APPENDIX 2


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

                       CONTRACT FOR TECHNOLOGY INVESTMENT
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                                       by

                                       and

                                     between


                            VALENCE TECHNOLOGY, INC.


                                       and


                 BAODING FENGFAN GROUP LIMITED LIABILITY COMPANY



                                       and


                    BAODING FENGFAN-VALENCE BATTERY CO., LTD.


                  (REPRESENTED BY VALENCE TECHNOLOGY, INC. AND

                BAODING FENGFAN GROUP LIMITED LIABILITY COMPANY)

<PAGE>


                       CONTRACT FOR TECHNOLOGY INVESTMENT



THIS CONTRACT FOR TECHNOLOGY INVESTMENT (the "Contract") is signed on July 8,
2003 by and between:

1)   VALENCE TECHNOLOGY, INC., a corporation incorporated in the State of
     Delaware, U.S.A., with its principal offices located at 301 Conestoga Way,
     Henderson, Nevada 89015 ("Valence"),

     and

2)   Baoding Fengfan Group Limited Liability Company, an enterprise legal person
     established and existing under the laws of the People's Republic of China
     ("PRC") registered with the Business License No. 13060010000338 and having
     its registered office at No. 8 Fuchang Road, Baoding City, Hebei Province,
     PRC ("Fengfan"),

     and

3)   Baoding FengFan-Valence Battery Company, Ltd. a Sino-foreign equity joint
     venture limited liability Company to be established under the laws of the
     People's Republic of China ("PRC"), with its registered office located at
     Baoding National High Technology Industrial Development Zone, Baoding City,
     Hebei Province, People's Republic of China ("Licensee").

(Valence, Fengfan or the Licensee may be referred to as a "Party", and together
as the "Parties";),

in reference to the following facts:

A:   The investors in the Licensee, being Valence and Fengfan, sign the Contract
     on behalf of the Licensee and agree that the Contract shall only become
     effective upon the Effective Date (such term being defined below).

B.   Valence owns certain Proprietary Rights and Technology related to the
     design and manufacture of high technology Batteries and Powder, and
     supplies component materials used to make the Batteries (each of such terms
     being defined below).

C.   Licensee wishes to acquire the right with respect to certain fields to
     utilize the Proprietary Rights and the Technology owned or licensed by
     Valence to manufacture and sell Batteries and Powder, all on the terms and
     conditions contained herein.

D.   Valence is willing to grant to Licensee a license to utilize the
     Proprietary Rights and the Technology to manufacture and sell the Batteries
     and Powder, and to provide certain related technical services to Licensee
     solely in accordance with the terms and conditions set forth herein.

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E.   This Contract is entered into for contributing solely to the Licensee a
     license to utilize such rights and for the provision of technical services
     in accordance with the Joint Venture Contract, dated as of June __, 2003 by
     and between Valence and Fengfan. The provisions and conditions of this
     Contract shall conform to the licensing and technical services provisions
     of the Joint Venture Contract.

NOW, THEREFORE, and in consideration of the mutual promises, covenants,
representations and good and valuable consideration set forth herein, the
adequacy of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1 - DEFINITIONS

For purposes of this Contract, the following terms shall have the following
meanings:

1.1  An "Affiliate(s)" of a Party shall mean an entity controlled by or under
     common control with that Party; provided that such entity shall be
     considered an Affiliate only for the time during which such control exists.
     For purposes of this definition, the term "control" as used in this Article
     1.1, "controlled" or under "under common control with" shall mean the
     possession, direct or indirect, of the power to direct or cause the
     direction of the management and policies of an entity through the ownership
     of an equity interest in the entity.

1.2  "Battery(ies)" shall mean and include any aggregate of components or
     compositions of matter primarily adapted for storing or providing
     electrical energy, and which include a positive and negative electrode and
     shall specifically include: (1) the Large Format LVP Cylindrical Cells; (2)
     the Bellcore(LCO) Cells; and (3) the Bellcore(P1a) Cells.

1.3  "Confidential Information" shall mean and include any and all of the
     following, to the extent previously, currently or subsequently disclosed by
     Valence to Licensee hereunder or otherwise: information relating to the
     Proprietary Rights and the Technology and their use to manufacture or use
     Batteries or Powder, the properties, composition or structure thereof or
     the manufacture or processing thereof or machines therefor or to Licensee's
     business (including, without limitation, names and expertise of employees,
     customers and consultants, know-how, formulas, processes, ideas, inventions
     (whether patentable or not), schematics and other technical, business,
     financial, customer and product development plans, forecasts, strategies
     and information). In particular, but without limitation, the Technology and
     improvements made by Valence thereto shall be considered proprietary
     information of Valence. Confidential Information may be disclosed or
     revealed orally, visually, or in writing or any other tangible form. Any
     information disclosed or revealed by Valence shall be deemed to constitute
     Confidential Information if (i) such information is in written or other
     tangible form and has been marked "confidential," or (ii) Licensee has been
     advised, orally or in writing, of its confidential nature.

1.4  "Effective Date" shall mean the date of the Licensee's ratification of the
     Contract following the establishment of the Licensee.

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<PAGE>



1.5  "Large Format LVP Cylindrical Cells" means lithium vanadium phosphate (LVP)
     cells and batteries in a cylindrical construction (i.e., a non-stacked
     construction) which provides greater than five ampere-hours (>5Amphrs) of
     electricity.

1.6  "Powder(LVP)" means lithium vanadium phosphate cathode active material in a
     powder form.

1.7  "Powder(P1a)" means lithium iron magnesium phosphate cathode active
     material in a powder form.

