Document:

exh10-2_16858.htm

EXHIBIT 10.2

 

 

 

Joint Venture Contract

 

 

 

 

Joint Venture Contract

 

 

for

 

ZHEJIANG JONWAY AUTOMOBILE CO., LTD.

 

 

among

 

 

Jonway Group Co., Ltd.

 

WANG Gang

 

WANG Xiaoying

 

 

and

 

ZAP

 

 

July 2, 2010

 

 

  

  

  

CONTENTS

                                                                                                                              

	Clause	 	Page
	 	 	 
	
Article 1

	
Definitions

	
1

	 	 	 
	
Article 2

	
Parties

	
3

	 	 	 
	
Article 3

	
The Company

	
4

	 	 	 
	
Article 4

	
Business Scope

	
5

	 	 	 
	
Article 5

	
Total Amount of Investment and Registered Capital

	
5

	 	 	 
	
Article 6

	
Responsibilities of Each Party

	
8

	 	 	 
	
Article 7

	
Land Use

	
10

	 	 	 
	
Article 8

	
Marketing and Sales of Products

	
10

	 	 	 
	
Article 9

	
Board of Directors and Supervisors

	
11

	 	 	 
	
Article 10

	
Operation and Management Organization

	
14

	 	 	 
	
Article 11

	
Labor Management

	
17

	 	 	 
	
Article 12

	
Preferential Status of the Company

	
18

	 	 	 
	
Article 13

	
Taxes, Finance, Audit and Distribution of Profit

	
18

	 	 	 
	
Article 14

	
Insurance

	
20

	 	 	 
	
Article 15

	
Representations and Warranties

	
21

	 	 	 
	
Article 16

	
Non-Competition

	
22

	 	 	 
	
Article 17

	
Confidentiality

	
22

	 	 	 
	
Article 18

	
Term and Survival

	
23

	 	 	 
	
Article 19

	
Breach and Penalties for Breach

	
23

	 	 	 
	
Article 20

	
Termination and Dissolution

	
24

	 	 	 
	
Article 21

	
Liquidation

	
25

	 	 	 
	
Article 22

	
Force Majeure

	
26

	 	 	 
	
Article 23

	
Applicable Law

	
27

	 	 	 
	
Article 24

	
Settlement of Disputes

	
27

	 	 	 
	
Article 25

	
Language

	
28

	 	 	 
	
Article 26              

	
Effectiveness, Amendment, and Miscellaneous

	
28

 

  

  

  

JOINT VENTURE CONTRACT

 

This Joint Venture Contract (this Contract) is made on July 2, 2010 in Shanghai, the PRC

 

By and Among

 

	
(1)  

	
Jonway Group Co., Ltd., a limited liability company duly incorporated and validly existing under the laws of the PRC, with its registered office at Lu Nan Hou Yuan, Lu Qiao District, Taizhou, Zhejiang Province, PRC, and with its legal representative being WANG Huaiyi (a national of the PRC and holding the position of Executive Director) (Party A);

 

	
(2)  

	
WANG Gang, a PRC citizen whose ID number is 331004198209230333 with his domicile at 20 Min Ri Hua Yuan,  Luqiao Block, Lu Qiao District, Taizhou, Zhejiang Province, PRC (Party B);

 

	
(3)  

	
WANG Xiaoying, a PRC citizen whose ID number is 331004198511020046 with her domicile at 7 Wang Jing Wan Garden, Luqiao Block, Lu Qiao District, Taizhou, Zhejiang Province, PRC (Party C); and

 

	
(4)  

	
ZAP, a corporation duly incorporated and validly existing under the laws of the State of California, USA, with its principal office at 501 Fourth Street, Santa Rosa, CA 95401 USA, and with its legal representative being Steven Schneider (a national of the US and holding the position of Chief Executive Officer) (Party D or ZAP)

 

(each a Party and collectively the Parties).

 

In accordance with the Equity Joint Venture Law, the Equity Joint Venture Regulations, the Company Law and applicable laws and regulations of the People’s Republic of China, the Parties, adhering to the principles of equality and mutual benefit, agree after friendly consultations to jointly own and operate the Company as a limited liability Sino-foreign equity joint venture company in Sanmen County, Taizhou City, Zhejiang Province, the PRC, and hereby enter into this Contract.

 

Article 1                      Definitions

 

	
1.1  

	
In this Contract, unless the context otherwise requires, the following expressions shall have the following meanings:

 

Affiliate means, in respect of a Party, any person, company, partnership, trust or other entity directly or indirectly controlling or controlled by or under direct or indirect common control with a Party, control for the purpose of this definition being taken to mean direct or indirect ownership of at least fifty percent (50%) of the voting rights of said entity.

 

  

1

  

Approval Authority means the Ministry of Commerce and other relevant Governmental Authority (if required) of the PRC, and their local branches in Zhejiang Province and/or the city of Taizhou (as the case may be).

 

Articles of Association means the restated and amended Articles of Association of the Company dated the date hereof.

 

Board means the Board of Directors of the Company.

 

Breaching Party is defined in Article 19.1.

 

Business means the business intended to be carried on by the Company, as described in Article 4.

 

Chinese Shareholders mean Party A, Party B and Party C collectively, and each of them a Chinese Shareholder.

 

CIETAC is defined in Article 24.2.

 

Closing Date means the Closing Date defined in the Equity Transfer Agreement.

 

Company means the limited liability company, Zhejiang Jonway Automobile Co., Ltd. (“浙江永源汽车有限公司” in Chinese), which will be operated pursuant to this Contract.

 

Company Law means the Company Law of the People’s Republic of China.

 

Company Term is defined in Article 18.1.

 

Competing Business means a business which directly or indirectly competes in any way with the business of the Company or ZAP in the Non-Compete Territory.

 

Confidential Information is defined in Article 17.1.

 

Contract means this Joint Venture Contract.

 

Dispute is defined in Article 24.1.

