EXHIBIT
10.18


ASSET
PURCHASE AGREEMENT




providing
for the purchase of certain assets of




ELECTRIC
MOTORSPORTS, LLC,


an Ohio
limited liability company,




and




Robert
Gruenwald




(“Sellers”)




by




BALQON
CORPORATION,


a
California corporation




(“Buyer”)




ASSET
PURCHASE AGREEMENT









THIS
ASSET PURCHASE AGREEMENT, dated as of September 9, 2008 (this “Agreement”),
is made between (i) BALQON CORPORATION, INC., a California corporation (“Buyer”), on the one hand, and
(ii) ELECTRIC MOTORSPORTS, LLC, an Ohio limited liability company (“EMS”), and
Robert Gruenwald, an individual and sole member of EMS (“Gruenwald” and,
together with EMS, “Sellers” and each, a “Seller”). with reference to the
following facts.




RECITALS




A.
Sellers are engaged in the business of manufacturing and selling, electric
vehicle components including motor controllers, chargers, converters, and motors
worldwide (the “Business”).




B.
Gruenwald owns all of the issued and outstanding membership interests of
EMS.




C.
EMS and Gruenwald have designed an electronic controller for Balqon (the
“Controller”).




D.
Buyer desires to purchase from Sellers, and Sellers desire to sell to Buyer,
substantially all of the assets of EMS and all of Gruenwald’s right, title and
interest in any and all intellectual property relating to the Business on the
terms and subject to the conditions set forth in this Agreement.




AGREEMENT




The
parties agree as follows:




ARTICLE
1. PURCHASE AND SALE OF ASSETS




1.1 Agreement to
Purchase and Sell Assets. On the terms and subject to the conditions of
this Agreement, Buyer shall purchase and acquire from Sellers, and Sellers shall
sell, convey, assign, transfer, and deliver to Buyer, (i) all of the assets and
property of EMS, including but not limited to all of Intellectual Property
Rights held by EMS as of the Closing (as defined in Section 2.1 below), except
for the assets, if any, specifically described on the attached Exhibit
1.1 (the “Excluded
Assets”), and (ii) all of Gruenwald’s right, title and interest in all of
any Intellectual Property Rights relating in any way whatsoever to the Business.
As used herein, “Intellectual
Property Rights” shall mean all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names, logos and corporate names and registrations and applications for
registration thereof together with all of the goodwill associated therewith,
(iii) copyrights (registered and unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) software, data,
data bases and documentation thereof, (v) trade secrets and other confidential
information (including, without limitation, ideas, formulas, compositions,
inventions (whether patentable or unpatentable andwhether
or not reduced to practice), know-how, manufacturing and production processes
and techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and marketing plans,
supplier lists and information [and customer lists and information], (vi) other
intellectual property rights and (vii) copies and tangible embodiments thereof
(in whatever form or medium). The assets and property to be purchased by Buyer
(collectively, the “Purchased
Assets”) shall include, without limitation, the
following:




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(a)
Intellectual
Property.All of the right, title, benefit, and interest in and to (i)
all Intellectual Property Rights of EMS (including, without limitation, any
right to use any trade name such as “ELECTRIC MOTORSPORTS” and all derivations
thereof), and other intellectual property rights, presently owned, possessed, or
used by EMS, and (ii) all right, title, benefit and interest in and to all
Intellectual Property Rights owned, possessed or used by Gruenwald in connection
with the operation of the Business. Such Intellectual Property Rights of EMS and
Gruenwald purchased hereby include but are not limited to, those listed on Exhibit
1.1(c). Collectively, the Intellectual Property Rights of EMS and
Gruenwald purchased by Buyer hereunder shall be referred to as the “Intellectual
Property”.




(b)
Records.All records, customer and supplier lists, product information, product
drawings, production documentation, material specifications, equipment lists,
formulae, specifications, drawings, plans, reports, data, notes, correspondence,
contracts, labels, catalogues, website, software, brochures, art work,
photographs, advertising materials, marketing and production literature, files,
and other records and documents concerning the Business in the possession or
control of either of the Sellers, including but not limited to any books of
account, ledgers, and other financial records, but excluding the company records
and minute books of EMS (collectively, the records to be delivered hereunder are
hereinafter referred to as the “Business
Information”).




(c)
Permits and
Licenses.To the extent transferable and subject to obtaining any
necessary third-party consents, all permits, licenses, franchises, and approvals
relating to or maintained as part of the Business.




(f)
Manufacturer
Warranties.To the extent transferable, all of the product and service
warranties of manufacturers with respect to products purchased, sold,
distributed, or serviced with respect to the Business on or before the Closing
Date (the “Manufacturers
Warranties”).




(g)
Intangible
Property Rights. All of the choses in action, claims, causes, or rights
of action and intangible property rights held by either of the Sellers arising
from or concerning the Business, including but not limited to rights arising
under any manufacturer’s warranties and, to the extent transferable, restrictive
covenants, confidentiality obligations, and similar obligations of all present
and former members, managers, officers, and employees of either of the Sellers
relating to or concerning the Business.




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Sellers
shall transfer the Purchased Assets to Buyer free and clear of all claims,
liens, mortgages, pledges, security interests, encumbrances, charges,
obligations, assignments, leases, and any other restrictions of any kind (“Encumbrances”), except for restrictions solely
arising from and relating to the Assumed Liabilities (defined
below)




1.2 Purchase
Price. As consideration for the Purchased Assets and the other covenants
(including the covenants not to compete) of Sellers in this Agreement (the “Purchase
Price”), Buyer shall pay to Sellers the sum of Three hundred and fifty
thousand ($350,000) (the “Cash Purchase
Price”), of which $250,000 shall be paid at the Closing (defined below),
and $100,000 (“Holdback”) subject to any adjustments as provided herein, paid in
form of promissory note to be delivered at the Closing and payable within six
months following the date of the Closing (the “Closing Date”) with interest on
the unpaid principal balance from the Closing Date, until paid, at the Prime
Rate published by the Wall Street
Journal.




1.3 Assumed
Liabilities. At the Closing, in addition to Buyer’s obligations under
Section 1.2 above, Buyer shall assume and agree to pay, perform, and discharge,
when due, only the following liabilities and obligations of Seller
(collectively, the “Assumed
Liabilities”):




(a)
Contract
Liabilities. The liabilities and obligations of EMS arising after the
Closing Date with respect to the contracts, agreements, and commitments
specifically listed on the attached Exhibit
1.3(a) (the “Assumed
Contracts”).




(b)
Warranty
Liabilities. The liabilities and obligations arising after the Closing
Date with respect to any claim under warranty issued by EMS for product sold by
EMS before the Closing Date, up to an aggregate maximum of Twenty five Thousand
Dollars ($25,000.00), net of any costs recovered or recouped by Buyer in
connection with warranty matters. Warranty liability in excess of Twenty five
Thousand Dollars ($25,000.00) shall be the sole responsibility of and paid by
the Sellers.




