EX-10.56






Exhibit 10.56

CONFIDENTIAL TREATMENT

REQUESTED PURSUANT TO RULE 406



Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment
under Rule 406 of the Securities Act of 1933, as amended. The omitted materials have been filed
separately with the Securities and Exchange Commission.




EMPLOYMENT AGREEMENT




     EMPLOYMENT AGREEMENT effective as of January 1, 2009 (the “Effective Date”), by and between
China Hydroelectric Corporation, an exempt company organized and existing under the laws of the
Cayman Islands (the “Company”), and “James” Tie Li (the “Executive”).



WITNESSETH:




     The Executive is presently employed by the Company in the capacity of its Chief Executive
Officer and possesses considerable experience and an intimate knowledge of the business and affairs
of the Company, its policies, methods, personnel and operations. The Company recognizes that the
Executive’s contributions have been substantial and meritorious and that the Executive has
demonstrated unique qualifications to act in an executive capacity for the Company. The Company is
desirous of assuring the continued employment of the Executive and the Executive is desirous of
having such assurance.



     NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of
the parties set forth in this Agreement, and of other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:



     1. Term of Employment. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) years, commencing as of the
Effective Date; subject, however, to earlier termination as expressly provided herein. The initial
three (3) year period of employment automatically shall be extended for one (1) additional year at
the end of the initial three (3) year term, and then again for each successive year thereafter.
However, either party may terminate this Agreement at the end of the initial three (3) year period,
or at the end of any successive one (1) year term thereafter, by giving the other party written
notice of intent not to renew, delivered at least sixty (60) days prior to the end of such initial
period or successive term. In the event such notice of intent not to renew is properly delivered,
this Agreement, along with all corresponding rights, duties and covenants, automatically shall
expire at the end of the initial period or successive term then in progress (except as otherwise
provided herein).



     Regardless of the above, if at any time during the initial period of employment, or successive
term, a Change in Control of the Company occurs (as defined in Section 7 hereof), then the term of
this Agreement thereafter shall be the longer of: (a) one (1) year beyond the



 









 







month in which the effective date of such Change in Control occurs; or (b) the term as otherwise
provided by this Section 1.



     2. Position and Responsibilities. During the term of this Agreement, the Executive
shall serve as the Executive Vice President and Chief Financial Officer of the Company. The
Executive shall have such duties and functions as may from time to time be reasonably assigned to
him by the Company’s Board of Directors (the “Board”) or Chief Executive Officer. The Executive’s
duties shall include, but not be limited to, the duty and power to keep and be responsible for all
funds and securities of the Company, to maintain the financial records of the Company, to deposit
funds of the Company in depositories as authorized, to disburse such funds as authorized, to make
proper accounts of such funds, and to render as required by the Board accounts of all such
transactions and of the financial condition and results of operations of the Company. The
Executive shall report directly to Chief Executive Officer of the Company and shall at all times be
subject to the control and direction of the Board.



     3. Performance of Duties. During the term of this Agreement, the Executive shall
devote substantially all of his working time to the performance of his responsibilities and duties
hereunder and shall comply with the policies of the Company with respect to conflict of interest
and business ethics from time to time in effect; provided, however, that, except as
provided in Section 8.1 below, nothing contained herein shall restrict the Executive from: (i)
rendering services to charitable organizations and from managing his personal investments in such
manner as shall not interfere with the performance by the Executive of his duties hereunder; or
(ii) serving on the board of directors of any other entity so long as (x) such entity is not in a
business which is competitive with that of the Company, (y) such service does not interfere with
the performance by the Executive of his duties hereunder and (z) the Executive receives the prior
approval of the Board with respect to such service.



     4. Compensation. As remuneration for all services to be rendered by the Executive
during the term of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:



          4.1 Base Salary. The Company shall pay the Executive a base salary (the “Base
Salary”) in an amount which shall be established from time to time by the Board, provided that such
base salary shall not be less than [***] per year (“Base Salary”). This Base Salary shall
be paid to the Executive in installments throughout the year consistent with the normal payroll
practices of the Company. The Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement to ascertain whether, in the judgment of the Board, such Base
Salary should be adjusted, based on the performance of the Executive during the year, inflation and
other factors deemed appropriate by the Board.





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          4.2 Annual Bonus. In addition to his Base Salary, the Executive shall be eligible to
receive an annual cash bonus (the “Bonus”) in respect of each fiscal year during the term of this
Agreement on the basis of a formula to be developed by the Board or otherwise in the discretion of
the Board. Subject to approval of the Board, the Bonus shall be payable to the Executive in cash
as promptly as practical after the completion by the Company of its fiscal year to which such bonus
relates.




