Document:

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                                                                   Exhibit 10.13

                               LICENSEE AGREEMENT

     This Licensee Agreement ("Agreement") is entered into in Chico, California,
as of May 16, 2002 (the "Effective Date") by and between FAFCO, Inc., a
California corporation, with offices at 435 Otterson Drive, Chico, CA 95928-8207
("FAFCO"), and Beijing ZhongDian DuoLi Refrigeration Engineering Co., Ltd., a
Beijing corporation, with offices at 4F, South Building, Yuexiu Hotel,
Xuanwumen, Beijing, China 100051 ("Licensee").

     WHEREAS, FAFCO has been engaged in the development, manufacture, and sale
of polymer heat exchanger technology, products, and components, and has devoted
considerable time and effort and expended large sums of money in that regard;
and

     WHEREAS, FAFCO possesses of certain patents, trademarks and proprietary
information used in connection with the manufacture and sale of such products;
and

     WHEREAS, Licensee wishes to undertake the purchase, assembly and
distribution of such products; and

     WHEREAS, FAFCO is willing to grant to Licensee the right to do so in
accordance with the terms of this Agreement; and

     WHEREAS, the parties desire to name Mr. David Huang as technical
coordinator of the parties' obligations under this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:

1.   DEFINITIONS
     -----------

     (a) "Assemble" means the (i) conversion of FAFCO's IceStor(TM) brand
unsplit, unbent, unseparated heat exchangers into, split, bent, and separated
heat exchangers and/or (ii) the installation of such split, bent and separated
heat exchangers into (a) site-built, thermal energy storage tanks manufactured
by third parties, (b) metal thermal energy storage tanks assembled by Licensee
using locally-sourced materials or (c) IceStor(TM) brand thermal energy storage
tank parts purchased from FAFCO and assembled by Licensee, all in accordance
with the specifications set forth in Licensed Materials.

     (b) "Components" means FAFCO's IceStor(TM) brand (i) unsplit, unbent,
unseparated heat exchanger devices up to twenty-four (24) feet in length, and
(ii) thermal energy storage tank parts, as set forth in Exhibit A.

                                  Page 1 of 14
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     (c) "Licensed Materials" means FAFCO's proprietary policies, procedures,
plans, specifications, drawings, technical information, installation manuals,
maintenance manuals, selection charts and tooling information and devices
pertaining to the assembly, sale, installation, and servicing of Components and
Products, as updated from time to time by FAFCO.

     (d) "Manufacture" means FAFCO's patented process of converting resin and
additives into flat heat exchangers.

     (e) "Products" means FAFCO's finished IceStor(TM) brand thermal energy
storage tanks, including split, bent, and separated heat exchangers, whether
Assembled by Licensee or purchased by Licensee from FAFCO.

     (f) "Equipment" means tools, jigs, fixtures and machinery needed to
Assemble Components into Products.

     (g) "Territory" means NORTHERN CHINA, including Hebei, Henan, Shandong,
Shanxi, Anhui Provinces, Beijing, Tianjin, Inner Mogolia, and Northeastern
China.

2. APPOINTMENT AND AUTHORITY OF LICENSEE,

     (a) Appointment and License Grant.

          (i) Appointment. FAFCO hereby appoints Licensee as FAFCO's exclusive
Licensee of the Products and Components in the Territory. Licensee will have the
right to purchase Products and Components from FAFCO and will sell, install, and
service Products and Components in the Territory. Licensee agrees to abide by
FAFCO's policies, procedures and specifications as set forth in the Licensed
Materials with respect to Licensee's obligations under this Agreement. Licensee
may distribute Products or Components outside the Territory only with the prior
written consent of FAFCO, which consent may be given or withheld in its sole
discretion.

          (ii) License Grant. FAFCO grants Licensee an exclusive license to use
the Licensed Materials to Assemble Components and Products for sale in the
Territory. Licensee may use the Licensed Materials for its internal purposes
only, and may not sublicense the Licensed Materials without the prior written
approval of FAFCO. Licensee agrees to Assemble Components and Products which are
of a satisfactory and merchantable quality and in accordance with the policies,
procedures and specifications in the Licensed Materials.

          (iii) License Fee. The license fee is One Hundred Thousand Dollars
($100,000.00). Twenty-Five Thousand Dollars ($25,000) should be paid upon
signing of this Agreement. The balance, divided as three installments ($25,000
each), should be paid every other four months after signing of this

                                 Pages 2 of 14
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Agreement. This license fee is a once for all charge and will not be collected
again upon future renewal of this Agreement.