Except
for the Assumed Liabilities, Buyer shall not assume or be obligated to pay,
perform, or discharge any liability, obligation, debt, charge, or expense of
either of the Sellers of any kind, description, or character, whether accrued,
absolute, contingent, or otherwise, or whether or not disclosed to Buyer in this
Agreement, the Disclosure Schedule (defined below), or otherwise (collectively,
the “Excluded
Liabilities”). Without limiting the generality of the foregoing, and
notwithstanding anything to the contrary contained in this Agreement, except for
the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform,
or discharge any liability, obligation, debt, charge, or expense of either of
the Sellers even if imposed upon Buyer as a successor to EMS, with respect to
any action, suit, proceeding, or claim arising out of or relating to any event
occurring, or with respect to any cause of action arising, before or after the
Closing Date, whether or not asserted before or after the Closing Date,
including but not limited to any liability, obligation, debt, charge, or expense
related to taxes, environmental matters, agreements with sales representatives,
employee benefits, obligations or policies, judgments, product warranty claims,
product liability claims, and contractual claims.   Buyer shall
likewise not assume or be obligated to pay, perform, or discharge any liability,
obligation, debt, charge, or expense of Gruenwald.




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1.4 Limited License.Notwithstanding the transfer of the Intellectual Property noted herein,
Buyer grants to Sellers a limited license to use the Intellectual Property, for
a period not to exceed six (6) months after the Closing Date and subject to the
revocation of such license for any reason in the sole discretion of the Buyer,
for the limited purpose of completing all orders and contracts entered into
prior to the Closing Date and listed on Exhibit 1.4.




1.5 Allocation of
Purchase Price.The Purchase Price and the Assumed Liabilities (to the
extent the assumption thereof would be considered an amount realized for tax
purposes) shall be allocated among the Purchased Assets and Seller’s other
covenants set forth in this Agreement, as set forth on attached Exhibit 1.5
(which Exhibit 1.5 shall be mutually agreed upon prior to Closing). The
allocation set forth on Exhibit 1.5 shall be conclusive and binding on Buyer,
EMS, and Gruenwald for all purposes, including, but not limited to, reporting
and disclosure requirements under the Internal Revenue Code of 1986, as amended
(the “Code”), and any other state, local,
or foreign tax authority.




ARTICLE
2. CLOSING




2.1 Place and Date of
Closing.The purchase and sale contemplated by this Agreement (the “Closing”)
shall take place, on or before September 1, 2008, or at any other place, time,
and date mutually agreed upon by Buyer and Sellers. The Closing shall be deemed
to be effective upon the close of business on the Closing Date.




2.2 Deliveries at
Closing.




(a)
Buyer’s
Deliveries.At the Closing, Buyer shall execute and/or deliver, or cause
to be executed and/or delivered: (i) Two hundred and fifty thousand Dollars
($250,000.00) in immediately available funds; (ii) Promissory Note attached
hereto as Exhibit 1.2; (vi) the Employment Agreement (as defined in Section 5.9
below); and (vii) any and all other agreements, certificates, instruments, and
other documents required of Buyer under this Agreement.




(b)
Seller’s and
the Shareholders’ Deliveries. At the Closing, EMA and Gruenwald, as the
case may be, shall execute and deliver, or cause to be executed and delivered:
(i) bills of sale, endorsements, assignments, and other instruments of
conveyance, reasonably acceptable to Buyer, that shall be sufficient to transfer
title to the Purchased Assets to Buyer; (ii) the Employment Agreement executed
by Bob Gruenwald; (iv) certified copies of resolutions of the members of EMS or
similar documentation reasonably acceptable to Buyer, authorizing the
consummation of the transactions contemplated by this Agreement; (v) a good
standing certificate for Seller from the State of Ohio, as of a date no more
than thirty (30) days before the Closing Date; (vi) copies of all documents
evidencing other necessary action and governmental approvals, if any, with
respect to this Agreement and the transactions contemplated by thisAgreement
that Buyer reasonably requests; (vii) documents necessary for Seller to abandon
use of the name “ELECTRIC MOTOR SPORTS of Ohio”; (viii) all records and other
documents included in the Purchased Assets; and (ix) any and all other
agreements, certificates, instruments, and other documents required of Seller
under this Agreement.




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  (c)
Further
Actions. Buyer and each of the Sellers shall take all further actions and
execute and deliver any additional agreements, certificates, instruments, and
other documents on or after the Closing as Buyer shall deem reasonably necessary
to effectuate the transactions contemplated by this
Agreement.




ARTICLE
3. REPRESENTATIONS AND WARRANTIES OF SELLERS




EMS
and Gruenwald, jointly and severally, represent and warrant to Buyer as
follows:




3.1
Disclosure
Schedule.Attached to this Agreement are numbered schedules
(collectively, the “Disclosure
Schedule”) corresponding to the sections and subsections of this Article.
Each individual schedule in the Disclosure Schedule contains exceptions to the
specifically identified section and subsection contained in this Article and
sets forth each exception in reasonable detail, with attached documentation as
necessary to reasonably explain the exception. Any exception to the
representations and warranties contained in a section or subsection of this
Article is described in a separate schedule of the Disclosure Schedule that
specifically identifies the applicable section or subsection of this Article.
The Disclosure Schedule is complete and accurate in all respects. Sellers have
provided Buyer with true and complete copies of all documents referenced in the
Disclosure Schedule. Sellers are responsible for including all schedules of the
Disclosure Schedule.




3.2
Seller’s
Organization and Good Standing. EMS is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Ohio. Except as set forth on Schedule
3.2 of the Disclosure Schedule, neither the character of the properties
owned, leased, or used by Seller, nor the nature of the business transacted by
Seller on or before the Closing Date, require the licensing or qualification of
Seller in any other jurisdiction. Gruenwald owns one hundred percent (100%) of
the issued and outstanding membership interests of EMS, free and clear of any
and all liens, claims, encumbrances, or rights of third parties whatsoever. EMS
has no membership interests, economic interests or other securities other than
those owned by Gruenwald, and there are no outstanding subscriptions, options,
rights, warrants, calls, or other agreements or commitments obligating EMS or
Gruenwald to sell or issue any membership or other equity interests or other
securities of EMS or any securities convertible into any membership or other
equity interests of EMS, nor are there any voting trusts or any other agreements
or understandings with respect to the voting of such membership or other equity
interests of EMS or securities of EMS held by Gruenwald or anyone
else.




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3.3
Enforceability.
EMS and Gruenwald, respectively, have full capacity, power, and authority to
enter into this Agreement and to carry out the transactions contemplated by this
Agreement, and this Agreement is binding upon EMS and Gruenwald and is
enforceable against EMS and Gruenwald in accordance with the terms of this
Agreement.