 

Encumbrance means any mortgage, pledge, lien, charge, encumbrance, assignment, hypothecation, priority, security interest, option, warrant, title retention, preferential right, trust arrangement, security agreement or arrangement, right of set off or other third party claims or rights (including rights of pre-emption) of any nature whatsoever, as provided for, recognized and/or enforceable under the laws of any relevant jurisdiction.

 

Equity Joint Venture Law means the Law of the People’s Republic of China on Equity Joint Ventures Using Chinese and Foreign Investment.

 

  

2

  

Equity Joint Venture Regulations means the Implementing Regulations of the Law of the People’s Republic of China on Equity Joint Ventures Using Chinese and Foreign Investment.

 

Equity Transfer is defined in the Equity Transfer Agreement.

 

Equity Transfer Agreement means an agreement for the transfer of certain equity interest in the Company, by and between Party A and ZAP of the even date herewith.

 

Establishment Date is defined in Article 3.1.

 

Event of Force Majeure is defined in Article 22.1.

 

Liquidation Committee is defined in Article 21.1.1.

 

Non-Compete Territory means anywhere in the PRC.

 

Parties or Shareholders means Party A, Party B, Party C and Party D to this Contract, as defined in Article 2, collectively, and each of them as a Party or a Shareholder.

 

Performing Party is defined in Article 19.1.

 

PRC means the People’s Republic of China, which for the purposes of this Agreement excludes the Chinese territories Hong Kong, Macao and Taiwan.

 

Properties are defined in the Equity Transfer Agreement.

 

RMB means Renminbi, the lawful currency of the PRC.

 

SAIC means Zhejiang Administration of Industry and Commerce, or its local counterpart in the city of Taizhou.

 

	
1.2 

	
The expressions the “Parties” shall where the context permits and unless not otherwise provided to the contrary, include their respective successors, transferees and permitted assigns and any persons deriving title under them.

 

Article 2                      Parties

 

	
2.1  

	
Party A

 

Party A to this Contract is: Jonway Group Co., Ltd., a limited liability company duly incorporated and validly existing under the laws of the PRC, with its registered office at Lu Nan Hou Yuan, Lu Qiao District, Taizhou, Zhejiang Province, PRC, and with its legal representative being WANG Huaiyi (a national of the PRC and holding the position of Executive Director).

 

  

3

  

	
2.2  

	
Party B

 

Party B to this Contract is: WANG Gang, a PRC citizen whose ID number is 331004198209230333 with his domicile at 20 Min Ri Hua Yuan, Luqiao Block, Lu Qiao District, Taizhou, Zhejiang Province, PRC.

 

	
2.3  

	
Party C

 

Party C to this Contract is: WANG Xiaoying, a PRC citizen whose ID number is 331004198511020046 with her domicile at 7 Wang Jing Wan Garden, Luqiao Block, Lu Qiao District, Taizhou, Zhejiang Province, PRC.

 

	
2.4  

	
Party D

 

Party E to this Contract is: ZAP, a corporation duly incorporated and validly existing under the laws of the State of California, USA, with its principal office at 501 Fourth Street, Santa Rosa, CA 95401 USA, and with its legal representative being Steven Schneider (a national of the US and holding the position of Chief Executive Officer).

 

Article 3                      The Company

 

	
3.1  

	
Establishment of the Company

 

The Parties agree that the Company shall be established pursuant to the terms of this Contract on the date that the Company is issued its new business license from SAIC (the Establishment Date).

 

The name of the Company shall be “Zhejiang Jonway Automobile Co., Ltd.” (“浙江永源汽车有限公司” in Chinese).

 

The legal address of the Company shall be Port Industrial Park, Datang Village, Jiantiao Town, Sanmen County, Zhejiang Province, PRC.

 

	
3.2  

	
Limited Liability Company

 

The Company shall be a limited liability company.  Each Party’s liability shall be limited to the amount of the Company’s registered capital subscribed by such Party pursuant to this Contract, and no Party shall have any other liability to the Company or to any third party jointly or severally.  The Parties shall share the profits and, subject to the above, bear the risks and losses in accordance with the ratio of their respective equity holding in the Company from time to time.

 

	
3.3  

	
Legal Person Status

 

The Company shall be an enterprise legal person under the laws of the PRC.

 

  

4

  

	
3.4  

	
Compliance with PRC Law

 

The activities of the Company shall be governed and protected by the relevant published laws, regulations, decrees and rules of the PRC.

 

	
3.5  

	
The Company shall also comply with the policies and principles that may be adopted by ZAP from time to time, in particular the reporting requirements imposed by ZAP.

 

Article 4                      Business Scope

 

	
4.1 

	
The Company’s business scope shall be: Manufacturing and sales of automobile spare parts; sales of UFO brand cars.

 

	
4.2 

	
The business of the Company shall be conducted in the best interests of the Company in accordance with the general principles of the then current business and operation plans approved from time to time.

 

Article 5                      Total Amount of Investment and Registered Capital

 

	
5.1  

	
Total Amount of Investment

 

The total amount of investment of the Company shall be Renminbi two hundred million (RMB200,000,000).

 

	
5.2  

	
Registered Capital and Contribution Ratios

 

The registered capital of the Company shall be Renminbi eighty million (RMB80,000,000), of which:

 

	
(a)  

	
Party A’s capital contribution accounts for 39% of the Company’s registered capital;

 

	
(b)  

	
Party B’s capital contribution accounts for 8% of the Company’s registered capital;

 

	
(c)  

	
Party C’s capital contribution accounts for 2% of the Company’s registered capital; and

 

	
(d)  

	
Party D’s capital contribution accounts for 51% of the Company’s registered capital.

 

Upon completion of the Equity Transfer, all Parties have made their respective contributions to the Company’s registered capital in full.

 

The Company shall issue an investment certificate to each Party, which shall be signed by the Chairman of the Board, confirming the amount contributed and equity ratio held by such Party in the Company.

 

  

5

  

	
5.3  

	
Additional Financing

 

The Company may borrow additional funds it requires (beyond its registered capital).  No Party shall be obligated to lend funds to the Company or guarantee loans to the Company from third parties or financial institutions.  Subject to approval requirements set forth in Article 9.3 below, the Board shall determine whether the Company should obtain additional funds through mortgage, indebtedness or a capital increase.