1.8  "Production Startup" shall respectively mean the date that all of the
     equipment required for completion of a Bellcore Cell production line or
     Powder production has been installed and debugged in the Licensee's
     production facility to be constructed in Baoding, People's Republic of
     China.

1.9  "Products" means technologically advanced cells and batteries including but
     not limited to: (1) Large Format LVP Cylindrical Cells; (2) Bellcore(P1a)
     Cells; (3) Bellcore(LCO) Cells; (4) Powder(LVP); and (5) Powder(P1a).

1.10 "PRC" means the People's Republic of China. Solely for the commercial
     purposes of this Contract, the term "PRC" shall be understood to mean China
     Mainland.

1.11 "Project" refers to the Licensee's construction and operation of a
     manufacturing facility in Baoding, China for the production of the
     Products.

1.12 "Proprietary Right(s)" shall mean and include any and all patent rights
     including patent applications relating to Batteries as defined in Article
     1.2 herein and Powder(LVP) and Powder(P1a) as defined in Articles 1.6 and
     1.7 herein, filed by Valence with the United States Patent and Trademark
     Office and/or a foreign patent office that are owned by Valence, a list of
     Valence's patents is set forth in Exhibit A.

1.13 "Bellcore(LCO) Cells" means lithium cobalt oxide (LCO) cells and batteries
     in a stacked (Bellcore) construction.

1.14 "Bellcore(P1a) Cells" means lithium iron magnesium phosphate (P1a) cells
     and batteries in a stacked (Bellcore) construction.

1.15 "Technology" shall mean technical information, technology, inventions
     (whether or not patentable), ideas, processes, formulas and know-how now
     owned by Valence relating to Batteries or Powder and any improvements
     thereon but only to the extent Valence licenses such improvements to
     Licensee pursuant to the terms of Articles 2.2 and 2.3 hereof, for
     producing Batteries or Powder. A general description of the content of the
     Technology and its advancements is set forth in the attached Exhibit C.

1.16 "Third Party" shall mean any Party other than Valence, Fengfan or the
     Licensee.


ARTICLE 2 - GRANT AND SCOPE OF TECHNOLOGY LICENSE

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2.1  Subject to the terms and conditions set forth herein, including but not
     limited to Article 2.6 below, Valence hereby grants to Licensee, and
     Licensee hereby accepts from Valence, a limited, non-transferable, right
     and license, for the term of this Contract, to utilize the Proprietary
     Rights and the Technology, to (i) manufacture Products in the PRC; (ii) to
     create modifications, extensions or derivative works of the Proprietary
     Rights and the Technology, subject to the provisions of Article 10 hereof;
     and (iii) sublicense the rights granted hereunder to suppliers solely for
     the purpose of permitting such suppliers to provide materials to Licensee
     in order to enable Licensee to manufacture Products. Subject to the
     foregoing terms and conditions and in accordance with Article 3 hereof,
     Valence shall provide Licensee technical services relating to the
     Technology.

2.2  Valence shall license to Licensee improvements in and to the Proprietary
     Rights and the Technology that relate to the manufacturing of the Products.

2.3  The improvements licensed under Article 2.2 shall be licensed to Licensee
     without additional compensation, credit, or reimbursement to Valence beyond
     the reimbursement of Additional Expenses set forth in Article 6 hereto. The
     Licensee may manufacture Products using such new inventions, creations and
     technology in accordance with the terms of this Contract.

2.4  Nothing in this Contract shall be construed to grant Licensee the right to
     sublicense the Proprietary Rights or the Technology to Fengfan or to any
     Third Party, and any such sublicensing is strictly prohibited, other than
     the rights set forth in this Article to sublicense suppliers to Valence and
     the Licensee only. Such suppliers shall execute a written agreement
     consistent with the terms of this Contract and shall have no right to
     sublicense any Proprietary Rights or the Technology to any other party nor
     to offer the Powder(P1a) or Powder(LVP) for sale to Third Parties or to
     Fengfan. Nothing herein shall be construed to prevent Licensee from
     entrusting Third Parties or Fengfan to sell Products inside the PRC.
     Nothing herein shall be construed to prevent Licensee from selling Products
     to Valence for resale outside of the PRC.

2.5  Valence hereby acknowledges that following the Effective Date of this
     Contract, Valence shall not further transfer to any Third Party the
     Technology for production of Large Format LVP Cylindrical Cells.

2.6  The license granted by Valence to Licensee under Article 2.1 above shall
     commence on the Effective Date and shall continue until this Contract
     expires or is terminated, whichever occurs first.

2.7  At any time after the execution of this Contract, the Parties shall execute
     any and all other forms or documents relating to, and proceed with, any
     approval or registration required of this Contract or of any licenses of
     intellectual property rights hereunder as required by applicable law.

2.8. For the absence of doubt, the Licensee shall be the sole licensee under
     this Contract, and Fengfan shall not have any rights to the Proprietary
     Rights or to the Technology before or

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<PAGE>


     after the Effective Date of this Contract, unless Valence expressly agrees
     otherwise in writing.

ARTICLE 3 - PROVISION AND SCOPE OF TECHNICAL SERVICES

3.1  Valence as the contributor of Technology shall provide Licensee with
     technical services with respect to the Bellcore (stacked) cell process and
     construction and to cathode active materials for establishment and
     operation of the Project with the Licensee developing the technology for
     the Large Format LVP Cylindrical Cells.

