Document:

Exhibit
10.2

 

CONVERTIBLE PROMISSORY NOTE

 

	Effective Date: July 11, 2018	U.S. $1,070,000.00

 

FOR VALUE RECEIVED,
China Recycling Energy Corporation, a Nevada corporation (“Borrower”),
promises to pay to Iliad Research and Trading, L.P., a Utah limited partnership,
or its successors or assigns (“Lender”), $1,070,000.00 and any interest, fees, charges, and late fees on the
date that is twenty-four (24) months after the Purchase Price Date (the “Maturity Date”) in accordance with
the terms set forth herein and to pay interest on the Outstanding Balance at the rate of eight percent (8%) per annum from the
Purchase Price Date until the same is paid in full. This Convertible Promissory Note (this “Note”) is issued
and made effective as of July 11, 2018 (the “Effective Date”). This Note is issued pursuant to that certain
Securities Purchase Agreement dated July 11, 2018, as the same may be amended from time to time, by and between Borrower and Lender
(the “Purchase Agreement”). Certain capitalized terms used herein are defined in Attachment 1 attached
hereto and incorporated herein by this reference.

 

This Note carries an
OID of $50,000.00. In addition, Borrower agrees to pay $20,000.00 to Lender to cover Lender’s legal fees, accounting costs,
due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this Note (the “Transaction
Expense Amount”), all of which amount is included in the initial principal balance of this Note. The purchase price for
this Note shall be $1,000,000.00 (the “Purchase Price”), computed as follows: $1,070,000.00 original principal
balance, less the OID, less the Transaction Expense Amount. The Purchase Price shall be payable by Lender via wire transfer of
immediately available funds.

 

Payment; Prepayment;
Maturity Date Extension.

 

1.1. Payment.
Provided there is an Outstanding Balance, on each Redemption Date (as defined below), Borrower shall pay to Lender an amount equal
to the Redemption Amount (as defined below) due on such Redemption Date in accordance with Section 8. All payments owing hereunder
shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered
to Lender at the address or bank account furnished to Borrower for that purpose. All payments shall be applied first to (a) costs
of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal.

 

1.2. Prepayment.
Notwithstanding the foregoing, so long as Borrower has not received a Lender Conversion Notice (as defined below) or a Redemption
Notice (as defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event
of Default has occurred since the Effective Date (whether declared by Lender or undeclared and regardless of whether or not cured),
then Borrower shall have the right, exercisable on not less than five (5) Trading Days prior written notice to Lender to prepay
the Outstanding Balance of this Note, in full, in accordance with this Section 1.2. Any notice of prepayment hereunder (an “Optional
Prepayment Notice”) shall be delivered to Lender at its registered address and shall state: (i) that Borrower is exercising
its right to prepay this Note, and (ii) the date of prepayment, which shall be not less than five (5) Trading Days from the date
of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), Borrower
shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of Lender as may be specified by Lender
in writing to Borrower. If Borrower exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount
in cash equal to 125% (the “Prepayment Premium”) multiplied by the then Outstanding Balance of this Note (the
“Optional Prepayment Amount”). In the event Borrower delivers the Optional Prepayment Amount to Lender prior
to the Optional Prepayment Date or without delivering an Optional Prepayment Notice to Lender as set forth herein without Lender’s
prior written consent, the Optional Prepayment Amount shall not be deemed to have been paid to Lender until the Optional Prepayment
Date. Moreover, in such event the Optional Prepayment Liquidated Damages Amount will automatically be added to the Outstanding
Balance of this Note on the day Borrower delivers the Optional Prepayment Amount to Lender. In the event Borrower delivers the
Optional Prepayment Amount without an Optional Prepayment Notice, then the Optional Prepayment Date will be deemed to be the date
that is five (5) Trading Days from the date that the Optional Prepayment Amount was delivered to Lender and Lender shall be entitled
to exercise its conversion rights set forth herein during such five (5) day period.

 

     

     

    

 

1.3. Maturity Date
Extension. In the event this Note has not been repaid by the Maturity Date and provided that no Event of Default shall have
occurred hereunder at any time after the Effective Date, then the Maturity Date shall automatically be extended for an additional
year (the “Extension Period”). No interest shall accrue on this Note during the Extension Period. Notwithstanding
the foregoing, upon the occurrence of an Event of Default during the Extension Period, the Extension Period shall immediately terminate
and this Note shall immediately be due and payable in full.

 

2. Security.
This Note is not secured.

 

3. Lender Optional
Conversion.

 

3.1. Lender Conversions.
Lender has the right at any time after the Purchase Price Date until the Outstanding Balance has been paid in full, including without
limitation until any Optional Prepayment Date (even if Lender has received an Optional Prepayment Notice) or at any time thereafter
with respect to any amount that is not prepaid (each instance of conversion is referred to herein as a “Lender Conversion”)
all or any part of the Outstanding Balance into shares (“Lender Conversion Shares”) of fully paid and non-assessable
common stock, $0.001 par value per share (“Common Stock”), of Borrower as per the following conversion formula:
the number of Lender Conversion Shares equals the amount being converted (the “Conversion Amount”) divided by
the Lender Conversion Price (as defined below). Conversion notices in the form attached hereto as Exhibit A (each, a “Lender
Conversion Notice”) may be effectively delivered to Borrower by any method of Lender’s choice (including but not
limited to facsimile, email, mail, overnight courier, or personal delivery), and all Lender Conversions shall be cashless and not
require further payment from Lender. Borrower shall deliver the Lender Conversion Shares from any Lender Conversion to Lender in
accordance with Section 9 below.

 

3.2. Lender Conversion
Price. Subject to adjustment as set forth in this Note, the price at which Lender has the right to convert all or any portion
of the Outstanding Balance into Common Stock is $3.00 per share of Common Stock (the “Lender Conversion Price”).
However, in the event the Market Capitalization falls below the Minimum Market Capitalization at any time, then in such event the
Lender Conversion Price for all Lender Conversions occurring after the first date of such occurrence shall equal the lower of the
Lender Conversion Price and the Market Price as of any applicable date of Conversion.

 

    	 	2	 

     

    

 

4. Defaults and
Remedies.

 

4.1. Defaults.
The following are events of default under this Note (each, an “Event of Default”): (a) Borrower fails to pay
any principal, interest, fees, charges, or any other amount when due and payable hereunder; (b) Borrower fails to deliver any Lender
Conversion Shares in accordance with the terms hereof except such failure to deliver is due to ownership limitation as set forth
in Section 11 or otherwise legally restricted; (c) Borrower fails to deliver any Redemption Conversion Shares (as defined below)
in accordance with the terms hereof except such failure to deliver is due to ownership limitation as set forth in Section 11 or
otherwise legally restricted; (d) a receiver, trustee or other similar official shall be appointed over Borrower or a material
part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within
sixty (60) days; (e) Borrower fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any; (f) Borrower makes a general assignment for the benefit of creditors; (g) Borrower files a petition
for relief under any bankruptcy, insolvency or similar law (domestic or foreign); (h) an involuntary bankruptcy proceeding is commenced
or filed against Borrower; (i) Borrower defaults or otherwise fails to observe or perform any covenant, obligation, condition or
agreement of Borrower contained herein or in any other Transaction Document, other than those specifically set forth in this Section
4.1 and Section 4 of the Purchase Agreement; (j) any representation, warranty or other statement made or furnished by or on behalf
of Borrower to Lender herein, in any Transaction Document, or otherwise in connection with the issuance of this Note is false,
incorrect, incomplete or misleading in any material respect when made or furnished; (k) the occurrence of a Fundamental Transaction
without Lender’s prior written consent; (l) Borrower fails to maintain the Share Reserve as required under the Purchase Agreement;
(m) Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; (n)
any money judgment, writ or similar process is entered or filed against Borrower or any subsidiary of Borrower or any of its property
or other assets for more than $1,000,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar
days unless otherwise consented to by Lender; (o) Borrower fails to be DWAC Eligible; (p) Borrower fails to observe or perform
any covenant set forth in Section 4 of the Purchase Agreement; or (q) Borrower breaches any covenant or other term or condition
contained in any Other Agreements. Notwithstanding the foregoing, the occurrence of the events described in Section 4.1(j) –
(q) above shall not be considered an Event of Default if such event is cured within five (5) Trading Days of the occurrence of
such event.