     (b) Annual Purchase Commitment.  Attached hereto as Exhibit B are the
numbers of ton hours to be purchased by Licensee from FAFCO during each year of
this Agreement ("Annual Purchase Commitments"). Throughout the term of this
Agreement, if Licensee does not purchase its Annual Purchase Commitment in any
given year, then FAFCO may terminate this Agreement pursuant to Subsection 5(b)
below, and/or appoint one or more additional Licensees of the Components and
Products in the Territory. Components and Products returned to FAFCO under the
provisions of Section 3 will not count towards the fulfillment of Licensee's
Annual Purchase Commitment.

     (c) Services by Licensee.  Licensee will have the responsibility to sell,
install, service and repair the Products. These services will be performed only
by properly trained personnel of Licensee and will be prompt and of the highest
quality.

     (d) Training by FAFCO.  FAFCO will promptly provide Licensee with marketing
information concerning the Components and Products, as well as reasonable
quantities of brochures, instructional material, advertising literature, and
other product data, all in the English language. FAFCO will provide service and
repair training to Licensee at FAFCO's facilities in the United States at
periodic intervals, as determined by FAFCO. Licensee will be responsible for its
own costs for travel, food and lodging during such training periods. At
Licensee's request, FAFCO will provide it with technical assistance at sites
other than FAFCO's facilities in the United States in connection with the
Assembly of Components and Products at FAFCO's then current daily rates for such
assistance, plus expenses.

     (e) Technical Coordinator.  All aspects of the parties' performance under
this Agreement will be monitored and coordinated by Mr. David S. H. Huang (the
"Technical Coordinator"). The parties will grant the Technical Coordinator
complete cooperation and access to all areas and information necessary for him
to fulfill his oversight responsibilities. All reasonable requests made by the
Technical Coordinator will be adhered to by Licensee, including all requests
that Licensee comply with the provisions of this Agreement.

     (f) Conflict of Interest.  Licensee represents and warrants that it
currently does not purchase, distribute or assist any third party in the
purchase or distribution of competing products, and agrees not to do so during
the term of this Agreement and for a period of two (2) years thereafter. If
Licensee purchases, distributes or assists any third party in the purchase or
distribution of competing products, FAFCO will have the right to terminate this
Agreement in accordance with Section 5(b). A product will be deemed to be a
competing product if it provides substantial overlap of any of the uses of the
Components or Products.

                                  Page 3 of 14

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     (g) Intellectual Property Rights Registrations. Licensee will assist FAFCO
with any registrations or filings required to obtain patent, copyright,
trademark or other intellectual property rights protection, in FAFCO's name,
for the Components and Products in the Territory. FAFCO will pay all
intellectual property rights registration and filing fees.

     (h) Product Improvements. Throughout the course of this Agreement, FAFCO
and Licensee will inform and assist each other with respect to developments,
modifications and improvements to the Components and Products ("Improvements").
Licensee agrees, however not to reverse assemble or reverse engineer the
Components or in any way copy or duplicate the Manufacture of heat exchangers
nor assist others to do so, without the prior approval of FAFCO, and nothing
under this Section 2(h) shall be deemed a grant of a right to Licensee to
Manufacture heat exchangers. Improvements will be considered Confidential
Information in accordance with the provision of Section 6, and will be owned as
follows:

          (i) FAFCO Improvements. Improvements made solely by FAFCO during the
course of this Agreement will be the exclusive property of FAFCO and will be
incorporated into the components and Products sold to Licensee hereunder or
licensed to Licensee as Licensed Materials in accordance with the terms of
Section 2(a)(ii).

          (ii) Jointly Owned Improvements. Improvements made solely by Licensee
or jointly by both parties during the course of this Agreement will be owned
jointly by both parties without any obligation on the part of either party to
account to the other for profits or to obtain the consent of the other with
respect to the exploitation of such Improvements, subject to the license grant
in Section 2(a)(ii). The filing for, prosecution and maintenance of any patents
that constitute jointly owned improvements hereunder shall be as mutually
agreed. In the absence of an agreement, each party may proceed in such manner
as the United States law permits joint owners of a patent to do so. Either
party may bring a legal action to enforce, against third party infringers of
any jointly owned patents. The other party shall have the right, but not the
obligation, to join in such legal action. If the other party elects not to join
such legal action, then the initiating party shall have the right to continue
such action at its sole expense and to retain any proceeds from such action. In
the case of any dispute between the parties with respect to the ownership of a
patent, such dispute shall be settled in accordance with the provisions of
Section 8(b) under United States patent law.

     (i) Right to Manufacture. Neither Licensee nor its heirs and assigns has
any right to Manufacture heat exchangers.