3.2  Subject to the terms of this Article and Contract, Valence commits that
     during the term of this Contract and upon reasonable request of Licensee,
     except for the Large Format LVP Cylindrical Cells which are to be developed
     by the Licensee, Valence shall:

     a)   deliver to the Licensee technical documents (see Exhibit D) that
          explain the manufacturing process for those Products that shall be
          produced by the Licensee;

     b)   deliver to the Licensee formulations for all raw materials to be used
          in producing the Products;

     c)   deliver to the Licensee inspection and testing criteria relevant to
          the production of the Products, ranging from the raw material to the
          finished product;

     d)   make available to the Licensee technical or management personnel from
          time to time, either in person, by telephone, or by e-mail as Valence
          deems to be reasonably necessary in order to transfer, install, debug,
          and operate the production equipment to be provided to the Licensee by
          Valence, and resolve problems of technology and quality arising in the
          course of trial production; and Licensee shall make available such
          technical or management staff as may be reasonably necessary to
          support Valence's performance of its obligations hereunder; and

     e)   deliver to Licensee a list of suppliers of raw materials for the
          production of the Products, and assist in qualifying new suppliers of
          such raw materials, whether domestic or foreign;

     f)   Valence agrees to provide training to certain technical and management
          personnel of the Licensee at Valence's factory and R&D center, as
          Valence deems necessary, for realizing the technical targets
          stipulated in this Contract.

3.3  Subject to the terms of this Article and this Contract, Valence commits to
     provide technical documents for manufacturing Products (See Exhibit D). It
     is understood by the Parties that the Large Format LVP Cylindrical Cells
     are under development and that technical documents will be developed during
     the term of this Contract.



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ARTICLE 4 - VALENCE'S RESPONSIBILITIES

4.1  Valence shall use commercially reasonable efforts to obtain all necessary
     United States export control licenses and United States government
     approvals for delivering Proprietary Rights and Technology which Valence
     owns as of the date of this Contract. Obtaining such approval shall be a
     condition for delivery of the Proprietary Rights and Valence's Confidential
     Information to Licensee hereunder and also a condition of this Contract
     taking effect.

     Valence shall also use commercially reasonable efforts to obtain all
     necessary United States export control licenses and United States
     government approvals for delivering improvements in and to the Proprietary
     Rights and Technology to Licensee, but shall not be liable to Licensee for
     its failure to deliver such improvements if, despite Valence's commercially
     reasonable efforts, Valence is unable to obtain the requisite export
     licenses or other government approvals.

4.2  Subject to the provisions of Articles 5.6 and 9 hereof, Valence represents
     and warrants that:

     (a)  the Technology is complete, correct and effective (see list of patents
          in attached Exhibit A, and list of technology documents in attached
          Exhibit D);

     (b)  the Technology is of advanced and appropriate standard;

     (c)  utilizing the Technology, Licensee can manufacture Products whose
          performance reaches the standards for such Products as stipulated in
          Exhibit C (see Exhibit C);

     (d)  Valence and/or its Affiliates have used the Technology to make
          Products, except for the Large Format LVP Cylindrical Cells which are
          to be developed by the Licensee; and

     (e)  utilizing the Technology and the Proprietary Rights in its
          manufacturing process as instructed by Valence, and assuming the
          Licensee's use of proper raw materials and processes, then the
          by-products from the Licensee's manufacturing process shall not
          violate applicable PRC environmental laws and regulations.

4.3  Valence further represents and warrants to the Licensee that it is a
     corporation duly organized, validly existing and in good standing under the
     laws of Delaware, and that it is authorized, empowered, and able to enter
     into and fully perform its obligations under this Contract, including
     without limitation, the granting of all rights set forth herein on behalf
     of itself and its direct and indirect subsidiaries having an interest in
     the Technology and/or Valence's Confidential Information or Proprietary
     Rights.

ARTICLE 5 - LICENSEE'S RESPONSIBILITIES

5.1  Licensee shall use its reasonable best efforts to develop the Large Format
     LVP Cylindrical Cells. Licensee shall use its reasonable best efforts to
     manufacture, market


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     and sell: (1) the Large Format LVP Cylindrical Cells; (2) the Bellcore(LCO)
     Cells; and (3) the Bellcore(P1a) Cells throughout the PRC.

5.2  Licensee shall be solely responsible for providing all manufacturer's
     support services, including, but not limited to warranty services, for all
     Batteries manufactured by Licensee. Licensee shall be solely responsible
     for determining the terms, conditions and limitations of all warranties
     made by Licensee with respect to all Batteries manufactured by Licensee
     hereunder, in accordance with applicable laws, regulations, and
     governmental orders and local market conditions and requirements and
     subject to the approval of Valence with respect to warranty terms for any
     Licensee Batteries that carry any trademark owned by Valence (see attached
     Exhibit B).

5.3  Licensee shall cooperate with Valence to obtain and enforce Valence's
     Proprietary Rights in the Technology in the PRC. Fengfan and Licensee shall
     promptly notify Valence in writing of any unauthorized use or infringement
     of the Technology and shall cooperate in any judicial or administrative
     proceedings to prevent or enjoin such unauthorized use or infringement.

5.4  The Parties acknowledge that in performance of its duties and obligations
     under this Contract, Valence shall give advice and make recommendations to
     the Licensee. Valence shall exercise all reasonable care in giving such
     advice and making such recommendations to the Licensee, but shall not be
     responsible for the accuracy of advice based on information supplied by the
     Licensee, its employees, Fengfan or Third Parties.