          4.3 Compensation Plans. The Executive shall be eligible to participate in such
profit-sharing, 401K, stock option, bonus and performance award programs as are made available
generally to executive officers of the Company, such participation to be on a basis which is
commensurate with the Executive’s position with the Company.




          4.4 Other Benefits. The Executive shall be entitled to participate in all benefit
programs that the Company establishes and makes available to its employees to the extent the
Executive’s position, tenure, salary, age, health and other qualifications make him eligible to
participate, and shall be entitled to receive such perquisites as are made available generally to
executive officers of the Company. The Executive shall be entitled to four weeks paid vacation per
year to be taken at such times as may be approved by the Board or its designee.




          4.5 Right to Change Plans. The Company shall not be obligated to institute, maintain,
or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, by
reason of Sections 4.3, 4.4 and 4.5 herein.




          4.6 Stock Options. Without limiting the foregoing, the parties acknowledge that,
prior to the Effective Date, the Executive has received a grant of options to purchase 500,000
Ordinary Shares of the Company (the “Option”) under the Company’s 2008 Share Incentive Plan (the
“Plan”), which shall vest in three equal annual installments, commencing on the first anniversary
of the grant date of the Option so long as the Executive remains employed by the Company. The
Option shall be subject to the terms of the Plan and the Option Agreement issued to the Executive
with respect thereto. In addition, the Executive shall be eligible to receive grants of additional
options on an annual basis at the sole discretion of the Board.




     5. Expenses. The Company shall reimburse the Executive for all reasonable, ordinary
and necessary documented travel, entertainment and other out-of-pocket expenses that the Executive
incurs on behalf of the Company in the course of his employment hereunder in accordance with the
Company’s normal policies and provisions regarding such reimbursements.



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     6. Employment Terminations.



          6.1 Termination Due to Death. In the event the Executive’s employment is terminated
while this Agreement is in force by reason of death, the Executive’s benefits shall be determined
in accordance with the Company’s retirement, survivor’s benefits, insurance, and other applicable
programs of the Company then in effect. Upon the effective date of such termination, the Company’s
obligation under this Agreement to pay and provide to the Executive the elements of pay described
in Sections 4.1, 4.2, 4.3, and 4.4 shall immediately expire, except to the extent that the benefits
described in Section 4.4 continue thereafter under the terms of the benefit plans and programs
which apply generally to the Company’s executives and except that the Executive shall receive all
other rights and benefits that he is vested in pursuant to other plans and programs of the Company.
In addition, the Company shall pay to the Executive’s beneficiaries, estate, or trust, as
applicable, a pro rata share of any Bonus to which the Executive would have been entitled for the
fiscal year in which employment termination occurs, based on the results of the Company for such
fiscal year. This pro rata Bonus amount shall be determined by multiplying the Bonus which
otherwise would apply for such full fiscal year by a fraction, the numerator of which is the number
of days in such fiscal year prior to the date of employment termination and the denominator of
which is the total number of days in such fiscal year.




          6.2 Termination Due to Disability. In the event that the Executive becomes Disabled
(as defined below) during the term of this Agreement and is, therefore, unable to perform his
duties herein for more than one hundred twenty (120) total calendar days during any period of
twelve (12) consecutive months, or in the event of the Board’s reasonable expectation that the
Executive’s Disability will exist for more than a period of one hundred twenty (120) calendar days,
the Company shall have the right to terminate the Executive’s active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of the Company’s
intent to terminate for Disability at least thirty (30) calendar days prior to the effective date
of such termination. A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon such effective date, the Company’s obligation to pay and
provide to the Executive the elements of pay described in Sections 4.1, 4.2, 4.3, and 4.4 shall
immediately expire, except to the extent that the benefits described in Section 4.4 continue after
Disability under the terms of the benefit plans and programs which apply generally to the Company’s
executives and except that the Executive shall receive all rights and benefits that he is vested in
pursuant to other plans and programs of the Company. In addition, the Company shall pay to the
Executive a pro rata share of his Bonus for the fiscal year in which employment termination occurs,
based on the results for such fiscal year, determined as provided in Section 6.1.




     The term “Disability” shall mean, for all purposes of this Agreement, the incapacity of the
Executive, due to injury, illness, disease, or bodily or mental infirmity, to engage in the



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performance of substantially all of the usual duties of employment with the Company as contemplated
by Section 2 herein, such Disability to be determined by the Board upon receipt and in reliance on
competent medical advice from one (1) or more individuals, selected by the Board, who are qualified
to give such professional medical advice.