     (j) Independent Contractors: Compliance With Laws. The relationship of
FAFCO and Licensee is that of independent contractors. Neither party will have
the power to direct or control the day-to-day activities of the other, or
create or

                                  Page 4 of 14

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assume any obligation on behalf of the other. All sales and other agreements
between Licensee and its customers are Licensee's exclusive responsibility.
Both parties will at all times comply with all applicable laws and regulations,
including the United States Foreign Corrupt Practices Act and Export
Administration Act. Licensee hereby represents and warrants that it possesses
all necessary licenses to perform its responsibilities under this Agreement and
will obtain all necessary governmental approvals of this Agreement in the
Territory. The provisions of this Agreement under which the liability of FAFCO
is excluded or limited will not apply to the extent that such exclusions or
limitations are void under the laws of the Territory, unless cured by the fact
that the law of California governs this Agreement.

3. TERMS OF PURCHASE OF COMPONENTS BY LICENSEE

     (a) Terms and Conditions. Licensee's orders for Components, Products and
Equipment from FAFCO will be subject to the following terms and conditions.
Nothing contained in any purchase order or like document submitted by Licensee
to FAFCO will in any way modify or add to the following.

     (b) Prices. All prices are F.O.B. FAFCO's facility currently located at
the address listed for FAFCO at the beginning of this Agreement ("F.O.B.
Point"). The price to Licensee for each of the Components and Products and any
discounts will be as set forth in Exhibit A attached hereto. Equipment prices
will be quoted upon request. The difference between Licensee's purchase price
and Licensee's price to its customers will be Licensee's sole remuneration for
distribution of the Products. FAFCO has the right at any time to revise its
prices upon written notice to Licensee. Such revisions will apply to an orders
received after the effective date of the revision. Price increases will not
affect unfulfilled orders accepted by FAFCO prior to the effective date of the
price increase. Price decreases will apply to pending orders accepted by FAFCO
prior to the effective date of the decrease.

     (c) Taxes. Licensee's purchase price is payable in full to FAFCO without
deduction for custom duties or taxes, including any value-added or withholding
taxes. Licensee will pay all such duties and taxes, however designated, levied,
or based on amounts payable to FAFCO or on Licensee's use or possession of the
Components and Products, exclusive of national, state, and local taxes based on
FAFCO's net income. Upon FAFCO's request, Licensee will provide FAFCO with
official receipts issued by the appropriate taxing authority or such other
evidence as is reasonably requested by FAFCO to establish that such taxes have
been paid in order to facilitate any efforts of FAFCO to obtain United States
tax credits.

     (d) Order and Acceptance. Orders for Components and Products submitted by
Licensee will be initiated by facsimile or e-mail. To facilitate

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FAFCO's production scheduling, Licensee will submit purchase orders to FAFCO in
accordance with FAFCO's then current lead times. No order will be binding upon
FAFCO until accepted by FAFCO in writing. FAFCO will notify Licensee of the
acceptance or rejection of an order and of the assigned ship date for accepted
orders within five (5) business days of receipt of the order.

     (e) Payment. Payment will be in U.S. Dollars and will be effected by means
of an irrevocable letter of credit drawn on a California bank approved by FAFCO.
The letter of credit will be upon terms acceptable to FAFCO, will provide for
payment upon delivery of FAFCO's invoice and the bill of lading that relate to
the shipment, will allow for partial shipments, and will be in an amount equal
to Licensee's purchase price for the Products and Components, including all
applicable taxes, shipping charges, and other charges to be borne by Licensee.
All exchange, interest, banking, collection and other charges will be at
Licensee's expense. All references to "dollars", "U.S.$" or "$" will mean United
States dollars.

     (f) Shipping. All Components and Products will be marked for shipment to
Licensee's address set forth above, and delivered to Licensee or its carrier
agent at the F.O.B. Point, at which time risk of loss will pass to Licensee.
Unless otherwise instructed in writing by Licensee, FAFCO will select the
carrier and the forwarding agent. Licensee agrees to undertake all import
formalities required to import the Components and Products into the Territory.
All customs, freight, insurance, and other shipping expenses, as well as any
special packing expense, will be paid by Licensee. Licensee will also bear all
applicable taxes, duties, and similar charges that may be assessed against the
Components and Products after delivery to Licensee or its carrier agent.

     (g) Cancellations. Licensee may cancel any order placed with FAFCO without
penalty, provided FAFCO has not yet incurred any direct costs as a result of the
order being placed. If such costs have been incurred, Licensee is liable for a
cancellation charge equal to such costs. All Licensee cancellation requests must
be made via facsimile or e-mail.

