Exhibit 10.1

Execution Copy
 
Wanxiang EV Co., Ltd.
 

And

Ener1, Inc.

Sino-Foreign Equity Joint Venture Contract
 
January 2011
 
 
- 1 -

--------------------------------------------------------------------------------

 

Content
 
Chapter 1 General Provisions
3
Chapter 2 Parties to the Joint Venture
 3
Chapter 3 Establishment of the Joint Venture
  4
Chapter 4 The Purpose, Scope and Scale of Production and Operation
  4
Chapter 5 Total Amount of Investment and Registered Capital
  5
Chapter 6 Responsibilities of Each Party to the Joint Venture
  10
Chapter 7 Intellectual Property Rights
  13
Chapter 8 Board of Directors
  18
Chapter 9 Business Management Office
  23
Chapter 10 Facilities and Equipment
  23
Chapter 11 Labor Management
  24
Chapter 12 Finance, Audit and Taxation
  24
Chapter 13 Duration of the Joint Venture
  26
Chapter 14 Liquidation and Dissolution of the Joint Venture
  26
Chapter 15 Amendment and Termination of the Joint Venture and This Contract
  27
Chapter 16 Liability for Breach of Contract
  28
Chapter 17 Confidentiality
  28
Chapter 18 Force Majeure
  30
Chapter 19 Applicable Law
  30
Chapter 20 Settlement of Disputes
  30
Chapter 21 Effectiveness of This Contract and Miscellaneous
  31

 
Appendix 1: Form of the Assets Contribution Agreement
Appendix 2: Form of the Lease and Service Agreement
Appendix 3: Form of the Technology License Agreement

 
2

--------------------------------------------------------------------------------

 

 The Joint Venture Contract for Zhejiang Wanxiang Ener1 Power System Co., Ltd.

Chapter 1 General Provisions

In accordance with the Sino-Foreign Equity Joint Venture Law of the People’s
Republic of China (the “Equity Joint Venture Law”), its Implementation Rules and
other Chinese laws and regulations, Wanxiang EV Co., Ltd. (hereinafter referred
to as “Party A”) and Ener1, Inc. (hereinafter referred to as “Party B”), in
accordance with the principle of equality and mutual benefit and through
friendly consultations, agree to enter into this Contract to jointly invest and
establish a Sino-foreign equity joint venture company in Xiaoshan Economic &
Technology Development Zone, Hangzhou City, Zhejiang Province of the People’s
Republic of China (“PRC” or “China”).

Chapter 2 Parties to the Joint Venture

Article 1 The Parties to this Sino-foreign equity joint venture contract
(hereinafter referred to as this “Contract”) are as follows:

Party A: Wanxiang EV Co., Ltd.
Legal address: Jianshe 3 Road, Xiaoshan Economic & Technology Development Zone,
Hangzhou City, Zhejiang Province, PRC.
Legal representative: Lu Guanqiu
Nationality: China
Postal address: No.118 Jianshe 2 Road, Xiaoshan Economic & Technology
Development Zone, Hangzhou City, Zhejiang Province, PRC.
Postal code: 311215

Party B: Ener1, Inc.
Legal address: 1540 Broadway Suite 25, New York, NY 10036, the United States of
America.
Legal representative: Charles Gassenheimer
Title: Chairman of the Board of Directors and Chief Executive Officer of Ener1,
Inc.
Nationality: The United States of America

Party A and Party B are hereinafter collectively referred to as the “Parties”,
and individually as a “Party”.
 
 
3

--------------------------------------------------------------------------------

 
 
Chapter 3 Establishment of the Joint Venture

Article 2 In accordance with the Equity Joint Venture Law, its Implementation
Rules and other relevant Chinese laws and regulations, the Parties hereby agree
to establish a Sino-foreign equity joint venture company (the “Joint Venture”)
in Xiaoshan Economic & Technology Development Zone, Hangzhou City, Zhejiang
Province, PRC.
Article 3 The name of the Joint Venture shall be “浙江万向亿能动力电池有限公司” in Chinese and
“Zhejiang Wanxiang Ener1 Power System Co., Ltd.” in English.  Party A shall
cause Wanxiang Group Corporation Ltd. (“Wanxiang Group”), the owner of the trade
name and trademark“万向” and “Wanxiang”, to grant a royalty free license to the
Joint Venture to use “万向” and “Wanxiang” in its name, trade name and logo as
long as Party A or any of its Affiliate remains a shareholder to the Joint
Venture.  Party B shall grant a royalty free license to the Joint Venture to use
“Ener1” and “亿能” in its company name, trade name and logo as long as Party B or
any of its Affiliate remains a shareholder to the Joint Venture.
The legal address of the Joint Venture is Jianshe 3 Road, Xiaoshan Economic &
Technology Development Zone, Hangzhou City, Zhejiang Province, PRC.
Article 4 All activities of the Joint Venture shall be governed by the laws,
decrees and pertinent rules and regulations of PRC.
Article 5 The Joint Venture is a limited liability company established under the
laws of PRC.  Each Party’s liability to the Joint Venture shall be limited to
the registered capital of the Joint Venture subscribed by such Party.  The
profits, risks and losses of the Joint Venture shall be assumed by each Party in
proportion to their respective contribution to registered capital of the Joint
Venture.
Article 6 The Joint Venture may, upon the unanimous approval of the Board of
Directors of the Joint Venture (hereinafter referred to as the “Board”) and
after obtaining all requisite governmental approvals, open offices and
facilities outside the Territory.  For the purpose of this Contract, the term
“Territory” means PRC and all of its territories, including Hong Kong, Macau and
Taiwan.
 
Chapter 4 The Purpose, Scope and Scale of Production and Operation

Article 7 The purpose of the Parties with respect to the Joint Venture is to
obtain direct and indirect economic, competitive, technological, manufacturing,
distributing, pricing and other advantages in their business by cooperating and
sharing technologies with the other Party.
 

 
4

--------------------------------------------------------------------------------

 

Article 8 The business scope of the Joint Venture is to design, manufacture,
sell, distribute, provide service and make improvements in relation to the
lithium-ion battery cells (hereinafter referred to as the “Cells”) and
lithium-ion battery packs incorporating the Cells (hereinafter referred to as
the “Packs”, together with Cells, the “Products”) subject to approval by the
competent administration of industry and commerce (“Registration Authority”).
Subject to any approvals and filing requirements provided by the competent
governmental authorities, the Joint Venture may, in accordance with its
operation requirements, engage in any such other businesses that the Board may
unanimously decide to pursue.
Article 9 Each Party agrees that, subject to actual and reasonably anticipated
demand, the target annual production capacity of the Joint Venture is to produce
Cells and Packs having an aggregate charge up to 300 million ampere-hours.
After completion of investment in the 300 million ampere-hours capacity and
taking into full consideration of the market demands and the circumstances of
the Joint Venture (including the output, sale and profits of the Joint Venture),
upon a simple majority approval of the Directors present at the Board meeting,
the Joint Venture may make further investment to expand its production capacity.
The Joint Venture shall use its own funds or finance through its own channel for
the production capacity expansion.  If the foregoing methods are not able to
satisfy the funding requirements of the Joint Venture’s production capacity
expansion, upon unanimous approval by the Board, the Parties shall increase the
registered capital of the Joint Venture.

　 Chapter 5 Total Amount of Investment and Registered Capital

Article 10 The Parties agree that the Joint Venture’s total amount of investment
will be Two Hundred and Ninety-five Million United States Dollars
(USD295,000,000).
Article 11 The registered capital of the Joint Venture shall be One Hundred and
Twenty Million United States Dollars (USD120,000,000).  Party A shall contribute
Seventy-two Million United States Dollars (USD72,000,000), representing sixty
percent (60%) of the registered capital of the Joint Venture, and Party B shall
contribute Forty-eight Million United States Dollars (USD48,000,000),
representing forty percent (40%) of the registered capital of the Joint Venture.
Article 12 Methods and Conditions of Capital Contribution
12.1   Subject to the provisions of Article 12.2, the Parties shall make their
respective contributions to the registered capital in the following manner:
Party A will contribute in kind and in RMB in cash, the exchange rate of which
shall be the central parity of USD against RMB quoted by the People’s Bank of
China on the date of the relevant contribution.  Party B will contribute in USD
in cash.
12.2   Conditions to Contributions
 

 
5

--------------------------------------------------------------------------------

 
 
