Supplies & Fixtures

Advanced Environmental Recycling Technologies, Inc.
AMENDED AND RESTATED
1997 SECURITIES PLAN

1. Purpose

     The purpose of the Amended and Restated 1997 Securities Plan (the ?Plan?) is to restate such Plan as originally adopted and as amended and restated to reflect amendments made through November 17, 2004 (and to eliminate provisions that have been superseded or already acted upon), and such Plan has been adopted to promote the interest of Advanced Environmental Recycling Technologies, Inc. (the ?Company?) and its stockholders by providing an effective means to attract, retain and increase the commitment of certain individuals and to provide such individuals with additional incentive to contribute to the success of the Company. The Plan is intended to create a flexible vehicle to provide a variety of medium and long-term incentive compensation opportunities to management and associates of the Company. In doing so, the Plan provides an important link between the compensation of senior and executive management, as well as mid-level management and/or hourly associates, and Company performance. The awards (?Awards?) under the Plan will compensate management and associates for the creation of shareholder value. In this way the Plan is intended to encourage and reward superior performance by individuals whose performance is a key element in achieving the Company?s continued financial and operational success. In addition, the Plan will assist the Company?s recruiting, rewarding, retaining and motivating management and associates to achieve the Company?s mission of being a top performer in its industry by rewarding the creation of shareholder value.

2 Eligibility

     Awards may be granted only to Employees who are designated as participants in the Plan (?Participants?) from time to time by a Committee of the Board composed of non-employee Directors, as set forth in Section 5 hereof. The Committee shall consider an individual?s position, responsibilities and importance to the Company among other factors in determining which Employees shall be Participants. The types of Awards to be made to Participants and the terms, conditions, and limitations applicable to the Awards are left to the sole discretion of the Committee, subject to the terms of the Plan, as set forth in Section 5 hereof. The Committee?s decision as to eligibility and the nature and timing of Awards under the Plan is final. For the purposes of the Plan, ?Employees? shall mean any employee, director, general partner, officer or consultant or advisor, provided, with respect to consultants and advisors, (i) they are natural persons, (ii) they provide bona fide services to the Company, and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the Company?s securities.

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3. Types of Awards

     Awards shall be made in the form of Stock Options, Restricted Stock, Performance Awards, and other types of Awards described below. Subject to the other provisions of this Plan, Awards may also be granted individually, in combination, or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan and any other employee plan of the Company.

(1)
 

(a) Stock Options granted may be either of a type that complies with the requirements of incentive stock options (?Incentive Stock Options?) as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the ?Code?), or of a type that does not comply with such requirements (?Non Qualified Stock Options?); provided, however, that the aggregate number of Shares which may be offered for purchase pursuant to Incentive Stock Options under this Plan shall not exceed four million (4,000,000), and the aggregate number of Shares which may be offered for purchase pursuant to Non-Qualified Stock Options under the Plan shall not exceed one million (1,000,000); provided that such limitation on Non Qualified Stock Options shall not apply to Options intended to be awarded as Incentive Stock Options which become Non Qualified Stock Options by reason of a disqualifying disposition or otherwise.

(b) The exercise price per Share of any Stock Option shall be determined by the Committee and set forth in the Award Agreement. However, a Stock Option granted to a ?covered employee? as defined in Section 162(m) of the Code shall not have an exercise price less than the Fair Market Value of a Share on the date the Stock Option is granted. For the purposes of this Plan, the term ?Fair Market Value? shall mean: If the Shares are listed on a national securities exchange (including the New York, American or NASDAQ National Market System) in the United States on the date any Option is granted, the Fair Market Value per Share shall be deemed to be the average of the high and low sale prices per Share on such national securities exchange in the United States on such date, as published by the Wall Street Journal or other reliable publication, but if the Shares are not traded on such date or such national securities exchange is not open for business on such date, the Fair Market Value per Share shall be the average of such high and low sale prices on the last preceding date on which such exchange shall have been open for business and the Shares were traded. If the Shares are listed on more than one national securities exchange in the United States on the date any such Option is granted, the Committee shall determine, in its discretion, which national securities exchange shall be used for the purpose of


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