     (h) Rejection of Components and Products. Licensee will inspect all
Components and Products in the manner specified in Exhibit C promptly upon
receipt and may reject any Component or Product that fails in any material way
to meet FAFCO's then current specifications. Any Component or Product not
rejected within thirty (30) days after receipt by Licensee ("Rejection Period")
will be deemed accepted. If any unit of a Component or Product is shipped by
Licensee to a SubLicensee or Customer prior to expiration of the Rejection
Period, then that unit will be deemed accepted. To reject a Component or
Product, Licensee will, within the Rejection Period, notify FAFCO by facsimile
or e-mail of its rejection and request a Material Return Authorization ("MRA")
number. FAFCO will provide the MRA number by facsimile or e-mail to Licensee
within five (5) days after receipt of the request. Within ten (10) days after
receipt of the MRA number, Licensee will return to FAFCO the rejected Component

                                  Page 6 of 14

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and/or Product, freight prepaid, in its original shipping carton with the MRA
number displayed on the outside of the carton. No later than thirty (30)
working days after receipt by FAFCO, FAFCO will either repair or replace the
Components and/or Products and pay shipping charges back to Licensee. No
returns will be accepted after the Rejection Period.

     (i) Alternative Method of Rejection. As an alternative to Section 3(h),
Licensee may, if so instructed by FAFCO, destroy any rejected Component or
Product, certify the destruction in writing to FAFCO and return the header
portion of any destroyed heat exchanger to FAFCO.

4.   DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY

     (a) Exclusive Remedy. The parties acknowledge that the proper functioning
and performance of any thermal energy storage systems in which the Components
and Product may be used will depend entirely on the Assembly, installation and
servicing of Components and Products as well as the design and sizing of such
thermal energy storage systems, and that FAFCO will have no control over such
factors. Accordingly, Licensee's sole and exclusive remedy for Components and
Products which fail to meet FAFCO's then current specifications will be as set
forth above in Sections 3(h)-(i) above.

     (b) Disclaimer of Warranty. FAFCO GRANTS NO WARRANTIES, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE COMPONENTS OR PRODUCTS, AND
SPECIFICALLY DISCLAIMS ANY IMPLIED OR STATUTORY WARRANTIES OF NONINFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

     (c) Limitation of Liability. IN NO EVENT WILL FAFCO HAVE ANY LIABILITY TO
LICENSEE, ITS CUSTOMERS OR ANY OTHER THIRD PARTY, FOR ANY LOST PROFITS, COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY OTHER INDIRECT, SPECIAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, UNDER
ANY CAUSE OF ACTION WHETHER OR NOT FAFCO HAD BEEN INFORMED OF THE POSSIBILITY OF
SUCH DAMAGES. THESE LIMITATIONS WILL APPLY NOTWITHSTANDING THE FAILURE OF THE
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

5.   TERM AND TERMINATION

     (a) Term. This agreement will continue in force for a period of five (5)
years after the Effective Date, unless terminated earlier under the provisions
of this Section. At the end of the initial term, the parties may renew this
Agreement for an additional five (5) year term subject to mutual agreement
between the parties on all material terms, including future Annual Purchase
Commitments. No more license fee will be charged upon renewal of this Agreement.

                                  Page 7 of 14
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     (b)  Termination. If either party defaults in the performance of any
provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) days the Agreement will be terminated. If the non-defaulting party gives
such notice and the default is not cured during the thirty-day period, then the
Agreement will automatically terminate at the end of that period. The provisions
of this Agreement which require performance of the parties after termination of
this Agreement will survive its termination.

6.   CONFIDENTIALITY

     Licensee acknowledges that by reason of its relationship to FAFCO hereunder
it may have access to certain information and materials concerning FAFCO's
business, including the Licensed Materials, that are confidential and of
substantial value to FAFCO ("Confidential Information"). Except as set forth in
this Agreement, Licensee agrees that it will not use or disclose to any third
party, any Confidential Information revealed to it by FAFCO. Licensee will take
every reasonable precaution to protect the confidentiality of such information.
In the event of termination of this Agreement, Licensee may no longer use the
Confidential Information and Licensee will immediately return all such
information to FAFCO. Licensee will have no obligation under this Section 6 with
respect to any information which (i) was publicly known and made generally
available in the public domain prior to the time of disclosure by FAFCO; (ii)
becomes publicly known and made generally available after disclosure by FAFCO
through no action or inaction of Licensee; (iii) is already in the possession of
Licensee at the time of disclosure by FAFCO, as shown by Licensee's files and
records immediately prior to the time of disclosure; (iv) is obtained by
Licensee from a third party without a breach of such third party's obligations
of confidentiality; or (v) is independently developed by Licensee without use of
or reference to Confidential Information, as shown by documents and other
competent evidence in Licensee's possession.