12.2.1  Neither Party shall be obliged to make any capital contribution to the
Joint Venture pursuant to Article 12.1 until each of the following conditions
has been fulfilled (or otherwise waived by the relevant Party):
12.2.1.1 This Contract and the articles of association of the Joint Venture
(“Articles of Association”) shall have been approved by the Ministry of Commerce
or other local foreign investment examination and approval authorities duly
authorized by the Ministry of Commerce (the “Approval Authority”), without any
material variation of the terms hereof or imposing any additional obligations on
a Party or the Joint Venture except as may have been agreed in writing by both
Parties;
12.2.1.2 The Joint Venture shall have obtained the Business License issued by
the Registration Authority with a scope of business identical or substantially
same as stipulated in Article 8;
12.2.1.3 The Joint Venture shall have been registered with the competent foreign
exchange administration authority, received the foreign exchange registration
certificate, and opened foreign exchange bank accounts and RMB bank accounts in
banks which have been approved by the Board;
12.2.1.4 The Assets Contribution Agreement, the Lease and Service Agreement, and
the Technology License Agreement (jointly as “Related Agreements”, and the form
of which are attached hereto as Appendix 1, 2 and 3), shall have been duly
executed by the Parties thereto and have become legally effective and binding
upon the Parties;
12.2.1.5 The representations and warranties contained in this Contract and the
Related Agreements have been true and correct in all material respects as of the
relevant dates on which the capital contributions are to be made (“Contribution
Dates”), the covenants and undertakings contained in this Contract and the
Related Agreements have been substantially complied with by the relevant parties
as of the Contribution Dates;
12.2.1.6 The approval from the in-charge customs on the capital contribution by
Party A in the form of equipment imported with duty exemption shall have been
received.
12.2.2    If any of the foregoing conditions have not been fulfilled (or
otherwise waived by the related Party), either Party may, within ninety (90)
days as of the date of issuance of the Business License of the Joint Venture
(the “Establishment Date”), have the right to terminate this Contract pursuant
to Article 51.1.  Except as stipulated in Article 13.2, neither Party shall be
liable to the other Party if this Contract is terminated due to a reason not
attributable to any Party.  Each Party shall bear its own costs and expenses in
relation to the negotiation and execution of this Contract and the establishment
of the Joint Venture.
 

 
6

--------------------------------------------------------------------------------

 
 
Article 13 Schedule of Capital Contribution
13.1 Subject to the provisions of Article 12.2, each Party shall make its
required contribution to the registered capital in two installments:
The first installment which amounts to fifty percent (50%) of each Party’s
subscribed contribution shall be made within sixty (60) days as of the
Establishment Date. Party A will make the first installment of contribution in
kind in accordance with the Assets Contribution Agreement, and the contribution
will be appraised by a PRC appraisal institution acceptable to both Parties. 
The deficiency between the valuation and the first installment will be
contributed by Party A in cash; any surplus will be purchased by the Joint
Venture.  Party B will make the contribution in USD in cash.
The second installment which amounts to the remaining fifty percent (50%) of
each Party’s subscribed contribution shall be made within two (2) years from the
Establishment Date.  Party A will make the contribution in RMB in cash and Party
B will make the contribution in USD in cash.  The contribution date of the
second installment of the Parties will be determined at any time by the
unanimous approval of the Board.
13.2 Each Party’s contribution to the registered capital shall be made
simultaneously.  In the event that a Party fails to make its capital
contribution on the due date, the other Party shall have the right to claim
liquidated damages from such Party in such amount calculated at the rate of zero
point zero three percent (0.03%) per day with a maximum of three percent (3%) of
the overdue amount for such period from the due date to the actual date of
contribution.  If a Party fails to make its capital contribution in accordance
with this Article 13 for more than ninety (90) days, then the other Party shall
be entitled to terminate this Contract and request return of any contribution it
has made to the Joint Venture without prejudice of its right to claim for the
liquidated damages.
Article 14 After each Party’s contribution to any of the installments of the
registered capital, a Chinese certified public accountant mutually acceptable to
the Parties shall be retained by the Joint Venture to verify the amount of
contributions and issue a capital verification report.  The Joint Venture shall
issue an investment certificate to each Party within thirty (30) days of its
receipt of such capital verification report.
Article 15 Change of Equity
15.1 Any increase or decrease of the registered capital and total investment of
the Joint Venture shall be resolved unanimously by the Board and approved by the
Approval Authority.  Each Party shall have the right to subscribe the increased
registered capital in proportion to its original equity interest ratio so as to
maintain its original percentage of shares in the registered capital as
increased.  If a Party foregoes such right, the other Party may subscribe the
increased registered capital foregone by such Party.

 
7

--------------------------------------------------------------------------------

 
 
In principle, the Joint Venture shall not reduce its registered capital during
its term, unless such reduction is unanimously approved by the Board due to
changes to the total investment and the scale of the production.  Any such
reduction shall be approved by the Approval Authority and filed with the
Registration Authority according to the applicable laws and regulations.
15.2 No Party shall pledge or otherwise encumber all or any part of its
contribution to the Joint Venture’s registered capital without the prior written
consent of the other Party.
15.3 Transfer of Equity Interest
15.3.1 Subject to the provision of this Article 15.3, either Party may assign,
sell or otherwise dispose of all or part of its equity interest in the Joint
Venture to a third party, provided, however, that it shall first obtain the
consent from the other Party and the approval from the Approval Authority.
15.3.2 When a Party (“Transferring Party”) wishes to assign, sell or otherwise
dispose of all or part of its equity interest in the Joint Venture (“Transfer”)
to a third party (“Proposed Purchaser”), it shall notify the other Party in
writing (“Notice of Third Party Offer”) of: (i) its wish to make the Transfer,
(ii) the share of equity interest it wishes to transfer, (iii) the terms and
conditions of the Transfer; and (iv) the identity of the Proposed Purchaser
(“Third Party Offer”).
15.3.3 The non-transferring Party may exercise a right of first refusal (“Right
of First Refusal”) by, within thirty (30) days upon receipt of the Notice of
Third Party Offer (“Notice Period”), delivering to the Transferring Party a
written notice (a “First Refusal Notice”) specifying that it will purchase the
whole or part of the equity interest to be transferred at the terms set out in
the Third Party Offer.  If the other Party fails to notify the Transferring
Party within such Notice Period that it will purchase such equity interest,
subject to Article 15.3.4 it shall be deemed to have agreed to the Transfer to
the Proposed Purchaser specified in the Notice of Third Party Offer, and the
Transferring Party may assign, sell or otherwise dispose of such interest to
such Proposed Purchaser, at the price or on the terms and conditions not more
favorable than those set out in the Notice of Third Party Offer.  The Parties
shall cause the Directors to unanimously agree to such Transfer.  The
Transferring Party shall provide the other Party with a duplicate of the
executed share transfer agreement with respect to such Transfer within fifteen
(15) days upon execution of such agreement.

 
8

--------------------------------------------------------------------------------

 

15.3.4 In case of Party B receiving a Notice of Third Party Offer served by
Party A specifying that Party A wishes to transfer all but not part of its
equity interest in the Joint Venture, Party B shall, in addition to the Right of
First Refusal, have a right to assign its entire equity interests in the Joint
Venture on the same terms and conditions as stipulated in the Notice of Third
Party Offer to the Proposed Purchaser (“Tag-along Right”).  If Party B exercises
the Tag-along right by delivering to Party A written notice to such effect (a
“Tag-Along Acceptance Notice”) within the Notice Period, Party A shall cause the
Proposed Purchaser to buy Party B’ equity interests in the Joint Venture on the
same terms and conditions as specified in the Notice of Third Party Offer.
15.3.5 Notwithstanding any provision contained herein to the contrary, either
Party may assign at any time all or part of its equity interest in the Joint
Venture to any of its Affiliates, and the other Party hereby gives its consent
on such transfer and waives any Right of First Refusal, Tag-Along Right, or
similar rights it may have under applicable law or hereunder with respect to
such transfer, and shall cause its Directors in the Board to vote in favor of
and sign any resolution on any such transfers.  Affiliate means any company or
entity which, directly or indirectly, controls, or is controlled by a Party or
is under common control of a third party, the term “control” means ownership of
more than fifty percent (50%) of the registered capital and/or assets or the
power to appoint or direct the other entity to appoint or elect the majority
directors of a company.
15.3.6 Notwithstanding the provisions set forth in Article 15.3.1 through
Article 15.3.4, neither Party to this Contract may transfer its equity interest
in the Joint Venture to any third party within three (3) years from the
Establishment Date.
Any Transfer of the equity interest in the Joint Venture under the preceding
paragraphs shall become effective immediately upon the approval of such transfer
by the Approval Authority.
Article 16 The balance between the total investment and the registered capital
shall be raised by the Joint Venture through financing.  If the Parties agree to
provide collateral for the Joint Venture as required by a financing institution
to secure such financing, both Parties will provide collateral pro rata to their
shareholding percentage provided that Party B will only provide collateral in
the form of the equity interest in the Joint Venture.  If the collateral is
provided by one Party or its Affiliate (“Securing Party”) to the financing
institution, the other Party shall pledge its equity interest in the Joint
Venture to the Securing Party corresponding to its share of the total secured
loan.