     It is expressly understood that the Disability of the Executive for a period of one hundred
twenty (120) calendar days or less in the aggregate during any period of twelve (12) consecutive
months, in the absence of any reasonable expectation that his Disability will exist for more than
such a period of time, shall not constitute a failure by him to perform his duties hereunder and
shall not be deemed a breach or default and the Executive shall receive full compensation for any
such period of Disability or for any other temporary illness or incapacity during the term of this
Agreement.



          6.3 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board written notice of intent to terminate, delivered at least
sixty (60) days prior to the effective date of such termination.




     Upon the expiration of the sixty (60) day notice period, the termination by the Executive
shall become effective. The Company shall pay the Executive his Base Salary, at the rate then in
effect as provided in Section 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time (for this purpose, the Executive
shall not be paid any Bonus with respect to the fiscal year in which voluntary termination under
this Section 6.3 occurs). The Company and the Executive shall have no further obligations under
this Agreement after the effective date of such termination, except as set forth in Sections 8 or 9
hereof.



          6.4 Involuntary Termination by the Company Without Cause. The Board may terminate the
Executive’s employment, as provided under this Agreement, at any time, for reasons other than
death, Disability or for Cause (as defined in Section 6.5 hereof), by notifying the Executive in
writing of the Company’s intent to terminate, at least thirty (30) calendar days prior to the
effective date of such termination. Upon the expiration of the thirty (30) day notice period the
termination by the Company shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in this Section 6.4.




     Upon a termination of the Executive’s employment by the Company pursuant to this Section 6.4
at any time other than during a Change in Control Period, the Company shall continue to pay to the
Executive his Base Salary then in effect for a period of twelve (12) full months following the
effective date of such termination and shall provide to the Executive a continuation of his health
and welfare benefits during such twelve (12) month period. If for any reason the Company is unable
to continue health and welfare benefits as required by the



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preceding sentence, the Company shall either provide equivalent benefits to the Executive or pay to
the Executive a lump sum cash payment equal to the value of the benefits which the Company is
unable to provide. Continuation of health benefits under this Section 6.4 will count against, and
will not extend, the period during which benefits are required to be continued under COBRA.



     In addition, the Company shall make a prorated payment of the Executive’s Bonus for the fiscal
year in which termination occurs, calculated based upon the performance of the Executive against
the bonus criteria established by the Board for the Executive in effect through the end of the
month immediately preceding the effective date of the termination, subject to the Board’s
discretion to increase the amount of such prorated payment. Further, the Company shall pay the
Executive all other benefits to which the Executive has a vested right at the time, according to
the provisions of each governing plan or program. The Company and the Executive thereafter shall
have no further obligations under this Agreement after the effective date of termination, except as
set forth in Sections 7, 8 or 9 hereof.



     Upon a termination of the Executive’s employment by the Company pursuant to this Section 6.4
during a Change in Control Period, the Executive shall be entitled to receive the payments and
benefits set forth in Section 7.1 herein in lieu of those set forth in this Section 6.4.



          6.5 Termination For Cause. Nothing in this Agreement shall be construed to prevent
the Board from terminating the Executive’s employment under this Agreement for “Cause.”




     “Cause” shall be determined by the Board in the exercise of good faith and reasonable
judgment, and shall be defined as: (i) conviction of, or plea of nolo contendere to, a felony or
crime involving moral turpitude; (ii) fraud on or misappropriation of any funds or property of the
Company; (iii) personal dishonesty, incompetence, willful misconduct, willful violation of any law,
rule or regulation (other than minor traffic violations or similar offenses) or breach of fiduciary
duty which involves personal profit; (iv) willful misconduct in connection with the Executive’s
duties or willful failure to perform the Executive’s responsibilities in the best interests of the
Company; (v) chronic use of alcohol, drugs or other similar substances which affects the
Executive’s work performance; (vi) breach of any provision of any employment, non-disclosure,
non-competition, non-solicitation or other similar agreement executed by the Executive for the
benefit of the Company; (vii) the Executive’s willful refusal to carry out written instructions of
the Board which are consistent with the Executive’s position with the Company; provided, however,
that the Executive may only be discharged under this clause (vii) after he shall first have been
given thirty (30) days written notice setting forth the grounds for such discharge and, within,
such 30-day period, shall not have ceased or otherwise cured (to the reasonable satisfaction of the
Board) the activity or activities or omissions constituting the



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grounds for such discharge; or (viii) the Executive’s willful disclosure of any trade secrets or
confidential corporate information of the Company to persons not authorized to know same, unless
such disclosure is, based upon advice of counsel, reasonably determined by the Executive to be
required by any law or court order.



