Xi’an Zhonghong New Energy Technology Co., Ltd.

 

Jiangsu Tianyu Energy and Chemical Group Co., Ltd.

 

Cooperation Agreement

 

July 2013

 

 

 

 

 

 

Cooperation Agreement

Coke Dry Quenching (CDQ) and CDQ Waste Heat Power Generation Project

 

Party A: Xi’an Zhonghong New Energy Technology Co., Ltd.

Legal Representative: Ku Guohua

 

Party B: Jiangsu Tianyu Energy and Chemical Group Co., Ltd.

Legal Representative: Teng Daochun

 

After friendly negotiation between two parties, based on the principle of
equality and autonomy, Party A and B reached following items with respect to the
coke dry quenching (CDQ) and CDQ waste heat power generation project.

 

Item One Investment Construction Projects

1.Construction of CDQ and CDQ recycling energy projects

Party A will invest in constructing CDQ systems and CDQ waste heat power
generation stations. For phase I of the project, Party A will construct two CDQ
systems and CDQ waste heat power generation stations—one at Xuzhou Tian’an
Chemical Co., Ltd and another one at Xuzhou Huayu Coking Co., Ltd, both are
subsidiaries of Party B. The designed total capacity is 2 x 25 MW.

 

For phase II, based on the project progress, Party A will invest to build two
more CDQ systems and CDQ waste heat power generation stations. The designed
total capacity is 2 x 25 MW.

 

2.The layout, technical performance index and technical specifications of CDQ
equipment and CDQ waste heat power generation equipment will be confirmed
according to the design of the designing institute.

 

3.Party A shall be responsible for the investment in the construction and
operation of the project of CDQ systems and CDQ waste heat power generation
systems (collectively named “recycling project”), including the design of the
project, equipment selection, equipment procurement and manufacturing,
construction, engineering installation and testing, and power generating.

 

Item Two Operation of Recycling Project

 

1.After completion of the project construction, Party A shall be responsible for
the operation, maintenance and management of the recycling project. Party A will
charge Party B and its subsidiaries energy saving service fee according to the
benefit from CDQ waste heat power generation stations.

 

2.Parties shall jointly decide the boundary line for the power transmission in
accordance with the technical appendix.

 

3.The operation of CDQ and CDQ waste heat power generation systems includes but
is not limited to: equipment maintenance, repair, update, salary for the staffs
responsible for replacement parts and operation. Party A shall assume the
operation expenses.

 

Item Three Cost and Operation Target

 

Party B will pay Party A energy saving service fee upon the completion of the
construction of CDQ and CDQ waste heat power generation systems (upon passing
evaluation of the ability of connection to the grid for power generation).

 

 

 

 

 

 

1.The energy saving service fee is paid in the form of electricity fee.

 

The calculation basis of energy saving service fee is as follows: average
operational time is 8,000 hours per year; if the annual average operational time
was less than 8,000 hours due to the reasons caused by Party B, the operational
time is calculated as 8,000 hours per year.

 

2.If the grid-connected electricity price is adjusted since the execution of the
agreement, the fee shall be calculated based on the adjusted electricity price.
The starting day for the change will be from the date of adjustment by Jiangsu
Provincial Price Department.

 

3.The amount of electricity generated is calculated by the outbound power meters
in the power station.

 

4.The settlement date is the first day of the next month. Deducting the dues of
Party A, Party B should pay Party A the energy saving service fees for the last
month before the 15th of each month.

 

5.Payment method: Wire or transfer.

 

6.The policy rebate, award, and preferential treatment shall be shared by both
Parties. Each party shares 50% of the policy rebate, award, and preferential
treatment. Both Parties share the expenses incurred in the process of the
application for the policy rebate, award, and preferential treatment.

 

Item Four Starting and End Date for Recycling Project and Term

 

1.The date when Party A completes the construction and installation of CDQ
system and CDQ waste heat power generation system and the power generating
system has been in operation and meets the requirements of the design standard
for 72 hours. The Parties agree that date after the recycling project meets the
evaluation requirement as the starting date for the recycling project. From that
date, Party B shall pay the service fees monthly according to the power
generated .

 

2.Upon the completion of the project and starting its operation, Party B shall
pay Party A energy saving service fee at a price of RMB 0.534 per KWH (excluding
tax).