 

4.2. Remedies.
At any time and from time to time after Lender becomes aware of the occurrence of any Event of Default, Lender may accelerate this
Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory
Default Amount. Notwithstanding the foregoing, at any time following the occurrence of any Event of Default, Lender may, at its
option, elect to increase the Outstanding Balance by applying the Default Effect (subject to the limitation set forth below) via
written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased
as of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance
shall not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the
Default Effect pursuant to this sentence, it shall reserve the right to declare the Outstanding Balance immediately due and payable
at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately
due and payable as set forth herein unless otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon the occurrence
of any Event of Default described in clauses (d), (e), (f), (g) or (h) of Section 4.1, the Outstanding Balance as of the date of
acceleration shall become immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written
notice required by Lender. For the avoidance of doubt, Lender may continue making Lender Conversions and Redemption Conversions
(as defined below) at any time following an Event of Default until such time as the Outstanding Balance is paid in full. Borrower
further acknowledges and agrees that Lender may continue making Conversions following the entry of any judgment or arbitration
award in favor of Lender until such time that the entire judgment amount or arbitration award is paid in full. Borrower agrees
that any judgment or arbitration award will, by its terms, be made convertible into Common Stock. Any Conversions made following
a judgment or arbitration award shall be made pursuant to the conversion mechanics for Redemption Conversions set forth in Section
8 of this Note. In such event, Borrower and Lender agree that it is their expectation that any such judgment amount or arbitration
award that is converted will tack back to the Purchase Price Date for purposes of determining the holding period under Rule 144.
Additionally, following the occurrence of any Event of Default, Borrower may, at its option, pay any Lender Conversion in cash
instead of Lender Conversion Shares by paying to Lender on or before the applicable Delivery Date (as defined below) a cash amount
equal to the number of Lender Conversion Shares set forth in the applicable Lender Conversion Notice multiplied by the highest
intra-day trading price of the Common Stock that occurs during the period beginning on the date the applicable Event of Default
occurred and ending on the date of the applicable Lender Conversion Notice. In connection with acceleration described herein, Lender
may enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and Lender shall have all rights as
a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.2. No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender’s
right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to Borrower’s failure to timely deliver Conversion Shares upon Conversion of the Note
as required pursuant to the terms hereof.

 

    	 	3	 

     

    

 

4.3. Certain Additional
Rights. Notwithstanding anything to the contrary herein, in the event Borrower fails to make any payment when due or fails
to deliver any Conversion Shares as and when required under this Note, then the Lender Conversion Price for all Lender Conversions
occurring after the date of such failure to pay shall equal the lower of the Lender Conversion Price and the Market Price as of
any applicable date of Conversion. For the avoidance of doubt, Lender’s exercise of the rights granted to it pursuant to
this Section 4.3 shall not relieve Borrower of its obligation to continue paying the Redemption Amount on all future Redemption
Dates.

 

5. Unconditional
Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation
of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has
or may have hereafter against Lender, its successors and assigns, and agrees to make the payments or Conversions called for herein
in accordance with the terms of this Note.

 

6. Waiver. No
waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the
waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent
to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or
commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.

 

7. Adjustment of
Lender Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision hereof, if Borrower
at any time on or after the Effective Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of shares, the Lender Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on or
after the Effective Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Lender Conversion Price in effect immediately prior to such combination will
be proportionately increased. Any adjustment pursuant to this Section 7 shall become effective immediately after the effective
date of such subdivision or combination. If any event requiring an adjustment under this Section 7 occurs during the period that
a Lender Conversion Price is calculated hereunder, then the calculation of such Lender Conversion Price shall be adjusted appropriately
to reflect such event.

 

    	 	4	 

     

    

 

8. Borrower Redemptions.

 

8.1. Redemption Conversion
Price. Subject to the adjustments set forth herein, the conversion price for each Redemption Conversion (as defined below)
(the “Redemption Conversion Price”) shall be the lesser of (a) the Lender Conversion Price, and (b) the Market
Price.

 

8.2. Redemption Conversions.
Beginning on the date that is six (6) months after the Purchase Price Date, Lender shall have the right, exercisable at any time
in its sole and absolute discretion, to redeem all or any portion of the Note (such amount, the “Redemption Amount”)
by providing Borrower with a notice substantially in the form attached hereto as Exhibit B (each, a “Redemption
Notice”, and each date on which Lender delivers a Redemption Notice, a “Redemption Date”). Notwithstanding
the foregoing, during the nine-month period following the Purchase Price Date, Lender may not, in the aggregate, redeem more than
50% of the then-current Outstanding Balance (the “Maximum Redemption Amount Cap”); provided, however
that the Maximum Redemption Amount Cap shall no longer apply after the earlier of the first occurrence of any Event of Default
hereunder and the date that is nine (9) months from the Purchase Price Date. For the avoidance of doubt, Lender may submit to Borrower
one (1) or more Redemption Notices in any given calendar month so long as the aggregate Redemption Amounts do not exceed the Maximum
Redemption Amount Cap (for so long as the Maximum Redemption Amount Cap remains in effect; thereafter, there shall be no limit
on the Redemption Amounts). Payments of each Redemption Amount may be made (a) in cash, or (b) by converting such Redemption Amount
into shares of Common Stock (“Redemption Conversion Shares”, and together with the Lender Conversion Shares,
the “Conversion Shares”) in accordance with this Section 8 (each, a “Redemption Conversion”)
per the following formula: the number of Redemption Conversion Shares equals the portion of the applicable Redemption Amount being
converted divided by the Redemption Conversion Price, or (c) by any combination of the foregoing, so long as the cash is delivered
to Lender on the third Trading Day immediately following the applicable Redemption Date and the Redemption Conversion Shares are
delivered to Lender on or before the applicable Delivery Date. Notwithstanding the foregoing, Borrower will not be entitled to
elect a Redemption Conversion with respect to any portion of any applicable Redemption Amount and shall be required to pay the
entire amount of such Redemption Amount in cash, if on the applicable Redemption Date there is an Equity Conditions Failure, and
such failure is not waived in writing by Lender. Notwithstanding that failure to repay this Note in full by the Maturity Date is
an Event of Default, the Redemption Dates shall continue after the Maturity Date pursuant to this Section 8 until the Outstanding
Balance is repaid in full.

 

8.3. Allocation of
Redemption Amounts. Following its receipt of a Redemption Notice, Borrower may either ratify Lender’s proposed allocation
in the applicable Redemption Notice or elect to change the allocation by written notice to Lender by email or fax within twenty-four
(24) hours of its receipt of such Redemption Notice, so long as the sum of the cash payments and the amount of Redemption Conversions
equal the applicable Redemption Amount. If Borrower fails to notify Lender of its election to change the allocation prior to the
deadline set forth in the previous sentence, it shall be deemed to have ratified and accepted the allocation set forth in the applicable
Redemption Notice prepared by Lender. Borrower acknowledges and agrees that the amounts and calculations set forth thereon are
subject to correction or adjustment because of error, mistake, or any adjustment resulting from an Event of Default or other adjustment
permitted under the Transaction Documents (an “Adjustment”). Furthermore, no error or mistake in the preparation
of such notices, or failure to apply any Adjustment that could have been applied prior to the preparation of a Redemption Notice
may be deemed a waiver of Lender’s right to enforce the terms of any Note, even if such error, mistake, or failure to include
an Adjustment arises from Lender’s own calculation. Borrower shall deliver the Redemption Conversion Shares from any Redemption
Conversion to Lender in accordance with Section 9 below on or before each applicable Delivery Date. If Borrower elects to pay a
Redemption Amount in cash, such payment must be delivered on the second Trading Day immediately following the Redemption Date.
If Borrowers elects to make a payment in cash and fails to make such payment by the required due date on two (2) separate occasions,
Borrower shall lose the right to make payments of Redemption Amounts in cash in the future without Lender’s written consent.