 
9

--------------------------------------------------------------------------------

 

Chapter 6 Responsibilities of each Party to the Joint Venture
 
Article 17     Party A and Party B shall have the following responsibilities
with respect to the Joint Venture:
The Responsibilities of both Parties
17.1 Each Party shall use all of its reasonable efforts to present the Joint
Venture with all opportunities and relationships that could reasonably be
expected to further the Joint Venture’s business objectives, to the extent such
opportunities and relationships are reasonably available to such Party.  Such
opportunities and relationships may include, without limitation, those presented
by governmental incentives designed to encourage the manufacture and sale of
electric vehicles.
To better take advantage of the national preferential policies on electric
vehicle as well as the influential position of the parent company of Party A
(Wanxiang Group), both Parties agree that the Joint Venture will be incorporated
into the uniform operation and management system of Wanxiang Group, which
includes but not only limited to consolidated financial statements, application
for national preferential policies, provided that both Parties shall comply with
this Contract and the Articles of Association and the independence of the Joint
Venture in respect of finance, management, manpower, operation, etc shall not be
affected.  The Joint Venture is entitled to the benefits of the preferential
treatments related to the Joint Venture obtained in the name of Wanxiang Group,
the relevant expense of which shall be borne by the Joint Venture.
17.2 If the Board unanimously resolves  that the Joint Venture require
additional financing and such additional financing require increase in the
registered capital, then each Party shall make the contribution to the increased
registered capital on a pro rata basis upon the decision of the Board.  If a
Party fails to make such capital contribution to the increased registered
capital as and when required, the other Party may, upon ten (10) days prior
notice to the non-contributing Party, make all or part of the capital
contribution on behalf of the non-contributing Party, and upon such capital
contribution, the shareholding percentage of the Parties in the Joint Venture
will be proportionately adjusted to reflect their respective share of equity
value in the Joint Venture after such capital increase.  Specifically the equity
value of the contributing Party shall be the aggregate of the newly contributed
capital plus its share in the Joint Venture’s net asset book value as of the end
of the preceding month before the capital increase, and the equity share of the
non-contributing party shall be its share in the Joint Venture’s net asset book
value as of the end of the preceding month before the capital increase.
17.3 One or more additional partners may join the Joint Venture upon the written
consent of each Party.  Each additional partner may become an additional equity
holder of the Joint Venture by making a capital contribution to the Joint
Venture or through an assignment of interests in the Joint Venture by either or
both Parties.
17.4 Notwithstanding anything in this Contract to the contrary, no capital
contribution will be accepted by the Joint Venture or assignment of equity
interest in the Joint Venture will be permitted if and to the extent such
capital contribution or assignment would result in Party A and its Affiliates
owning less than fifty-one percent (51%) of the equity interest in the Joint
Venture, unless otherwise agreed in writing by the Parties.

 
10

--------------------------------------------------------------------------------

 
 
17.5  Each Party covenants to the other Party that, except for the Joint
Venture, during the period that it is a shareholder to the Joint Venture and
within six (6) months after it ceases to be a shareholder to the Joint Venture
for reasons other than the other Party’s breach of this Contract, it and its
Affiliates will not manufacture or sell products and services within the current
or future business scope of the Joint Venture alone or with any other third
party in the Territory (including by way of direct or indirect investment or
sales business cooperation or technology license or transfer), unless otherwise
approved by the other Party.  Notwithstanding the above, the Parties acknowledge
that Party B is not prohibited by the preceding clause from directly or
indirectly selling Products and providing related services to its existing
customers in Taiwan. In consideration of factors such as reducing manufacturing
cost, a solely-funded assembly plant or one jointly founded with a third party
will be established in the area which is close to the customer by the Joint
Venture.
17.6 The initial target market of the Joint Venture shall be the Territory;
however, neither Party shall be averse to expanding the market scope of the
Joint Venture during its development subject to the provisions hereunder.
The Parties agree that, unless otherwise unanimously approved by the Board, the
Joint Venture shall not engage in any sales and business development of the
Products outside the Territory that will conflict with the business of the
Parties and their Affiliates.  Each of the Parties and the Joint Venture shall
have meetings on a regular basis to review the sales and business development of
the Joint Venture outside the Territory and coordinate activities that may have
potential conflict.
17.7     Each Party understands and supports that to rapidly develop the Joint
Venture’s business, the Joint Venture may, upon the Board’s unanimous approval,
seek finance from the capital markets, including, but not limited to, an initial
public offering, reverse merger and private equity financing, in compliance with
all applicable laws and regulations of China.  If the Joint Venture finance
overseas, it shall also comply with the related local laws and regulations.
17.8 All related-party transactions between the Joint Venture and any Party (or
any Affiliate of a Party) shall be on arm’s-length terms, unless otherwise
consented by the Director appointed by the non-interested Party. All
related-party transactions shall be conducted in accordance with the pricing
principle and major terms unanimously approved by the Board.  Under the same
conditions, priority shall be given to the Parties or their respective
Affiliates for the procurement of the products therefrom or the supply of the
Products thereto.
17.9     Responsibilities of Party A

 
11

--------------------------------------------------------------------------------

 
 
Party A’s responsibilities shall include all of its responsibilities specified
in this Contract, including:
17.9.1   Making the capital contributions in accordance with Article 12, Article
13 and complying with the obligations provided under the Assets Contribution
Agreement;
17.9.2   Assisting the Joint Venture in applying for and obtaining all
approvals, registrations, licenses, permits and consents necessary for the
establishment of the Joint Venture and its facilities, and the conducting of the
Joint Venture’s business, to the extent such applications are required by any
governmental or other competent authorities in China.
17.9.3 Granting a license to the Joint Venture to use the trademark “e能” on the
Product of the Joint Venture free of charge; the Joint Venture may also develop
and use its own trademarks.
17.9.4 Using its best efforts to cause the employees to sign labor contracts
with the Joint Venture. With the consent from the employees, Party A shall
transfer to the Joint Venture the employees and management personnel currently
working in the battery business unit of Party A who have qualifications and
capability required by the Joint Venture (a list of the transferred employees
shall be confirmed by Party B in advance).  Such transferred employees shall
enter into new employment contracts with the Joint Venture.
17.9.5   Assisting the Joint Venture in applying for and obtaining the most
preferential tax reductions and exemptions and other investment incentives and
subsidies available under State and local laws and regulations;
17.9.6   Assisting the Joint Venture in obtaining necessary bank finance in the
form of long-term loans and/or working capital loans on the most advantageous
terms;
17.9.7   Assisting the Joint Venture in acquiring appropriate land use rights
that required for its future expansion from the competent land authorities at
the most favorable terms;
17.9.8   Assisting the Joint Venture in communication with the relevant
governmental authorities including state, provincial, municipal and local
government, as requested by the Joint Venture;
17.9.9   Handling other matters entrusted by the Joint Venture and agreed by
Party A.
17.10    Responsibilities of Party B
Party B’s responsibilities shall include all of its responsibilities specified
in this Contract, including:
17.10.1 Making the capital contributions in accordance with Article12 and
Article 13.

 
12

--------------------------------------------------------------------------------

 
 
17.10.2   Assisting Joint Venture in purchasing machinery and equipments outside
of China, and overseeing the training of the Joint Venture employees and staff.
17.10.3   Handling other matters entrusted by the Joint Venture and agreed by
Party B.
 
Chapter 7 Intellectual Property Rights
 
Article 18  Intellectual Property Rights
Party A and Party B agree that:
18.1 Definitions.  As used in this Article 18, the following terms shall have
the respective definitions as defined hereinafter:
“Field” means the technology field related to the Cells and Packs.
“Incoming Confidential Information” means any information that the disclosing
party designates as confidential or proprietary including, but not limited to,
any information disclosed pursuant to the licenses granted under Article 18.2 or
18.3.3 or disclosed pursuant to Articles 18.4.2 and 18.4.3 that is not contained
in a patent or published patent application.
“Improvement” means any improvement within the Field that relies on or utilizes
a substantial part of the Intellectual Property Rights and/or Technology.
“New Technology” means any Technology developed after the Establishment Date
that does not rely on or utilize a substantial part of the Intellectual Property
Rights and/or Technology.
“Intellectual Property Rights” means patents and pending patent applications as
well as all originals, continuations, divisions, reissues, extensions and
reexamined patents and patent applications claiming priority from them (“Patent
Rights”), and design registrations, utility models, trade secrets, know-how and
show-how, registered and unregistered copyrights only to the extent that any of
the foregoing is within the Field and recognized legal protections that are
embodied in  the Technology.
“Technology” means products, ideas, discoveries, inventions, techniques and
equipment, tooling, materials of construction, processes and operating
conditions, raw materials, requirements, engineering information, computers
software and programs, process control systems, methods, practices, strategies,
data, works of authorship, designs, diagrams, schematics, charts, drawings,
blue-prints and similar CAD type drawings, protocols, reports, analyses,
specifications, technical information, supplier lists, and all other proprietary
information, to the extent the foregoing are in the Field.

