the Holder's
      request, any successor to the Company or surviving entity in such Fundamental
      Transaction shall issue to the Holder a new warrant consistent with the
      foregoing provisions and evidencing the Holder's right to purchase the Alternate
      Consideration for the aggregate Exercise Price upon exercise thereof. The terms
      of any agreement pursuant to which a Fundamental Transaction is effected shall
      include terms requiring any such successor or surviving entity to comply with
      the provisions of this Subsection
      (c)
      and
      insuring that the Warrant (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
      If any Fundamental Transaction constitutes or results in a change of control,
      the Company (or any such successor or surviving entity) will purchase the
      Warrant from the Holder for a purchase price, payable in cash within five
      business days after such request (or, if later, on the effective date of the
      Fundamental Transaction), equal to the Black-Scholes value of the remaining
      unexercised portion of this Warrant on the date of such request. 

     

    (d)    Number
      of Warrant Shares.
      Simultaneously with any adjustments to the Exercise Price pursuant to
Subsections
      (a)
      or
(b),
      the
      number of Warrant Shares that may be purchased upon exercise of this Warrant
      shall be increased or decreased proportionately, so that after such adjustment
      the aggregate Exercise Price payable hereunder for the increased or decreased
      number of Warrant Shares shall be the same as the aggregate Exercise Price
      in
      effect immediately prior to such adjustment. 

     

    (e)    Calculations.
      All
      calculations under this Section
      9
      shall be
      made to the nearest cent or the nearest 1/100th of a share, as applicable.
      The
      number of shares of Common Stock outstanding at any given time shall not include
      shares owned or held by or for the account of the Company, and the disposition
      of any such shares shall be considered an issue or sale of Common Stock.

     

    (f)    Notice
      of Adjustments.
      Upon
      the occurrence of each adjustment pursuant to this Section
      9,
      the
      Company at its expense will promptly compute such adjustment in accordance
      with
      the terms of this Warrant and prepare a certificate setting forth such
      adjustment, including a statement of the adjusted Exercise Price and adjusted
      number or type of Warrant Shares or other securities issuable upon exercise
      of
      this Warrant (as applicable), describing the transactions giving rise to such
      adjustments and showing in detail the facts upon which such

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    adjustment
      is based. Upon written request, the Company will promptly deliver a copy of
      each
      such certificate to the Holder and to the Company's transfer agent.

     

    (g)    Notice
      of Corporate Events.
      If the
      Company (i) declares a dividend or any other distribution of cash, securities
      or
      other property in respect of its Common Stock, including without limitation
      any
      granting of rights or warrants to subscribe for or purchase any capital stock
      of
      the Company or any Subsidiary, (ii) authorizes or approves, enters into any
      agreement contemplating or solicits stockholder approval for any Fundamental
      Transaction, or (iii) authorizes the voluntary dissolution, liquidation or
      winding up of the affairs of the Company, then the Company shall deliver to
      the
      Holder a notice describing the material terms and conditions of such
      transaction, at least 20 calendar days prior to the applicable record or
      effective date on which a Person would need to hold Common Stock in order to
      participate in or vote with respect to such transaction, and the Company will
      take all steps reasonably necessary in order to insure that the Holder is given
      the practical opportunity to exercise this Warrant prior to such time so as
      to
      participate in or vote with respect to such transaction; provided, however,
      that
      the failure to deliver such notice or any defect therein shall not affect the
      validity of the corporate action required to be described in such
      notice.

     

    10.    Payment
      of Exercise Price.
      The
      Holder shall pay the Exercise Price in immediately available funds or the Holder
      may satisfy its obligation to pay the Exercise Price through a "cashless
      exercise," in which event the Company shall issue to the Holder the number
      of
      Warrant Shares determined as follows: 

     

    X
      = Y
      [(A-B)/A] 

     

    where:
      

     

    X
      = the
      number of Warrant Shares to be issued to the Holder. 

    

    Y
      = the
      number of Warrant Shares with respect to which this Warrant is being exercised.
      

    

    A
      = the
      arithmetic average of the closing prices for the five trading days (as reflected
      on the OTCBB for "CGYV.OB", or any such symbol as may be assigned in the event
      of a transfer of the quotation of the Company's Common Stock to the Nasdaq
      Stock
      Market or the American Stock Exchange) immediately prior to (but not including)
      the Exercise Date. 