 

	
5.4  

	
Increase or Decrease of Registered Capital

 

The Company may increase or decrease the amount of its registered capital with a resolution adopted by the Board pursuant to Article 9.3 below and the approval of the Approval Authority.  In the event the Parties deem that there is a need to increase the total amount of investment or the registered capital of the Company in excess of those stated in Articles 5.1 and 5.2 above, and so agree in writing, and any Party is either unwilling or unable for whatever reason to contribute to such capital increases, each of the other Parties, in its discretion, in addition to its own subscription to such capital increase, may but shall not be obligated to subscribe to the unsubscribed portion of such capital increase on a pro rata basis, provided that all Parties’ equity holdings in the Company shall be adjusted accordingly after such capital increase has been subscribed.  In such case, the other Parties shall decide, within thirty (30) days after any Party has defaulted in making its contribution to the capital increase, whether they are willing to subscribe to the unsubscribed portion, on a pro rata basis.

 

If any of the other Parties decides not to participate in such subscription, it shall notify the other Parties in writing within such thirty (30) day period.  The rest of the Parties then may subscribe to the unsubscribed portion, on a pro rata basis, in light of their respective equity ratio in the Company.  If none of the Parties decides to subscribe to the unsubscribed portion, the capital increase shall be reduced by the unsubscribed portion.

 

	
5.5  

	
Transfer of Equity Interest

 

	
5.5.1  

	
Subject to Articles 5.5.5, 5.6 and 5.7 below, when a Party (the Transferring Party) wishes to assign, sell or otherwise dispose of any or all of its equity interest in the Company (hereinafter a Transfer), it shall notify the other Parties in writing of (i) its wish to make the Transfer, (ii) the interest it wishes to transfer, (iii) the terms and conditions of the Transfer and (iv) the identity of the proposed transferee (the Transfer Notice).  The other Parties shall each have a pre-emptive right to purchase such interest in its entirety on the terms and conditions specified in the Transfer Notice on a pro rata basis in accordance with their respective equity interests in the Company.

 

	
5.5.2  

	
The other Party/Parties who has(ve) a right to purchase such interest shall notify the Transferring Party within thirty (30) days of actual delivery of the Transfer Notice whether it/they will purchase the whole of the interest to be transferred.  If none of the other Parties notifies the Transferring Party within such thirty (30) day period that it will purchase such interest, all of the other Parties shall be deemed to have agreed to the Transfer to the proposed transferee specified in the Transfer Notice, and the Transferring Party may assign, sell or otherwise dispose of such interest to such proposed transferee, on the terms and conditions set out in the Transfer Notice.

 

  

6

  

	
5.5.3  

	
If only a part of the other Parties notify the Transferring Party within such thirty (30) day period that they will exercise their pre-emptive rights to purchase, such Parties shall have another thirty (30) day period to notify the Transferring Party whether they will purchase the interest covered by the Transfer in its entirety on a pro rata basis in light of their respective equity ratio in the Company.

 

	
5.5.4  

	
If none of the other Parties exercise its pre-emptive right to purchase such interest in its entirety on the terms and conditions specified in the Transfer Notice within either of the thirty (30) day periods under Article 5.5.2 or Article 5.5.3 above, the Transferring Party may complete the Transfer on the terms and conditions specified in the Transfer Notice, and shall provide the other Parties with a duplicate of the executed written agreement with the transferee within fourteen (14) days of the execution of the agreement.

 

	
5.5.5  

	
The transferee(s) shall be bound by all the terms of this Contract and shall, except where the context hereof requires otherwise, acquire relevant rights and obligations of the Transferring Party under this Contract.

 

	
5.6  

	
Transfer of Equity Interest to an Affiliate of ZAP

 

The provisions of Article 5.5 above notwithstanding, ZAP may freely assign its equity interest in the Company, in whole or in part, to any of its own Affiliates, and the Chinese Shareholders hereby unconditionally agree to such assignment.  When assigning to an Affiliate, ZAP must notify the Board and the other Parties in writing of such assignment and specify the name and the legal address of the Affiliate, as well as the name, position, nationality and address of the legal representative of the Affiliate.  The other Parties agree to vote in favour of such assignment at a Board meeting.  Such assignment shall be reported to the Approval Authority for approval and filed with SAIC for registration.

 

	
5.7  

	
Transfer of Equity Interest by Chinese Shareholders

 

The provisions of Article 5.5 above notwithstanding, any of the Chinese Shareholders may freely assign its equity interest in the Company, in whole or in part, to any of other Chinese Shareholders, and the other Parties hereby unconditionally agree to such assignment.  When assigning to other Chinese Shareholder(s), the transferring Chinese Shareholder must notify the Board and the other Parties in writing of such assignment and specify the identity of the transferee Chinese Shareholder.  The other Parties agree to vote in favour of such assignment at a Board meeting.  Such assignment shall be reported to the Approval Authority for approval and filed with SAIC for registration.

 

  

7

  

Article 6                      Responsibilities of Each Party

 

	
6.1  

	
Responsibilities of the Chinese Shareholders

 

	
  

	
In addition to their other responsibilities under this Contract, upon the request of the Company, the Chinese Shareholders shall:

 

	
(a)  

	
assist with:

 

	
(i)  

	
submitting applications for approval of this Contract to the Approval Authority and any other government authority whose approval is required;

 

	
(ii)  

	
registering the Company with the SAIC;

 

	
(iii)  

	
obtaining the Company’s new business license; and

 

	
(iv)  

	
registering the Company with the relevant authorities including tax, customs and foreign exchange authorities;

 

	
(b)  

	
assist the Company in submitting the Equity Transfer Agreement, the Articles of Association of the Company and other related ancillary documents to and obtaining the necessary approval or registration from the relevant government authorities (if required under the PRC law);

 