 
13

--------------------------------------------------------------------------------

 
 
18.2   Grant of License.  The licenses contemplated in this Article 18.2 shall
become effective upon the satisfaction of each of the conditions to contribution
specified in Article 12.2 hereof.  Unless prohibited by the applicable laws,
regulations, government body, or contractual obligations of a Party as of the
date hereof, each Party hereby grants to the Joint Venture an exclusive,
royalty-free license, only within the Field and only in the Territory of all
current and future Intellectual Property Rights owned by such Party and its
Affiliates or licensable by such Party and its Affiliates to make, use, sell,
copy, import, modify and further develop any material, or object or practice,
modify and further develop any method or process that is within one or more
claim of the Patent Rights or otherwise embodies the Intellectual Property
Rights to the extent that such Patent Rights and Intellectual Property Rights
are owned or licensable by that Party and its Affiliates, and only within the
scope of the Joint Venture as described in Article 8 hereof.  Further, each
Party hereby grants to the Joint Venture a non-exclusive, royalty-free license
only within the Field but outside the Territory of all current and future
Intellectual Property Rights owned by that Party and its Affiliates or
licensable by that Party and its Affiliates to sell, import and repair any
material or object that is within one or more claim of the Patent Rights or
otherwise embodies the Intellectual Property Rights to the extent that such
Patent Rights and Intellectual Property Rights are owned or licensable by that
Party and its Affiliates, and only within the scope of the Joint Venture as
described in Article 8 hereof . Each Party represents and warrants that to the
best of its knowledge, as of the date hereof, the practicing of the Intellectual
Property Rights it licenses pursuant to this Article 18.2 does not infringe upon
the Patent Rights，Intellectual Property Rights of any third party.
18.3   Improvements
18.3.1 In the event that any Party makes an Improvement without any inventor who
is an employee of the other Party or the Joint Venture (“Separate
Improvement(s)”), all Intellectual Property Rights in such Separate
Improvement(s), shall be owned by the Party making such Separate Improvement(s)
and shall deemed to be included in the license granted by that Party pursuant to
Article 18.2. Each Party shall promptly disclose to the Joint Venture any
Separate Improvements it makes but having had an opportunity to seek such patent
protection as it deems appropriate. An inventor shall be the person who
conceived of the invention, regardless of who reduced the invention to practice.
18.3.2 In the event that the Joint Venture independently makes any Improvement
or any New Technology (i.e. the inventor(s) is (are) employed by or contracted
by the Joint Venture, “Self Improvements”), or a Party makes any Improvement or
any New Technology jointly with the other Party or the Joint Venture (i.e. there
are at least two inventors, one of whom is an employee or contractor of either
Party and the other is an employee or contractor of the Joint Venture or the
other Party, “Joint Improvement(s)”), all Intellectual Property Rights in such
Self Improvement(s) and Joint Improvement(s) shall be owned by the Joint
Venture.  An inventor shall be the person who conceived of the invention,
regardless of who reduced the invention to practice.  Each Party shall promptly
disclose to the Joint Venture and the other Party its component of any Joint
Improvement(s) it makes.

 
14

--------------------------------------------------------------------------------

 
 
18.3.3  Each Party shall have an irrevocable, royalty-free and permanent license
of the Joint Improvement(s) and the Self Improvements outside the Territory to
make, use, sell, copy, import, modify and further develop any material, or
object or practice, modify and further develop any method or process that is
within the scope of such Joint Improvement(s) and Self Improvements, subject to
the license granted pursuant to Article 18.2 and subject to the Patent Rights
and Intellectual Property Rights of the other Party and any third party. The
foregoing shall not be interpreted as granting to either Party any rights
outside the Territory, the Field or the scope of the Joint Venture in any
Intellectual Property Rights which is the subject of the licenses granted
pursuant to Article 18.2.  The Joint Venture shall not grant any licenses to
third parties with respect to such Joint Improvement(s) or Self Improvement(s)
without the unanimous approval of the Board.  Except as may be necessary to sell
Products embodying such Joint Improvement(s) or Self Improvement(s) or
subcontract the manufacture or development of Products or processes embodying
such Joint Improvement(s) or Self Improvement(s), and then subject to the
confidentiality provisions of Article 18.6 and 53, the license granted pursuant
to this Article 18.3.3 shall not include the right to sublicense without the
unanimous approval of the Board.
18.3.4  Except as otherwise agreed in writing (because for example
trade  secrecy is a preferred form of protection), the Joint Venture shall seek,
obtain and maintain patent protection for such Joint Improvement(s) or Self
Improvement(s) worldwide and shall bear the cost of doing so.  In the event that
the Joint Venture notifies the Parties that it does not require or want patent
protection for a particular Joint Improvement or Self Improvement in any
particular jurisdiction, either Party shall have the right to assume the costs
of seeking, obtaining and maintaining patent protection in that jurisdiction. 
If any Party assumes such costs, then with regard to that particular Joint
Improvement or Self Improvement only, the license granted pursuant to Article
18.3.3 to that Party, shall become exclusive to that Party in that jurisdiction
and the license granted to the other Party pursuant to Article 18.3.3 shall
terminate in that jurisdiction.  If the Parties agree in writing that patent
protection is not required or desired by the Joint Venture or by both Parties or
if neither Party assumes the costs of patent protection, then the licenses
granted pursuant to Article 18.3.3 shall be unaffected.
18.4 Activities relating to the Intellectual Property Rights

 
15

--------------------------------------------------------------------------------

 
 
18.4.1 Each Party shall provide to the Joint Venture complete and accurate
information regarding the Intellectual Property Rights and Technology in a
timely manner, as well as all necessary drawings, design documents, formulae,
data, process flow, specifications and other information to as may be to enable
the Joint Venture to utilize the Intellectual Property Rights and Technology to
the extent that it is licensed pursuant to Article 18.2.
18.4.2 Each Party shall provide such training for the technicians and workers of
the Joint Venture as may be reasonably necessary to enable the Joint Venture to
utilize the Intellectual Property Rights to the extent that it is licensed
pursuant to Article 18.2. The transportation, lodging and subsistence expenses,
of the trainers and trainees (including different engineers) incurred pursuant
to such training shall be borne by the Joint Venture.  The salaries and benefits
of the trainers shall be borne by the Party providing the training.
18.4.3 During the term of the Joint Venture, the Joint Venture may from time to
time (but at least once every year) organize an engineering team to study and
understand the Technology and the Intellectual Property Rights of both Parties,
and discuss any Improvement(s) or New Technology.  Subject to the right to apply
for patent protection prior to disclosure as set forth in Article 18.3, both
parties shall provide their Improvements to the Joint Venture pursuant to
Article 18.3, in accordance with any and all targeted milestones that the Joint
Venture may propose from time to time. The Joint Venture may establish a
technician team to make Improvement(s) or develop New Technology.
18.5   Termination Provisions Specific to Intellectual Property Rights
18.5.1  Upon the termination of the Joint Venture’s business (whether as a
result of the expiration of the scheduled term of the Joint Venture or upon its
earlier Termination or otherwise), the licenses granted pursuant to Article 18.2
including the licenses of any Separate Improvement(s) shall immediately and
automatically be terminated and the Joint Venture shall cease exercising any and
all of the rights granted pursuant to Article 18.2 and 18.3.1 and shall return
to the licensor all Intellectual Property Rights, Technology and tangible
objects embodying such Intellectual Property Rights and Technology (including
but not limited to computer software, drawings, machinery, computers, computer
storage media, chemicals, cells, batteries and battery packs).
18.5.2   Upon the termination of the Joint Venture’s business (whether as a
result of the expiration of the scheduled term of the Joint Venture or upon its
earlier Termination or otherwise), the Intellectual Property Rights in all Joint
Improvement(s) and Self Improvement(s) shall be jointly owned by the Parties in
undivided equal shares.  Except as may be necessary to sell Products embodying
such Joint Improvement(s) or Self Improvement(s), or subcontract the manufacture
or developments of Products or processes embodying such Joint Improvements or
Self Improvement(s), and then subject to the confidentiality provisions of
Article 53, neither Party will grant any license to any third party with respect
to Joint Improvement(s) or Self Improvement(s) without the prior written consent
of the other Party, denial of which shall be within the other Party’s absolute
discretion.