     In the event this Agreement is terminated by the Board for Cause, the Company shall pay the
Executive his Base Salary through the effective date of the employment termination and the
Executive shall immediately thereafter forfeit all rights and benefits (other than vested benefits)
he would otherwise have been entitled to receive under this Agreement, including any right to a
Bonus for the fiscal year in which the termination occurs. The Company and the Executive
thereafter shall have no further obligations under this Agreement, except as set forth in Sections
8 or 9 hereof.



          6.6 Termination for Good Reason. At any time during the term of this Agreement, the
Executive may terminate this Agreement for Good Reason (as defined below) by giving the Board
thirty (30) calendar days written notice of intent to terminate, which notice sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason termination shall become
effective, and the Company shall pay and provide to the Executive the benefits set forth in this
Section 6.6.




     “Good Reason” shall mean, without the Executive’s express written consent, the occurrence of
any one or more of the following:




	 	(a)	 	the assignment of the Executive to duties materially inconsistent with the
Executive’s authorities, duties, responsibilities and status (including offices,
titles, and reporting requirements) as an executive of the Company, or a reduction or
alteration in the nature or status of the Executive’s authorities, duties, or
responsibilities from those in effect during the immediately preceding fiscal year,
other than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
	 
	 	(b)	 	a reduction by the Company in the Executive’s Base Salary as in effect on the
Effective Date, as provided in Section 4.1 herein; or
	 
	 	(c)	 	the failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as contemplated
in Section 10.1 herein.




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     Upon a termination of the Executive’s employment for Good Reason at any time other than during
a Change in Control Period, the Executive shall be entitled to receive the same payments and
benefits, payable in the same manner, as he is entitled to receive following an involuntary
termination of his employment by the Company without Cause, as specified in Section 6.4 herein.
Upon a termination for Good Reason during a Change in Control Period the Executive shall be
entitled to receive the payments and benefits set forth in Section 7.1 herein in lieu of those set
forth in this Section 6.6.



     The Executive’s right to terminate employment for Good Reason shall not be affected by the
Executive’s incapacity due to physical or mental illness. The Executive’s continued employment
shall not constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason herein.



          6.7 Non-Renewal by Company. Upon any termination of this Agreement as a result of a
notice of non-renewal by the Company pursuant to Section 1 hereof (a “Non-Renewal”), upon the
effective date of such termination, the Company shall continue to pay to the Executive his Base
Salary then in effect for a period of twelve (12)] full months following the effective date of such
termination and shall provide to the Executive a continuation of his health and welfare benefits
during such twelve (12) month period. If for any reason the Company is unable to continue health
and welfare benefits as required by the preceding sentence, the Company shall either provide
equivalent benefits to the Executive or pay to the Executive a lump sum cash payment equal to the
value of the benefits which the Company is unable to provide. Continuation of health benefits
under this Section 6.7 will count against, and will not extend, the period during which benefits
are required to be continued under COBRA. In addition, the Company shall make a prorated payment
of the Executive’s Bonus for the fiscal year in which such termination occurs, calculated and
payable in the same manner as specified in Section 6.4 for an involuntary termination by the
Company without Cause, subject to the Board’s discretion to increase the amount of such prorated
payment.




          6.8 [RESERVED]




          6.9 Condition to Payment. All amounts payable by the Company to the Executive upon or
with respect to the termination of the Executive’s employment with the Company shall be contingent
upon and in consideration for the Executive’s execution and delivery to the Company of a general
release agreement, in form and substance reasonably acceptable to the Company, which releases all
of the Executive’s claims against the Company relating in any way to the Executive’s employment
with the Company and the termination of the Executive’s employment by the Company or for additional
compensation under the terms of this Agreement.




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     7. Change in Control.



          7.1 Employment Terminations in Connection with a Change in Control. In the event of a
Qualifying Termination (as defined below) during a Change in Control Period, the Company shall pay
to the Executive and provide him with benefits in lieu of the benefits which otherwise would have
been payable under this Agreement such that the total benefits payable to the Executive shall be as
follows:





	 	(a)	 	A lump sum amount equal to one and a half (1.5) times the highest rate of the
Executive’s annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
	 
	 	(b)	 	A lump sum amount equal to the average annual Bonus paid to the Executive for
the last three (3) fiscal years prior to the Change in Control;
	 
	 	(c)	 	An amount equal to the Executive’s unpaid Base Salary and pro rata Bonus
through the effective date of termination, determined as provided in Section 6.4; and,
	 
	 	(d)	 	A continuation of health and welfare benefits for twenty-four (24) full months
from the effective date of termination. If for any reason the Company is unable to
continue health and welfare benefits as required by the preceding sentence, the Company
shall either provide equivalent benefits to the Executive or pay to the Executive a
lump sum cash payment equal to the value of the benefits which the Company is unable to
provide. Continuation of health benefits under this Section 7.1 will count against,
and will not extend, the period during which benefits are required to be continued
under COBRA. The continuation of these welfare benefits may be discontinued by the
Company prior to the end of the twenty-four (24) month period in the event the
Executive has available substantially similar benefits from a subsequent employer, as
determined by the Board.