3.4
No Conflict
with Other Instruments or Proceedings.The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not (a) result in the breach of any of the terms or conditions
of, or constitute a default under, the articles of organization or operating
agreement or any charter document, contract, agreement, lease, commitment,
indenture, mortgage, pledge, note, bond, license, or other instrument or
obligation to which EMS or Gruenwald is now a party or by which EMS or Gruenwald
or any of the properties or assets of EMS or Gruenwald may be bound or affected;
(b) violate any law, rule, or regulation of any administrative agency or
governmental body or any order, writ, injunction, or decree of any court,
administrative agency, or governmental body; (c) result in the imposition of any
lien or encumbrance on any of the Purchased Assets; (d) give rise to any right
of first refusal or similar right to any third party with respect to any
interest in any of the Purchased Assets; All consents, approvals, or
authorizations of, or declarations, filings, or registrations with, any third
parties or governmental or regulatory authorities required under any document or
instrument listed in clause (a) in the immediately preceding sentence in
connection with the execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
obtained or made.




3.5
Compliance
with Laws and Other Regulations.Except as set forth on Schedule 3.5,
neither of the Sellers are subject to, nor have either of the Sellers been
threatened with, any fine, penalty, liability, or disability as the result of a
failure to comply with any requirement of federal, state, local, or foreign law,
rule, or regulation (including those relating to the environment, employment of
labor, or occupational health and safety) or any requirement of any governmental
body or agency having jurisdiction over either of the Sellers, the conduct of
the Business, the use of assets of EMS or properties or any premises occupied by
EMS. EMS is in compliance in all material respects with all of those laws,
rules, regulations, and other requirements. There are no outstanding work orders
relating to the Purchased Assets from or required by any police or fire
department, sanitation, health, or factory authorities or from any federal,
state, local, or foreign authority or any matters under discussion with any of
those departments or authorities relating to work orders.




3.6
Financial
Statements.Seller’s financial statements as of and for the years ended
December 31, 2007 and December 31, 2006, and the internal financial statements
for the six (6) months ended June 30, 2008 (the “Financial Statements”), have previously been
provided to Buyer and are attached as Schedule
3.6 of the Disclosure Schedule. The Financial Statements, including the
notes to the Financial Statements, if any, are true, correct, and complete in
all material respects, are in accordance with books and records of EMS,
accurately and fairly reflect EMS’s transactions, assets, and liabilities, and
present fairly the financial position and condition of EMS as of the respective
dates indicated and the results of operations and changes in cash flows for the
respective periods then ended, except as otherwise indicated on Schedule
3.6 of the Disclosure Schedule.   In this Agreement, the
balance sheet of EMS as of June 30th, 2008, is referred to as the “Balance
Sheet,” and June 30th, 2008, is referred to as the “Balance Sheet
Date.”




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3.7
Absence of
Undisclosed Liabilities.Except for liabilities expressly reserved on the
Balance Sheet or disclosed on Schedule
3.7, EMS does not have any debts, liabilities, or obligations of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, including, guarantees, liabilities, or obligations on account of
taxes, other governmental charges, duties, penalties, interest, or fines, and,
there is no basis for the assertion against EMS of any debt, liability, or
obligation.




3.8
Absence of
Certain Changes or Events. From January 1, 2008, up to and including the
present date (the“Interim
Period”), EMS has conducted the Business in the ordinary and usual course
and has maintained the records and books of account relating to the Business in
a manner that fairly and accurately reflects the transactions, assets, and
liabilities of EMS, except as set forth in Schedule 3.8 and, during the Interim
Period, there has been no material adverse change in the condition of the
Business, financial or otherwise, or in any of the Purchased Assets except as
disclosed on Schedule 3.8. In particular, and without limiting the foregoing,
during the Interim Period, Seller has not with respect to the Business: (a)
subjected any of the Purchased Assets to any claim, lien, mortgage, security
interest, encumbrance, charge, or other restriction; (b) sold, transferred, or
otherwise disposed of any of the Purchased Assets except in the ordinary and
usual course of business; (c) disposed of or permitted a lapse of any license,
permit, patent, trademark, trade name, or copyright; (d) disposed of, licensed
or disclosed to any person any trade secret, formula, process, or know-how; (e)
purchased or placed a purchase order for inventory, supplies, or any other
items, or entered into any other agreement or transaction other than in the
ordinary and usual course of business; (f) suffered any material loss of or
damage to physical property or other assets, whether or not covered by
insurance; (g) paid or incurred any obligation to make any distributions with
respect to any membership interests of EMS; or (h) violated any federal, state,
local, or foreign law, statute, ordinance, regulation, or
order.




3.9
Customers and
Suppliers.During the Interim Period, there has not been any material
adverse change in any business relationship EMS has with any of the ten (10)
largest customers of the Business or the ten (10) largest suppliers of the
Business nor could EMS or Gruenwald reasonably anticipate an adverse change as a
result of the transactions contemplated by this Agreement. Schedule
3.9 of the Disclosure Schedule sets forth: (i) the names of the ten (10)
largest customers of the Business and the ten (10) largest suppliers of the
Business, along with aggregate amount of sales or purchases with each such
customer or supplier for the twelve (12) months ending June 30, 2008; (ii) the
aggregate dollar value of all accepted and unfilled orders for the sale of
products by EMS with respect to the Business (including all agreements with
respect to presold inventory); and (iii) all contracts and commitments for the
purchase of products and supplies by EMS with respect to the Business. Except as
disclosed on Schedule 3.9, there are no claims against EMS or Gruenwald with
respect to the Business, or notices of any returns of merchandise, by reason of
alleged overshipments, defective merchandise, or otherwise.




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3.10
Taxes.Schedule
3.10 of the Disclosure Schedule contains a list of states, territories,
and jurisdictions to which any Tax has been claimed to be, or is, properly
payable by EMS. For purposes of this Agreement, “Tax” means
(a) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profits tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, addition to tax or additional amount,
imposed by any governmental authority responsible for the imposition of any tax
(domestic or foreign), (b) liability of EMS for the payment of any amounts of
the type described in clause (a) as a result of EMS being a member of an
affiliated, consolidated, combined or unitary group or being a party to any
agreement or arrangement whereby liability of EMS for payment of those amounts
was determined or taken into account with reference to the liability of any
other person for any period, and (c) liability of EMS with respect to the
payment of any amounts of the type described in clauses (a) or (b) as a result
of any express or implied obligation to indemnify any other person. Sellers have
filed all federal, state, local, and foreign Tax returns that Sellers have been
or are required by law to file and those returns are complete, accurate, and
correct in all respects. Sellers have paid all Taxes and assessments due and
payable by Sellers. Sellers have withheld and paid over all federal, state,
local, and foreign withholdings required by law. All current and deferred Tax
liabilities of EMS as of the Balance Sheet Date have been set forth in the
Balance Sheet. EMS has not signed any extension with any taxing authority
concerning any Tax liability and no disputed Tax matters exist for any prior
periods. EMS has not received notice of the existence of any fact that would
constitute grounds for the assessment of any further Tax with respect to any
periods that have not been audited by the Internal Revenue Service or any state,
local, or foreign Tax authority, and neither Seller has knowledge of the
existence of any such fact.