	
(c)  

	
 assist the Company to obtain from the relevant branch of State Administration of Foreign Exchange a foreign exchange registration certificate and other approvals necessary to establish RMB bank account(s) and foreign exchange bank account(s) and any other related matters, including providing assistance to enable the Company to obtain SAFE approval (if required) as necessary to pay its foreign currency obligations to any relevant party;

 

	
(d)  

	
assist the Company in handling customs declaration procedures (including obtaining all relevant import and export licenses) for imported materials, machinery, equipment, supplies, and related documentation, and exported products, and in arranging for the inland transportation of imports to the Company; in dealing with PRC tax questions; and in applying for other government approvals required for the operation of the Company in the PRC;

 

	
(e)  

	
assist the Company in obtaining, sourcing, purchasing or leasing within the PRC adequate supplies of materials, local equipment, articles for office use, means of transportation, communication facilities, etc. including, if requested by the Company, leveraging combined purchasing power of the Parties to reduce the cost of such supplies to the Company and each of the Parties;

 

	
(f)  

	
assist the Company in contracting for and obtaining the fundamental facilities, services and utilities required by the Company, such as water, electricity, telecommunications, transportation, etc., conforming to the specifications and conditions as required for carrying on the Business by the Company, on a continuous uninterrupted basis, in quantities sufficient to meet the Company’s full operational requirements and in line with the practice in other comparable industrial joint ventures in Zhejiang Province, at the lowest possible cost in RMB;

 

  

8

  

	
(g)  

	
assist expatriate personnel of ZAP and the Company in handling the necessary procedures for entry visas, work permits and traveling arrangements, and to assist in arranging appropriate housing acceptable to ZAP for expatriate employees of the Company, and hotel accommodations for foreign personnel on temporary assignment to the Company;

 

	
(h)  

	
assist the Company in applying for and obtaining all possible tax reductions and exemptions and all other relevant investment incentives, privileges and preferences available to the Company under PRC law;

 

	
(i)  

	
if requested to do so, assist the Company in marketing the Company’s products in the PRC;

 

	
(j)  

	
generally assist the Company in its relations with government authorities and PRC domestic companies, including the existing customers; and

 

	
(k)  

	
handle such other matters as are entrusted to it by the Company.

 

	
6.2  

	
Responsibilities of ZAP

 

	
  

	
In addition to its other responsibilities under this Contract, upon the request of the Company, ZAP shall use their best efforts to:

 

	
(a)  

	
assist the Company in purchasing or leasing other machinery, equipment, supplies, office appliances, means of transportation, communications facilities and other materials required by the Company from outside the PRC;

 

	
(b)  

	
assist the Company in recruiting expatriate management and technical personnel, when necessary;

 

	
(c)  

	
assist the Company in formulating standards for recruiting, evaluating and promoting staff and workers;

 

	
(d)  

	
assist the Company in arranging foreign visas and accommodations for personnel and directors of the Company traveling abroad on Company business.

 

  

9

  

	
6.3  

	
Except as provided otherwise above, each Party shall bear the expenses incurred by it in rendering the assistance to the Company under this Article 6, provided that the Parties shall not be required to bear any of the cost that should be borne by the Company.

 

Article 7                      Land Use

 

	
7.1  

	
Right to Use the Properties

 

	
  

	
The Company has obtained relevant land use rights certificates and has the right to use the buildings with respect to the Properties it currently occupies.

 

	
  

	
The land use rights granted to the Company includes the right to pass through adjacent property to the nearest public roads to enable the Company fully and freely to access the Properties and to conduct thereon the activities contemplated by this Contract.

 

	
7.2  

	
Supply of Utilities and Telecommunications Facilities

 

	
  

	
Each Party shall use its best efforts to assist the Company to obtain sufficient utilities (including power and telecommunications facilities) at the lowest possible price from the local utilities bureau, power supply bureau and telecommunications bureau and other relevant departments.

 

	
7.3  

	
Environmental

 

	
7.3.1  

	
The Company shall conform to requirements under PRC environmental laws and ZAP’s safety and environmental guidelines in relation to the Properties.

 

	
7.3.2  

	
The cost of obtaining environmental permits and maintaining environmental compliance, as well as environmental liabilities incurred at the Properties shall be borne by the Company.

 

Article 8                      Marketing and Sales of Products

 

	
8.1  

	
Marketing Policy

 

	
8.1.1  

	
The Company shall endeavor to market and sell its products within and outside of the PRC market.  The Company shall establish a marketing strategy which shall be included in the business plans, to be approved by the Board, for sales in the PRC.  The marketing strategy shall govern sales activities and policies of the Company.

 

	
8.1.2  

	
ZAP shall have the right to introduce new products into the Company, as long as it is permitted under PRC law and the production of such new products does not have an adverse impact on the Company’s then existing production capacity.

 

  

10

  

	
8.2  

	
Branch Offices

 

	
  

	
If the Board deems necessary, the Company may establish branch organizations within the PRC to promote the sale of its products, and to provide information and post-sales services to customers of the Company with respect to its products.

 

Article 9                      Board of Directors and Supervisors

 

	
9.1  

	
Use of powers

 

	
  

	
The Board of Directors shall be the highest authority of the Company.  The Board shall be established on the date the Company is registered and issued its business license by SAIC.

 

	
9.2  

	
Composition of the Board

 

	
9.2.1  

	
The Board shall consist of five (5) directors (including the one (1) Chairman and one (1) Vice Chairman), two (2) of them shall be appointed jointly by the Chinese Shareholders and three (3) by ZAP.  Each director (including the Chairman) shall be appointed for a term of three (3) years and may serve consecutive terms if reappointed by the originally appointing Party.  If and when the equity ratio jointly held by the Chinese Shareholders and by ZAP is subject to change, the composition of the Board shall be adjusted to reflect such change.

 

	
9.2.2  

	
The Chairman shall be appointed by ZAP.  The Vice Chairman shall be appointed by the Chinese Shareholders.