     For purposes of this Section 7, a “Qualifying Termination” shall mean any termination of the
Executive’s employment other than: (1) by the Company for Cause; (2) by reason of death, Disability
or Retirement; or (3) by the Executive without Good Reason. Payment of any lump sum amounts
pursuant to this Section 7.1 will be made within sixty (60) days after the effective date of the
termination of the Executive’s employment.



          7.2 Definition of “Change in Control”. A Change in Control of the Company shall be
deemed to have occurred as of the first to occur of any one or more of the following:




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     (a) the effective time of any merger, share exchange, consolidation or other reorganization or
business combination of the Company if immediately after such transaction persons who hold a
majority of the outstanding voting securities entitled to vote generally in the election of
directors of the surviving entity (or the entity owning 100% of such surviving entity) are not
persons who, immediately prior to such transaction, held a majority of the combined voting power of
the Company’s then outstanding voting securities entitled to vote generally in the election of
directors;



     (b) the closing of a sale or conveyance of all or substantially all of the assets of the
Company;



     (c) an acquisition (other than from the Company) in a transaction or a series of related
transactions by any person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 (the “Exchange Act”), (excluding for this purpose, (A) the
Company or its subsidiaries, (B) any employee benefit plan of the Company or its subsidiaries which
acquires beneficial ownership of voting securities of the Company, (C) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (D) any corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the same proportions as
their ownership of the then outstanding voting securities of the Company entitled to vote generally
in the election of directors) of beneficial ownership, within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 50% or more of either the then outstanding ordinary shares or the
combined voting power of the Company’s then outstanding voting securities entitled to vote
generally in the election of directors;



     (d) individuals who were the Board’s nominees for election as directors immediately prior to a
meeting of the stockholders of the Company involving an actual or threatened election contest
relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, cease to constitute a majority of the Board
following the election; or



     (e) the dissolution or liquidation of the Company;


provided, however, that the term “Change in Control” does not include (1) a public
offering of capital stock of the Company that is effected pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the “Securities Act”), or (2) any transaction pursuant to which shares of
capital stock of the Company are transferred or issued to any trust, charitable organization,
foundation, family partnership or other entity controlled directly or indirectly by, or established
for the benefit of, the Executive or their immediate family members (including spouses, children,


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grandchildren, parents, and siblings, in each case to include in-laws and adoptive relations), or
transferred to any such immediate family members.




     In addition, in no event shall a Change in Control be deemed to have occurred, with respect to
the Executive, if the Executive is part of a purchasing group which consummates the Change in
Control transaction. The Executive shall be deemed “part of a purchasing group” for purposes of the
preceding sentence if the Executive is an equity participant in the purchasing company or group
(except for: (i) passive ownership of less than two percent (2%) of the stock of the purchasing
company; or (ii) ownership of equity participation in the purchasing company or group which is
otherwise not significant, as determined prior to the Change in Control by a majority of the
non-employee continuing directors of the Board).



          7.3 Change in Control Period. “Change in Control Period” shall mean the period of
time commencing with the date on which the Company becomes aware of the Change in Control or
becomes aware of a proposed transaction which reasonably could be expected to result in a Change in
Control and ending on the first to occur of two (2) years after the effective date of the Change in
Control or the date on which the proposed transaction no longer is reasonably expected to occur.




          7.4 Limitation on Change in Control Benefits. In the event that any of the amounts
payable to the Executive by the Company pursuant to the provisions of Section 7.1 of this Agreement
or otherwise would, if made, be nondeductible for U.S. federal income tax purposes under Section
280G of the Internal Revenue Code of 1986, as amended (after application of Section 280G(b)(4)),
the amount payable by the Company shall be reduced by the minimum amount necessary to cause the
Executive to receive no payments which would be nondeductible by the Company for federal income tax
purposes under Section 280G of the Code. For purposes of determining whether or not payments under
Section 7.1 or otherwise would in fact be nondeductible to the Company under Code Section 280G, the
following principles and guidelines are agreed to, and, absent contrary mutual agreement, shall be
followed: (i) all payments under or in respect of supplemental retirement plans, and stock option,
bonus and other incentive compensation plans are intended to represent reasonable compensation for
personal services performed by the Executive through the date of termination of the Executive’s
employment, (ii) if there is an issue as to whether any payments being made to the Executive
constitute “parachute payments” under Section 280G of the Code, and the Company and the Executive
cannot agree upon the amount thereof within thirty (30) days after the effective date of the
termination of the Executive’s employment, the Executive and the Company shall, within forty-five
(45) days after the effective date of the termination of the Executive’s employment, mutually agree
upon and appoint a third party arbitrator who shall analyze the issue giving recognition to the
foregoing intentions and shall issue a report within thirty (30) days of the appointment stating
the arbitrator’s best estimate of the amount of “parachute payments” under