3.11
Intellectual
Property. Schedule
3.11 of the Disclosure Schedule specifically describes all intellectual
property owned or used by EMS. Sellers own the entire right, title, and interest
in and to the Intellectual Property, including but not limited to the
Controller, free and clear of all claims, liens, licenses, sublicenses, charges,
or encumbrances. The Intellectual Property constitutes all of the intellectual
property used by EMS in the Business and all of the intellectual property
necessary for the operation of the Business. To the knowledge of the Sellers,
there is no infringement or unlawful use by any person or entity of any
Intellectual Property. To the knowledge of Sellers, EMS has not infringed or
unlawfully used the patents, service marks, trade names, trademarks, logos,
copyrights, or other proprietary rights of any other person or entity. EMS has
proprietary rights in the trade name, trademark, and service mark in that EMS
has registered the name “ELECTRIC MOTORSPORTS, LLC” with the Ohio Secretary of
State and has made no other action other than the conduct of its business to
protect such marks (and all variations of that name), however, any rights
accruing to EMS due to its actions remain part of this agreement. None of the
Intellectual Property is subject to any pending nor, to the knowledge of either
Seller, any threatened claim or challenge, and, to the knowledge of either
Seller, there is no valid basis for asserting any claim or challenge. EMS does
not require any license or other proprietary right to operate the Business or to
manufacture or sell Seller’s products other than normal rights granted by
manufacturers in connection with the sale of those manufacturers’ products. EMS
does not require any license or other proprietary right to manufacture or sell
the Controller.  None of the Intellectual Property Rights owned or
used by




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EMS is
subject to any outstanding order, judgment decree, stipulation, or agreement
restricting the use of any of the Intellectual Property Rights. Upon the
consummation of the transactions contemplated herein, Buyer shall hold all of
the rights, title and interests to all of the intellectual property necessary to
manufacture and sell the Controller. Upon the consummation of the transactions
contemplated herein, Buyer shall hold all of the intellectual property necessary
to conduct the Business as the Business is currently being
conducted.




3.12
Contracts.
Except as set forth in detail in Schedule 3.12 of the Disclosure Schedule, EMS
is not a party to: (a) any lease, installment purchase agreement, or other
contract with respect to any real or personal property; (b) any joint venture,
distributor, dealer, sales, advertising, agency, manufacturer’s representative,
sales representative, sales agent, franchise, license, or similar contract or
commitment; (c) any contract or agreement for the purchase of any commodity,
material, or piece of equipment for an aggregate purchase price of more than
[One Thousand Dollars ($1,000)]; (d) any contract or agreement that, by its
terms, does not terminate or may not be terminated without penalty upon no more
than thirty (30) days’ notice; (e) any loan agreement, security agreement,
mortgage, indenture, promissory note, conditional sales agreement, or other
similar agreement or arrangement; (f) any written or oral consulting or
employment contract; (g) any contract out of the ordinary and usual course of
business; (h) any contract that if completed in accordance with its terms would
result in a loss to or payment by EMS in excess of [One Thousand Dollars
($1,000)]; (i) any contract of guaranty or indemnification; or (j) any contract
purporting to limit the freedom of EMS to compete in any line of business in any
geographical area. EMS has not given any power of attorney to any person, firm,
or corporation for any purpose whatsoever. No person, firm, or corporation has
any written or oral agreement, option, understanding, or commitment, or any
right or privilege capable of becoming an agreement, for the purchase from any
Seller of any of the Purchased Assets.




3.13
Employee
Relations.EMS is not a party to any written or oral, express or implied,
contract, agreement, or arrangement with any of EMS’s present or former members,
managers, officers, employees, or consultants with respect to length, duration,
or conditions of employment (or the termination of employment), salaries,
bonuses, percentage compensation, deferred compensation, health insurance, any
other form of remuneration, or with respect to any other subject matter
whatsoever. There is no pending, threatened, or existing but unasserted claim
against EMS for violation of any contract, agreement, or arrangement described
above, nor, is there any factual basis upon which a claim could be
asserted.




3.14
Litigation.Except as disclosed on Schedule 3.14 of the Disclosure Schedule, there is
no suit, action, proceeding (legal, administrative, or otherwise), claim,
investigation, or inquiry (by an administrative agency, governmental body, or
otherwise) pending or, to the knowledge of either Seller, threatened by,
against, or otherwise affecting EMS or the Business, or any of the properties,
assets, or business prospects of EMS or the Business, or the transactions
contemplated by this Agreement, at law or in equity, or before or by any
federal, state, municipal, or other governmental department, commission, board,
agency, instrumentality, arbitration tribunal, or other authority, domestic or
foreign, or to which EMS or the Business is or may become a party, and there is
no factual basis upon which any suit, action, proceeding, claim, investigation,
or inquiry could be asserted or based.  There is no outstanding
judgment, order, writ, injunction, or decree of any court, administrative
agency, governmental body, or arbitration tribunal against or affecting EMS or
the Business or any of the properties, assets, or business prospects of EMS or
the Business.




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3.15
Product
Liabilities and Warranties. Except as listed in Schedule
3.15 of the Disclosure Schedule, neither Seller has made any express nor
implied warranties applicable to products sold or leased by EMS. There is no
action, suit, proceeding, or claim pending or, to the knowledge of either
Seller, threatened against EMS or the Business under any express or implied
warranty covering any products sold or leased by the EMS or the Business, and
there is no basis upon which any such claim could be made. There have been no
product liability claims covering any products sold or leased by EMS or the
Business asserted against either Seller or the Business for the period
commencing five years preceding the Closing.




3.16
Insurance.
Schedule
3.16 of the Disclosure Schedule contains a list of all policies of
liability, crime, fidelity, life, fire, product liability, workers’
compensation, health, director and officer liability, and all other forms of
insurance that EMS owns or hold, including for each policy the name of the
insurer, the amount of coverage, the type of insurance, the policy number, the
renewal or expiration date, and all pending claims under that policy. The
policies of insurance set forth on Schedule
3.16 of the Disclosure Schedule (or other policies providing
substantially similar insurance coverage) have been in effect for the dates set
forth on Schedule 3.16 for each. To the knowledge of either Seller, there is no
threatened termination of, or premium increase with respect to, any of those
policies. The present insurance coverage for EMS and the Business shall remain
in effect until the Closing Date. There is no claim by or on behalf of either
Seller or the Business pending under any of those policies or bonds as to which
coverage has been questioned, denied, or disputed by the underwriters of those
policies or bonds.




3.17
Permits and
Licenses.All material permits, licenses, orders, and approvals necessary
for EMS to carry on the Business as presently conducted (collectively, the
“Permits”) are identified in Schedule
3.17 of the Disclosure Schedule and the Permits are in full force and
effect and have been complied with by EMS. All fees and charges incident to the
Permits have been fully paid and are current, and, to the knowledge of the
Sellers, no suspension or cancellation of any of the Permits has been threatened
or could reasonably be expected to result by reason of the transactions
contemplated by this Agreement.