 

    	 	5	 

     

    

 

9. Method of Conversion
Share Delivery. On or before the close of business on the fifth (5th) Trading Day following each Redemption Date
or the fifth (5th) Trading Day following the date of delivery of a Lender Conversion Notice, as applicable (the “Delivery
Date”), Borrower shall, provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the
applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Lender Conversion Notice
or Redemption Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Lender Conversion
Notice or Redemption Notice, as applicable), via reputable overnight courier, a certificate representing the number of shares of
Common Stock equal to the number of Conversion Shares to which Lender shall be entitled, registered in the name of Lender or its
designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless
Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later
than the close of business on the relevant Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything
to the contrary herein or in any other Transaction Document, in the event Borrower or its transfer agent refuses to deliver any
Conversion Shares to Lender on grounds that such issuance is in violation of Rule 144 under the Securities Act of 1933, as amended
(“Rule 144”), Borrower shall deliver or cause its transfer agent to deliver the applicable Conversion Shares
to Lender with a restricted securities legend, but otherwise in accordance with the provisions of this Section 9. In conjunction
therewith, Borrower will also deliver to Lender a written opinion from its counsel or its transfer agent’s counsel opining
as to why the issuance of the applicable Conversion Shares violates Rule 144.

 

10. Conversion Delays.
If Borrower fails to deliver Conversion Shares in accordance with the timeframes stated in Sections 9, Lender, at any time prior
to selling all of those Conversion Shares may rescind in whole or in part that particular Conversion attributable to the unsold
Conversion Shares, with a corresponding increase to the Outstanding Balance (any returned amount will tack back to the Purchase
Price Date for purposes of determining the holding period under Rule 144). In addition, for each Lender Conversion, in the event
that Lender Conversion Shares are not delivered by the sixth (6th) Trading Day (inclusive of the day of the Lender Conversion),
a late fee equal to the greater of (a) $500.00 and (b) 2% of the applicable Lender Conversion Share Value rounded to the nearest
multiple of $100.00 (but in any event the cumulative amount of such late fees for each Lender Conversion shall not exceed 100%
of the applicable Lender Conversion Share Value) will be assessed for each day after the fifth (5th) Trading Day (inclusive
of the day of the Lender Conversion) until Lender Conversion Share delivery is made; and such late fee will be added to the Outstanding
Balance (such fees, the “Conversion Delay Late Fees”). For illustration purposes only, if Lender delivers a
Lender Conversion Notice to Borrower pursuant to which Borrower is required to deliver 100,000 Lender Conversion Shares to Lender
and on the Delivery Date such Lender Conversion Shares have a Lender Conversion Share Value of $20,000.00 (assuming a Closing Trade
Price on the Delivery Date of $0.20 per share of Common Stock), then in such event a Conversion Delay Late Fee in the amount of
$500.00 per day (the greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be added to the Outstanding
Balance of the Note until such Lender Conversion Shares are delivered to Lender. For purposes of this example, if the Lender Conversion
Shares are delivered to Lender twenty (20) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would
be added to the Outstanding Balance would be $10,000.00 (20 days multiplied by $500.00 per day). If the Lender Conversion Shares
are delivered to Lender one hundred (100) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would
be added to the Outstanding Balance would be $20,000.00 (100 days multiplied by $500.00 per day, but capped at 100% of the Lender
Conversion Share Value).

 

    	 	6	 

     

    

 

11. Ownership Limitation.
Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, if at any time Lender shall
or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause Lender (together
with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding
on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “Maximum Percentage”),
then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section,
beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the 1934 Act. The shares of Common Stock issuable
to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the “Ownership Limitation Shares”.
Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify
Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing Lender to exceed
the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated
shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares. Notwithstanding the forgoing,
the term “4.99%” above shall be replaced with “9.99%” at such time as the Market Capitalization is less
than $10,000,000.00. Notwithstanding any other provision contained herein, if the term “4.99%” is replaced with “9.99%”
pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until increased, decreased or waived
by Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to
itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement
is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.

 

12. Payment of Collection
Costs. If this Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or
legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender
for such collection, enforcement or action including, without limitation, attorneys’ fees and disbursements. Borrower also
agrees to pay for any costs, fees or charges of its transfer agent that are charged to Lender pursuant to any Conversion or issuance
of shares pursuant to this Note.

 

13. Opinion of Counsel.
In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion
provided by its counsel.

 

14. Governing Law;
Venue. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of Utah. The provisions set forth in the Purchase Agreement
to determine the proper venue for any disputes are incorporated herein by this reference.

 

15. Resolution of
Disputes.

 

15.1. Arbitration
of Disputes. By its acceptance of this Note, each party agrees to be bound by the Arbitration Provisions (as defined in the
Purchase Agreement) set forth as an exhibit to the Purchase Agreement.

 

15.2. Calculation
Disputes. Notwithstanding the Arbitration Provisions, in the case of a dispute as to any Calculation (as defined in the Purchase
Agreement), such dispute will be resolved in the manner set forth in the Purchase Agreement.

 

    	 	7	 

     

    

 

16. Cancellation.
After repayment or conversion of the entire Outstanding Balance, this Note shall be deemed paid in full, shall automatically be
deemed canceled, and shall not be reissued.

 

17. Amendments.
The prior written consent of both parties hereto shall be required for any change or amendment to this Note.

 

18. Assignments.
Neither party may assign this Note without the prior written consent of the other party; provided, however, that Lender may assign
this Note to any of its affiliates or any trust where John M. Fife’s descendants are beneficiaries without Borrower’s
consent. Any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by Lender
without the consent of Borrower.

 

19. Time is of the
Essence. Time is expressly made of the essence with respect to each and every provision of this Note and the documents and
instruments entered into in connection herewith.

 

20. Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with the subsection of the Purchase Agreement titled “Notices.”

 

21. Liquidated Damages.
Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s
damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to
predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Lender and
Borrower agree that any fees, balance adjustments, or other charges assessed under this Note are not penalties but instead are
intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s expectations
that any such liquidated damages will tack back to the Purchase Price Date for purposes of determining the holding period under
Rule 144).

 

22. Waiver of Jury
Trial. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY.
THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE
OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S
RIGHT TO DEMAND TRIAL BY JURY.

 

23. Voluntary Agreement.
Borrower has carefully read this Note and has asked any questions needed for Borrower to understand the terms, consequences and
binding effect of this Note and fully understand them. Borrower has had the opportunity to seek the advice of an attorney of Borrower’s
choosing, or has waived the right to do so, and is executing this Note voluntarily and without any duress or undue influence by
Lender or anyone else.

 

24. Severability.
If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower
and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.

 

[Remainder of page intentionally left
blank; signature page follows]

 

    	 	8	 

     

    

 

IN WITNESS WHEREOF,
Borrower has caused this Note to be duly executed as of the Effective Date.

 

	 	BORROWER:
	 	 
	 	China Recycling Energy Corporation
	 	 	 
	 	By: 	/s/ Guohua Ku
	 	 	Guohua Ku,
	 	 	Chairman & Chief Executive Officer 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

	Iliad Research and Trading, L.P.	 
	 	 
	By: Iliad Management, LLC, its General Partner	 
	 	 	 	 	 
	 	By:	Fife Trading, Inc., its Manager	 
	 	 	 	 	 
	 	 	By: 	/s/ John M. Fife	 
	 	 	 	John M. Fife, President	 

 

[Signature Page to
Convertible Promissory Note]

 

     

     

    

 

ATTACHMENT 1

DEFINITIONS

 

For purposes
of this Note, the following terms shall have the following meanings:

 

A1. “Bloomberg”
means Bloomberg L.P. (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by Lender and reasonably satisfactory to Borrower).