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Code Section 280G, if any, and the report of such arbitrator shall be conclusive and binding
on the parties, (iii) the third party arbitrator selected shall be a nationally recognized
accounting firm or a management consulting firm specializing in the area of executive compensation,
who shall be entitled to engage independent legal counsel for advice with respect to legal matters
in connection with the report, (iv) if the parties cannot agree upon a third party arbitrator
within the specified forty-five (45) day time period, the selection of such arbitrator shall be
submitted to arbitration in accordance with Section 12.1 hereof and (v) the costs and expenses of
the third party arbitrator selected to issue the report under this Section 7.4, including counsel’s
fees, shall be borne by the Company. The Executive and the Company agree that each will in all
cases file tax returns on a basis consistent with any conclusions reached with respect to the
deductibility of amounts under Code Section 280G, and will defend such position to the extent
practicable in the event a contrary position is taken by the Internal Revenue Service. The
Executive shall be entitled to reimbursement of counsel fees in connection with any such defense as
provided in Section 11.1 hereof.




          In the event of any reduction of payments made or to be made to the Executive pursuant to
Section 7.1 or otherwise as a result of this Section 7.4, the Executive shall be entitled to select
the amount and form of compensation to be reduced or eliminated.




          7.5 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the
provisions of Section 7.4 herein, it is ultimately determined by a court or pursuant to a final
determination by the Internal Revenue Service that any portion of the payments to the Executive
under Section 7.1 is considered to be an “excess parachute payment,” subject to the excise tax
under Section 4999 of the Code, which was not contemplated to be an “excess parachute payment” at
the time of payment (so as to accurately determine whether a limitation should have been applied to
the payments to maximize the net benefit to the Executive, as provided in Section 7.4 hereof), the
Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in
the same net after-tax position, computed by using the “Special Tax Rate” as such term is defined
below, that the Executive would have been in had such payment not been subject to such excise tax,
and had the Executive not incurred any interest charges or penalties with respect to the imposition
of such excise tax. For purposes of this Agreement, the “Special Tax Rate” shall be the highest
effective federal and state marginal tax rates applicable to the Executive in the year in which the
payment contemplated under this Section 7.5 is made.




     8. Noncompetition/Nondisclosure.



          8.1 Executive’s Acknowledgment. The Executive agrees and acknowledges that in order
to assure the Company that it will retain its value as a going concern, it is necessary that the
Executive undertake not to utilize his special knowledge of the Company’s business of



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acquiring and
operating hydroelectric facilities in the Peoples Republic of China (the “Business”)
and his relationships with those in the Company’s industry, customers and suppliers to compete
with the Company. The Executive further acknowledges that: (i) the Company is and will be engaged
in the Business; (ii) the Executive has occupied a position of trust and confidence with the
Company prior to the date of this Agreement and, during such period the Executive has, and during
the term of this Agreement the Executive will, become familiar with the Company’s trade secrets and
with other proprietary and confidential information concerning the Company and the Business; (iii)
the agreements and covenants contained in this Section 8 are essential to protect the Company and
the goodwill of the Business; and (iv) the Executive’s employment with the Company has special,
unique and extraordinary value to the Company and the Company would suffer irreparable harm, for
which money damages would not constitute adequate compensation, if the Executive were to provide
services to any person or entity in violation of the provisions of this Agreement or otherwise
violate any of the terms of this Section 8.




          8.2 Competitive Activities. The Executive hereby agrees that for a period (the
“Restricted Period”) commencing on the date hereof and ending two years following the termination
of the Executive’s employment with the Company for whatever reason, the Executive shall not, on
behalf of himself or any other individual or group of individuals, firm, company, corporation,
partnership, trust or other entity or enterprise or successor in interest to any of the foregoing,
or any employee, partner, officer, director, partner, or stockholder of any of the foregoing,
directly or indirectly, as an employee, proprietor, stockholder, partner, consultant, or otherwise,
engage in any business or activity directly competitive with the Business or any of the business
activities of the Company as they are now, currently proposed to be, or are, at the time in
question, undertaken by the Company, anywhere in the territory of North America and China (the
“Territory”), except as expressly approved by the Board in writing. With respect to the Territory,
the Executive specifically acknowledges that the Company has conducted the Business throughout
those areas comprising the Territory and the Company intends to continue to expand the Business
throughout the Territory.