3.18
Brokers.
Neither Seller has retained or employed any broker, finder, investment banker,
or other person, or taken any action, or entered into any agreement or
understanding that would give any broker, finder, investment banker, or other
person any valid claim against Buyer, the Business or either Seller for a
commission, brokerage fee, or other compensation.




3.19
Accuracy of
Statements.No representation or warranty made by either Seller in this
Agreement, or any information, statement, certificate, or schedule furnished, or
to be furnished, to Buyer pursuant to this Agreement, or in connection with the
transactions con­templated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements not misleading.




10




ARTICLE
4. BUYER’S REPRESENTATIONS AND WARRANTIES




Buyer
represents and warrants to the Sellers as follows:




4.1
Buyer’s
Organization and Good Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
California.




4.2
Enforceability.
Buyer has full capacity, power, and authority to enter into this Agreement and
to carry out the transactions contemplated by this Agreement, and this Agreement
is binding upon Buyer and is enforceable against Buyer in accordance with the
terms of this Agreement, except to the extent that enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws and subject to generally
equitable principles (regardless of whether enforcement is sought at law or in
equity).




4.3
No Conflict
with Other Instruments or Proceedings. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not (a) result in the breach of any of the terms or conditions
of, or constitute a default under, Buyer’s articles of incorporation or bylaws
or any contract, agreement, lease, commitment, indenture, mortgage, pledge,
note, bond, license, or other instrument or obligation to which Buyer is now a
party or by which Buyer may be bound or affected or (b) violate any law, rule,
or regulation of any administrative agency or governmental body or any order,
writ, injunction, or decree of any court, administrative agency, or governmental
body. All consents, approvals, or authorizations of, or declarations, filings,
or registrations with, any third parties or governmental or regulatory
authorities required of Buyer in connection with the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been obtained or made.




4.4
Brokers.
Buyer has not retained or employed any broker, finder, investment banker, or
other person, or taken any action, or entered into any agreement or
understanding that would give any broker, finder, investment banker, or other
person any valid claim against Buyer or either Seller for a commission,
brokerage fee, or other compensation.




ARTICLE
5. COVENANTS




5.1
Employees.At Closing, it is expected that EMS will terminate the employment of all
of its employees, effective as of the Closing Date.




5.2
Maintenance of
Records; Cooperation with Preparation of FinancialStatements.
Buyer shall, for a period of three years following Closing, physically maintain
possession of and safeguard Sellers’ books and records of the Business without
cost to either Seller and provide reasonable access to such books and records
upon reasonable advance notice by Gruenwald.




5.3
Satisfaction
of Warranty Claims. Seller shall handle all warranty claims with respect
to product sold by EMS prior to Closing in the same manner and in accordance
with the customary and usual practices utilized by EMS prior to Closing, and
provide such repairs and/orissue
such refunds as may be required by the Warranty listed in Schedule 3.15 in
accordance with or better than the customary and usual business practices of
EMS; provided, however, that nothing in this Section 5.3 shall be deemed to be a
waiver of any breach by the Sellers of the representation in Section 3.15 hereof
or any other rights Buyer may have under this Agreement.




11





5.4
Further
Assurances. Buyer and each of the Sellers shall execute and deliver all
documents and take all further actions as may be reasonably required or
desirable to carry out the provisions of this Agreement and the transactions
contemplated by this Agreement at or after the Closing. Upon the terms and
subject to the conditions of this Agreement, Buyer and each of the Sellers shall
take all actions and do, or cause to be done, all other things necessary,
proper, or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement and obtain in a timely manner
all necessary waivers, consents, and approvals, and to effect all necessary
registrations and filings.




5.5
Payment of
Indebtedness by Related Persons. Except as expressly provided in this
Agreement, Sellers will cause all indebtedness owed to either Seller by any
related person to be paid in full at or before the Closing.




5.6
Use of Name.After the Closing Date, neither Seller nor any affiliate of either Seller
shall use the name “ELECTRIC MOTORSPORTS” (the “Name”), or
any other trade name, trademark, logo, or service mark included in the Purchased
Assets. In addition, Sellers shall cooperate with Buyer and take all actions
necessary to affect a smooth transfer of the Name to Buyer so that there will be
no recording gap between Buyer and Sellers with respect to the
Name.




5.7
Covenant Not
to Compete.For a period of one (1) year after the Closing Date, neither
EMS nor Bob Gruenwald shall in any manner, directly or indirectly, on behalf of,
as an agent of, or in conjunction with, any other person, firm, or corporation,
or as a partner of any partnership, a member or manager of any limited liability
company, or as a shareholder of any corporation, own, manage, acquire, operate,
control, or participate in the ownership, management, operation, or control of,
or have any financial interest in any person, firm, business, corporation, or
other organization that is engaged in the Business or competes with the
Business, within each county and/or similar political division or subdivision,
of each state in the United States. Buyer shall be entitled (without limitation
of any other remedy) to specific enforcement and/or injunctive relief with
respect to any breach or threatened breach of these covenants. The parties
intend these covenants to be enforced to the maximum extent
possible.




5.8
Employment
Agreement.At the Closing, Buyer and Bob Gruenwald shall enter into an
employment agreement (“Employment Agreement”) in the form attached hereto as
Exhibit
5.8. It is understood that the Employment Agreement will contain a
covenant not to compete similar to that set forth in Section 5.7 above, however,
Bob Gruenwald will receive additional compensation under the Employment
Agreement for the covenant not to compete, which covenant shall be deemed to
have been given in connection with the transactions contemplated by this
Agreement.




12




ARTICLE
6. INDEMNIFICATION




6.1
Indemnity.Each of the Sellers shall, jointly and severally, defend, indemnify, and
hold harmless Buyer and Buyer’s affiliates, and their respective directors,
officers, employees, shareholders, representatives, and agents (collectively,
the “Buyer
Indemnified Parties”), against and with respect to any and all loss,
cost, damage, assessment, administrative fine or penalty, decrease in value,
liability, obligation, claim, expense (including professional fees and similar
expenses), or deficiency (collectively, the “Indemnified
Losses”) from, resulting by reason of, or arising in connection with: (a)
any and all liabilities of any Seller, or any successor in interest of any
Seller, of any nature, whether accrued, absolute, contingent, or otherwise
(including without limitation any Tax, severance or pension benefits, workers’
compensation claims, and environmental liabilities), other than the Assumed
Liabilities; (b) any inaccuracy, misrepresentation, breach, or nonperformance of
any representation, warranty, covenant, undertaking, condition, or agreement
made or to be performed by any Seller pursuant to this Agreement or any document
delivered to Buyer in connection with this Agreement or the consummation of the
transactions contemplated by this Agreement, regardless of whether the
inaccuracy, misrepresentation, breach, or omission was deliberate, reckless,
negligent, innocent, or unintentional; (c) any pollution or threat to human
health or the environment that, since December 13, 1990, is related in any way
to the management, use, control, ownership or operation of the Purchased Assets
or the Business by any Seller, including all on-site and off-site activities
involving Hazardous Material, and that occurred, existed, or arose out of
conditions or circumstances that occurred or existed, or was caused, in whole or
in part, on or before the Closing Date, whether or not the pollution or threat
to human health or the environment is described in the Disclosure Schedule or is
known to any Seller or Buyer; and (d) any use of the Purchased Assets and the
conduct of the Business by any Seller on or before the Closing Date, including
without limitation any environmental related matters arising from actions,
inactions, or events occurring on or before Closing Date, except the Assumed
Liabilities. The parties hereto acknowledge and agree that the rights of Buyer
herein are rights to defense as well as indemnification and that Sellers are
jointly and severally obligated hereunder to provide such defense and
indemnification.