 

	
9.2.3  

	
A Party may, at any time, remove any director it is authorized to appoint by giving written notice to the Company with a copy of such notice to the other Parties.  If a seat on the Board is vacated by the retirement, removal, resignation, illness, disability or death of a director, the Party that originally appointed such director may appoint a successor to serve out such director’s term.

 

	
9.3  

	
Decisions of the Board

 

	
9.3.1  

	
The Board shall decide all major issues concerning the Company.  Decisions of the Board involving the following matters shall require unanimous approval of all directors present at a meeting (in person or by proxy):

 

	
(a)  

	
amendments to the Articles of Association;

 

	
(b)  

	
early termination and dissolution of the Company;

 

	
(c)  

	
increase or decrease of the Company’s registered capital;

 

	
(d)  

	
the merger of the Company with any other economic organization, or division of the Company;  and

 

  

11

  

	
(e)  

	
change of the form of the Company.

 

	
9.3.2  

	
Except as provided under Article 9.3.1 of this Contract, all other matters that require Board approval shall be adopted by a simple majority of the Board.

 

	
9.3.3  

	
If the Board cannot agree on the annual plan, business plan or operation plan for any given year within thirty (30) days after it has been presented to the Board, due to whatever reasons, the annual plan, business plan or operation plan for the preceding year shall apply for the current year until a new one has been approved by the Board.

 

	
9.4  

	
Chairman

 

	
  

	
The Chairman of the Board shall be the legal representative of the Company, but the Chairman may not unilaterally take any action binding on the Board or on the Company without the prior authorization of the Board.  The Chairman shall call and preside over meetings of the Board.  Whenever the Chairman is unable to perform his/her responsibilities for any reason, the Vice Chairman shall act on his/her behalf; if the Vice Chairman is also unable to perform his/her responsibilities, the Chairman shall appoint another director to temporarily act on his/her behalf.

 

	
  

	
In addition to his/her other rights under this Contract, the Chairman shall have the right to know at all reasonable time the activities and performance of the Company with respect to purchasing, production, investment, maintenance, environment, marketing and sales, human resources, administration and finances.  The Chairman shall exercise the right to know in a manner that does not interfere with or undermine the General Manager’s ability and authority to carry out his/her duties.

 

	
9.5  

	
Meetings of the Board

 

	
9.5.1  

	
The Board shall convene at least one (1) meeting every year.  The Parties plan to have several Board meetings each year.  The meetings shall be called and presided over by the Chairman of the Board.  At the first Board meeting of every year, the Board shall establish a schedule of the Board meetings for that year.  If the Chairman is unable to call and preside over Board meetings and does not appoint another director to temporarily perform his/her responsibilities in accordance with Article 9.4 above, a director nominated by ZAP shall have the right to call and preside over Board meetings.  Such meetings shall in principle be held at the place where the Company is located, and may also be held at such other places within or outside the PRC as the Board unanimously decides.  Participation in a meeting by conference telephone or similar telecommunications equipment shall constitute presence in person at such meeting.

 

	
9.5.2  

	
A Board meeting requires a quorum of four (4) Board directors.  Should any director be unable to attend a meeting of the Board, he may authorize another person to act as his/her representative by written proxy to attend such meeting on his/her behalf.  Such representative shall vote in the place of such director.  If no representative is appointed by the absent director to attend a meeting of the Board, the absent director shall be deemed to have waived his/her right to vote in such meeting unless such absence is caused by an Event of Force Majeure.

 

  

12

  

	
9.5.3  

	
Upon fifteen (15) days prior written request of two (2) or more of the directors specifying the matters to be discussed, the Chairman of the Board shall convene an interim meeting of the Board at a convenient location within the PRC.

 

	
9.5.4  

	
In lieu of a meeting of the Board, the Board may adopt a written resolution.  Such a resolution is adopted if sent to all members of the Board and affirmatively signed by all of the members of the Board.

 

	
9.5.5  

	
Board meetings shall be conducted in Chinese and English with a translator present to carry out translation, to the extent necessary.  Minutes of all meetings of the Board and resolutions adopted in lieu of a meeting, in both Chinese and English, shall be kept in the minute book of the Company at the Company’s legal address.

 

	
9.5.6  

	
Board meetings may only be held if a fifteen (15) day prior notice has been sent to the members of the Board by the Chairman.  The notice shall specify the time and venue of the meeting, as well as the suggested agenda.

 

	
9.6  

	
Office of Supervisor

 

	
9.6.1  

	
The Company shall have two (2) Supervisors who shall be responsible for the overall supervision of the Company.  ZAP shall appoint one (1) Supervisor and the Chinese Shareholders shall jointly appoint one (1) Supervisor, each for a term of three (3) years, and may serve consecutive terms.

 

	
9.6.2  

	
The Supervisors have the following responsibilities:

 

	
(a)  

	
inspect the finances of the Company;

 

	
(b)  

	
supervise the performance of duties by directors and senior management personnel and propose to remove a director or senior management personnel who violates the provision of the laws and administrative regulations and the articles of association of the Company or the resolutions of the Board;

 

	
(c)  

	
require a director or senior management personnel who acts against the interests of the Company to make correction;

 

	
(d)  

	
file a lawsuit against a director or senior management personnel in accordance with the provisions of Article 152 of the Company Law;

 

	
(e)  

	
attend meetings of the board of directors and query resolutions of the board of directors or give suggestions.

 

  

13

  

	
(f)  

	
conduct investigation upon discovering irregularities in the business operations and may appoint an accounting firm etc to assist in the investigation if necessary; such expenses shall be borne by the Company; and

 

	
(g)  

	
other duties and powers stipulated in the Articles of Association of the Company.

 

Article 10                   Operation and Management Organization

 

	
10.1  

	
Management System

 

	
10.1.1  

	
The Company shall adopt a management system under which the General Manager shall be responsible for the day-to-day management and operation of the Company.  The General Manager shall be jointly nominated by the Chinese Shareholders, and be appointed and dismissed by the Board of Directors, each time with a three (3) year term.