7.   TRADEMARKS

     During the term of this agreement Licensee shall use the FAFCO IceStor(TM)
trademark prominently displayed on all literature, technical information,
advertising, products and installed components licensed under this agreement.
Licensee has no right, title or interest in the Trademarks. At no time during or
after the term of this Agreement will Licensee challenge or assist others to
challenge the Trademarks or the registration thereof or attempt to register any
trademarks, marks or trade names confusingly similar to the Trademarks. All uses
of the Trademarks by the Licensee must be approved in advance by FAFCO.

8.   GENERAL PROVISIONS

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     (a) Indemnification. Licensee agrees to indemnify, defend and hold FAFCO
harmless from and against any and all claims, losses, damages, liabilities,
causes of action or suits, including reasonable attorneys' fees, arising out of
or relating to any negligence or intentional acts or omissions of Licensee in
connection with this Agreement or the breach by Licensee of any material
provision of this Agreement.

     (b) Governing Law and Arbitration. This Agreement will not be governed by
the 1980 U.N. Convention on Contracts for the International Sale of Goods;
rather such rights and obligations will be governed by and construed under the
laws of the State of California, including its Uniform Commercial Code, without
reference to conflict of laws principles. Any dispute or claim arising out of or
in connection with this Agreement will be finally settled by binding arbitration
in Honolulu, Hawaii under the Rules of Arbitration of the International Chamber
of Commerce by one neutral arbitrator appointed in accordance with those rules.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for injunctive relief without
breach of this arbitration provision.

     (c) Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and merges
all prior discussions between them. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, will be effective
unless in writing signed by both parties.

     (d) Notices. All notices, demands, and communications required or permitted
under this Agreement will be sent via facsimile or e-mail to the other party's
then current facsimile transmission number or e-mail address, directed to the
individual currently holding the title of the respective signatory of this
Agreement. Confirmation of such transmission will be sent by prepaid, registered
or certified mail, return-receipt requested, addressed to the other party at the
address shown at the beginning of this Agreement or at such other address for
which such party gives notice hereunder. All notices complying with this section
will be deemed to have been received on the date of facsimile transmission.

     (e) Force Majeure. Non-performance of either party, except non-performance
of any obligation to pay money, will be excused to the extent that performance
is rendered impossible by strike, fire, flood, governmental acts or orders or
restrictions, failure of suppliers, lack of transportation, or any other reason
where failure to perform is beyond the control and not caused by the negligence
of the non-performing party.

     (f) English Language. This Agreement may be written and executed in English
and Chinese, but the English language version will be controlling in all
respects. All communications and notices to be made or given pursuant to this
Agreement will be in English.

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     (g) Non-assignability and Binding Effect. A mutually agreed consideration
for FAFCO's entering into this Agreement is the reputation, business standing,
and goodwill already honored and enjoyed by Licensee under its present
ownership, and, accordingly, Licensee agrees that its rights and obligations
under this Agreement may not be transferred or assigned directly or indirectly
without the prior written consent of FAFCO. Subject to the foregoing, this
Agreement will be binding upon and inure to the benefit of the parties hereto,
their successors and assigns.

     (h) Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute one
instrument.

     IN WITNESS WHEREOF, the parties by their duly authorized representatives
have entered into this Agreement as of the Effective Date.

FAFCO, INC.                               BEIJING ZHONGDIAN DUOLI
                                          REFRIGERATION
                                          ENGINEERING CO., LTD.

By:    /s/ F.A. Ford                      By:   [Illegible]
       -------------------------                -------------------------

Name:  F.A. FORD                          Name: [Illegible]
       -------------------------                 ------------------------

Title: President                          Title: Vice-General Manager
       ------------------------                  ------------------------
       5/18/202

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FAFCO, EXHIBIT A

                                   PRICE LIST

                              FLAT HEAT EXCHANGERS

                    (INCLUDES FLAT PANEL, SEPARATOR STRIPS)

                                                            APPROXIMATE*
PART #         HX SIZE                  SELLING PRICE         TON HOURS
-----------------------------------------------------------------------------
 661           10 feet                       133                 6.9
 667           12 feet                       143                 8.3
 684S          14 feet                       165                 9.7
 663           16 feet                       190                11.1
 664           18 feet                       225                12.5
 621           20 feet                       252                13.9
 669           22 feet                       288                15.3
 660           24 feet                       306                16.7

                                   OPTIONS
-----------------------------------------------------------------------------
Capacity Display Unit              1,610
Capacity Sensors                     260

FOB Chico, California, USA

* Not to be used for sizing purposes

                                 Page 11 of 14

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FAFCO, EXHIBIT B

                          ANNUAL PURCHASE COMMITMENTS

                    YEAR                          TON HOURS
                    ---------------------------------------

                    2002                            10,000

                    2003                            15,000

                    2004                            20,000

                    2005                            25,000

                    2006                            30,000

                                 Page 12 of 14

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FAFCO, EXHIBIT C

                               ACCEPTANCE TESTING

FAFCO conducts rigorous testing of IceStor(TM) panels during the manufacturing
process (see attached flowchart). These tests ensure that the panels meet our
specifications at the time of shipping.