 
16

--------------------------------------------------------------------------------

 
 
18.5.3 Upon the termination of the Joint Venture’s business (whether as a result
of the expiration of the scheduled term of the Joint Venture or upon its earlier
Termination or otherwise), Article 18.5.2 shall not apply to any patents and
patent applications in respect of which the license has become exclusive
pursuant to Article 18.3.4. Upon such termination, such patents and patent
applications shall be irrevocably assigned to the Party to whom they
were exclusively licensed without further consideration being due.
18.5.4 If any Party terminates or exits the Joint Venture (“Exiting Party”) due
to the breach by the other Party, it may terminate the license it granted to the
Joint Venture under Article 18.2.  Upon termination of the license by the
Exiting Party, the Joint Venture shall immediately cease exercising of the
rights in relation to the Intellectual Property Rights which the Exiting Party
licensed to the Joint Venture pursuant to Article 18.2 and return to the Exiting
Party all Technology and tangible objects embodying such Intellectual Property
Rights (including but not limited to computer software, drawings, machinery,
computers, computer storage media, chemicals, cells, batteries and battery
packs). If the Joint Venture requests to continue the license after the
termination or exit by the Exiting Party, the Parties may enter into good faith
discussions on the commercial terms for continual of the license on arm length
basis. For the avoidance of doubt, each Party shall, at its sole and absolute
discretion, decide, but not under any obligation, to enter into such license
agreement with the Joint Venture.
18.5.5 If any Party exits the Joint Venture by transferring or otherwise
disposing of its equity in the Joint Venture (excluding transfer its equity to
any Affiliates), the license granted by the Exiting Party to the Joint Venture
pursuant to Article 18.2 shall continue on a royalty-free basis, but the license
granted pursuant to Article 18.2 will become non-exclusive for the Territory.
Any Separate Improvements that the Exiting Party may make after such exit shall
be excluded from the license granted pursuant to Article 18.2 and the Exiting
Party shall have no obligation to disclose such Separate Improvements to the
Joint Venture. Any Self Improvements that may be made after such exit shall be
excluded from the license granted pursuant to Article 18.3.3 and the Joint
Venture shall have no obligation to disclose such Self Improvements to the
Exiting Party.
18.6 Confidentiality
18.6.1   Each Party and the Joint Venture will keep strictly confidential all
Incoming Confidential Information that the other Party discloses to it or the
Joint Venture and will refrain from using such Incoming Confidential Information
for any purpose other than furtherance of the objectives of the Joint Venture. 
The foregoing shall not apply to any information that is in or enters the public
domain other than due to the actions of the receiving party or the Joint
Venture.

 
17

--------------------------------------------------------------------------------

 
 
18.6.2    To the extent that the Parties agree pursuant to Article 18.3.4 that
patent protection for Joint Improvement(s) or Self Improvement(s) is not
required or desired and that such Joint Improvements or Self Improvement(s) are
to be kept confidential, each Party will keep strictly confidential all such
Joint Improvement(s) or Self Improvement(s).
18.6.3 The provisions of this Article 18.6 are in addition to, and are not
intended to limit, the restrictions and exclusions contained in Article 53.
 
Chapter 8 Board of Directors
 
Article 19 The Board will be established on the Establishment Date. Any actions
of the Joint Venture prior to the establishment of the Board shall be made
jointly by the Parties.
Article 20
20.1 The Board shall initially be composed of five (5) directors, of which three
(3) shall be appointed by Party A, and two (2) shall be appointed by Party B. 
The Chairman of the Board shall be appointed by Party A, and the Vice-Chairman
of the Board shall be appointed by Party B. The term of office for the
Directors, Chairman and Vice-Chairman shall be three (3) years; their term of
office may be renewed if continuously appointed by the relevant Party, provided
that each of them may be removed and replaced at any time for any reason by the
Party that appointed them.
 If a Party wishes to appoint or remove a Director, then such Party shall notify
the other Party and the Joint Venture in writing. The appointment or removal
shall be filed with the Approval Authority and the Registration Authority.
20.2     Indemnification
No Director or Senior Officer shall bear any personal liability for normal
business actions performed as a Director or Senior Officer and the claims and
liability that have arisen therefrom shall be indemnified by the Joint Venture,
except that any action or inaction on the part of such Director or Senior
Officer that triggered the aforementioned indemnification or liability which
caused by willful misconduct, gross negligence or breach of PRC criminal law.
Article 21
21.1 The Board shall be the highest authority of the Joint Venture and the Board
shall have the right to make all material decisions of the Joint Venture.
21.2 The following matters shall require unanimous approval of the Directors
present at the Board meeting:

 
18

--------------------------------------------------------------------------------

 
 
21.2.1  the amendment to the Articles of Association of the Joint Venture;
21.2.2  the termination and dissolution of the Joint Venture; in the case of
termination by any Party according to Article 51, both Parties shall cause the
Directors appointed by them to vote for and pass the resolution to terminate and
dissolve the Joint Venture;
21.2.3  any increase or decrease the registered capital of the Joint Venture;
21.2.4  the merger with any other business or entity or division of the Joint
Venture;
21.2.5 (i) any acquisition  or sale of the Joint Venture’s equity investment, or
(ii) any acquisition or sale of fixed assets of the Joint Venture not
contemplated in the approved Annual Business Plan, the fair market value of
which exceeds fifteen percent (15%) of the capital expenditure approved in the
Annual Business Plan, or (iii) any acquisition, sale, transfer, license or
sublicense of intellectual property or any other intangible asset of any value,
or (iv) entering into any material contract with a third party out of the normal
course of business of the Joint Venture (for purposes of this Article 21, the
term “material contract” shall mean a contract in which the Joint Venture could
reasonably be expected to give, earn, receive, pay or be liable for, during the
term of such contract, in excess of One Hundred Thousand United States Dollars
(USD100,000), whether monetarily and/or in products and services);
21.2.6 any assignment by a Party of its equity interest in the Joint Venture to
any other party;
21.2.7 any pledge of equity interests in the Joint Venture by one Party or both
Parties；
21.2.8 any incurrence of any bank finance, guarantees, mortgages, capital lease
obligations, lending to others, issuing bonds, donation or effectuation of any
equity or equity-linked financings of any amount beyond the approved Annual
Business Plan;
21.2.9 the relocation or material modification of any material facility owned or
used by the Joint Venture;
21.2.10 the appointment or removal of the Senior Officers in accordance with the
Articles of Association. “Senior Officers” shall mean management personnel as
defined in Article 28 hereunder;
21.2.11 Engaging in a business other than as specified in Article 8, or engaging
in any sales activities and business development outside the Territory that will
constitute a material transaction or conflict with the business of a Party.  For
the purpose of this clause, any transaction or series of transactions with a
single customer within any twelve-month period whose value exceeds or
anticipates to exceed Twenty-five Million United States Dollars (USD 25,000,000)
or five percent (5%) of the annual sales revenue of the Joint Venture in the
preceding year, whichever is lower, shall constitute a material transaction. 
The Board may unanimously decide to increase the threshold for materiality from
time to time. The Board shall approve a material transaction not conflicting
with the business of a Party if such transaction is in the best interests of the
Joint Venture;

 
19

--------------------------------------------------------------------------------

 
 
21.2.12 The mid-long term development plan, the Annual Business Plan (which
shall include monthly revenue plan by customer, capital expenditure associated
with revenue plan, and operating budget, including forecast income statement,
balance sheet and cash flow statement), the financial and accounting rules
(including delegation of authority to management and pricing guidelines for
products), and human resources rules of the Joint Venture;
21.2.13 the retention and/or replacement of the independent auditor;
21.2.14 the pursuit, defense and entering settlement of any material litigation
(for purposes of this clause “material litigation” means any action or claim by
or against the Joint Venture in which the liability of the Joint Venture could
reasonably be expected to exceed One Million United States Dollars
(USD1,000,000);
21.2.15 the distribution of profits or dividends to the equity holders of the
Joint Venture;
21.2.16 the pricing principle and major terms of the related-party transactions
between the Joint Venture and a Party (or any Affiliate of such Party);
21.2.17 any other matters stated elsewhere in this Contract or the Articles of
Association of the Joint Venture that expressly requires unanimous approval of
the Board.
21.3 Matters that shall be decided by the Board, other than the above which
require unanimous approval of the Board, shall require the approval by a simple
majority of the Directors present at the Board meeting.
21.4 A deadlock of the Board (the “Deadlock”) shall be deemed to have arisen
upon any the occurrence of any of the following: (1) the failure of the Joint
Venture to hold Board meetings for one (1) year continuously, and either Party
has requested in writing that a Board meeting be held; (2) the Directors of the
Joint Venture have been in prolonged conflict which cannot be resolved by
representatives of the Parties and causes severe difficulties in the operation
and management of the Joint Venture; or (3) the Parties suffer from severe
losses due to the continuing existence of the Joint Venture which has other
severe difficulties in the operation and management.  In the event of a
Deadlock, the Chairman and Vice Chairman shall jointly refer the matter to two
(2) representatives, each designated by the highest executive officer of Party A
and Party B respectively, within fifteen (15) days from the Deadlock.  The
aforesaid representatives shall use their best efforts to reach a settlement
proposal in good faith within sixty (60) days after the Chairman and the
Vice-Chairman refer the relevant item to them.  If the Deadlock still cannot be
settled, then either Party shall have the right to terminate this Contract in
accordance with Article 51 provided that in the case of the scenario set forth
in item (1) in this paragraph, the Party whose Director(s) fails to attend the
Board meeting or otherwise unreasonably delays the Board meeting shall not have
the right to terminate this Contract.