    

    B
      = the
      Exercise Price. 

     

    For
      purposes of Rule 144 promulgated under the Securities Act, it is intended,
      understood and acknowledged that the Warrant Shares issued in a cashless
      exercise transaction shall be deemed to have been acquired by the Holder, and
      the holding period for the Warrant Shares shall be deemed to have commenced,
      on
      the date this Warrant was originally issued pursuant to the Consulting
      Agreement. 

     

    12.    Fractional
      Shares.
      The
      Company shall not be required to issue or cause to be issued fractional Warrant
      Shares upon the exercise of this Warrant. If any fraction of a
      Warrant

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Share
      would, except for the provisions of this Section, be issuable upon exercise
      of
      this Warrant, the number of Warrant Shares to be issued will be rounded up
      to
      the nearest whole share. 

     

    13.    Notices.
      Any and
      all notices or other communications or deliveries hereunder (including without
      limitation any Exercise Notice) shall be in writing and shall be deemed given
      and effective on the earliest of (i) the date of transmission, if such notice
      or
      communication is delivered via facsimile at the facsimile number specified
      in
      this Section prior to 5:00 p.m. (Los Angeles, California time) on a business
      day, (ii) the next business day after the date of transmission, if such notice
      or communication is delivered via facsimile at the facsimile number specified
      in
      this Section on a day that is not a business day or later than 5:00 p.m. (Los
      Angeles, California time) on any business day, (iii) the business day following
      the date of mailing, if sent by nationally recognized overnight courier service,
      or (iv) upon actual receipt by the party to whom such notice is required to
      be
      given. The address for such notices or communications shall be as set forth
      in
      the Consulting Agreement. 

     

    14.    Warrant
      Agent.
      The
      Company shall serve as warrant agent under this Warrant. Upon 30 days' notice
      to
      the Holder, the Company may appoint a new warrant agent. Any corporation into
      which the Company or any new warrant agent may be merged or any corporation
      resulting from any consolidation to which the Company or any new warrant agent
      shall be a party or any corporation to which the Company or any new warrant
      agent transfers substantially all of its corporate trust or stockholders
      services business shall be a successor warrant agent under this Warrant without
      any further act. Any such successor warrant agent shall promptly cause notice
      of
      its succession as warrant agent to be mailed (by first class mail, postage
      prepaid) to the Holder at the Holder's last address as shown in the Company's
      books and records. 

     

    15.    Miscellaneous.
      

     

    (a)    Subject
      to the restrictions on transfer set forth on the first page hereof, this Warrant
      may be assigned by the Holder. This Warrant may not be assigned by the Company
      except to a successor in the event of a Fundamental Transaction. This Warrant
      shall be binding on and inure to the benefit of the parties hereto and their
      respective successors and assigns. Subject to the preceding sentence, nothing
      in
      this Warrant shall be construed to give to any Person other than the Company
      and
      the Holder any legal or equitable right, remedy or cause of action under this
      Warrant. This Warrant may be amended only in writing signed by the Company
      and
      the Holder and their successors and assigns. 

     

    (b)    The
      Company will not, by amendment of its governing documents or through any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Warrant, but will at
      all
      times in good faith assist in the carrying out of all such terms and in the
      taking of all such action as may be necessary or appropriate in order to protect
      the rights of the Holder against impairment. Without limiting the generality
      of
      the foregoing, the Company (i) will not increase the par value of any Warrant
      Shares above the amount payable therefor on such exercise, (ii) will take all
      such action as may be reasonably necessary or appropriate in order that the
      Company may validly and legally issue fully paid and

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    nonassessable
      Warrant Shares on the exercise of this Warrant, and (iii) will not close its
      stockholder books or records in any manner which interferes with the timely
      exercise of this Warrant. 