 

	
  

	
The Chief Financial Officer shall be nominated by ZAP, and be appointed and dismissed by the Board of Directors, each time with a three (3) year term.  Other senior management other than the General Manager and the Chief Financial Officer shall be nominated by the General Manager, and appointed and dismissed by the Board of Directors (or by the General Manager upon Board of Directors’ authorization) for three (3) years or such other length of years as they deem appropriate.

 

	
10.1.2  

	
The General Manager, the Chief Financial Officer and other senior management may serve consecutive terms upon reappointment.  The General Manager, the Chief Financial Officer and other senior management shall use their best efforts to serve the Company.

 

	
10.1.3  

	
The General Manager and Chief Financial Officer shall report to the Board directly.  Other senior management shall report to the General Manager.

 

	
10.2  

	
Responsibilities of Managers

 

	
10.2.1  

	
The General Manager shall carry out the various resolutions of the Board, and in accordance therewith, organize and direct the operation and sales of the Company as well as the day-to-day operation and management work of the Company.  The General Manager shall have the authority to exercise other responsibilities, powers and duties authorized by the Board or, as applicable, the Shareholders.  The specific powers and authority of the General Manager are set out in Article 10.6 of this Contract.

 

	
10.2.2  

	
In addition to the legal representative of the Company, only the General Manager, or a representative of the Company authorized in writing by the Board, shall have the authority to sign commercial contracts on behalf of the Company, and each Party shall use its best efforts to prevent all other persons from signing such contracts on behalf of, or otherwise entering into obligations binding upon, the Company without the prior authorization of the Board; provided that any material contracts shall always be subject to approval of the same by the Board.

 

  

14

  

	
10.2.3  

	
Unless otherwise decided by the Board, the following matters shall require the consent and co-signing of both the General Manager and Chief Financial Officer:

 

	
(a)  

	
material contracts with amount over Renminbi five million yuan (RMB5,000,000) or equivalent in foreign currencies;

 

	
(b)  

	
creation of any mortgage, charge, encumbrance or other security interest of any nature in respect of all or any material part of the Company’s property or assets, including mortgage, guarantee provided to a third party;

 

	
(c)  

	
execution of technology license or transfer agreement, under which a fee will be charged against the Company or the Company is the licensor or transferor;

 

	
(d)  

	
introduction of any new products into the Company, when such introduction of new products would have an adverse impact on the Company’s then existing production capacity; and

 

	
(e)  

	
other matters that require the consent and co-signing of both the General Manager and Chief Financial Officer delegated by the Board from time to time.

 

	
10.3  

	
Annual Plan, Business Plan, Operation Plan and Quarterly and Monthly Reports

 

The General Manager, with the assistance of the Chief Financial Officer, shall prepare and submit to the Board proposed annual plan, business plan and operation plan in November each year for the subsequent year.

 

In addition to the above plans, the General Manager, with the assistance of the Chief Financial Officer, shall prepare and submit to the Board and the Shareholders, on a monthly and quarterly basis:

 

	
(a)  

	
business reports on the activities and prospects of the Company which shall be prepared in accordance with ZAP’s reporting practices and instructions; and

 

	
(b)  

	
unaudited financial reports of the Company prepared in accordance with the International GAAP and PRC GAAP (including the balance sheet, statement of profit and loss, statement of changes in financial position and statement of cash flow), showing the performance of the Company, as compared to the annual plan approved by the Board. Such monthly and quarterly financial reports shall be prepared in accordance with ZAP’s reporting practices and instructions.

 

  

15

  

	
10.4  

	
No Concurrent Posts

 

	
10.4.1  

	
Without the approval of the Board in writing, the General Manager, the Chief Financial Officer and other senior management may not be engaged concurrently with any other economic organization.

 

	
10.4.2  

	
No employee of the Company, including the General Manager, the Chief Financial Officer and any other senior management of the Company, may concurrently be engaged in any business that could be or become directly or indirectly in competition with the Company or ZAP, or otherwise be concurrently employed by any other business concern.

 

	
10.5  

	
Neglect of Duty

 

In the event of corruption or serious breach or neglect of duty on the part of the General Manager, the Chief Financial Officer or any of the senior management appointed and dismissed by the Board, the Board shall have the power to dismiss him/her at any time.  The General Manager shall have the authority to immediately dismiss any other subordinate at his/her discretion.

 

	
10.6  

	
Responsibilities and Powers of the General Manager

 

Within the scope of authority stipulated by the Board, the General Manager shall have the following responsibilities and powers:

 

	
(a)  

	
to implement this Contract, the Articles of Association, as well as the resolutions adopted by the Board or, as applicable, by the Shareholders;

 

	
(b)  

	
to comply at all times with ZAP’s business principles and policies prevailing from time to time;

 

	
(c)  

	
to organize and manage the daily operation of the Company and to submit monthly, quarterly and annual management reports to the Board and the Shareholders;

 

	
(d)  

	
to submit written reports prepared by the Chief Financial Officer to the Board and the Shareholders on the income and expenditures of the Company, together with suggestions for improvement;

 

	
(e)  

	
to submit annual business, marketing and finance plans and budgets to the Board for discussion and approval;

 

	
(f)  

	
to propose an organizational structure suitable for the needs of the Company’s business, to formulate the rules and regulations of operation and management of the Company and the division of labor and responsibilities and functions of various departments, and to implement such systems after approval of the same by the Board or, as applicable, the Shareholders;

 

  

16

  

	
(g)  

	
to employ and dismiss the Company’s staff and workers (not including the Chief Financial Officer and any other senior management appointed by the Board), and to determine rewards, punishments, promotions and the salaries for such staff and workers, subject to the approval of the Board or, as applicable, the Shareholders;

 

	
(h)  

	
to be responsible for the formulation of personnel training programs and the organization of the implementation of such programs following their examination and approval by the Board;

 

	
(i)  

	
subject to restriction set forth herein and in the Articles of Association, to be responsible for external relations and represent the Company in signing commercial documents with third parties and other corporate documents;

 

	
(j)  

	
to ensure that the policies of the Company are known and followed by all employees of the Company; and

 

	
(k)  

	
to handle other matters within the authority delegated by the Board.