 
20

--------------------------------------------------------------------------------

 
 
Article 22 The Chairman of the Board shall be the legal representative of the
Joint Venture.  Should the Chairman be unable to exercise his responsibilities
for any reason, he shall authorize the Vice Chairman to represent the Joint
Venture until he is again able to exercise his responsibilities as Chairman. 
The Chairman shall exercise his authority within the limits prescribed by the
Board, in accordance with this Contract, the Articles of Association and any
Board resolutions.
Article 23 The Board shall convene at least twice a year.  The meeting shall be
called and presided over by the Chairman.  The Chairman shall convene and
preside over an interim meeting within fifteen (15) days based on a proposal
made by more than one third of the total number of the Directors.  If the
Chairman fails to convene an interim meeting within the time limit, then any
other director may convene such meeting.  Minutes of the meetings shall be
placed on file.
Decisions of the Board shall be made either:
(i) by a vote of the Directors taken at a meeting duly called, whether such
meeting is in person, through tele-, video- or internet-conferencing, or a
combination of the foregoing; or
(ii) by written consent signed by all of the Directors on the Board (even if
such action does not require the unanimous approval of the Board as set forth in
Article 21.2).
All decisions of the Board made at a valid Board meeting shall be summarized
into “minutes” promptly after such meeting and signed by all of the Directors
present at such meeting.  All minutes and written resolutions shall be delivered
to the Directors after being executed by the requisite Directors.  Each Party
shall be permitted to have up to two additional representatives present at each
Board meeting as observers, provided that such representatives shall have no
right to vote on any matter presented to the Board.
The Chairman or any other Director (in the case of an interim Board meeting)
shall give each Director not less than fifteen (15) days written notice for such
meeting, provided that if all Directors attend the said meeting (whether in
person or via tele-, video or internet-conferencing) without such fifteen-day
notice, such notice requirement shall be deemed waived by each Director.  Such
meeting notice shall state the agenda, subject, time and place of such meeting.
Article 24 Any meeting of the Board shall be deemed to be official and valid
with a quorum of at least two-thirds of the Directors (at least one Director
from each Party) present in person or by proxy.  Each Director shall have one
vote.

 
21

--------------------------------------------------------------------------------

 
 
Article 25 Each Party shall endeavor to cause its appointed Directors to attend
all Board meetings that have been duly called, whether in person or via tele-,
video- or internet-conferencing.  Should any other Director be unable to attend
a meeting, such Director shall have the right to present a power of attorney to
a representative (which may but does not need to be a Director) and authorize
such representative to represent and vote for him at such meeting.
Article 26 No Director shall be involved in the day to day operation and
management of the Joint Venture, except to the extent such Director is also an
officer or employee of or consultant to the Joint Venture.  No Director shall
receive remuneration from the Joint Venture for his services as a Director,
provided that all travel, lodging and other expenses incurred by a Director in
connection with attending a Board meeting and carrying out his duties as a
Director shall be borne by the Joint Venture.
Article 27 Supervisor
27.1 Each Party shall appoint one supervisor by giving written notice of the
names of its appointees to the Joint Venture and the other Party.  The
Supervisor shall be appointed for a term of three (3) years and may serve
consecutive terms if reappointed by the appointing Party. The Supervisor may be
removed at any time by the Party who originally appoints such Supervisor.  The
position of the Supervisor shall not be concurrently held by any Director or
member of the Management Office.
27.2 Each supervisor shall exercise the following powers:
27.2.1 to inspect the financial affairs of the Joint Venture;
27.2.2 to supervise the actions of Directors and the Senior Officer during the
performance of their duties, and to propose the removal of Directors or Senior
Officers who have violated the laws, administrative rules and regulations, or
the Articles of Association;
27.2.3 to demand that Directors and the Senior Officers make corrections if any
of their actions is found to have harmed the interests of the Joint Venture;
27.2.4 to propose the convening of interim Board meetings;
27.2.5 to submit proposals to the Board meeting;
27.2.6 any other functions or powers as conferred by the PRC Company Law and the
Articles of Association.
27.3  Supervisors shall serve without remuneration from the Joint Venture but
all reasonable costs to assume such duties of the Supervisors shall be borne by
the Joint Venture.

 
22

--------------------------------------------------------------------------------

 
 
Chapter 9 Business Management Office
 
Article 28 The Joint Venture shall establish a business management office which
shall be responsible for its daily management. The management office shall have
a general manager (Chief Executive Officer “CEO”) and a deputy operating manager
(Chief Operating Officer “COO”) recommended by Party A; a deputy financial
manager (Chief Financial Officer “CFO”) and a deputy technical manager (Chief
Technology Officer “CTO”) recommended by party B.
The general manager and deputy general managers shall be appointed by the Board
and the term of office is three (3) years and eligible for reappointment for
further terms.
Article 29 The responsibility of the general manager is to carry out the
decisions of the Board and organize and conduct the daily management of the
Joint Venture. The general manager may authorize a deputy general manager to
conduct daily management in the normal course of business on his behalf during
his absence.
The power scope of general manager and deputy general managers should be decided
by the Board.
Several department managers may be appointed by the management office, they
shall be responsible for the work in various departments respectively, handle
the matters handed over by the general manager and deputy general managers and
shall be responsible to the general manager.
Article 30 Unless approved by the Board unanimously, no Senior Officers of the
Joint Venture may be engaged or employed in any business which could be or
become directly or indirectly in competition with that of the Joint Venture.
 
Chapter 10 Facilities and Equipment
 
Article 31 Party A shall provide, or cause its Affiliates to provide, to the
Joint Venture such land, facilities and ancillary services in accordance with
the Lease and Service Agreement to be mutually agreed by the Parties and entered
into between Party A (or its relevant Affiliate) and the Joint Venture.
31.1 The Parties acknowledge that as the expansion of the production and
operation of the Joint Venture require, it will need to expand the plant and
production facilities to satisfy its business requirements.  Party A shall
provide support and assistance to the Joint Venture in obtaining the required
land use rights in the most favorable terms and conditions and other
governmental support and incentives for such expansion.
Article 32 The Joint Venture may freely purchase required raw materials, fuel,
auxiliary equipment parts, transportation vehicles and office supplies, etc from
domestic or international markets on the basis of pricing, quality and other
relevant terms and conditions.
 
23

--------------------------------------------------------------------------------

 
Article 33 Party B shall actively assist the Joint Venture in connection with
the purchase of equipment, services and other items from offshore vendors.
 
Chapter 11 Labor Management
 
Article 34 Labor contract covering the recruitment, employment, dismissal and
resignation, wages, labor insurance, welfare, rewards, penalties and other
matters concerning the staff and workers of the Joint Venture shall be entered
into between the Joint Venture and the individual employees of the Joint Venture
in accordance with the Labor Law of PRC and other relevant labor rules and
regulations.
If any staff and workers (including management personnel) of Party A meet with
the Joint Venture’s requirements in qualifications and capabilities, such staff
and workers shall sign a new labor contract with the Joint Venture.
Party A undertakes to assume all liabilities to the employees during the time
when such employees work for Party A in accordance with the relevant PRC labor
regulations and the Joint Venture shall not assume any liabilities arising from
such employment between the employees and Party A.
Article 35 The appointment of Senior Officers  recommended by both Parties,
their salaries, social insurance, welfare and the standard of traveling expenses
etc. shall be decided by the Board in accordance with related regulations,
provided that the principle of equal pay for equal position shall be followed.
The compensation of the Senior Officers shall be decided by the Board based on
the contribution made by such personnel to the Joint Venture and the Board will
give favorable welfare treatments to the expatriate Senior Officer(s) in view of
the circumstances.
Article 36 Employees of the Joint Venture may join trade union organization in
accordance with the Trade Union Law of the People’s Republic of China. The Joint
Venture shall provide the trade union organization with facilities for its
activities as appropriate and allot union fund to the trade union organization
in accordance with the applicable laws.
 