 

A2. “Closing
Bid Price” and “Closing Trade Price” means the last closing bid price and last closing trade price,
respectively, for the Common Stock on its principal market, as reported by Bloomberg, or, if its principal market begins to operate
on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the
last bid price or last trade price, respectively, of the Common Stock prior to 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if its principal market is not the principal securities exchange or trading market for the Common Stock, the last
closing bid price or last trade price, respectively, of the Common Stock on the principal securities exchange or trading market
where the Common Stock is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price
or last trade price, respectively, of the Common Stock in the over-the-counter market on the electronic bulletin board for the
Common Stock as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for the Common
Stock by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for the Common Stock as
reported by OTC Markets Group, Inc., and any successor thereto. If the Closing Bid Price or the Closing Trade Price cannot be calculated
for the Common Stock on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Trade Price (as the
case may be) of the Common Stock on such date shall be the fair market value as mutually determined by Lender and Borrower. If
Lender and Borrower are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved in
accordance with the procedures in Section 15.2. All such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.

 

A3. “Conversion”
means a Lender Conversion under Section 3 or a Redemption Conversion under Section 8.

 

A4. “Conversion
Factor” means 75%, subject to the following adjustments. If at any time after the Effective Date, Borrower is not DWAC
Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. If at any time
after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically
be reduced by an additional 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs
after the Effective Date, the Conversion Factor shall automatically be reduced for all future Conversions by an additional 5% for
each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of
any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even
if the same Major Default occurs three (3) separate times). For example, the first time Borrower is not DWAC Eligible, the Conversion
Factor for future Conversions thereafter will be reduced from 75% to 70% for purposes of this example. Following such event, the
first time the Conversion Shares are no longer DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced
from 70% to 65% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant
to Section 4.1(c), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence,
and so on for each of the second and third occurrences of such Major Default.

 

A5. “Default
Effect” means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred by (a) 15%
for each occurrence of any Major Default, or (b) 5% for each occurrence of any Minor Default, and then adding the resulting product
to the Outstanding Balance as of the date the applicable Event of Default occurred, with the sum of the foregoing then becoming
the Outstanding Balance under this Note as of the date the applicable Event of Default occurred; provided that the Default Effect
may only be applied three (3) times hereunder with respect to Major Defaults and three (3) times hereunder with respect to Minor
Defaults; and provided further that the Default Effect shall not apply to any Event of Default pursuant to Section 4.1(b) hereof.
Notwithstanding the foregoing, in no event shall the Default Effect result in increases to the Outstanding Balance exceeding, in
the aggregate, 25%.

 

A6. “DTC”
means the Depository Trust Company or any successor thereto.

 

    	 	Attachment 1 to Convertible Promissory Note, Page 1	 

     

    

 

A7. “DTC Eligible”
means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared
and converted into electronic shares by the DTC and held in the name of the clearing firm servicing Lender’s brokerage firm
for the benefit of Lender.

 

A8. “DTC/FAST
Program” means the DTC’s Fast Automated Securities Transfer program.

 

A9. “DWAC”
means the DTC’s Deposit/Withdrawal at Custodian system.

 

A10. “DWAC
Eligible” means that (a) Borrower’s Common Stock is eligible at DTC for full services pursuant to DTC’s operational
arrangements, including without limitation transfer through DTC’s DWAC system; (b) Borrower has been approved (without revocation)
by DTC’s underwriting department; (c) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program; (d)
the Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has previously delivered all Conversion Shares
to Lender via DWAC; and (f) Borrower’s transfer agent does not have a policy prohibiting or limiting delivery of the Conversion
Shares via DWAC.

 

A11. “Equity
Conditions Failure” means that any of the following conditions has not been satisfied during any applicable Equity Conditions
Measuring Period (as defined below): (a) with respect to the applicable date of determination all of the Conversion Shares
would be freely tradable under Rule 144 or without the need for registration under any applicable federal or state securities laws
(in each case, disregarding any limitation on conversion of this Note); (b) on each day during the period beginning one month
prior to the applicable date of determination and ending on and including the applicable date of determination (the “Equity
Conditions Measuring Period”), the Common Stock is listed or designated for quotation (as applicable) on any of NYSE,
NASDAQ, OTCQX, or OTCQB (each, an “Eligible Market”) and shall not have been suspended from trading on any such
Eligible Market (other than suspensions of not more than two (2) Trading Days and occurring prior to the applicable date of
determination due to business announcements by Borrower); (c) on each day during the Equity Conditions Measuring Period, Borrower
shall have delivered all shares of Common Stock issuable upon conversion of this Note on a timely basis as set forth in Section 8.1
hereof and all other shares of capital stock required to be delivered by Borrower on a timely basis as set forth in the other Transaction
Documents; (d) any shares of Common Stock to be issued in connection with the event requiring determination may be issued
in full without violating Section 11 hereof (Lender acknowledges that Borrower shall be entitled to assume that this condition
has been met for all purposes hereunder absent written notice from Lender); (e) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without violating the rules or regulations of the Eligible
Market on which the Common Stock is then listed or designated for quotation (as applicable); (f) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall have occurred
which has not been abandoned, terminated or consummated; (g) Borrower shall have no knowledge of any fact that would reasonably
be expected to cause any of the Conversion Shares to not be freely tradable without the need for registration under any applicable
state securities laws (in each case, disregarding any limitation on conversion of this Note); (h) on each day during the Equity
Conditions Measuring Period, Borrower otherwise shall have been in material compliance with each, and shall not have breached any,
term, provision, covenant, representation or warranty of any Transaction Document; (i) without limiting clause (j) above,
on each day during the Equity Conditions Measuring Period, there shall not have occurred an Event of Default or an event that with
the passage of time or giving of notice would constitute an Event of Default; (k) on each Redemption Date, the average and median
daily dollar volume of the Common Stock on its principal market for the previous twenty (20) and two hundred (200) Trading Days
shall be greater than $200,000.00; (l) the ten (10) day average VWAP of the Common Stock is greater than $1.00, (m) the Market
Capitalization shall be above the Minimum Market Capitalization; and (n) the Common Stock shall be DWAC Eligible as of each applicable
Redemption Date or other date of determination.

 

A12. “Excluded
Securities” means any shares of Common Stock, options, or convertible securities issued or issuable in connection with
any Approved Stock Plan; provided that the option term, exercise price or similar provisions of any issuances pursuant to
such Approved Stock Plan are not amended, modified or changed on or after the Purchase Price Date.

 

A13. “Free
Trading” means that (a) the shares or certificate(s) representing the applicable shares of Common Stock have been cleared
and approved for public resale by the compliance departments of Lender’s brokerage firm and the clearing firm servicing such
brokerage, and (b) such shares are held in the name of the clearing firm servicing Lender’s brokerage firm and have been
deposited into such clearing firm’s account for the benefit of Lender.

 

    	 	Attachment 1 to Convertible Promissory Note, Page 2	 

     

    

 

A14. “Fundamental
Transaction” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more
related transactions, consolidate or merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation)
any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related
transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective
properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly,
in one or more related transactions, allow any other person or entity to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock
of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or
party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly,
in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such
other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of
voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons
or entities making or party to, such stock or share purchase agreement or other business combination), or (v) Borrower or
any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify
the Common Stock, other than an increase in the number of authorized shares of Borrower’s Common Stock, or (b) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.

 

A15. “Lender
Conversion Share Value” means the product of the number of Lender Conversion Shares deliverable pursuant to any Lender
Conversion multiplied by the Closing Trade Price of the Common Stock on the Delivery Date for such Lender Conversion.

 

A16. “Major
Default” means any Event of Default occurring under Sections 4.1(a), 4.1(c), 4.1(l), or 4.1(p) of this Note.

 

A17. “Mandatory
Default Amount” means the greater of (a) the Outstanding Balance divided by the Redemption Conversion Price on the date
the Mandatory Default Amount is demanded, multiplied by the VWAP on the date the Mandatory Default Amount is demanded, or (b) the
Outstanding Balance following the application of the Default Effect.