To ensure that there has been no shipping damage the Licensee may consider
performing visual inspection of panels upon request.

The licensee may also elect to perform low pressure and high pressure water
leak testing according to a statistical sampling plan developed by the
licensee. The attached flowchart also shows the test process that FAFCO uses on
heat exchanges when integrating them into complete IceStor(TM) tanks.

PRODUCTION PANEL TEST

Each production panel is flow and pressure tested directly after forming.

The panel is loaded onto the testing fixture and pneumatically clamped in place.

Air is purged out and flow is measured, panel is pressurized to 35-40 psi and
visually inspected for leaks, surface defects, or damage.

LCD TUBE FLOW TEST

To assure the positive flow in all designated tubes, a blocked tube test is
performed hourly. This test is performed while the panel is on the production
test fixture, and has heated water flowing through the tubes. A heat sensitive
liquid crystal film is pressed across the width of the panel.

The warm flowing tubes will show on the film, while any tube without flow will
clearly be absent.

BURST TEST

A burst test is performed at the beginning of every shift--approximately every
ten (10) production hours. The test consists of a representative test panel
taken directly from the forming process to a variable high pressure testing
fixture. The air within the test panel is purged out, and the panel is
pressurized to 250 psi for two minutes and then increased in 50 psi increments
for two minutes each until failure occurs (typically at 450-500 psi). The test
panel is then sectioned and examined to determine failure cause.

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HX ASSEMBLY TESTING

After panel is split and woven, the following tests are performed.

150 PSI LEAK TEST  Air is purged out and flow is measured, panel is pressurized
to 150 psi for a period of five minutes, and visually inspected for leaks,
surface defects, or damage.

80 PSI AIR LEAK TEST  Panel is pressurized to 80 psi with air. Header pipes are
submerged under water and a visual inspection for leaks is performed.

MODULE LEAK TESTING

After module assembly is installed into tank, a final module test is performed.

80 PSI LEAK TEST  Entire module is pressurized to 80 psi for a period of one
hour.

                                 Page 14 of 14<PAGE>
                                                                   EXHIBIT 10.14

                               FAFCO, INCORPORATED

                                 2002 STOCK PLAN

1.    Purposes of the Plan. The purposes of this 2002 Stock Plan are:

      -     to attract and retain the best available personnel for positions of
            substantial responsibility,

      -     to provide additional incentive to Employees, Directors and
            Consultants, and

      -     to promote the success of the Company's business.

      Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

2.    Definitions. As used herein, the following definitions shall apply:

               (a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.

               (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

               (c) "Board" means the Board of Directors of the Company.

               (d) "Change in Control" means the occurrence of any of the
following events:

                  (i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

                  (ii) The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets;

                  (iii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" means directors who
either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include
<PAGE>
an individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

                  (iv) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

               (e) "Code" means the Internal Revenue Code of 1986, as amended.

               (f) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.

               (g) "Common Stock" means the common stock of the Company.

               (h) "Company" means FAFCO, Incorporated, a California
corporation.

               (i) "Consultant" means any natural person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

               (j) "Director" means a member of the Board.

               (k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of

                   (i) any leave of absence approved by the Company or

                   (ii) transfers between locations of the Company or between
the Company, its Parent, any Subsidiary, or any successor. For purposes of
Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, then three (3) months following the 91st day of such leave
any Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.

               (l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               (m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                   (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;

                                      -2-
<PAGE>
                  (ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or

                  (iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

               (n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

               (o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

               (p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

               (q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

               (r) "Option" means a stock option granted pursuant to the Plan.

               (s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.

               (t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.

               (u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.

               (v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.

               (w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

               (x) "Plan" means this 2002 Stock Plan.

               (y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

               (z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased

                                      -3-
<PAGE>
under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject
to the terms and conditions of the Plan and the Notice of Grant.

               (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

               (bb) "Section 16(b) " means Section 16(b) of the Exchange Act.

               (cc) "Service Provider" means an Employee, Director or
Consultant.

               (dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

               (ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

               (ff) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.

      3.    Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 500,000 Shares plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2003, equal to the lesser of
(i) 200,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.

      Notwithstanding the preceding paragraph, or any other provision of this
Plan, in no event may the number of Shares subject to outstanding options
granted under this Plan, when combined with the number of Shares which are
issuable upon exercise of all other outstanding options, warrants or other
rights granted by the Company to purchase shares of capital stock of the
Company, exceed a number of Shares equal to 30% of the aggregate number of
Shares which are issued and outstanding as of the applicable determination date.