 Chapter 12 Finance, Audit and Taxation
 
Article 37 The Joint Venture shall establish a financial and accounting system
(the “Financial and Accounting System”) in accordance with the Enterprise
Accounting Systems (2006), other relevant laws and regulations, the particular
circumstances of the Joint Venture and, to the extent permitted by applicable
law, those methods and principles that are consistent with generally accepted
international accounting principles.  All accounting matters relating to the
Joint Venture and its business shall be overseen by the CFO and conducted in
compliance with applicable laws.
 
24

--------------------------------------------------------------------------------

 
Article 38  The Joint Venture adopts Renminbi (RMB) as its standard bookkeeping
currency.
Article 39 The fiscal year of the Joint Venture shall be from January 1 to
December 31.  All vouchers, receipts, statistic statements and books shall be
written in Chinese and important financial statements shall be written in both
Chinese and English.
Article 40 Allocations for reserve fund, enterprise expansion fund, and welfare
and bonuses fund for the employees of the Joint Venture (jointly, “Three Funds”)
shall be drawn from the after-tax net profits of the Joint Venture in accordance
with the provisions of the Equity Joint Venture Law. The allocations to the
Three Funds shall be determined by the Board on an annual basis based on the
financial condition of the Joint Venture and such other factors as the Board may
deem appropriate.
Article 41  The financial audit of the Joint Venture’s business shall be
conducted on an annual basis by an auditor that is mutually accepted to both
Parties.  The fees and expenses of such auditor shall be borne by the Joint
Venture.  All audit reports shall be submitted to the Board and the management
office.
Each Party may, at its own expense, appoint a certified public accountant
registered in China or other countries to audit the accounts of the Joint
Venture on its behalf.  Reasonable cooperation and access to the accounting
books and records shall be given to such accountant by the Joint Venture, and
such accountant shall maintain the confidentiality of all information disclosed
during the course of this audit (except for disclosure to the relevant Party and
its Affiliates).  All expenses for such audit shall be borne by the Party which
appoints its own auditor.
In the event that there is any major problem discovered in the audit, both
Parties shall mutually agree to appoint a third party auditor to conduct audit
of the Joint Venture at the cost of the Joint Venture.
Article 42 Within ninety (90) days from the end of each fiscal year, the Joint
Venture shall prepare cash flow statement, balance sheet, profit and loss
statement for the previous year and preliminary proposal regarding the
distribution of profits and submit such statements to the Board for review and
approval.
Article 43 The Joint Venture shall open one or more bank accounts in RMB, USD
and any other foreign currencies within the scope of authorization by the Board.
Article 44 Unless the Board unanimously decides that the Joint Venture shall not
distribute the profits due to difficulties of the Joint Venture, the Joint
Venture shall distribute the maximum profits allowable of the Joint Venture and
both Parties shall cause their appointed Director to pass the relevant
resolution.  All such distributions shall be made in proportion to each Party’s
shareholding ratio in the Joint Venture as of the time such distribution is
made.  All such distributions shall be made in accordance with applicable laws.
 
25

--------------------------------------------------------------------------------

 
Article 45 All employees of the Joint Venture shall, pursuant to the Individual
Income Tax Law of the PRC, pay individual income taxes.  The Joint Venture shall
withhold and collect such income taxes from amounts payable to its employees to
the extent required under applicable laws.
Article 46 The Joint Venture shall pay all taxes required to be paid by it under
the laws and regulations of PRC. The Joint Venture shall use its best efforts to
procure the “High-New Tech Enterprise” qualification and obtain related
preferential treatments.
Article 47 The Board shall determine the types and amount of insurance coverage
that the Joint Venture will have, provided that the types and amount of coverage
shall not be less than what is customary for businesses similar in type and size
to the Joint Venture’s business.
 
Chapter 13 Duration of the Joint Venture
 
Article 48 The term of the Joint Venture shall be thirty (30) years from the
Establishment Date.  An application for the extension of the term of the Joint
Venture, if unanimously approved by the Board, shall be submitted to the
Approval Authority within six (6) months prior to the end of the term of the
Joint Venture.
 
Chapter 14 Liquidation and Dissolution of the Joint Venture
 
Article 49 Upon the expiration of the Joint Venture’s term (whether upon the
expiration of the agreed term of the Joint Venture or upon early termination),
the Board shall appoint a liquidation committee composed of five (5) members,
three (3) of which shall be nominated by Party A and two (2) by Party B.  The
liquidation committee shall prepare and implement the liquidation plan subject
to the approval by the Board.  After all the debts of the Joint Venture have
been cleared (or an adequate reserve has been set aside therefore), the
remaining assets of the Joint Venture shall be distributed to the Parties in
proportion to their respective contribution to the registered capital of the
Joint Venture.
 
26

--------------------------------------------------------------------------------

 
Chapter 15 Amendment and Termination of the Joint Venture and This Contract
 
Article 50 Any amendment to this Contract and its appendices shall become
effective upon the execution of written agreement and approval of the Approval
Authority.
Article 51 Termination
51.1 This Contract shall be terminated upon the expiration of the term provided
in Article 48 unless such term is extended.  This Contract may also be
terminated by written agreement by the Parties and approval by the Approval
Authority.  In addition, if any of the following events occurs prior to the
expiration of the agreed term as stipulated in Article 48, this Contract may be
terminated by one Party unilaterally:
51.1.1       Either Party may terminate this Contract where a Party is unable to
fulfill its obligations under this Contract due to a Force Majeure event set
forth in Chapter 18 of this Contract.
51.1.2       A Party may terminate this Contract where the other Party
substantially breaches any of the material obligations under this Contract and
the Assets Contribution Agreements and such breaching Party fails to cure such
breach within thirty (30) days of receiving written notice of such breach from
the other Party;
51.1.3       Either Party may terminate this Contract where the Joint Venture
sustains significant losses in three (3) consecutive years which causes the
Joint Venture’ inability to continue its operation;
51.1.4       A Party may terminate this Contract if the other Party is declared
bankrupt or becomes the subject of proceedings for bankruptcy, dissolution or
liquidation;
51.1.5       Either Party may terminate this Contract, where the conditions
precedent set forth in Article 12.2 hereof are not satisfied within ninety (90)
days after the Establishment Date and the time period is not extended by mutual
agreement between the Parties;
51.1.6       Either Party may terminate this Contract if a Deadlock occurs and
cannot be resolved within the time limit specified in Article 21.4, provided
that in the case of Article 21.4 (1), if the Director(s) of a Party fails to
attend the Board meeting or otherwise unreasonably delays the Board meeting,
such Party shall not have the right to terminate this Contract.
51.2 A termination of this Contract made and/or requested in accordance with
this Article 51 is referred to in this Contract as a “Termination”.
Upon a valid Termination of this Contract, the Board shall promptly submit all
applications to the Approval Authority to terminate and dissolve the Joint
Venture.
 
27

--------------------------------------------------------------------------------

 
Chapter 16 Liability for Breach of Contract
 
Article 52 Should all or part of the Contract and its appendices be unable to be
performed due to the breach by one Party, the Party in breach shall assume the
liability therefor.  If both Parties breach the Contract, they shall assume
their respective liabilities according to the actual situation.
 
Chapter 17 Confidentiality
 
Article 53  Confidentiality obligation
As used in this Chapter, “Confidential Information” means all nonpublic
information that (i) is furnished by a Party (the “Disclosing Party”) to the
other Party or the Joint Venture (as applicable, the “Recipient”), including all
Incoming Confidential Information (as defined in Article 18.1), or (ii) that,
under the circumstances surrounding disclosure, should be reasonably known by
the Recipient to be confidential.  Without limiting the generality of the
foregoing, Confidential Information includes, without limitation, (A)
information relating to the Disclosing Party’s products, product plans, trade
secrets, technology, research (including past and/or ongoing research in the
field of vehicle battery), specifications (including, without limitation, for
vehicles, vehicle batteries or parts), plans, designs, drawings, concepts,
algorithms, data, laboratories, discoveries, prototypes, research, developments,
processes, methods, procedures, ideas, improvements, “know-how”, published
patent applications (including patent application status information), finances,
computer systems, software, hardware, advertising or marketing strategies,
techniques or plans, business plans, strategies or practices, employee names,
data and other employee information, customer names and other customer
information, pricing lists and policies and other financial, business or
technical information received from others that the Disclosing Party is
obligated to treat as confidential; and (B) the fact that discussions or
negotiations are taking place concerning the Joint Venture and its contemplated
projects, including the status or termination thereof.
Confidential Information shall include all of the information described above,
whether such information is disclosed (i) in writing, orally, electronically, or
by any other media; and (ii) to the Recipient by any Affiliates and/or agents or
employees of the Disclosing Party.
Confidential Information shall not include any information that (i) is or
subsequently becomes publicly available without the Recipient’s breach of any
obligation owed to the Disclosing Party; or (ii) became known to the Recipient
prior to the Disclosing Party’s disclosure of such information to the Recipient.
 