 

3.The cooperation model is BO model for its continue operation.

 

Item Five Construction and Construction Period of CDQ System and CDQ Waste Heat
Power Generation System

 

1.The construction period of the project is 14 months from the execution of
technology agreement.

 

2.If the project is stalled due to Party B’s reason (including but not limited
its activities that affect daily construction, installation, testing and
safety), the construction period shall be extended accordingly.

 

3.If any party delays the construction without a good reason, which results the
construction of the whole project or part of the project cannot be completed on
schedule, the other party has right to terminate wholly or part of the agreement
and incurred loss will be assumed by the breaching party.

 

 

 

 

 

 

Item Six Raw Material Consumption of the Project of CDQ system and CDQ Waste
Heat Power Generation System

 

1.All raw materials such as water, electricity consumed in the operation of the
project shall be settled based on the party B’s local price. Party A makes
monthly payment. Party B provides pipeline up to designated boundary line on the
construction site and then Party A will connect water lines and electricity
lines into the site and assumes related expenses.

 

2.The Parties agree that Party B shall provide steady qualified coal coke
production according to the technology agreement which will be used for CDQ
system. Party A guarantees the steady operation of the CDQ and CDQ waste heat
power generating systems.

 

3.Party B shall provide effective assistance to the construction and operation
management of the recycling project.

 

4.The land for CDQ and CDQ waste heat power generation project shall be provided
by Party B to Party A with no charge.

 

Item Seven Meter Confirmation, Management and Maintenance

 

1.The power generation system of Party A has electricity meters. If Party B
wants to separately conduct electricity measurement, the meters shall be
provided by Party B and be responsible for the its maintenance and expenses.

 

2.The selection and maintenance of meters shall not affect the normal operation
of CDQ and CDQ waste heat power generation project.

 

3.Both Parties have the right to examine and verify the electricity meter
facilities so as to make sure the accuracy of the meters.

 

Item Eight Ownership and Intellectual Property of the Recycling Project

 

1.During the contact period, Party A has the ownership of the CDQ and CDQ waste
heat power generation systems. After the termination of the contact, Party B has
the disposition right to the project.

 

2.The intellectual property of the project belongs to Party A. Without written
consent of Party A, Party B is not allowed to disclose the intellectual property
to the other third party.

 

Item Nine Quality Assurance

 

1.Party A is responsible for the equipment quality, technical performance, and
construction quality. Party B is responsible for the technical specifications
and energy media quality.

 

2.For the CDQ system and waste heat power generation of CDQ system of Party A,
Party B must provide necessary guidance and assistance. Parties shall fully
cooperate to ensure the quality of the project.

 

Item Ten Warrants of Party A

 

 

 

 

 

 

Besides responsibilities in this agreement, Party A shall also:

 

1.Keep the power station operating properly and ensure that the electricity
supplied to Party B complies with national safety standards.

 

2.Ensure the safety of its employees during construction and operation.

 

3.Provide reliable technical support and guarantee for the project.

 

4.Responsible for the operation of CDQ system and waste heat power generation
from CDQ system, and bear operation costs.

 

5.Responsible for the design, equipment procurement, construction, installation,
and test and adjustment.

 

Item Eleven Warrants of Party B

 

Besides responsibilities in this agreement, Party B shall also:

 

1.Provide Performance Guarantee Letter to state that Party B will purchase all
electricity generated from the project.

 

2.Responsible for the permits and approvals for operation of the project. Party
A is responsible for the permits, inspection and acceptance of the construction
and Party B provides assistance.

 

3.Purchase all generated electricity from the project.

 

4.Cooperate with Party A's due diligence and provide required documents, and
ensure that provided documents are true and authentic.

 

5.Provide leveled construction site. For details, refer to the Technology
Attachment.

 

Item Twelve Promises

 

1.Party A and B agree to have long-term cooperation for current and further
recycling energy projects. Party A has priority to develop further recycling
energy projects for Party B.

 

2.If the change or update of industrial process or facility of Party B forces
Party A to change its system, Party A will use new system cost and loss for
replacement as the new system cost to calculate numbers according to Item Three
to continue execute the project.

 

Item Thirteen Liability for Breach of Agreements

 

1.Unless otherwise agreed, either party cannot change or terminate the agreement
without written consent of the other party except for force majeure. Equipment
of both parties must work properly.