 

A18. “Market
Capitalization” means a number equal to (a) the average VWAP of the Common Stock for the immediately preceding fifteen
(15) Trading Days, multiplied by (b) the aggregate number of outstanding shares of Common Stock as reported on Borrower’s
most recently filed Form 10-Q or Form 10-K.

 

A19. “Market
Price” means the Conversion Factor multiplied by the lowest Closing Bid Price during the twenty (20) Trading Days immediately
preceding the applicable Conversion.

 

A20. “Minimum
Market Capitalization” means $12,000,000.00.

 

A21. “Minor
Default” means any Event of Default that is not a Major Default.

 

A22. “OID”
means an original issue discount.

 

A23. “Optional
Prepayment Liquidated Damages Amount” means an amount equal to the difference between (a) the product of (i) the number
of shares of Common Stock obtained by dividing (1) the applicable Optional Prepayment Amount by (2) the Lender Conversion Price
as of the date Borrower delivered the applicable Optional Prepayment Amount to Lender, multiplied by (ii) the Closing Trade Price
of the Common Stock on the date Borrower delivered the applicable Optional Prepayment Amount to Lender, and (b) the applicable
Optional Prepayment Amount paid by Borrower to Lender. For illustration purposes only, if the applicable Optional Prepayment Amount
were $50,000.00, the Lender Conversion Price as of the date the Optional Prepayment Amount was paid to Lender was equal to $0.75
per share of Common Stock, and the Closing Trade Price of a share of Common Stock as of such date was equal to $1.00, then the
Optional Prepayment Liquidated Damages Amount would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i) (1)
$50,000.00 divided by (2) $0.75 multiplied by (ii) $1.00) minus (b) $50,000.00.

 

    	 	Attachment 1 to Convertible Promissory Note, Page 3	 

     

    

 

A24. “Other
Agreements” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower
(or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement or a material
agreement that affects Borrower’s ongoing business operations.

 

A25. “Outstanding
Balance” means as of any date of determination, the Purchase Price, as reduced or increased, as the case may be, pursuant
to the terms hereof for payment, Conversion, offset, or otherwise, plus the OID, the Transaction Expense Amount, accrued but unpaid
interest, collection and enforcements costs (including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and
similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion Delay Late
Fees) incurred under this Note.

 

A26. “Purchase
Price Date” means the date the Purchase Price is delivered by Lender to Borrower.

 

A27. “Trading
Day” means any day on which the New York Stock Exchange is open for trading.

 

A28. “VWAP”
means the volume weighted average price of the Common stock on the principal market for a particular Trading Day or set of Trading
Days, as the case may be, as reported by Bloomberg.

 

    	 	Attachment 1 to Convertible Promissory Note, Page 4	 

     

    

 

EXHIBIT A

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

	China Recycling Energy Corporation	 	Date: __________________

Attn: GuangYu Wu, CEO

Suite 909, Tower B

Chang An International Building

Xi An City, 710068

China

 

LENDER CONVERSION NOTICE

 

The above-captioned Lender hereby gives
notice to China Recycling Energy Corporation, a Nevada corporation (the “Borrower”), pursuant to that certain
Convertible Promissory Note made by Borrower in favor of Lender on July 11, 2018 (the “Note”), that Lender elects
to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower
as of the date of conversion specified below. Said conversion shall be based on the Lender Conversion Price set forth below. In
the event of a conflict between this Lender Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the
election of Lender in its sole discretion, Lender may provide a new form of Lender Conversion Notice to conform to the Note. Capitalized
terms used in this notice without definition shall have the meanings given to them in the Note.

 

		A.	Date of Conversion: ____________

		B.	Lender Conversion #: ____________

		C.	Conversion Amount: ____________

		D.	Lender Conversion Price: _______________

		E.	Lender Conversion Shares: _______________ (C divided by
D)

		F.	Remaining Outstanding Balance of Note: ____________*

 

* Subject to adjustments for corrections,
defaults, interest and other adjustments permitted by the Transaction Documents (as defined in the Purchase Agreement), the terms
of which shall control in the event of any dispute between the terms of this Lender Conversion Notice and such Transaction Documents.

 

Please transfer the Lender Conversion
Shares electronically (via DWAC) to the following account:

 

	Broker:	 	 	Address:	 	 
	DTC#:	 	 	 	 	 
	Account #:	 	 	 	 	 
	Account Name:	 	 	 	 	 

 

To the extent the
Lender Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated
shares to Lender via reputable overnight courier after receipt of this Lender Conversion Notice (by facsimile transmission or otherwise)
to:

 

	 	 	 
	 	 	 
	 	 	 

 

    	 	Exhibit A to Convertible Promissory Note, Page 1	 

     

    

 

Sincerely,

 

Lender:

 

	Iliad Research and Trading, L.P.	 
	 	 
	By: Iliad Management, LLC, its General Partner	 
	 	 	 	 	 
	 	By:	Fife Trading, Inc., its Manager	 
	 	 	 	 	 
	 	 	By:	 	 
	 	 	 	John M. Fife, President	 

 

    	 	Exhibit A to Convertible Promissory Note, Page 2	 

     

    

 

EXHIBIT B

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

	China Recycling Energy Corporation	Date: __________________

Attn: Guohua Ku, Chairman & CEO

4/F Block C

Rong Cheng Yun Gu Building

Xi An City 710068

China

 

REDEMPTION NOTICE

 

The above-captioned Lender hereby gives
notice to China Recycling Energy Corporation, a Delaware corporation (the “Borrower”), pursuant to that certain
Convertible Promissory Note made by Borrower in favor of Lender on July 11, 2018 (the “Note”), that Lender elects
to redeem a portion of the Note in Redemption Conversion Shares or in cash as set forth below. In the event of a conflict between
this Redemption Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion,
Lender may provide a new form of Redemption Notice to conform to the Note. Capitalized terms used in this notice without definition
shall have the meanings given to them in the Note.

 

REDEMPTION INFORMATION 

 

		A.	Redemption Date: ____________, 201_

		B.	Redemption Amount: ____________

		C.	Portion of Redemption Amount to be Paid in Cash: ____________

		D.	Portion of Redemption Amount to be Converted into Common
Stock: ____________ (B minus C)

		E.	Redemption Conversion Price: _______________ (lower of
(i) Lender Conversion Price in effect and (ii) Market Price as of Redemption Date)

		F.	Redemption Conversion Shares: _______________ (D divided
by E)

		G.	Remaining Outstanding Balance of Note: ____________ *

 

* Subject to adjustments for corrections,
defaults, interest and other adjustments permitted by the Transaction Documents (as defined in the Purchase Agreement), the terms
of which shall control in the event of any dispute between the terms of this Redemption Notice and such Transaction Documents.

 

2. EQUITY CONDITIONS CERTIFICATION (Section
to be completed by Borrower)

 

		A.	Market Capitalization:________________

 

(Check One)

 

		B.	_________ Borrower herby certifies that no Equity Conditions
Failure exists as of the applicable Redemption Date.

 

    	 	Exhibit B to Convertible Promissory Note, Page 1	 

     

    

 

		C.	_________ Borrower hereby gives notice that an Equity Conditions
Failure has occurred and requests a waiver from Lender with respect thereto. The Equity Conditions Failure is as follows:

 

	 	 	 
	 	 	 
	 	 	 

 

Please transfer the Redemption Conversion
Shares, if applicable, electronically (via DWAC) to the following account:

 

	Broker:	 	 	Address:	 	 
	DTC#:	 	 	 	 	 
	Account #:	 	 	 	 	 
	Account Name:	 	 	 	 	 

 

To the extent the
Redemption Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated
shares to Lender via reputable overnight courier after receipt of this Redemption Notice (by facsimile transmission or otherwise)
to:

 

	 	 	 
	 	 	 
	 	 	 

 

Sincerely,

 

Lender:

 

	Iliad Research and Trading, L.P.	 
	 	 