6.2
Indemnified
Losses Broadly Defined.The Indemnified Losses shall include without
limitation Indemnified Losses related to actual or alleged (a) violations of
law, (b) products liability, (c) environmental liabilities, (d) Tax payment
obligations, (e) breach or nonperformance or failure to timely perform under
contracts (oral or written), leases, or warranties, (f) claims by present or
former employees or applicants for employment, and (g) claims in connection with
labor unions or collective bargaining arrangements. The Indemnified Losses shall
also include but not be limited to any decrease in the value of the Purchased
Assets related to any breach of the representations and warranties of any
Seller. The right to indemnification, payment for Indemnified Losses, or other
remedy based on the representations, warranties, covenants, and obligations of
any Seller shall not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) by any person at any
time, whether before or after the date of this Agreement or the Closing Date,
with respect to the accuracy or inaccuracy of, or compliance with, any
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of, or compliance with, anycovenant
or obligation, will not affect the right to indemnification, payment of
Indemnified Losses, or any other remedy based on those representations,
warranties, covenants, and obligations.




13




6.3
Indemnification
Period. The right of the Buyer Indemnified Parties to seek
indemnification under this Article shall survive (“Indemnity
Period”): (a) indefinitely with respect to representations, warranties,
covenants, and agreements relating to: (i) title to the Purchased Assets,
including but not limited to the right and title to the Intellectual Property
Rights; (ii) the right of Sellers to convey and transfer the Purchased Assets to
Buyer free and clear of any and all Encumbrances; and (iii) the enforceability
of this Agreement or any covenant not to compete; (b) for the period set forth
in Section 7.3 with respect to all claims other than the claims described in
clause (a). For purposes of the preceding sentence, a claim shall be deemed made
upon the earlier of: (x) the filing of a Demand for Arbitration with respect to
the matter underlying the claim; or (y) receipt by either of a written notice of
claim setting forth the amount of the claim (if known by Buyer) and a general
description of the facts underlying the claim. The parties hereto waive the
applicable statutes of limitation with respect to the claims referenced in
clause (a) of the first sentence of this Section 6.3.




6.4
Third-Party
Claims.




(a) Notice of
Third-Party Claims.If any action, suit, or proceeding (including claims
by federal, state, local, or foreign tax authorities) shall be threatened or
commenced against any of the Buyer Indemnified Parties in respect of which any
of the Buyer Indemnified Parties may demand indemnification under this
Agreement, Buyer shall notify Sellers to that effect with reasonable promptness
after receiving written notice of the action, suit, or proceeding, and Sellers
shall to defend against the action, suit, or proceeding, at Sellers’ sole
expense, subject to the limitations set forth below.




(b) Defense of Claims.Sellers shall notify Buyer that shall defend Buyer against the action,
suit or proceeding with reasonable promptness. Buyer shall have the right to
employ Buyer’s own counsel and participate in the defense of the case, but the
fees and expenses of Buyer’s counsel shall be at the expense of Buyer, unless
(i) the employment of Buyer’s counsel at the expense of Seller shall have been
authorized in writing by either Seller in connection with the defense of the
action, suit, or proceeding; (ii) either Seller shall have decided not to defend
against the action, suit, or proceeding; or (iii) Buyer shall have reasonably
concluded that (A) Buyer’s interests could only be adequately protected by
Buyer’s direct participation in or defense of the action, suit, or
pro­ceeding, or (B)the action, suit, or proceeding involves to a significant
extent matters beyond the scope of the indemnity agreement contained in this
Article. In any case described in clause (iii) of the preceding sentence,
Sellers shall not have the right to direct the defense of the action, suit, or
proceeding on behalf of Buyer, and that portion of the fees and expenses
reasonably related to matters covered by the indemnity agreement contained in
this Article shall be borne by Sellers. Buyer may not compromise or settle a
claim that is subject to indemnification by Sellers without the written consent
of either Seller, which consent shall not be unreasonably withheld, conditioned,
or delayed.




14




(c) Conduct of Defense.Any party granted the right to direct the defense of a claim pursuant to
this Article shall: (i) keep the other parties to this Agreement fully informed
of the action, suit, or proceeding at all stages of the matter, whether or not
represented; (ii) promptly submit to the other parties copies of all pleadings,
responsive pleadings, motions, and other similar legal documents and papers
received in connection with the action, suit, or proceeding; (iii) permit the
other parties to this Agreement and their counsel, to the extent practicable, to
confer on the conduct of the defense of the action, suit, or proceeding; and
(iv) to the extent practicable, permit the other parties to this Agreement and
their counsel an opportunity to review all legal papers to be submitted before
the submission. Subject to an appropriate confidentiality agreement, the parties
shall make avail­able to each other and each other’s counsel and accountants
all of the books and records relating to the action, suit, or proceeding, and
each party shall render to the other any assistance as may be reasonably
required in order to ensure the proper and adequate defense of the action, suit,
or proceeding.




6.5
Claims by
Buyer.Buyer shall notify Sellers in writing with reasonable
prompt­ness after the discovery of any claim upon which Buyer will demand
indemnification from Sellers under this Agreement. To the extent possible, the
notice shall describe in reasonable detail the basis for the claim, include,
where commercially practicable, an itemized accounting of the claim, and provide
a good faith estimate of the amount of the Indemnified Loss. Within fifteen (15)
days after receipt of the notice, Sellers shall either reimburse Buyer for the
amount of the claim (or acknowledge Buyer’s right of offset) or notify Buyer of
Sellers’ intent to dispute the claim. The foregoing notwithstanding, if Buyer
would otherwise be entitled to indemnification under this Agreement but for
Buyer’s failure timely to deliver a notice, Buyer shall nevertheless be entitled
to be indemnified under this Article unless either Seller can establish that
either Seller has been materially prejudiced by any time elapsed or by any
intervening payment, settlement, or other disposition of the
claim.




6.6
Offset.The Buyer Indemnified Parties may, as one of their remedies in the event
of any breach of this Agreement by either Seller or to effect indemnification
against Sellers under this Article, withhold sums payable to either Seller
pursuant to this Agreement, or otherwise, to the extent of any claim asserted by
the Buyer Indemnified Parties, and unless otherwise agreed to by the parties,
Buyer shall be required to place such disputed amounts into an escrow account
while such disagreement is arbitrated in accordance with Section 7.18 of this
Agreement. The claims of the Buyer Indemnified Parties shall not, however, be
limited to the payment amounts required by the agreements referenced above and
the Buyer Indemnified Parties shall have the right to recover directly from
Sellers the amount of any claims.