28

--------------------------------------------------------------------------------

 
The Recipient shall not disclose any Confidential Information to any other
person or entity, except to the Recipient’s employees, employees of its
Affiliates and independent contractors (collectively, the “Representatives”). 
If the Recipient or any of its Representatives is requested or required (by
interrogatories, requests for information or documents, subpoena, civil
investigative demand, or similar legal process) to disclose any Confidential
Information or to make any other disclosure prohibited by this Contract, it
agrees to provide the Disclosing Party with prompt notice of each such request,
so that such Disclosing Party may seek an appropriate protective order or other
appropriate remedy to prevent or limit such disclosure.
The Recipient shall use its best efforts to protect such Confidential
Information from disclosure to third parties.
The Recipient may disclose Confidential Information only to the Recipient’s
Representatives who have a business-related need-to-know and who are bound by
confidentiality provisions consistent with this Agreement.
Confidential Information may be used by the Recipient only in connection with
the effectuation of the business objectives of the Joint Venture, and may not be
used for any other purpose, including, without limitation, the furtherance of
the business of the Recipient’s business other than its ownership interest in
the Joint Venture.
No Recipient shall make any copies of Confidential Information except as
necessary for use in accordance with the terms hereof, and any copies which are
made shall be considered Confidential Information.
The Recipient shall notify the Disclosing Party immediately upon discovery of
any unauthorized use or disclosure of Confidential Information or any other
breach of this Article by the Recipient or any of its Representatives, and will
cooperate with the Disclosing Party in every reasonable way to help the
Disclosing Party regain possession of the Confidential Information and prevent
its further unauthorized use.
Unless otherwise agreed by the Parties, upon the termination of the Joint
Venture (whether as a result of the expiration of the scheduled term of the
Joint Venture or upon its earlier Termination or otherwise), the Recipient shall
promptly cease using and, at its own expense, promptly return and cause its
Representatives to return to the Disclosing Party all Confidential Information
together with any (A) tangible copies which it may have made, (B) writings
descriptions and summaries involving or based on such Confidential Information
and (C) copies stored in any computer memory or other storage medium.  If any
Confidential Information has been destroyed, an adequate response to a return
request therefor by the Disclosing Party will be written notice, executed by the
Recipient, certifying that such Confidential Information has been destroyed.
The Recipient acknowledges that monetary damages may not be a sufficient remedy
for unauthorized disclosure of Confidential Information and that the Disclosing
Party shall be entitled, without waiving any other rights or remedies, to such
relief as may be deemed proper by a court of competent jurisdiction. The
Recipient shall be liable for any disclosure of Confidential Information made by
its Representatives in breach of this Article.
 
29

--------------------------------------------------------------------------------

 
Chapter 18 Force Majeure
 
Article 54 Should either Party be unable to perform its obligations under this
Contract as a result of a force majeure (a “force majeure” being any event or
set of circumstances that (i) was not caused by such Party’s act or omission and
(ii) such Party cannot reasonably foresee, cure and avoid of its happening and
consequence, such as earthquake, typhoon, flood, fire, war or major change of
laws.), such Party affected by a force majeure shall notify the other Party
thereof in writing as promptly as practicable (but in no event later than three
(3) business days from the date on which such Party becomes aware of its
inability to perform under this Contract), and such notice shall provide
detailed information of the events and an explanation of the reasons for such
Party’s inability to perform under this Contract.  Both Parties shall in good
faith attempt to determine whether the business objectives of the Parties may
still be satisfied in light of the force majeure, including by way of amending
the terms of this Contract.  If such force majeure event preventing the
performance of this Contract for more than three (3) months, either Party in
good faith determines that the Joint Venture shall be terminated in light of
such force majeure, such Party may terminate the Joint Venture in accordance
with Article 51.
 
Chapter 19 Applicable Law
 
Article 55 The formation of the Joint Venture, validity of all corporation
activities of the Joint Venture, interpretation and execution of this Contract,
and the settlement of disputes arising from this Contract shall be governed by
the relevant laws of the PRC.
 
Chapter 20 Settlement of Disputes
 
Article 56 Any disputes arising from this Contract shall be settled through
friendly negotiations between both Parties.  If either Party reasonably
believes, after friendly negotiations with the other Party, that a mutually
satisfactory settlement with respect to such dispute will not be reached, then
such dispute may be submitted by either Party to the Hong Kong International
Arbitration Center under the then valid UNCITRAL Arbitration Rules by three (3)
arbitrators. Each Party shall appoint one (1) arbitrator and these two (2)
arbitrators shall jointly appoint a third arbitrator as the chairman of the
arbitration panel. The arbitral award of such commission shall be final and
binding upon both Parties.
 
30

--------------------------------------------------------------------------------

 
Article 57  During any arbitration proceeding conducted pursuant to Article 56,
this Contract shall continue to be observed and enforced by both Parties, except
to the extent such arbitration proceeding and/or the dispute giving rise to such
proceeding makes the observance and enforcement of this Contract impracticable.
 
Chapter 21 Effectiveness of This Contract and Miscellaneous
 
Article 58 This Contract shall be written in both Chinese and English, and both
languages shall be equally valid.  Each Party acknowledges that it has reviewed
both language texts and that they are substantially the same in all material
respects.
Article 59 This Contract along with any appendices hereto constitute the entire
agreement of the Parties, and supersede all previous understandings and
agreements to the subject herein between the Parties, whether oral or written.
Article 60 This Contract shall become effective immediately upon the approval of
the Approval Authority.
This Contract shall be executed in six originals, with each of Party A, Party B,
the Approval Authority and the Registration Authority holding one original of
this Contract.  Additional originals shall be kept by the Joint Venture.
Article 61  Any notice, demand or request required or permitted to be given by a
Party pursuant to the terms of this Contract shall be in writing and shall be
deemed delivered (i) when delivered personally or by verifiable facsimile
receipt, unless such delivery is made on a day that is not a business day, in
which case such delivery will be deemed to be made on the next succeeding
business day, or (ii) if sent by an internationally recognized overnight
courier, upon receipt from such courier; in each case, addressed as follows:
 
If to Party A:
Wanxiang EV Co., Ltd.
No.118 Jianshe 2 Road
XiaoShan Economic & Technology Developing Zone
Hang Zhou City, Zhejiang Province
PRC
Attn: Wang Wei
Tel: 86-0571-82606591
Fax: 86-0571-82606587
 
31

--------------------------------------------------------------------------------

 
If to Party B:
Ener1, Inc.
1540 Broadway, Suite 25C
New York, NY 10036
Attn:  General Counsel
Tel: 1-212-920-3500
Fax: 1-212-920-3510
 

or as otherwise designated by a Party in writing to the other Party in
accordance with this Article 61.
Article 62 The Parties shall cause the Board to establish compliance system and
policies to ensure compliance of the requirements in applicable U.S. export
control laws and regulations (specifically including, but not limited to, the
requirements of the Arms Export Control Act, the International Traffic in Arms
Regulation, the Export Administration Act, and the Export Administration
Regulations and all requirements for obtaining export licenses or agreements)
and the United States Foreign Corrupt Practices Act, 15 U.S.C. 78, and any
amendments thereto.
Nothing in this Contract shall require either Party or the Joint Venture to
export, license, sell or otherwise transfer any intellectual property or other
assets of such Party if such transaction is prohibited by applicable law or any
governmental body of the home country of such Party.
Article 63 This Contract is signed in Indiana, United States of America by duly
authorized representatives of both Parties on January 17, 2011.
 
Party A: Wanxiang EV CO., LTD.
Party B: Ener1, Inc.
Authorized Representative:
Authorized Representative:
Daniel Li Charles Gassenheimer     
Signature: /s/ Daniel Li
Signature: /s/ Charles Gassenheimer

 
January 17, 2011
 
 
32

--------------------------------------------------------------------------------

 

Appendix 1: Form of Assets Contribution Agreement

 
33

--------------------------------------------------------------------------------

 

Appendix 2: Form of Lease and Service Agreement

 
34

--------------------------------------------------------------------------------

 
    

Appendix 3: Form of Technology License Agreement
  
35

--------------------------------------------------------------------------------