      If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

      4.    Administration of the Plan.

      (a) Procedure.

               (i)  Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.

                                      -4-
<PAGE>
               (ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

               (iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.

      (b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:

               (i) to determine the Fair Market Value;

               (ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

               (iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

               (iv) to approve forms of agreement for use under the Plan;

               (v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;

               (vi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

               (vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

               (viii) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

               (ix) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock

                                      -5-
<PAGE>
Purchase Right that number of Shares having a Fair Market Value equal to the
minimum amount required to be withheld. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;

               (x) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;

               (xi) to make all other determinations deemed necessary or
advisable for administering the Plan.

            (c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

      5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

      6. Limitations.

            (a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

            (b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.

            (c) The following limitations shall apply to grants of Options:

               (i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 200,000 Shares.

               (ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 200,000 Shares,
which shall not count against the limit set forth in subsection (i) above.

               (iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.

                                      -6-
<PAGE>
               (iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

      7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.

      8. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Option
Agreement.

      9. Option Exercise Price and Consideration.

            (a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

               (i) In the case of an Incentive Stock Option

                  (A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

                  (B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.

               (ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant. In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.

               (iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.

            (b) Waiting Period and Exercise Dates. Subject to the constraints
herein, at the time an Option is granted, the Administrator shall fix the period
within which the Option may be exercised and shall determine any conditions that
must be satisfied before the Option may be exercised.

                                      -7-
<PAGE>
            (c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

               (i) cash;

               (ii) check;

               (iii) promissory note;

               (iv) other Shares which, in the case of Shares acquired directly
or indirectly from the Company, (A) have been owned by the Optionee for more
than six (6) months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;

               (v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

               (vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement; '

               (vii) any combination of the foregoing methods of payment; or

               (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

      10. Exercise of Option.

            (a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence. An Option may not be exercised for a fraction of a Share. Except in
the case of Options granted to officers, Directors and Consultants, Options
shall become exercisable at a rate of no less than 20% per year over five (5)
years from the date the Options are granted.

            An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to

                                      -8-
<PAGE>
be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 13 of the Plan.

            Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

            (b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within thirty (30)
days of termination, or such longer period of time as is specified in the Option
Agreement, to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). If, on the date of termination, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

            (c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's disability, the Optionee may exercise his
or her Option within six (6) months of termination, or such longer period of
time as is specified in the Option Agreement, to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

            (d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within six (6) months following the Optionee's
death, or within such longer period of time as is specified in the Option
Agreement, to the extent that the Option is vested on the date of death (but in
no event may the option be exercised later than the expiration of the term of
such Option as set forth in the Option Agreement), by the Optionee's designated
beneficiary, provided such beneficiary has been designated prior to Optionee's
death in a form acceptable to the Administrator. If no such beneficiary has been
designated by the Optionee, then such Option may be exercised by the personal
representative of the Optionee's estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. If, at the time of death, Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

      11. Stock Purchase Rights.

            (a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the

                                      -9-
<PAGE>
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The terms of the offer shall comply in all respects with Section
260.140.42 of Title 10 of the California Code of Regulations. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

            (b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator; provided that such rate may not exceed the term permitted under
applicable laws and regulations, including Section 260.140.42 of Title 10 of the
California Code of Regulations.

            (c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

            (d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

      12. Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator in its sole discretion makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right may only be transferred (i) by
will, (ii) by the laws of descent and distribution, or (iii) as permitted by
Rule 701 of the Securities Act and by Sections 260.140.41 and 260.140.42 of
Title 10 of the California Code of Regulations.

      13. Adjustments Upon Changes in Capitalization, Merger or Change in
Control.

            (a) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares occurs, the Administrator, in
order to prevent diminution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, may (in its sole discretion)
adjust the number and class of Shares that may be delivered under the Plan
and/or the number, class, and price of Shares covered by each outstanding Option
or Stock Purchase Right.

                                      -10-
<PAGE>
            (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

            (c) Merger or Change in Control. In the event of a merger of the
Company with or into another corporation, or a Change in Control, each
outstanding Option and Stock Purchase Right shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period.

            For the purposes of this subsection (c), the Option or Stock
Purchase Right shall be considered assumed if, following the merger or Change in
Control, the option or right confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or Change in Control, the consideration (whether
stock, cash, or other securities or property) received in the merger or Change
in Control by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
Change in Control is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or Change in Control.

      14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

                                      -11-

<PAGE>
      15. Amendment and Termination of the Plan.