6.7
Limitation on
Indemnification.Notwithstanding anything to the contrary contained in
Section 1.4 or this Article 6, neither Seller shall have any obligation to
indemnify the Buyer Indemnified Parties with respect to any matter described in
Section 6.1 until the Buyer Indemnified Parties have suffered aggregate
Indemnified Losses in excess of Twenty-five Thousand
Dollars ($25,000) (the “Basket”) (at
which point, Sellers will be obligated to indemnify the Buyer Indemnified
Parties from and against all Indemnified Losses relating back to the first
dollar). Once the Basket has been exceeded, Sellers shall be obligated to
indemnify the Buyer Indemnified Parties, provided, however,that the Basket shall not apply to any Indemnified Losses resulting from
(y) fraud or the intentional actions or omissions of any Seller or (z) the
breach of any representation or warranty (or any portion of any representation
or warranty) with respect to the quality of title to any of the Purchased
Assets. In any case, the Sellers’ indemnification under Section 6.1 shall not
exceed Six Hundred Thousand Dollars ($600,000.00).




15




6.8
Remedies
Cumulative.The remedies provided in this Article are cumulative and
shall not prevent the assertion by the Buyer Indemnified Parties of any other
rights or the seeking of any other remedies against either
Seller.




ARTICLE
7. GENERAL




7.1
Ordinary and
Usual Course; Knowledge.As used in this Agreement, the phrases (a)
“ordinary and usual course,” “ordinary and usual course of business,” “ordinary
course of business,” and similar phrases mean activity that is performed (i) in
accordance with the customary business practices and usages of trade prevailing
in the industry or industries in which EMS operates, and (ii) in accordance with
the historical and customary practices of EMS with respect to the activity, and
(b) “to the knowledge of Sellers” or “to Sellers’ knowledge” means the actual
knowledge of Gruenwald or any key employee of EMS after reasonable
investigation.




7.2
Risk of Loss.The risk of loss or destruction of, or damage to, the Purchased Assets (a
“Loss”) shall be on
Sellers at all times on or before the Closing Date. Sellers shall take all
reasonable steps consistent with the normal business practices of EMS to repair,
replace, and restore the Purchased Assets as soon as possible after any Loss.
All insurance proceeds received by either Seller with respect to any Loss shall
be applied to replacement, restoration, or repair, or if not so applied before
the Closing Date, shall be remitted to Buyer promptly after receipt. Any
obligation of Sellers to repair, replace, and restore the Purchased Assets shall
terminate on the Closing Date or, if earlier, upon the termination of this
Agreement. Notwithstanding any other provision of this Section, Sellers shall be
entitled to retain any insurance proceeds to the extent either Seller has
previously expended amounts to repair, replace, or restore a Loss to the
Purchased Assets on or before the Closing Date; provided, however, that any
insurance proceeds in excess of such expended amounts shall be delivered to
Buyer to the extent provided above.




7.3
Survival   of
Representations,  Warranties,  Covenants,   and   Indemnities.Subject
to the limitations of the Indemnity Period described above, all representations,
warranties, covenants, and indemnities made by any party to this Agreement shall
survive the Closing for a period of two (2) years. No investigation by Buyer
shall in any way affect Buyer’s right to rely on the representations,
warranties, and covenants of Sellers set forth in this Agreement or any document
related to this Agreement.




16




7.4
Confidentiality.Unless otherwise required by law, the parties to this Agreement shall not
make any disclosure of the existence or terms of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of
the other party or parties, except that each party may disclose the transactions
contemplated by this Agreement to that party’s professional advisers, to that
party’s institutional lenders, and to that party’s management employees, to the
extent that any of those persons or entities needs to know of the transactions
in connection with the person’s or entity’s relationship with the disclosing
party. Notwithstanding the foregoing, Buyer may provide this Agreement, any
agreements or documents related to the transactions contemplated herein and any
additional information to any investors, lenders, or prospective investors or
lenders and their respective advisors.




7.5
Assignment and
Benefits.Neither Seller may assign or transfer this Agreement, either
directly or indirectly, by merger, liquidation, consolidation, sale of stock,
change of control, operation of law, or other means, without the prior written
consent of all parties to this Agreement. Any assignment of the obligations of
this Agreement by any Seller shall not release the assignor or any guarantor
from the duty to perform that person’s obligations under this Agreement. This
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and permitted assigns of each of the
parties to this Agreement.




7.6
Notices.All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered, sent by facsimile, or sent by express delivery service with charges
prepaid and receipt requested, or, if those services are not reasonably
available, mailed (postage prepaid) by certified mail with return receipt
requested:




To
      Buyer at:
            Balqon
      Corporation1701
      E. Edinger
              Unit
      E-3Santa
      Ana, CA 92705
              Attn:
      President
              Fax: ______________With
      a copy to:
            Hallstrom,
      Klein & Ward, LLP15615
      Alton Parkway
              Suite
      175
              Irvine,
      CA 92618
              Attn:
      Richard Christesen, Esq.
              Fax:
      (949) 450-1588To
      Sellers at:
            Bob
      GruenwaldElectric
      Motorsports, LLC
              2072
      Greenpine Drive
              Cincinnati,
      Ohio 45231With
      a copy to:
            Fredric
      J. Robbins, Esq.Robbins,
      Kelly, Patterson and Tucker
              7
      W. Seventh Street, Suite 1400
              Cincinnati,
      Ohio 45202
              Fax:
      513-721-5001




17




Any party
may change that party’s address by prior written notice to the other
parties.




7.7
Expenses.Each party to this Agreement shall pay that party’s respective expenses,
costs, and fees (including professional fees) incurred in connection with the
negotiation, preparation, execution, and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement. Sellers shall
pay for the cost of any conveyance, transfer, excise, storage, sales, use,
recording, or similar taxes or fees, if any, arising out of the sale, transfer,
conveyance, or assignment of the Purchased Assets or the Business to
Buyer.




7.8
Entire
Agreement.This Agreement, and the exhibits and schedules (including the
Disclosure Schedule) to this Agreement (which are incorporated in this Agreement
by reference), and the agreements referred to in this Agreement, contain the
entire agreement and understanding of the parties and supersede all prior
agreements, negotiations, arrangements, and understandings relating to the
subject matter of this Agreement.




7.9
Amendments and
Waivers.This Agreement may be amended, modified, superseded, or
canceled, and any of the terms, covenants, representations, warranties, or
conditions of this Agreement may be waived, only by a written instrument signed
by each of Buyer and Gruenwald or, in the case of a waiver, by or on behalf of
the party waiving compliance. The failure of any party at any time to require
performance of any provision in this Agreement shall not affect the right of
that party at a later time to enforce that or any other provision. No waiver by
any party of any condition, or of any breach of any term, covenant,
representation, or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be a further or continuing waiver of any condition
or of any breach of any other term, covenant, representation, or
warranty.