5.5  Licensee represents, warrants, and undertakes that as of the time of its
     ratification of this Contract:

     (a)  it is a Sino-foreign equity joint venture duly organized, validly
          existing and in good standing under the laws of the People's Republic
          of China and conforms to all law and regulations;

     (b)  it has full power and capacity to enter into this Contract and perform
          its obligations under this Contract;

     (c)  all necessary internal and external consents have been obtained for
          Licensee to enter into this Contract and will continue to be
          maintained, as necessary, throughout the terms of this Contract;

     (d)  in the event of any breach of the provisions of this Agreement,
          Licensee undertakes to remedy such breach; and

     (e)  Licensee hereby agrees that it shall indemnify, defend, and hold
          harmless Valence (including its officers, directors, and employees)
          from, against and in respect of any claims, liabilities, costs,
          expenses, damages or losses imposed on or sustained or incurred by
          Valence arising out of or related to any breach of a Licensee
          representation, warranty, undertaking, or covenant contained in this
          Agreement.


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5.6  Licensee shall be solely responsible for Products which it designs or
     manufactures utilizing the Proprietary Rights, the Technology and Valence's
     Confidential Information. Licensee shall be solely liable to Third Parties
     for any defects in the quality or production of its products and services
     and shall indemnify and hold harmless Valence from any liability for
     damages (including attorneys' fees and costs) that arises from any claim
     brought against Valence by a Third Party for defects in the quality or
     production of Licensee's products and services. Licensee shall also procure
     its sublicensees to provide the same terms (including the same indemnity)
     set forth in this Article 5.6 to Valence.

ARTICLE 6 - CONSIDERATION AND REIMBURSEMENT

6.1  In recognition of the cost and expense incurred by Valence in the
     development of the Technology and the Confidential Information and in the
     provision of the technical services, Licensee shall pay to Valence a
     non-refundable, non-creditable license fee and technical service fee of
     Seven Million Two Hundred Forty One Thousand U.S. Dollars (US $7,241,000).
     Valence is required to grant Licensee the license hereunder as part of its
     contribution to the registered capital of Licensee pursuant to the Joint
     Venture Contract. Licensee shall be deemed to have paid Valence such
     license fee upon Valence being credited with making a contribution of Seven
     Million Two Hundred Forty One Thousand U. S. Dollars (US $7,241,000)
     ("Valence's Technology Investment") to the registered capital of Licensee
     in accordance with laws of the PRC.

6.2  the Licensee shall pay all travel, and living expenses incurred by the
     Valence personnel from the time of their arrival in the PRC until their
     departure therefrom, along with all charges incurred by the Valence
     personnel that are necessary for their performance of the Valence
     obligations under this Contract (the "Associated Expenses").

6.3  The Associated Expenses shall be payable in U.S. Dollars. The Associated
     Expenses shall be due and payable within the thirty (30) day period from
     the date of invoice from Valence to the Licensee.

ARTICLE 7 - VERIFICATION AND REGISTRATION OF TECHNOLOGY INVESTMENT

7.1  After receiving all of the Technology Information from Valence ("Technology
     Information" shall mean the technical documents listed in Exhibit D), the
     Licensee shall proceed to examine such information based on Exhibit D and
     notify Valence within three days. If the Licensee discovers any Technology
     Information that fails to conform to the documents listed in Exhibit D,
     Valence shall explain, supplement or replace the same within 20 days from
     receipt notice from the Licensee. Within 20 days after the Technology
     Information conforms to requirements, the Licensee shall issue and send to
     Valence a Verification Certificate. The methods for delivering the
     information to Licensee shall be:

     a)   Within a month after the Effective Date, Valence shall provide the
          Licensee with all design documents necessary for factory establishment
          (see Exhibit E).


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     b)   Within a month and a half after the Effective Date, Valence shall
          provide the Licensee with disk copies of all the Technology
          Information (see Exhibit D).

     c)   The above information shall be delivered at the Licensee's legal
          address.

7.2  After Licensee's issuance of a Technology Information Verification
     Certificate ("Verification Certificate") following Licensee's receipt and
     examination for correctness of the Technology Information (and following
     issuance of an Investment Contribution Report by a registered PRC
     accountant) Valence's technology investment of US $7,241,000 shall be
     deemed fully contributed and registered.

7.3  To test and verify the correctness and reliability of the Technology for
     producing Bellcore(LCO) Cells and Bellcore(P1a) Cells, the Licensee and
     Valence shall dispatch personnel to the Licensee's factory to proceed with
     verification of such Bellcore(LCO) Cells and Bellcore(P1a) Cells within six
     months after Production Startup. The functions of the Bellcore(LCO) Cells
     and Bellcore(P1a) Cells shall conform to the requirements in Exhibit C.

     a)   The Licensee shall manufacture in accordance with the Technology 1,000
          cells consisting of LCO and P1a cathode material from which 130 shall
          be selected for verification for each. Testing shall proceed on these
          according to the requirements in Exhibit C, Section II F - Cell
          Qualification Procedure. The first 100 cells will be used in the
          testing and 30 cells will be held in reserve. If all of the cells'
          functions pass the tests, the cells shall be deemed verified, and both
          parties' representatives shall sign a Verification Certificate, which
          shall be an effective document to be retained by the Parties.

     b)   If the cells fail the Cell Qualification Procedure, the 30 reserve
          cells shall be used to test the failed function again. If the failed
          function passes, the cells will be deemed verified, and the Parties
          shall sign a Verification Certificate. If the failed function still
          fails, the cells' functions shall be deemed nonconforming. If any
          batch of 130 cells has two failing functions, the cells shall be
          deemed nonconforming. If a cell fails overcharge or hot oven testing,
          the cells' functions shall be deemed nonconforming and shall
          constitute first verification failure.

     c)   If there is a first verification failure, Valence and the Licensee
          shall cooperate to discover the reason and formulate improvement
          measures. Another 1,000 cells shall be produced to proceed with a
          second verification identical to the first verification in terms of
          number of cells and testing methods. Production for verification may
          proceed three times.

     d)   If verification fails a third time, the Technology with respect to
          manufacture of cells will be deemed unable to fulfill the contractual
          requirements, and the Licensee and Valence shall sign a Verification
          Test Results Certificate.