 

 

 

 

 

 

2.Party B shall pay Party A the energy saving service fee at the stipulated
time, otherwise:

 

2.1If Party B fails to pay Party A the energy saving service fee by 15th of the
month and the delay is within 60 days, the daily penalty is 0.05% of the overdue
payment.

 

2.2If the delay is over 60 days and Party B still does not make payment on time
after Party A's written notice, it is regarded that Party B has no ability to
perform its payment obligation. Party A can enforce the Performance Guarantee by
Party B to take all project assets. Party .

 

3.If any event affects the ability to its continue operation of the Party A or
Party B, such as bankruptcy, going out of business, merging, transferring,
separation or being dissolution, such party must give the other party a written
notice within 30 days and provide documentary evidences. If such party cannot
perform the contractual obligation, the other party suffered from loss could
claim for compensation.

 

4.If the power plant cannot operate properly due to the shutdown of furnaces,
facilities, or valves of Party B and such failure cannot be corrected upon a
written notice from Party A to Party B within two days of occurrence of such
event, Party B shall compensate the actual loss of Party A.

 

5.If the facilities and power plant cannot operate properly because of the
equipment or human errors of Party A, then upon three consecutive months of the
power generation system cannot reach 65% of its designed capacity, Party A shall
compensate actual loss of Party B.

 

6.Party A shall adjust its maintenance time based on the production schedule of
Party B. If Party A affects the production of Party B, Party A shall compensate
for the loss.

 

7.Party A cannot transfer or mortgage the CDQ and CDQ power generation systems
without the consent of Party B, otherwise it shall be responsible for the
losses.

 

8.The CDQ and CDQ power generation systems shall comply with the national
environmental protection standards. If the environment is polluted during the
operation of the power plant, Party A shall bear the liability.

 

9.If the power generation causes upper level power network, each party shall
bear their own liabilities based on the determination of the upper level power
network operator.

 

Term Fourteen Force Majeure

 

If the project cannot be completed on schedule or supply power normally due to
force majeure, such as war, flood, and earthquake, both parties shall be
partially or fully exempt from their liabilities based on the effects of force
majeure. If any party cannot perform the agreement due to force majeure, the
party shall notify the other party immediately, provide the proof within 15
days, and keep the loss to a minimum with reasonable efforts.

 

Term Fifteen Settlement of Disputes

 

Both parties shall settle all disputes through amicable negotiations. If
negotiations fail, either party could take a legal action to the local people’s
court where the project is located.

 

 

 

 

 

 

Term Sixteen Agreement, Appendix, and Others

 

1.This agreement shall be signed by legal representatives or its authorized
representatives as well as company seals of both Parties and it shall take
effect from the execution date.

 

2.After the agreement is signed, Party A shall complete its due diligence and
provide Party B with the letter of confirmation. Parties shall sign Technical
Agreement within 90 days after this agreement is signed.

 

3.The Technical Agreement and Performance Guarantee are an integral part of the
agreement and have the same legal effect of this agreement.

 

4.The agreement can only be terminated after negotiation and agreement by Party
A and B in writing. When the agreement is terminated, Party A has rights to
dispose all assets of the recycling project.

 

5.As for matters not mentioned herein, Party A and Party B shall sign a
supplemental agreement through negotiation. The supplemental agreement has same
effect to the agreement. If there is any conflicts, the latest supplemental
agreement prevails.

 

6.If Party B establishes a joint venture company with Party A or its affiliate
company or a third party to operate the recycling project, then the rights and
liabilities of Party A in this agreement will be transferred to the joint
venture company. If the joint venture can apply and receive the necessary
permits, the joint venture company will be the independent entity to operate the
recycling project, generate power, and receive service fee from generating
electricity, and Party B's responsibility will be only to provide the land for
project construction to Party B.

 

The agreement is made in quadruplicate. Each party holds two copies and each has
same legal effect.

 

Party A: Xi’an Zhonghong New Energy Technology Co., Ltd.

(Seal)

Representative: Li Lanwei

Date: July 19, 2013

 

Party B: Jiangsu Tianyu Energy and Chemical Group Co., Ltd.

(Seal)

Representative:

Date: July 19, 2013