          8.3 Blue-Pencil. If any court of competent jurisdiction shall at any time deem the
term of this Agreement or any particular covenant contained in this Section 8, including, without
limitation, the Restricted Period, to be too lengthy or the Territory to be too extensive, the
other provisions of this Section 8 shall nevertheless stand, the Restricted Period shall be deemed
to be the longest period permissible by law under the circumstances and the Territory shall be
deemed to comprise the largest territory permissible by law under the circumstances. The court in
each case shall reduce the Restricted Period and/or the Territory to permissible duration or size.





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          8.4 Confidential Information. During the term of this Agreement and for a period of
three (3) years thereafter, the Executive shall keep secret and retain in strictest confidence, and
shall not, without the prior written consent of the Board, furnish, make available
or disclose to any third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Section 8.4, the term “Confidential Information” shall
mean any information relating to the business or affairs of the Company or the Business, including,
but not limited to, information relating to financial statements, customer identities, potential
customers, employees, suppliers, servicing methods, equipment, programs, strategies and
information, analyses, profit margins or other proprietary information used by the Company in
connection with the Business; provided, however, that Confidential Information shall not include
any information which is the public domain, becomes generally known in the industry through no
wrongful act on the part of the Executive or as required to be disclosed by a court of competent
jurisdiction. The Executive acknowledges that the Confidential Information is vital, sensitive,
confidential and proprietary to the Company.




     9. Inventions and Other Intellectual Property. The Executive hereby agrees that all
right, title and interest in and to all of the Executive’s “Creations” and work product made during
the term of the Executive’s employment with the Company, whether pursuant to this Agreement or
otherwise, shall belong solely to the Company, whether or not they are protected or protectible
under applicable patent, trademark, service mark, copyright or trade secret laws. For purposes of
this Section 9, the term “Creations” shall mean all inventions, designs, discoveries, books,
newsletters, manuscripts, articles, research, compilations, improvements, and other works which are
or may be copyrighted, trade-marked or patented or otherwise constitute works of intellectual
property which may be protected (including, without limitation, any information relating to the
Company’s software products, source code, know-how, processes, designs, algorithms, computer
programs and routines, formulae, techniques, developments or experimental work, works-in-progress,
or business trade secrets whether now existing, or hereafter developed during the term of this
Agreement) made or conceived or reduced to practice by the Company. The Executive agrees that all
work or other material containing or reflecting any such Creations shall be deemed work made for
hire as defined in Section 101 of the Copyright Act, 15 U.S.C. Section 101. If a court of
competent jurisdiction determines that any such works are not works made for hire, the Executive
hereby assigns to the Company all of the Executive’s right, title and interest, including all
rights of copyright, patent, and other intellectual property rights, to or in such Creations.



     The Executive covenants that he shall keep the Company informed of the development of all
Creations made, conceived or reduced to practice by the Company, in whole or in part, by the
Executive or any other alone or with others, which either result from any work the Executive may do
for, or at the request of, the Company, or are related to the Company’s present or contemplated
activities, investigations, or obligations. The Executive further agrees that (i) at



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the Company’s
request and expense, he will execute any assignments or any other documents or instruments
necessary to transfer all rights any such Creations to the Company and (ii) he will cooperate with
the Company or its nominee in perfecting the Company’s title (or the title of the Company’s
nominee) in any or all such materials.



     10. Interference with Relationships.



          10.1 Suppliers, Customers, Service Providers . During the Restricted Period, the
Executive shall not, directly or indirectly, as employee, agent, consultant, stockholder, director,
partner or in any other individual or representative capacity intentionally solicit or encourage
any present or future customer, employee, consultant, service provider, stockholder, officer,
director or supplier of or service provider to the Company to terminate or otherwise alter his,
their or its relationship with the Company in a manner having an adverse effect on the Company or
the Business.




          10.2 No Breach. The Executive represents and warrants that he is not under any
contractual obligation to any party, which obligation would prevent him from accepting full-time
employment with the Company or from otherwise fulfilling any of his obligations under this
Agreement. The Executive hereby agrees to indemnify the Company and hold it and its officers and
directors harmless from and against any and all claims against or any losses or liabilities,
including reasonable attorney’s fees, incurred by, the Company or any of its officers or directors
derived from any breach or failure of the representation and warranty contained in this
Section10.2.