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     e)   In all of the verification tests, a failure due to operator error
          shall not be deemed to be a failure of the Technology provided by
          Valence. If an operator error occurs, Valence and the Licensee shall
          cooperate to discover the reason and formulate improvement measures.

7.4  The Parties acknowledge that the Powder(LVP) is under development and the
     specifications and requirements for the Powder(LVP) shall be developed by
     the Licensee. To test and verify the correctness and reliability of the
     Technology for producing Powder(P1a) and Powder(LVP), the Licensee and
     Valence shall dispatch personnel to the Licensee's factory to proceed with
     verification of such Powder and Film from such Powders within six months
     after Production Startup. The characteristics of Powder and Film shall
     conform to the requirements in Exhibit C, the Parties recognizing that the
     requirements for the Powder(LVP) are less stringent as the Powder(LVP) is
     to be further developed by the Licensee.

     a)   The Licensee shall manufacture in accordance with the Technology a
          production batch of Powder(P1a), Powder(LVP), or P1a Cathode Film,
          from which a representative sample shall be selected for verification.
          Testing methods shall proceed based on the requirements in Exhibit C.

     b)   If all functions of the Powders and/or Film pass the tests and the
          performance of cells manufactured using the Powder(P1a) pass cell
          tests in accordance with the provisions of Article 7.3, then the
          Powder(P1a) shall be deemed verified, and both parties'
          representatives shall sign a Verification Certificate, which shall be
          an effective document to be retained by the Parties.

     c)   If any function of the Powder(P1a) or Powder(LVP) or P1a Film fails
          the test, the respective Powder shall be deemed nonconforming and
          shall constitute first verification failure.

     d)   If there is a first verification failure, Valence and the Licensee
          shall cooperate to discover the reason and formulate improvement
          measures. Another production batch of Powder or Film shall be produced
          to proceed with a second verification identical to the first
          verification in terms of amount selected and testing methods.
          Verification production may proceed three times.

     e)   Following each verification production, the functions of the cells
          using the Powder(P1a) produced must pass tests made in accordance with
          the provisions of Article 7.3 in order for the Powder(P1a) or Film to
          be deemed verified.

     f)   If verification fails a third time, the Technology with respect to
          manufacture of the Powder(P1a) or Film will be deemed unable to
          fulfill the contractual requirements, and Valence and the Licensee
          shall sign a Verification Test Results Certificate.

7.5  If, after repeated efforts by the Licensee and Valence,


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     (a)  the cells, Powders, or Films produced still fail to conform to the
          requirements stipulated in Exhibit C, the Licensee shall cancel the
          following percentage of shares of Valence's Technology Investment:

          -    15% if the Powder(P1a) fails,
          -    5% if the P1a Film fails,
          -    10% if the Bellcore(LCO) Cells fail,
          -    5% if the Bellcore(P1a) Cells fail; and

     (b)  if the LVP Powder produced fails to conform to the requirements
          stipulated in Exhibit C, the Licensee shall cancel 65% of the shares
          of Valence's Technology Investment.

     If the Cells or Powder cannot meet the product standards stated above, then
Valence and the Licensee will work together in good faith to remedy the
situation. Upon Valence and the Licensee's written confirmation of an acceptable
remedy, then Valence's shares of the relevant portion of the Technology
investment shall be restored to Valence. If Valence and the Licensee are unable
to agree on a suitable remedy and if any part of Valence's share of its
contribution of technology to the Licensee is cancelled or not granted, then the
portion of such Technology related to such contribution shall be returned to
Valence in accordance with the terms of Article 11.4.

ARTICLE 8 - CONFIDENTIAL INFORMATION

8.1  Each Party hereby acknowledges that all of the Confidential Information
     disclosed or revealed to the receiving Party hereunder is disclosed solely
     to permit the receiving Party to exercise its rights and perform its
     obligations under this Contract. Each Party agrees that it shall not use
     any of the Confidential Information for any other purpose, and shall not
     disclose or reveal any of the Confidential Information to any third Party
     or Affiliate, without the prior written authorization of the disclosing
     Party, which the disclosing Party may withhold in its sole discretion;
     provided however, that prior written authorization of the disclosing Party
     shall not be required for the receiving Party to disclose the Confidential
     Information to those of the receiving Party's employees, agents or
     representatives that (i) require access to the Confidential Information in
     order to permit the receiving Party to exercise its rights and perform its
     obligations hereunder, and (ii) have executed a nondisclosure agreement, in
     a form satisfactory to the disclosing Party, which effectively prohibits
     the unauthorized use or disclosure of the Confidential Information.

8.2  The Parties shall implement all security measures, and shall take all
     actions, including, but not limited to, the initiation and prosecution of
     legal or administrative actions, to prevent the unauthorized use,
     appropriation or disclosure of any of the Confidential Information by any
     of Fengfan's, Licensee's and Valence's employees, agents or
     representatives.


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8.3  Fengfan's, Licensee's or Valence's obligations under Articles 8.1 and 8.2
     hereof shall not apply to the extent but only to the extent to any
     Confidential Information that:

     (a)  can be proved to have been known by the receiving Party by written
          records made prior to disclosure by the disclosing Party;

     (b)  is or becomes public knowledge otherwise than through the receiving
          Party's breach of this Contract;

     (c)  was obtained by the receiving Party from a third Party having no
          obligation of confidentiality with respect to such Confidential
          Information; or

     (d)  is required to be disclosed under any applicable law, regulation or
          governmental order of any State, province and city within the PRC;
          provided that the receiving Party shall furnish written notice to the
          disclosing Party of such disclosure requirement prior to disclosing
          any of the Confidential Information, so that the disclosing Party can
          take appropriate action to protect the confidentiality, and prevent
          the unauthorized use or appropriation of such of the Confidential
          Information.