     

    (c)    Governing
      Law; Venue; Waiver Of Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Warrant shall be governed by and construed and enforced in accordance
      with the internal laws of the State of California, without regard to the
      principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Warrant (whether brought against a party
      hereto or its respective Affiliates, directors, officers, stockholders,
      employees or agents) shall be commenced exclusively in the state and federal
      courts sitting in the City of Los Angeles, California. Each party hereto hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of Los Angeles, California for the adjudication
      of
      any dispute hereunder or in connection herewith or with any transaction
      contemplated hereby or discussed herein (including with respect to the
      enforcement of any of this Warrant), and hereby irrevocably waives, and agrees
      not to assert in any suit, action or proceeding, any claim that it is not
      personally subject to the jurisdiction of any such court, that such suit, action
      or proceeding is improper. Each party hereto hereby irrevocably waives personal
      service of process and consents to process being served in any such suit, action
      or proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to such party at the address
      in
      effect for notices to it under this Warrant and agrees that such service shall
      constitute good and sufficient service of process and notice thereof. Nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law. Each party hereto hereby irrevocably waives,
      to
      the fullest extent permitted by applicable law, any and all right to trial
      by
      jury in any legal proceeding arising out of or relating to this Warrant or
      the
      transactions contemplated hereby. If either party shall commence an action
      or
      proceeding to enforce any provisions of this Warrant, then the prevailing party
      in such action or proceeding shall be reimbursed by the other party for its
      reasonable attorneys fees and other reasonable costs and expenses incurred
      with
      the investigation, preparation and prosecution of such action or proceeding.
      

     

    (d)    The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions hereof.
      

     

    (e)    In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant. 

     

     

    [Remainder
      of This Page Intentionally Left Blank; Signature Page to
      Follow]

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      its
      authorized officer as of the date first indicated above. 

    

    

    CHINA
      ENERGY RECOVERY, INC.

     

    By: 
      /s/ Qinghuan
      Wu
      
        

      

    

    Qinghuan
      Wu

    Chief
      Executive Officer

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    FORM
      OF EXERCISE NOTICE 

     

    (To
      be
      executed by the Holder to exercise the right to purchase shares of Common Stock
      under the foregoing Warrant) 

     

    To:
      China
      Energy Recovery, Inc. 

     

    The
      undersigned is the Holder of Warrant No. _______ (the "Warrant")
      issued
      by China Energy Recovery, Inc., a Delaware corporation (the "Company").
      Capitalized terms used herein and not otherwise defined have the respective
      meanings set forth in the Warrant. 

     

    
      	
              1.

            	
              The
                Warrant is currently exercisable to purchase a total of ______________
                Warrant Shares. 

            

    

     

    
      	
              2.

            	
              The
                undersigned Holder hereby exercises its right to purchase
                _________________ Warrant Shares pursuant to the Warrant.
                

            

    

     

    
      	
              3.

            	
              The
                Holder intends that payment of the Exercise Price shall be made as
                (check
                one): 

            

    

     

    ____
      "Cash Exercise" under Section
      10 

     

    ____
      "Cashless Exercise" under Section
      10
      (if
      permitted) 

     

    
      	
              4.

            	
              If
                the Holder has elected a Cash Exercise, the Holder shall pay the
                sum of
                $___________ to the Company in accordance with the terms of the Warrant.
                

            

    

     

    
      	
              5.

            	
              Pursuant
                to this exercise, the Company shall deliver to the Holder _______________
                Warrant Shares in accordance with the terms of the Warrant.
                

            

    

     

    
      	
              6.

            	
              Following
                this exercise, the Warrant shall be exercisable to purchase a total
                of
                ______________ Warrant Shares. 

            

    

     

    
      	
              Dated: ________________,
                ________

            	
              Name
                of Holder:

              (Print)
                _________________________

            
	 	 
	 	
              By:
                _______________________________

            
	 	
              Name:
                _____________________________

            
	 	
              Title:
                ______________________________

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    FORM
      OF ASSIGNMENT 

     

    (To
      be
      completed and signed only upon transfer of the Warrant) 

     

     

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto
      ________________________________ the right represented by the within Warrant
      to
      purchase ____________ shares of Common Stock of China Energy Recovery, Inc.
      to
      which the within Warrant relates and appoints ________________ attorney to
      transfer said right on the books of China Energy Recovery, Inc. with full power
      of substitution in the premises. 

     

    
      	
              Dated: ________________,
                ________

               

            	
              Name
                of Holder:

               

              Name:
                _____________________________

              By:
                _______________________________

              Name:
                _____________________________

              Title:
                ______________________________

               

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

            
	 	 
	 	
              Address:

               

              ______________________________

              ______________________________

              ______________________________

            
	 	 
	
              In
                the presence of:

              ___________________________

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