     11. Return of Company Materials Upon Termination. The Executive acknowledges that all
price lists, sales manuals, catalogs, binders, customer lists and other customer information,
supplier lists, financial information, business plans, corporate records, working notes, work
product, sales manuals, catalogs, binders and other records or documents containing any
Confidential Information prepared by the Executive or coming into the Executive’s possession by
virtue of the Executive’s employment by the Company, other than personal information belonging to
the Executive, is and shall remain the property of the Company and that immediately upon
termination of the Executive’s employment hereunder, the Executive shall return all such items in
his possession, together with all copies thereof, to the Company.



     12. Indemnification. The Company hereby covenants and agrees to indemnify and hold
harmless the Executive fully, completely, and absolutely against and in respect to any and all
actions, suits, proceedings, claims, demands, judgments, costs, expenses (including attorney’s
fees), losses, and damages resulting from the Executive’s good faith performance of his duties and
obligations under the terms of this Agreement, subject to compliance with any applicable
requirements and limitations improved by the memorandum and articles of association of the Company
as in effect on the date hereof and applicable law.



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     13. Assignment



          13.1 Assignment by Company. This Agreement may and shall be assigned or transferred
to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and
any such successor shall be deemed substituted for all purposes of the “Company” under the terms of
this Agreement. As used in this Agreement, the term “successor” shall mean any person, firm,
corporation, or business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or substantially all of the assets or the business of the Company. Notwithstanding
such assignment, the Company shall remain, with such successor, jointly and severally liable for
all its obligations hereunder.




     Except as herein provided, this Agreement may not otherwise be assigned by the Company.



          13.2 Assignment by Executive. The services to be provided by the Executive to the
Company hereunder are personal to the Executive, and the Executive’s duties may not be assigned by
the Executive; provided, however that this Agreement shall inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors, and administrators,
successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amounts
payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee,
legatee, or other designee or, in the absence of such designee, to the Executive’s estate or trust.




     14. Dispute Resolution and Notice.



          14.1 Dispute Resolution. Either the Executive or the Company may elect to have any
good faith dispute or controversy arising under or in connection with this Agreement settled by
arbitration, by providing written notice of such election to the other party hereto, specifying the
nature of the dispute to be arbitrated, provided that if the other party objects to the use of
arbitration within thirty (30) days of the receipt of such notice, the dispute may only be settled
by litigation unless otherwise agreed.




     If arbitration is selected, such proceeding shall be conducted before a panel of three (3)
arbitrators sitting in a location agreed to by the Company and the Executive within fifty (50)
miles from the location of the Executive’s principal place of employment, in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association then in effect.
Judgment may be entered on the award of the arbitrators in any court having competent jurisdiction.



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     To the extent that the Executive prevails in any litigation or arbitration seeking to enforce
the provisions of this Agreement, the Executive shall be entitled to reimbursement by the
Company of all expenses of such litigation or arbitration, including the reasonable fees and
expenses of the legal representative for the Executive, and necessary costs and disbursements
incurred as a result of such dispute or legal proceeding.



          14.2 Notice. Any notices, requests, demands, or other communications provided for by
this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the
Executive at the last address he has filed in writing with the Company or, in the case of the
Company, at its principal offices.




     15. Miscellaneous



          15.1 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, or between the Executive and the
Company, with respect to the subject matter hereof (including without limitation, the Letter of
Commitment and Non-Compete between the Company and the Executive dated as of January 23, 2008), and
constitutes the entire agreement of the parties with respect thereto.




          15.2 Modification. This Agreement shall not be varied, altered, modified, canceled,
changed, or in any way amended except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.




          15.3 Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and effect.




          15.4 Tax Withholding. The Company may withhold from any benefits payable under this
Agreement all federal, state, city, or other taxes as may be required pursuant to any law or
governmental regulation or ruling.




          15.5 Beneficiaries. The Executive may designate one or more persons or entities as
the primary and/or contingent beneficiaries of any amounts to be received under this Agreement.
Such designation must be in the form of a signed writing acceptable to the Board or the Board’s
designee. The Executive may make or change such designation at any time.




          15.6 Board Committee. Any action to be taken, or determination to be made, by the
Board under this Agreement may be taken or made by the Compensation Committee or any other
committee authorized by the Board to act on its behalf.





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          15.7 Governing Law. To the extent not preempted by U.S. federal law, the provisions
of this Agreement shall be construed and enforced in accordance with the internal,
substantive laws of the State of New York, without regards to the principles of conflicts of
laws thereof.




* * * * *




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     IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the date
first above written.



	 	 	 	 	 	 	 
	China Hydroelectric Corporation
	 	Executive:
	 	 
	 
	By:

	 	John D. Kuhns
	 	/s/ James Tie Li
	 	 
	 

	 	 

	 	 

	 	 
	 

	 	Name: John D. Kuhns
	 	“James” Tie Li	 	 
	 

	 	Title:  Chief Executive Officer	 	 	 	 







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