 

Article 11                   Labor Management

 

	
11.1  

	
Labor Plans

 

The General Manager shall formulate plans regarding the recruitment, employment, dismissal, resignation, wages, labor protection, welfare benefits, and labor discipline of the Company’s staff and workers in accordance with relevant PRC laws and regulations, for review and approval by the Board.

 

	
11.2  

	
Recruiting and Hiring

 

The Company shall recruit its staff and workers in the open market.  All candidates for employment with the Company (other than the General Manager and the Chief Financial Officer), including those recommended by any Party, shall be interviewed by the General Manager or persons appointed by the General Manager.  Staff and workers shall be employed for a probationary period of up to six (6) months in accordance with the relevant labor laws and regulations of the PRC, and only after successful completion of the probationary period shall be formally employed by the Company.

 

	
11.3  

	
Wages and Other Compensation of Local Personnel

 

	
11.3.1  

	
The compensation of the Company’s local personnel, including annual increases and bonuses, shall be decided by the Board further to the recommendations of the General Manager based on such personnel’s ability and skills.  The Board shall decide any annual increases.

 

	
11.3.2  

	
The Company shall not be liable for any payments, such as wages, bonuses and accrued retirement and other benefits, to employees for the period prior to their employment by the Company.

 

  

17

  

	
11.4  

	
Disciplinary Action

 

In accordance with the guidelines set out by the Board, the General Manager shall have the right to take disciplinary action against staff and workers by giving warnings, recording demerits or reducing salaries or wages.  Staff and workers who commit serious offences, who consistently fail to follow the Company’s policies set out in the Employee Handbook (including ethics policies), who prove to be incompetent or unsuited for the work to be performed by them, or who are redundant, may be dismissed by the General Manager.

 

Article 12                   Preferential Status of the Company

 

The Company and the Parties shall do their utmost individually and jointly when necessary and possible to ensure the most preferential treatment that can be obtained for the Company pursuant to the laws and regulations of the PRC.

 

Article 13                   Taxes, Finance, Audit and Distribution of Profit

 

	
13.1  

	
Company Income Taxes

 

The Company shall pay taxes in accordance with the relevant PRC laws and regulations.

 

	
13.2  

	
Individual Income Tax

 

The Company shall withhold and turn-over to the relevant authorities individual income tax according to the Individual Income Tax Law of the PRC or other laws and regulations of the PRC as applicable.

 

	
13.3  

	
Accounting System

 

	
13.3.1  

	
The Company shall adopt accrual basis of accounting and the debit and credit method for bookkeeping, and shall prepare complete, accurate and appropriate financial and accounting books and records satisfactory to the Parties and in accordance with the Enterprise Accounting System of the People’s Republic of China and relevant financial systems.

 

	
13.3.2  

	
The Company will also follow ZAP’s accounting and reporting principles and instructions.

 

	
13.3.3  

	
RMB shall be used as the unit of account by the Company in its financial accounting.  Cash, bank deposits, foreign currency loans as well as creditors’ rights, debts, income and expenses, etc., which are denominated in currencies different from the unit of account shall be recorded in the currency of actual receipt and payment.  Treatment of exchange gains and losses arising from exchange rate differences shall accord with the accounting treatment for foreign currency transactions announced by the Ministry of Finance of the PRC and other relevant PRC authorities.

 

  

18

  

	
13.3.4  

	
The accounting system and procedures, and tax returns for the Company shall be prepared in accordance with the applicable laws and regulations of the PRC by the Company’s management.

 

	
13.3.5  

	
The fiscal year of the Company shall begin on January 1 and end on December 31 of each calendar year.  The first financial year of the Company shall begin on the date of issuance of the business license of Company and end on December 31 of the same calendar year.  The last financial year of the Company shall begin on January 1 of the calendar year in which the Company is terminated and end on the date of the said termination.  All important financial and accounting records and statements shall require the signature and approval of the Chief Financial Officer and, as applicable, the Board of Directors.

 

	
13.3.6  

	
At the end of each fiscal year, the Company’s Chief Financial Officer shall prepare such information as shall be necessary for the preparation of any tax returns and statements as may be requested by any of the Shareholders.  This shall include furnishing the Shareholders with certified copies of government receipts for income taxes paid within the PRC.

 

	
13.3.7  

	
At the end of each fiscal year or any part thereof, subject to the approval of the Board, the Company shall allocate their respective net income/loss for any applicable period to each Party in accordance with its equity shareholding ratio applicable in such period.  Any future dividend distribution shall be adjusted in accordance with such allocated accumulative share of net income/loss.

 

	
13.4  

	
Bank Accounts

 

The Company shall separately open and maintain RMB account(s) and foreign exchange account(s) at such banks as are authorized to accept RMB and/or foreign exchange deposits in the PRC.  If necessary, the Company may also, in pursuance of operational needs and in accordance with relevant regulations, open foreign exchange accounts with financial institutions outside the PRC.

 

	
13.5  

	
Audit

 

	
13.5.1  

	
The Board shall engage a major internationally recognised accounting firm registered in PRC (at the choice of ZAP) to be its auditor and to examine and verify the financial accounting of the Company, which engagement shall be approved by the Board on a simple majority basis.  The results of the auditor’s examination shall be reported to the Board, the General Manager and the Shareholders.  The Company shall submit to the Parties and to each director the audited annual accounts within one hundred twenty (120) days after the end of the fiscal year, together with the audit report of the independent auditor.

 

  

19

  

	
13.5.2  

	
If it deems it necessary, any Party may send an auditor at its own expense from the PRC or another country to audit the financial accounting books of the Company.  If, however, the results of any such audit are significantly different from that conducted by such auditor and are accepted by the Board, the expense for such audit shall be borne by the Company.  Such independent auditor shall keep confidential all documents audited by it.  The Company shall permit such auditor to have access to the books and records of the Company and will provide the necessary office space and facilities to enable such examination to be carried out effectively.  The results of such audit shall be reported to the Board, the General Manager, the Company’s accountant registered in the PRC and the Shareholders.