	By: Iliad Management, LLC, its General Partner	 
	 	 	 	 	 
	 	By:	Fife Trading, Inc., its Manager	 
	 	 	 	 	 
	 	 	By:	 	 
	 	 	 	John M. Fife, President	 

 

    	 	Exhibit B to Convertible Promissory Note, Page 2Exhibit 10.8

 

PUREBASE CORPORATION

(a Nevada corporation)

 

2017 PUREBASE CORPORATION

STOCK OPTION PLAN

1.             Purposes of the Plan. The purposes of this Plan (defined below) 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 of an option and subject to the applicable provisions of Section 422 of the Code and the regulations and interpretations promulgated thereunder. 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 its Committee appointed pursuant to Section 5 of the Plan.

 

(b)            "Affiliate" means an entity other than a Subsidiary (as defined below) which, together with the Company, is under common control of a third person or entity.

 

(c)            "Applicable Laws" means the legal requirements relating to the administration of stock option and restricted stock purchase plans, including under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, other U.S. federal and state laws, the Code, any Stock Exchange rules or regulations and the applicable laws, rules and regulations of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time.

 

(d)            "Award" means any stock option or Stock Purchase Right granted under this Plan.

 

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

 

(f)            "Cause" means: (1) willful misconduct or gross negligence in the performance of a person's duties, or refusal or failure to comply with the legal directives of the Board so long as such directives are not inconsistent with a person's position and duties, which is not remedied (if remediable) within five (5) working days after written notice from the Board, which written notice shall state that failure to remedy such conduct may result in termination for Cause; (2) a person's deliberate attempt to do an injury to the Company; (2) a person's  conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company; or (4) a person's material breach of any material provision of the Company's form of confidentiality agreement, including without limitation, the theft or other misappropriation of the Company's proprietary information.

 

1

 

(g)           "Change of Control" means (1) a sale of all or substantially all of the Company's assets, or (2) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, or (3) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company. 

 

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

 

(i)            "Committee" means one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 of the Plan.

 

(j)            "Common Stock" means the Common Stock of the Company.

 

(k)           "Company" means Purebase Corporation, a Nevada corporation.

 

(l)            "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent, Subsidiary or Affiliate to render services and is compensated for such services, and any director of the Company whether compensated for such services or not.

 

(m)          "Continuous Service Status" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted in the case of:  (1) sick leave; (2) military leave; (3) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (4) in the case of transfers between locations of the Company or between the Company, its Parents, Subsidiaries, Affiliates or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status.

 

(n)          "Corporate Transaction" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company.

 

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

 

2

 

(p)           "Employee" means any person employed by the Company or any Parent, Subsidiary or Affiliate, with the status of employment determined based upon such factors as are deemed appropriate by the Administrator in its discretion, subject to any requirements of the Code or the Applicable Laws. The payment by the Company of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company.

 

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

 

(r)           "Fair Market Value" means, as of any date, the fair market value of the Common Stock, as determined by the Administrator in good faith on such basis. A good faith basis in this case will be a reasonable valuation as defined under Regulations Section 1.409A- 1(b)(5)(iv)(B)(1). The Administrator may at its option, use the methods defined under  Regulation Section 1.409A-1(b)(5)(iv)(B)(2) or if applicable, the value as determined by an independent appraiser selected by the Board or Committee. Notwithstanding the above, whenever the Common Stock is readily tradable on an established securities market, the determination of Fair Market Value shall be based upon the arithmetic mean of the high and low prices on the trading day before or the trading day of the grant (as determined in the discretion of the Administrator on the Grant Date) as reported by such securities market.

 

(s)          "Grant Date" means the date when the Company completes the Stock Option Agreement necessary to create a legally binding right constituting the Option. The Company is deemed to have completed the necessary actions to create a legally binding right constituting the Option, when both the maximum number of shares and the minimum exercise price are fixed and determinable. This Section 2(r) is intended to comply fully with the provisions under Regulation Section 1.409A-1(b)(5)(vi)(B).

 

(t)            "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Option Agreement.

 

(u)           "Listed Security" means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the Financial Industry Regulatory Authority ("FINRA").

 

(v)            "Named Executive" means any individual who, on the last day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act.

 

(w)           "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable Option Agreement.

 

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

 

3

 

(y)           "Option Exchange Program" means a program approved by the Administrator whereby outstanding Options are exchanged for Options with a lower exercise price or are amended to decrease the exercise price as a result of a decline in the Fair Market Value of the Common Stock provided that any such repricing be made in accordance with Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations, or in connection with a transaction which is considered the grant of a new Option for purposes of Section 409A of the Code, provided that the new exercise price or grant price is not less than the Fair Market Value of a Share on the new grant date.

 

(z)           "Optioned Stock" means the Common Stock subject to an Option.

 

(aa)          "Optionee" means an Employee, Director or Consultant who receives an Option.

 

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

 

(cc)         "Participant" means any holder of one or more Options or  Stock  Purchase Rights, or the Shares issuable or issued upon exercise of such awards, under the Plan.

 

(dd)         "Plan" means this 2017 Purebase Corporation Stock Option Plan.

 

(ee)         "Regulations" means  the official Treasury Department interpretation of   the Internal Revenue Code.

 

(ff)          "Reporting Person" means an officer, Director, or greater than  ten  percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.

 

(gg)        "Restricted Stock" means Shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.

 

(hh)        "Restricted Stock Purchase Agreement" means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement.

 

(ii)           "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.

 

(jj)           "Share" means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

 

(kk)        "Stock Exchange" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time.

 

4

 

(ll)           "Stock Option Agreement" means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Stock Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice.

 

(mm)       "Stock  Purchase  Right"  means  the  right  to  purchase Common Stock pursuant to Section 10 below.

 

(nn)         "Subsidiary" means a "subsidiary entity," whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision.

 

(oo)         "Ten Percent Holder" means a person who 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.

 

3.             Shares Reserved under the Plan

 

(a)           Plan Reserve.  Subject to the provisions of Section 13 of the Plan, an aggregate of Ten Million (10,000,000) Shares are initially reserved for issuance under this Plan, all of which may be issued as any form of Award.

 

(b)           Replenishment of Shares Under this Plan.  If an Award lapses, expires, terminates or is cancelled without the issuance of Shares or payment of cash under the Award, then the Shares subject to or reserved for in respect of such Award, or the Shares to which such Award relates, may again be used for new Awards under the Plan, including issuance pursuant to incentive stock options.  If Shares are delivered to (or withheld by) the Company in payment of the exercise price or withholding taxes of an Award, then such Shares may be used for new Awards under this Plan, including issuance pursuant to incentive stock options.  If Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares may be used for new Awards under this Plan, but excluding issuance pursuant to incentive stock options.

 

(c)           Evergreen Replenishment of Shares.  In addition, the number of Shares available for issuance under this Plan shall automatically increase on January 1st of each year for a period of nine (9) years commencing on January 1, 2018 and ending on (and including) January 1, 2026, in an amount equal to the greater of (i) 10 percent (10%) of the total number of shares of Common Stock issued and outstanding on the last day of the immediately preceding fiscal year, or (ii) such number of shares of Common Stock as initially reserved under subsection (a) above.

 

4.             Individual Awards under the Plan. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option and/or Stock Purchase Right. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Common Stock that may be subject to awards granted under the Plan to any one individual during any calendar year may not exceed one percent (1%) of the total number of shares of Common Stock issued and outstanding as of the Award grant date (as adjusted from time to time in accordance with the provisions of the Plan).

 

5

 

5.             Administration of the Plan.

 

(a)           General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. Notwithstanding the foregoing, from and after the date upon which the Company becomes a "publicly held corporation" (as defined in section 162(m) of the Code and applicable interpretive authority under the Code), the Plan will be administered by a committee of, and  appointed by, the Board that will be comprised solely of two or more outside Directors (within the meaning of the term "outside directors" as used in section 162(m) of the Code and applicable interpretive authority under the Code and within the meaning of "Non-Employee Director" as defined in Rule 16b-3).

 

(b)           Committee Composition. If a Committee has been appointed pursuant to this Section 5, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. The Committee shall in all events conform to any requirements of the Applicable Laws.