8.4  Fengfan and Licensee shall advise its directors, senior staff, and other
     employees receiving such Valence's Confidential Information of the
     existence of and the importance of complying with the obligations set forth
     in this Article 8.

8.5  Fengfan and Licensee shall formulate rules and regulations to cause its
     directors, senior staff and other employees, and those of their Affiliates,
     to comply with the confidentiality obligations set forth in this Article 8.

8.6  If required by Valence, Licensee or Fengfan shall execute a separate
     secrecy agreement with provisions similar to those set out above with
     respect to Confidential Information obtained by the Licensee from Valence.

8.7  Fengfan's, Licensee's and Valence's obligations under this Article 8 shall
     survive the termination of this Contract for any reason whatsoever.

ARTICLE 9 - LIMITATION OF LIABILITY

9.1  EXCEPT FOR BREACH BY FENGFAN OR LICENSEE UNDER ARTICLES 2 OR 8 HEREOF, TO
     THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, NO PARTY SHALL BE LIABLE
     TO THE OTHER PARTY FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, LOST
     PROFITS OR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE
     DAMAGES OF ANY KIND OR NATURE FOR ANY REASON WHATSOEVER, WHETHER SUCH
     LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE
     OR STRICT LIABILITY), OR OTHERWISE. FURTHER, EXCEPT AS OTHERWISE EXPRESSLY
     PROVIDED FOR IN THIS CONTRACT, NOPARTY MAKES ANY WARRANTY OF ANY KIND,
     WHETHER IMPLIED BY STATUTE


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<PAGE>


     OR OTHERWISE. IN NO EVENT SHALL ANY PARTY'S LIABILITY FOR DAMAGES ARISING
     FROM OR IN CONNECTION WITH THIS CONTRACT EXCEED US$500,000. THIS ARTICLE
     STATES EACH PARTY'S ENTIRE LIABILITY HEREUNDER.


ARTICLE 10 - PROPRIETARY RIGHTS

10.1 Fengfan and Licensee hereby acknowledge and agree that Valence is and shall
     remain the owner of all rights, title and interests in and to all of the
     rights in the Technology licensed to Licensee hereunder, and neither
     Fengfan nor Licensee shall acquire any rights whatsoever in or to any of
     the Proprietary Rights or the Technology, except as specifically provided
     in this Contract. Neither Fengfan nor Licensee shall utilize any of the
     Proprietary Rights or the Technology for any purpose whatsoever, except as
     authorized herein, and shall not take any action which may, in the
     reasonable opinion of Valence, adversely affect or impair Valence's rights,
     title and interests in and to the Proprietary Rights or the Technology.
     Valence reserves all rights and licenses to the Proprietary Rights and the
     Technology not specifically granted to Licensee hereunder.

10.2 Each Party shall retain all rights, title and interests in and to the
     intellectual property rights owned by such Party as of the Effective Date
     of this Contract. Without limiting the generality of the foregoing, Valence
     shall retain all right, title and interest in and to all the Proprietary
     Rights and Technology and any copies thereof. Subject to the foregoing,
     Licensee shall own and retain all right, title and interest in and to any
     modifications, extensions or derivative works of the Technology that the
     Licensee develops as authorized under this Contract ("Licensee
     Improvements") and shall grant Valence a royalty free license to use any
     Licensee Improvements. Any improvements, modifications, extensions or
     derivative works to the Technology created by Valence shall be owned
     exclusively by Valence, subject to Valence's obligations to Licensee set
     forth in Article 2.2 above.

10.3 After the full term of this Contract has expired, the Licensee has the
     right to continue to use Technology as defined in this Contract, but shall
     seek a license on mutually agreeable terms to continue using any Valence
     patent still in effect.

10.4 Valence retains all ownership to its trademarks, service marks, logos,
     trade names, and similar designations identified in Exhibit B and any other
     such marks which Valence may from time to time designate in writing
     ("Valence Marks"), and neither Fengfan nor Licensee will register or use,
     directly or indirectly, any mark that is identical or confusingly similar
     to the Valence Marks or any translations or transliterations thereof
     without the express written consent of Valence. Similarly, Fengfan and
     Licensee retain all ownership to their respective trademarks, service
     marks, logos, trade names, and similar designations which Fengfan or
     Licensee may from time to time designate in writing, and Valence will
     neither register or use, directly or indirectly, any mark that is identical
     or confusingly similar to the Fengfan or Licensee marks or any translations
     or

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<PAGE>


     transliterations thereof without the express written consent of Fengfan
     or Licensee, as applicable.

ARTICLE 11 - TERM AND TERMINATION

11.1 The term of this Contract shall begin on the Effective Date and shall
     remain in full force and effect for a period of ten (10) years from the
     Effective Date. This Contract may be terminated by the mutual agreement of
     the parties or in accordance with the provisions of this Article 11.

11.2 If a Party hereto (the "breaching Party") commits a material breach or
     default of any of its obligations hereunder, the other Party hereto (the
     "non-breaching Party") may give the breaching Party written notice of such
     breach or default and demand that such breach or default be cured
     immediately. If the breaching Party fails to cure such breach or default
     within sixty (60) days after the date of the non-breaching Party's written
     notice hereunder, the non-breaching Party may terminate this Contract,
     immediately upon giving written notice of termination to the breaching
     Party. Termination of this Contract in accordance with this Article 11.2
     shall not affect or impair the non-breaching Party's right to pursue any
     legal remedy, including the right to recover damages for all harm suffered
     or incurred as a result of the breaching Party's breach or default
     hereunder.