            (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

            (b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

            (c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

      16. Conditions Upon Issuance of Shares.

            (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

            (b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

      17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

      18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

      19. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

      20. Information to Optionees. The Company shall provide to each Optionee
and to each individual who acquires Shares pursuant to the Plan, not less
frequently than annually during the period such Optionee has one or more Options
or Stock Purchase Rights outstanding, and, in the case of an individual who
acquires Shares pursuant to the Plan, during the period such individual owns
such Shares, copies of annual financial statements. The Company shall not be
required to

                                      -12-
<PAGE>
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.

                                      -13-
<PAGE>
                               FAFCO, INCORPORATED

                                 2002 STOCK PLAN

                         FORM OF STOCK OPTION AGREEMENT

      Unless otherwise defined herein, the terms defined in the 2002 Stock Plan
shall have the same defined meanings in this Stock Option Agreement.

      I.    NOTICE OF STOCK OPTION GRANT

      NAME:

      ADDRESS:

      You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

         Grant Number
                                           -------------------------------------

         Date of Grant
                                           -------------------------------------

         Vesting Commencement Date
                                           -------------------------------------

         Exercise Price per Share          $
                                           -------------------------------------

         Total Number of Shares Granted
                                           -------------------------------------

         Total Exercise Price
                                           -------------------------------------

         Type of Option:                   ___ Incentive Stock Option

                                           ___ Nonstatutory Stock Option

         Term/Expiration Date:
                                           -------------------------------------

         Vesting Schedule:

      This Option shall be exercisable, in whole or in part, in accordance with
the following schedule:

      [25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].
<PAGE>
      Termination Period:

      This Option may be exercised for [three months] after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [twelve months] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.

      II.   AGREEMENT

      A.    Grant of Option.

      The Plan Administrator of the Company hereby grants to the Optionee named
in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an
option (the "Option") to purchase the number of Shares, as set forth in the
Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the "Exercise Price"), subject to the terms and conditions of the Plan,
which is incorporated herein by reference. Subject to Section 15(c) of the Plan,
in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Option Agreement, the terms and conditions of the
Plan shall prevail.

      If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").

      B.    Exercise of Option.

      (a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

      (b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.

      No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.

      C.    Method of Payment.

                                      -2-
<PAGE>
      Payment of the aggregate Exercise Price shall be by any of the following,
or a combination thereof, at the election of the Optionee:

      1. cash; or

      2. check; or

      3. consideration received by the Company under a formal cashless exercise
program implemented by the Company in connection with the Plan; or

      4. surrender of other Shares which (i) in the case of Shares acquired
either directly or indirectly from the Company, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price of
the Exercised Shares.

      D. Non-Transferability of Option.

      This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

      E. Term of Option.

      This Option may be exercised only within the term set out in the Notice of
Grant, and may be exercised during such term only in accordance with the Plan
and the terms of this Option Agreement.

      F. Tax Obligations.

      (a) Withholding Taxes. Optionee agrees to make appropriate arrangements
with the Company (or the Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state, local and foreign income and
employment tax withholding requirements applicable to the Option exercise.
Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

      (b) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

      G. Entire Agreement; Governing Law.

      The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their

                                      -3-
<PAGE>
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.

      H. NO GUARANTEE OF CONTINUED SERVICE.

      OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER
AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.

      By Optionee's signature and the signature of the Company's representative
below, Optionee and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.
<TABLE>
<S>                                                  <C>

 OPTIONEE:                                           FAFCO, INCORPORATED

 Signature                                           By
          -----------------------------------          ---------------------------------

 Print Name                                          Title
           ----------------------------------             ------------------------------

 Residence Address

</TABLE>

                                      -4-
<PAGE>
                               FAFCO, INCORPORATED
                                 2002 STOCK PLAN
                                 EXERCISE NOTICE

         FAFCO, INCORPORATED
         435 Otterson Drive
         Chico, CA 95928-8207
         Attention:  [Title]

      1. Exercise of Option. Effective as of today, ________________, _____, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of FAFCO, Incorporated (the "Company") under and
pursuant to the 2002 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). Subject to adjustment in accordance with
Section 13 of the Plan, the purchase price for the Shares shall be $_____, as
required by the Option Agreement.

      2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares together with any applicable withholding
taxes.

      3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

      4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.

      5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

      6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.

                                      -5-
<PAGE>
<TABLE>
<S>                                                  <C>

Submitted by:                                        Accepted by:

PURCHASER:                                           FAFCO, INCORPORATED

Signature                                            By
         -----------------------------------            -----------------------------------------

Print Name                                           Its
          ----------------------------------              ----------------------------------------

Address:                                             Address:
                                                     435 Otterson Drive
                                                     Chico, CA 95928-8207

                                                     Date Received
                                                                    -------------------------------

</TABLE>

                                      -6-

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