7.10
No Third-Party
Beneficiaries.Except as otherwise expressly provided herein, the
provisions of this Agreement are solely between and for the benefit of the
respective parties to this Agreement, and do not inure to the benefit of, or
confer rights upon, any third party, including any employee of Buyer or
EMS.




7.11
Severability.Except as otherwise specifically provided in this Agreement, this
Agreement shall be interpreted in all respects as if any invalid or
unenforceable provision or portion of any provision were omitted from this
Agreement to the extent of such invalidity or to the extent necessary to make
such provision enforceable. All provisions of this Agreement shall be enforced
to the full extent permitted by law.




18




7.12
Headings. The
headings of the sections and subsections of this Agreement have been inserted
for convenience of reference only and shall not restrict or modify any of the
terms or provisions of this Agreement.




7.13
Governing Law.This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws of the State of California, as applied to contracts
made and to be performed in that state, without regard to conflicts of law
principles.




7.14
Construction.The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party by virtue of having drafted this
Agreement or any provision hereof. Unless otherwise expressly provided, the
words “include” and “including” (and variations of those words) whenever used in
this Agreement shall not limit the preceding words or terms but shall be
understood to mean “include but are not limited to” or “including without
limitation” (and similar meanings). The parties intend that each representation,
warranty, and covenant contained in this Agreement shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained in this Agreement in any respect, the fact that there exists
another representation, warranty, or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the party has
not breached shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty, or covenant.




7.15
Guaranty by
Gruenwald.By joining in this Agreement, Gruenwald guarantee to Buyer the
full and prompt payment and performance (not just collection) by EMS of all of
EMS’ covenants and obligations under this Agreement and any ancillary
agreements. If RMS does not perform a covenant or obligation under this
Agreement or any ancillary agreement, Gruenwald shall promptly perform the
covenant or obligation. This guaranty of Gruenwald is an absolute, irrevocable,
primary, continuing, unconditional, and unlimited guaranty of performance and
payment, and is not a guaranty of collection. This guaranty shall remain in full
force and effect (and shall remain in effect notwithstanding any amendment to
this Agreement) until all of Sellers’ obligations have been paid, observed,
performed, or discharged in full. Gruenwald has full capacity, power, and
authority to enter into this Agreement and to carry out the covenants and
agreements specifically made by Gruenwald in this Agreement, and this Agreement
is binding on Gruenwald and enforceable against Gruenwald in accordance with the
terms of this Agreement.




7.16
Attorneys’
Fees.In the event of litigation between the parties pertaining to this
Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees
in addition to all costs of suit.




7.17
Independent
Representation.Sellers acknowledge that Buyer has been represented in
this transaction by Richard Christesen attorney of Hallstrom, Klein & Ward,
LLP (“Firm”), and Robert Miranda, CPA of Miranda & Associates (the
“Accountants”). Sellers acknowledge that the Firm, Mr. Christesen and the
Accountants do not represent the Sellers , that neither of the Sellers are
relying upon the advice of the Firm or Mr. Christesen or theAccountants,
and that the Sellers have been advised to seek the advice of independent
attorneys and accountants to represent them in connection with this
matter.]




19




7.18
Arbitration.Any dispute arise between the parties with respect to any provisions of
this Agreement or the breach thereof, including any representations, warranties,
covenants or obligations contained herein, or any ancillary agreements, any
disputes with respect to the interpretation of any of the terms contained in
this Agreement, or the arbitrability of any such dispute shall be submitted to
final and binding arbitration before JAMS, or its successor, pursuant to JAMS
Streamlined Arbitration Rules and Procedures then in effect. Either Seller or
Buyer may commence the arbitration process called for in this Agreement by
filing a written demand for arbitration (a “Demand for Arbitration”) with JAMS,
in Los Angeles, California, with a copy sent concurrently to the other party.
The arbitration will be conducted in Los Angeles, California, before one
arbitrator. The parties will cooperate with JAMS and with one another in
selecting an arbitrator from JAMS’ panel of neutrals, and in scheduling the
arbitration proceedings. The parties covenant that they will participate in the
arbitration in good faith, and that Buyer and Sellers will share equally in its
costs. The prevailing party or parties in such arbitration, as determined by the
arbitrator, shall be entitled to reasonable attorneys’ fees. The arbitrator
shall have the same powers as those of a judge of the Superior Court of the
State of California, shall be bound by the statutes and case law of the State of
California, and shall render a decision as would a judge of a Superior Court of
the State of California. If proper notice of any hearing has been given, the
arbitrator will have full power to proceed to take evidence and to perform any
other acts necessary to arbitrate the matter in the absence of any party who
fails to appear. EACH PARTY HERETO WAIVES THE RIGHT TO A JURY TRIAL TO THE
FULLEST EXTENT POSSIBLE UNDER APPLICABLE LAW.




7.19
Counterparts;
Signatures.This Agreement may be signed in one or more counterparts,
each of which shall be deemed to be an original, and all of such counterparts
shall together constitute one complete document. A signature sent by fax or
other electronic means shall be as effective as an original
signature.




[BALANCE
OF PAGE LEFT BLANK]




[SIGNATURES
ON NEXT PAGE]




20




IN
WITNESS WHEREOF, this Agreement is executed at Los Angeles, California, as of
the date first above written.




SELLER:
            
            BUYER:ELECTRIC
      MOTORSPORTS, LLC.
            
            BALQON
      CORPORATIONBy:
            -s- bob gruenwald
            
            By:Bob
      Gruenwald, [Member/Manager]
            
            
            PresidentBySecretary
      or CFOGRUENWALD-s- bob gruenwaldBOB
      GRUENWALD




LIST
OF EXHIBITS




Exhibit
No.
              Subject1.1
              Excluded
      Assets1.1(a)
              Intellectual
      Property1.2
              Form
      of Share Purchase Agreement1.3(a)
              Assumed
      Contacts1.4
              Existing
      Backlog2.2
              Form
      of Promissory Note5.8
              Form
      of Employment Agreement




21




IN
WITNESS WHEREOF, this Agreement is executed at Los Angeles, California, as of
the date first above written.


SELLER:
            
            BUYER:ELECTRIC
      MOTORSPORTS, LLC.
            
            BALQON
      CORPORATIONBy
            
            
            By
            -s- bob gruenwaldBob
      Gruenwald, [Member/Manager]
            
            
            PresidentBy
            -s- bob gruenwaldSecretary
      or CFOBOB
      GRUENWALDBOB
      GRUENWALD




LIST
OF EXHIBITS




Exhibit
No.
              
              Subject1.1
              
              Excluded
      Assets1.1(a)
              
              Intellectual
      Property1.2
              
              Form
      of Share Purchase Agreement1.3(a)
              
              Assumed
      Contacts1.4
              
              Existing
      Backlog2.2
              
              Form
      of Promissory Note5.8
              
              Form
      of Employment Agreement






22