11.3 Valence shall have the right to terminate this Contract, immediately upon
     providing written notice of termination to the Licensee, if:

     (a)  Licensee goes into bankruptcy, voluntary or involuntary dissolution,
          becomes or is declared insolvent, makes an assignment for the benefit
          of creditors, or suffers the appointment of a receiver or trustee over
          all or substantially all of its assets or properties and such
          proceeding is not dismissed within sixty (60) calendar days of its
          commencement; or

     (b)  Either Fengfan or Licensee breaches any of its obligations under
          Article 8 (with respect to Valence's Confidential Information) or
          Articles 2 or 10 (with respect to Technology and Proprietary Rights)
          of this Contract

11.4 Immediately upon termination of this Contract for any reason whatsoever,
     Licensee shall cease all use of the Valence Marks, the Technology, Valence
     Improvements and all of Valence's Confidential Information ("Valence
     Property"), and all licenses granted to Licensee hereunder shall terminate;
     provided, however, that except in the case of termination of this Contract
     by Valence, due to a breach or default by Fengfan or Licensee, Licensee
     shall be permitted to use such Valence Property as Licensee reasonably
     requires to sell or otherwise dispose of Licensee's existing inventory of
     the Batteries. Upon termination of this Contract, Valence shall have no
     further obligations to Fengfan or Licensee hereunder.

11.5 Subject to the provisions of Article 11.4, immediately after the date of
     termination, Licensee shall, at Valence's direction, destroy, or return to
     Valence, all copies of documents and other materials that contain or embody
     any of the Valence Property that is


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<PAGE>


     in the possession of Licensee as of the date of termination. Licensee shall
     certify in writing the return or destruction of such items.

11.6 Termination of this Contract for any reason whatsoever shall not relieve
     Licensee of its obligations under Article 6 (with respect to payment of
     Associated Expenses) Article 8 (with respect to the Confidential
     Information), Article 10 (with respect to the Technology), or Article 12
     (with respect to compliance with applicable laws). Furthermore, the
     following additional Articles shall survive the termination or expiration
     of this Contract: Articles 10, 11.4, 11.5, 11.6, and 13.

ARTICLE 12 - COMPLIANCE WITH APPLICABLE LAWS

12.1 In the exercise of their respective rights and the performance of their
     respective obligations, each Party hereto shall comply with all applicable
     laws, regulations and governmental orders of the United States and the PRC.
     Licensee shall, at its own expense, obtain, and maintain in full force and
     effect throughout the continuance of this Contract, all licenses, permits,
     approvals and other governmental authorizations of all governmental
     departments and agencies within the PRC required under all applicable laws,
     including safety regulations, for the manufacture, marketing, distribution,
     storage, and use of the Products within the PRC.

12.2 Without limiting the generality of Article 12.1 hereof, Fengfan and
     Licensee hereby acknowledge and agree that Technology and all of the
     Valence's Confidential Information are subject to export controls under the
     laws and regulations of the United States, including the Export
     Administration Regulations, 15 C.F.R. Parts 730-774. In the exercise of
     their rights, and the performance of their obligations under this Contract,
     Fengfan and Licensee shall comply strictly with all such United States
     export control laws and regulations applicable to the Technology and
     Valence's Confidential Information, and shall not export, re-export,
     transfer, divert or disclose any such Technology or Valence's Confidential
     Information, or any direct product thereof, to any destination restricted
     or prohibited by U.S. export control laws, or to any national or resident
     thereof, or to use the Technology and Valence's Confidential Information
     for biological, chemical or nuclear weapon proliferation purposes.
     Fengfan's and Licensee's obligations under this Article 12.2 shall survive
     the termination of this Contract for any reason whatsoever.

ARTICLE 13 - GENERAL PROVISIONS

13.1 In the exercise of their respective rights, and the performance of their
     respective obligations under this Contract, Valence and the Licensee are,
     and shall remain, independent contractors. Nothing in this Contract shall
     be construed (i) to constitute Valence and the Licensee as principal and
     agent, partners, joint venturers, or otherwise as participants in a joint
     undertaking, or (ii) to authorize any Party to enter into any contract or
     other binding obligation on the part of any other Party hereto, and no
     Party shall represent to any other person, firm, corporation or other
     entity that it is authorized to enter into any such contract or other
     obligation on behalf of another Party hereto.


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<PAGE>


13.2 Except as otherwise provided in this Contract, Licensee shall not have the
     right or the power to assign any of its rights, or delegate or subcontract
     the performance of any of its obligations, under this Contract to any other
     person, firm, corporation or other entity without the prior written
     authorization of Valence, which it may grant or withhold in its sole
     discretion.

13.3 All notices, reports and other communications between the Parties shall be
     in writing and sent by registered air mail, postage prepaid and return
     receipt requested, or by courier service delivered letter, or by facsimile
     with a confirmation copy sent by registered air mail or courier service
     delivered mail to the address set forth at the beginning of this Contract
     or to other addresses as the parties may designate by written notice from
     time to time. The date of receipt of a notice, report, or other
     communication hereunder shall be deemed to be fourteen (14) days after the
     letter is given to the courier service or postal service, or one (1)
     working day after sending in the case of a facsimile, provided it is
     evidenced by a confirmation receipt and the confirmation letter is sent by
     courier service or postal service.