 

(c)            Powers of the Administrator.  All actions and determinations by the Administrator are made in its sole discretion and shall be final and binding on any person with an interest therein. If at any time a Committee is not in existence or is not properly constituted, the Board shall administer the Plan. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

 

(i)             to determine whether each option granted will be an incentive stock option or a nonstatutory stock option;

 

(ii)           to determine the Fair Market Value of the Common Stock, in accordance with Section 2(r) of the Plan, provided that such determination shall be applied consistently with respect to Participants under the Plan;

 

(iii)          to select the Employees and Consultants to whom Plan awards may from time to time be granted;

 

(iv)           to determine whether and to what extent Plan awards are granted;

 

(v)            to determine the number of Shares of Common Stock to be  covered by each award granted;

 

(vi)           to approve the form(s) of agreement(s) used under the Plan;

 

6

 

(vii)         to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, any pro rata adjustment to vesting as a result of a Participant's transitioning from full- to part-time service (or vice versa), and any restriction or limitation regarding any Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

 

(viii)        to implement an Option Exchange Program on such terms and conditions as the Administrator in its discretion deems appropriate, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without the prior written consent of the Optionee;

 

(ix)           to adjust the vesting of an Option held by an Employee or Consultant as a result of a change in the terms or conditions under which such person is providing services to the Company;

 

(x)            to construe and interpret the terms of the Plan and awards granted under the Plan, which constructions, interpretations and decisions shall be final and binding on  all Participants; and

 

(xi)           in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs.

 

6.             Eligibility.

 

(a)           Recipients of Grants. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options.

 

(b)           Type of Option. Each Option shall be designated in the Stock Option  Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.

 

(c)            ISO $100,000 Limitation. Notwithstanding any designation under  Section 6(b), to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(c), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option.

 

(d)            No Employment Rights. The Plan shall not confer upon any Participant any right with respect to continuation of an employment or consulting relationship with the Company, nor shall it interfere in any way with such Participant's right or the Company's right  to terminate the employment or consulting relationship at any time for any reason.

 

7

 

7.             Term of Plan. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 16 of the Plan.

 

8.             Term of Option. The term of each Option shall be the term stated in the Stock Option Agreement; provided that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be no more than five years from the date of grant thereof or such shorter term as may be provided in the Stock 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 such price as is determined by the Administrator and set forth in the Stock Option Agreement, but shall be subject to the following provided that the exercise price for the Options may never be less than the Fair Market Value on the Grant Date:

 

(i)             In the case of an Incentive Stock Option

 

(A)             granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the Grant Date; or

 

(B)              granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.

 

(ii)           In the case of a Nonstatutory Stock Option granted on any date to any eligible person, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.

 

(iii)          Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction; provided, however, the grant of such options may never be less than the fair market value of the underlying stock on the grant date.

 

(b)            Permissible Consideration. The consideration to be paid for the Shares  to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) subject to any requirements of the Applicable Laws, delivery of Optionee's promissory note having such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate after taking into account the potential accounting consequences of permitting an Optionee to deliver a promissory note; (4) cancellation of indebtedness; (5) other Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the 

 

8

 

 

Optioned Shares as to which the  Option is exercised, provided that in the case of Shares acquired, directly or indirectly, from the Company, such Shares must have been owned by the Optionee for more than six months on the date of surrender (or such other period as may be required to avoid the Company's incurring an adverse accounting charge); (6) if, as of the date of exercise of an Option the Company then is permitting employees to engage in a "same-day sale" cashless brokered exercise program involving one or more brokers, through such a program that complies with the Applicable Laws (including without limitation the requirements of Regulation T and other applicable regulations promulgated by the Federal Reserve Board) and that ensures prompt delivery to the Company of the amount required to pay the exercise price and any applicable withholding taxes; or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise.

 

10.           Exercise of Option.

 

(a)            General.

 

(i)            Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the term of the Plan and reflected in the Stock Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee.

 

(ii)           Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave  of  absence;  provided,  however,  that  in  the  absence  of  such  determination,  vesting of Options shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). In the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Participant's returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Options to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

 

(iii)          Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share.  The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable.

 

(iv)           Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan, provided that the Administrator may, in its sole discretion, refuse to accept any form of consideration at the time of any Option exercise. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be 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.

 

9

 

(v)            Rights as Stockholder. Until the issuance of the Shares (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. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan.

 

(b)           Termination of Employment or Consulting Relationship. Except as otherwise set forth in this Section 10(b), the Administrator shall establish and set forth in the applicable Stock Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee's Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. Unless the  Administrator otherwise provides in the Stock Option Agreement, to the extent that the Optionee is not vested in Optioned Stock at the date of termination of his or her Continuous Service Status, or if the Optionee (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified in the Option Agreement or below (as applicable), the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Stock Option Agreement (and subject to Section 8).

 

The following provisions (1) shall apply to the extent an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee's Continuous Service Status, and (2) establish the minimum post-termination exercise periods that may be set forth in a Stock  Option Agreement:

 

(i)            Termination other than Upon Disability or Death; Termination for Cause. In the event of termination of Optionee's Continuous Service Status other than under the circumstances set forth in subsections (ii) and (iii) below, such Optionee may exercise an Option for thirty (30) days following such termination to the extent the Optionee was vested in the Optioned Stock as of the date of such termination; provided, however, in the event of termination of Optionee's Continuous Service Status for Cause, the Optionee's rights to exercise an Option shall terminate concurrently with the termination of the Optionee's Continuous Service Status. No termination shall be deemed to occur and this Section 10(b)(i)  shall not apply if (1) the Optionee is a Consultant who becomes an Employee, or (2) the Optionee is an Employee who becomes a Consultant.

 

(ii)           Disability of Optionee. In the event of termination of an Optionee's Continuous Service Status as a result of his or her disability (including a disability within the meaning of Section 22(e)(3) of the Code), such Optionee may exercise an Option at any time within six (6) months following such termination to the extent the Optionee was vested in the Optioned Stock as of the date of such termination.

 

10

 

(iii)          Death of Optionee. In the event of the death of an Optionee  during the period of Continuous Service Status since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Service Status, the Option may be exercised by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance at any time within twelve (12) months following the date of death, but only to the extent the Optionee was vested in the Optioned Stock as of the date of death or, if earlier, the date the Optionee's Continuous Service Status terminated.

 

11.           Stock Purchase Rights.

 

(a)            Rights to Purchase. When the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The Company shall pay all administrative costs associated with the exercise of Stock Purchase Rights. In the case of a Stock Purchase Right granted prior to the date, if any, on which the Common Stock becomes a Listed Security and if required by the Applicable Laws at that time, the purchase price of Shares subject to such Stock Purchase Rights shall not be less than 100% of the Fair Market Value of the Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the price shall not be less than 110% of the Fair Market Value of the Shares as of the date of the offer. If the Applicable Laws do not impose the requirements set forth in the preceding sentence and with respect to any Stock Purchase Rights granted after the date, if any, on which the Common Stock becomes a Listed Security, the purchase price of Shares subject to Stock Purchase Rights shall be as determined by the Administrator. The offer to purchase Shares subject to Stock Purchase Rights shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

 

(b)           Repurchase Option.

 

(i)            General. 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 employment with the Company for any reason (including death or disability). Subject to any requirements of the Applicable Laws, the terms of the Company's repurchase option (including without limitation the price at which, and the consideration for which, it may be exercised, and the events upon which it shall lapse) shall be as determined by the Administrator in its sole discretion and reflected in the Restricted Stock Purchase Agreement.

 

(ii)           Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the lapsing of Company repurchase rights shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, such lapsing shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). In the event of military leave, the lapsing of Company repurchase rights shall toll during any unpaid portion of such leave, provided that, upon a Participant's returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given "vesting" credit with respect to Shares purchased pursuant to the Restricted Stock Purchase Agreement to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

 

11

 

(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. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser.

 

(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 14 of the Plan.

 

12.           Taxes.

 

(a)           As a condition of the grant, vesting or exercise of an Option or Stock Purchase Right granted under the Plan, the Participant (or in the case of the Participant's death, the person exercising the Option or Stock Purchase Right) shall be responsible for and shall make such arrangements as the Administrator may require for the satisfaction of  any applicable federal,  state, local  or  foreign withholding tax obligations that may arise in connection with such grant, vesting or exercise of the Option or Stock Purchase Right or the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant's tax withholding obligations under this Section 12 (whether pursuant to Section 12(c), (d) or (e), or otherwise), the Administrator shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.

 

(b)            In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option or Stock Purchase Right.

 

(c)            This Section 12(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option or Stock Purchase Right that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 12, 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 under the Applicable Laws (the "Tax Date").

 

12

 

(d)            If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right by surrendering to the Company Shares that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. In the case of  shares  previously acquired from the Company that are surrendered under this Section 12(d),  such Shares must have been owned by the Participant for more than six (6) months on the date of surrender (or such other period of time as is required for the Company to avoid adverse accounting charges).

 

(e)            Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 12(d) above must be made on or prior to the applicable Tax Date.

 

(f)            In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.

 

(g)           Nothing in the forgoing or elsewhere in this Plan shall prohibit the Company from agreeing to pay the Participant additional cash compensation to assist with his or her income tax burden in the Stock Option Agreement or otherwise, including but not limited to, "grossing up" such compensation to account for it being taxable.

 

13.           Non-Transferability of Options and Stock Purchase Rights.

 

(a)            General. Except as set forth in this Section 13, Options and Stock Purchase Rights 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. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option or Stock Purchase Right may be exercised, during the lifetime of the holder of an Option or Stock Purchase Right, only by such holder or a transferee permitted by this Section 13.

 

(b)            Limited Transferability Rights. Notwithstanding anything else in this Section 12, the Administrator may in its discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or pursuant to domestic relations orders to "Immediate Family Members" (as defined below) of the Optionee. "Immediate Family Members" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in- law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.

 

13

 

(c)            Restriction on Shares Issued.  Unless this Plan is registered with the US Securities and Exchange Commission on Form S-8, no Shares issued pursuant to the exercise of Options granted herein or any Restricted Stock Purchase Plan "Issued Shares" shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless such transfer is in compliance with the terms of the applicable Award, all applicable securities laws (including, without limitation, the Securities Act of 1933 and the Exchange Act), and with the terms and conditions of this Section 12.  In connection with any proposed transfer, the Administrator may require the transferor to provide at the transferor's own expense an opinion of counsel to the transferor and the Company, satisfactory to the Administrator, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act of 1933).  Any attempted disposition of Issued Shares not in accordance with the terms and conditions of this Section 13 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Issued Shares as a result of any such disposition.

 

14.           Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions.

 

(a)           Changes in Capitalization. Subject to any action required under Applicable Laws by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding award, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no awards have yet been granted or that have been returned to the Plan upon cancellation or expiration of an award, as well as the price per Share of Common Stock covered by each such outstanding award, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an award.

 

(b)           Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Option and Stock Purchase Right will terminate immediately prior to the consummation of such action, unless otherwise determined by the Administrator.

 

(c)           Corporate Transaction. In the event of a Corporate Transaction (including without limitation a Change of Control), each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the "Successor Corporation"), unless the Successor Corporation does not agree to assume the award or to substitute an equivalent option or right, in which case the vesting of each Option or Stock Purchase Right shall fully and immediately accelerate or the repurchase rights of the Company shall fully and immediately terminate, as the case may be, immediately prior to the consummation of the transaction.

 

14

 

For purposes of this Section 14(c), an Option or a Stock Purchase Right shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction or a Change of Control, as the case may be, each holder of an Option or Stock Purchase Right would be entitled to receive upon exercise of the award the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the  number of Shares of Common Stock covered by the award at such time (after giving effect to  any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 14); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction.

 

(d)           Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option or Stock Purchase Right to reflect the effect of such distribution.

 

15.           Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator issues a Stock Option Agreement or Stock Purchase Right Agreement granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator, provided that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator issues a Stock Option Agreement granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. The Stock Option Agreement or Stock Purchase Right Agreement shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.

 

16.           Amendment and Termination of the Plan.

 

(a)           Authority to Amend or Terminate. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment pursuant to Section 14 above) shall be made that  would materially and adversely affect the rights of any Optionee or holder of Stock Purchase Rights under any outstanding grant, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. Optionee's consent will not be required to amend the Plan to bring the Plan into compliance with or to make the Plan exempt from taxation under Section 409A.

 

15

 

(b)           Effect of Amendment or Termination. Except as to amendments which the Administrator has the authority under the Plan to make unilaterally, no amendment or termination of the Plan shall materially and adversely affect Options or Stock Purchase Rights already granted, unless mutually agreed otherwise between the Optionee or holder of the Stock Purchase Rights and the Administrator, which agreement must be in writing and signed by the Optionee or holder and the Company.

 

17.           Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising the award 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 by law. Shares issued upon exercise of awards granted prior to the date on which the Common Stock becomes a Listed Security shall be subject to a right of first refusal in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any third party on such terms and subject to such conditions as is reflected in the applicable Stock Option Agreement or Restricted Stock Purchase Agreement.

 

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.           Agreements. Options and Stock Purchase Rights shall be evidenced by Stock Option Agreements and Restricted Stock Purchase Agreements, respectively, in such form(s) as the Administrator shall from time to time approve.

 

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

 

21.           Deferred Compensation. Optionee and the Company agree that all provisions of this Plan are intended to meet, and to operate in accordance with, in all material respects, the requirements of paragraphs (2), (3), and (4) of Section 409A(a) of the Code, and any guidance from the Department of Treasury or Internal Revenue Service thereunder, including any and all specifically referenced Regulation Sections contained in the Plan. Where ambiguity or uncertainty exists, this Plan shall be interpreted in a manner which would qualify any compensation payable hereunder to satisfy the requirements for exception to or exclusion from 409A and the taxes imposed thereunder.

 

16

 

In the event either party reasonably determines that any item payable by the Company to the Optionee pursuant to this Plan that is not subject to a substantial risk of forfeiture would not meet, or is reasonably likely not to meet, the requirements of paragraphs (2), (3) and (4) of Section 409A, or to qualify as exempt from Section 409A, such party shall notify the other in writing. Any such notice shall specify in reasonable detail the basis and reasons for such party's determination. The parties agree to negotiate in good faith the terms and conditions of an amendment to this Plan to avoid the inclusion of such item in a tax year before the Optionee's actual receipt of such item of income; provided, however, nothing in this section shall be construed or interpreted to require the Company to increase any amounts payable to the Optionee pursuant to this Plan or to consent to any amendment that would materially and adversely change the Company's financial accounting or tax treatment of the payments to the Optionee under this Plan. Any item payable under this Plan, that the Company reasonably determines is subject to Section 409A(a)(2)(B)(i) of the Code, shall not be paid or commence payment before the later of (a) six months after the date of the Optionee's Separation from Service and (b) the payment date or commencement date specified in this Plan for such item.

 

22.           Information and Documents to Optionees and Purchasers. Prior to the date, if any, upon which the Common Stock becomes a Listed Security and if required by the Applicable Laws, the Company shall provide financial statements at least annually to each Optionee and to each individual who acquired Shares pursuant to the Plan, during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns  such Shares. On or after the date upon which the Common Stock becomes a Listed Security, the Company's compliance with its reporting obligations under the Exchange Act shall satisfy the information requirements of this Section 22.  The Company shall not be required to provide such information if the issuance of Options or Stock Purchase Rights under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information.

 

23.           Governing Law.  This Plan, and all agreements under this Plan, shall be construed in accordance with and governed by the laws of the State of California, without reference to any conflict of law principles.  Any legal action or proceeding with respect to this Plan, any Award or any award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any award agreement, may only be brought and determined in a court sitting in the State of California.

 

24.          Severability.  If any provision of this Plan or any award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any award agreement or any Award, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan, award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such award agreement and such Award will remain in full force and effect.

 

 

 

17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00285-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00285-of-00352.parquet"}]]