13.4 In accordance with Article 126 of the CONTRACT LAW OF THE PEOPLE'S REPUBLIC
     OF CHINA, the parties hereto have agreed that this Contract shall be
     governed by, and interpreted in accordance with the laws of the State of
     California, United States of America, excluding its rules governing
     conflicts of laws. The 1980 United Nations Convention on the International
     Sale of Goods is hereby expressly disclaimed. Any dispute between the
     parties relating to the validity, performance, construction or
     interpretation of this Contract that cannot be resolved amicably between
     the parties shall be submitted to binding arbitration in Singapore under
     the auspices of the Singapore International Arbitration Centre in
     accordance with the rules of that Centre for the time being in force. There
     shall be three (3) arbitrators, one (1) of whom shall be appointed by
     Valence, one (1) of whom shall be appointed by Licensee, and one (1) of
     whom shall be appointed by the arbitration tribunal. The arbitration award
     shall be final and binding on the Parties. When any dispute occurs and when
     any dispute is under arbitration, except for the matters under dispute, the
     Parties shall continue to exercise their other respective rights and
     fulfill their other respective obligations under this Contract. In any
     arbitration proceeding, any legal proceeding to enforce any arbitration
     award and in any legal action between the parties pursuant to or relating
     to this Contract, each Party expressly waives the defense of sovereign
     immunity and any other defence based on the fact or allegation that it is
     an agency or instrumentality of a sovereign state. Any arbitration
     proceeding under this Article shall be conducted in English. After each
     Party has been afforded a reasonable opportunity to present written and
     testimonial evidence in support of its position in any such arbitration
     proceeding, the arbitrators shall issue their decision and award, which
     shall (i) be in writing, stating the reasons therefore, (ii) be based
     solely on the terms and conditions of this Contract, and (iii) be final and
     binding upon the parties. Any arbitration award under this Article may be
     enforced in any court of competent jurisdiction. The prevailing Party in
     any proceeding brought by one Party against the other Party arising out of
     or in connection with this Contract shall be entitled to recover its legal
     expenses, including reasonable attorneys' fees. Notwithstanding the
     provisions of this Article, Valence shall have the right to seek relief in
     any court of competent jurisdiction to prevent or enjoin the
     misappropriation, misuse, unauthorized disclosure or


                                       17
<PAGE>


     infringement of Valence's Technology, Valence's marks, names and other
     designations and Valence's Confidential Information, and Licensee shall
     have the right to seek relief in any court of competent jurisdiction to
     prevent or enjoin the misappropriation, misuse, unauthorized disclosure or
     infringement of Licensee's Confidential Information.

13.5 The subject headings of this Contract are included for purposes of
     convenience only, and shall not affect the construction or interpretation
     of any provision of this Contract.

13.6 This Contract may be executed in several counterparts, each of which shall
     be deemed an original, but all of which together shall constitute one and
     the same instrument.

13.7 The failure by either Party to assert any of its rights hereunder,
     including, but not limited to, the right to terminate this Contract due to
     a breach or default by another Party hereto, shall not be deemed to
     constitute a waiver by that Party of its right thereafter to enforce each
     and every provision of this Contract in accordance with its terms.

13.8 This Contract, together with the Exhibits attached hereto, constitutes the
     entire agreement between the Parties, and supersedes all prior agreements,
     understandings and communications between the Parties with respect to the
     subject matter hereof. No modification or amendment to this Contract shall
     be binding upon the Parties unless in writing and executed by the duly
     authorized representative of each of the Parties.

13.9 If any one or more of the provisions contained in this Contract shall be
     invalid, illegal or unenforceable in any respect under any applicable law,
     the validity, legality and enforceability of the remaining provisions
     contained herein shall not in any way be affected or impaired.

13.10 This Contract is written and signed in the Chinese language in six (6)
     originals and in the English language in six (6) originals. Both language
     versions shall be equally authentic and valid. All communications between
     the parties related to this Contract shall be conducted in the English
     language.

13.11 This contract is one appendix to the Joint Venture Contract signed by
     Fengfan and Valence on July 8, 2003, and the Parties confirm that the
     terms of this Contract and the Joint Venture Contract are consistent.


                                       18
<PAGE>


IN WITNESS WHEREOF, the parties have caused this Contract to enter into effect
as of the Effective Date hereof, by causing this Contract to be executed by
their respective duly authorized representatives.



FOR AND ON BEHALF OF                   FOR AND ON BEHALF OF BAODING FENGFAN-
VALENCE TECHNOLOGY, INC.               VALENCE BATTERY COMPANY, LTD.
                                       PRIOR TO ITS ESTABLISHMENT:

                                       BY REPRESENTATIVE OF FENGFAN:



By:/s/ Terry Standefer                 By:/s/ [Chinese Characters]      [SEAL]
   -----------------------------          -----------------------------------
   Name:   Terry Standefer                Name:   Chen Mengli
   Title:  Vice President Worldwide       Title:  Chairman and President
           Operations


FOR AND ON BEHALF OF
BAODING FENGFAN GROUP LIMITED
LIABILITY COMPANY



By: /s/ [Chinese Characters]
   -----------------------------
   Name:  Cheng Mengli
   Title: Chairman and President

                                         BY REPRESENTATIVE OF VALENCE:



                                         By:  /s/ Terry Standefer
                                              ---------------------------------
                                              Name:  Terry Standefer
                                              Title: Vice President Worldwide
                                              Operations


       Ratification by BAODING FENGFAN-VALENCE BATTERY COMPANY, LTD.
       Following its Establishment:


          By:
               -------------------------[SEAL]
               Name:
               Title:                             Date:



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