 

	
13.6  

	
Contributions to the Legal Funds

 

The Company shall set aside from its after tax profits the reserve fund, the enterprise development fund and the bonus and welfare fund for staff and workers as required by law.  At the first Board meeting following a year in which the Company has after-tax profit, the Board shall discuss and decide the amount to be set aside for each of the three funds.  The Board shall consider the Company’s business situation in making this decision.

 

	
13.7  

	
Distribution of Profits and Dividend Policy

 

Distribution plan of any after-tax profits shall be proposed by the General Manager to the Board for decision.  The Board shall approve by resolving a distribution plan in accordance with Article 9.3 above.  The after-tax profits of the Company shall be distributed to the Parties in accordance with their respective equity ratio in the Company.

 

	
13.8  

	
Accounts between the Parties

 

Unless otherwise agreed by the Parties or unless otherwise stated in this Contract, paymentsbetween the Company and each Party shall be paid within thirty (30) days from the date an invoice is issued.  Set-off shall be allowed if the party to whom payment is owed, is in default of any payment obligations to the party obligated to make such payment.

 

Article 14                   Insurance

 

	
14.1  

	
General

 

Various types of insurance of the Company shall be purchased from insurance companies permitted by the PRC law.

 

	
14.2  

	
Types of Coverage

 

The exact types of coverage, the value and the term of insurance shall be discussed and decided at a meeting of the Board in accordance with the recommendation of the General Manager based on the practice of ZAP and legal requirements in the PRC.

 

  

20

  

Article 15                   Representations and Warranties

 

	
15.1  

	
Representations and Warranties of ZAP

 

ZAP hereby represents and warrants as follows:

 

	
(a)  

	
it is a corporation duly organized and validly existing under the laws of the State of California, USA;

 

	
(b)  

	
it has full legal right, power and authority to execute this Contract and all contracts and documents referred to in this Contract to which it is a party, and to observe and perform its obligations under this Contract and those contracts and documents; and

 

	
(c)  

	
it has obtained all consents, approvals, authorizations and taken other actions necessary to validly execute this Contract and all of the contracts and documents referred to in this Contract to which it is a party and to observe and perform its obligations under this Contract and those contracts and documents.

 

	
15.2  

	
Representations and Warranties of each of Chinese Shareholders

 

Each of the Chinese Shareholders hereby represents and warrants as follows:

 

	
(a)  

	
Party A is a company duly organized and validly existing under the laws of the PRC and each of Party B and Party C is a PRC citizen;

 

	
(b)  

	
each of them has full legal capacity, right, power and authority to execute this Contract and all contracts and documents referred to in this Contract to which it/he/she is a party, and to observe and perform its/his/her obligations under this Contract and those contracts and documents;

 

	
(c)  

	
each of them has obtained all consents and taken other actions necessary to validly execute this Contract and all of the contracts and documents referred to in this Contract to which it/he/she is a party and to observe and perform it/his/her obligations under this Contract and those contracts and documents;

 

	
(d)  

	
there is no civil, criminal or administrative judgment, action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, pending or threatened against him/her in the PRC which would reasonably be expected to result in a material debt, fine, penalty or other obligation and would be reasonably deemed by ZAP as having material adverse effect on its/his/her capacity or ability to perform this Contract or any related contracts or documents; and

 

	
(e)  

	
should the total fee payable by the Company under the relevant contract executed by and among Party A, the Company and Zhejiang Fiedie Automobile Manufacturing Co., Ltd. increases by more than 10% over the current fee level as of the date of this Contract, such amount in excess over 10% of the current fee level shall be solely borne by the Chinese Shareholders on a joint and several basis and reimbursed by the Chinese Shareholders to the Company if any such excess amount is paid by the Company.

 

  

21

  

Article 16                   Non-Competition

 

	
16.1  

	
Except with ZAP’s prior written consent, the Chinese Shareholders shall not, and each of the Chinese Shareholders shall procure to the extent that it is legally able to that none of its Affiliates will, (in each case whether alone or jointly with another and whether directly or indirectly) carry on or be engaged or interested economically or otherwise in any manner whatsoever in any Competing Business, at any time after the Closing Date and for a period of three (3) years following the date on which he/she ceases to be a shareholder or an employee of the Company (whichever occurs later).

 

	
16.2  

	
Except with ZAP’s prior written consent, the Chinese Shareholders shall not, and shall procure that each of their Affiliates will not, at any time after the Closing Date and for a period of three (3) years following the date on which he/she ceases to be a shareholder or an employee of the Company (whichever occurs later), directly or indirectly, solicit or endeavour to entice away from the Company any person, firm or company who or which is or has been a customer, supplier, agent, trader, distributor or client of or in the habit of dealing with the Company.

 

	
16.3  

	
The Chinese Shareholders shall not, and the Chinese Shareholders shall procure that none of their Affiliates will, at any time after the Closing Date and for a period of three (3) years after the date on which he/she ceases to be a shareholder or an employee of the Company (whichever occurs later), directly or indirectly, solicit or endeavour to entice away from the Company, offer employment to or employ, or offer or conclude any contract for services with, any person who is employed by the Company in skilled or managerial work as of the date hereof.

 

	
16.4  

	
Except with the Chinese Shareholders’ prior written consent, ZAP shall not, and shall procure to the extent that it is legally able to that none of its Affiliates will, (in each case whether alone or jointly with another and whether directly or indirectly) carry on or be engaged or interested economically or otherwise in any manner whatsoever in any Competing Business, at any time after the Closing Date and for a period of three (3) years following the date on which ZAP ceases to be a shareholder of the Company.

 

Article 17                   Confidentiality

 

	
17.1  

	
Except for disclosure by ZAP to its Affiliates or as required by law or by any stock exchange or governmental or other regulatory or supervisory body or authority of competent jurisdiction to whose rules the Party making the announcement or disclosure is subject, each Party shall maintain the secrecy and confidentiality of, and not disclose to any third party or person, any proprietary, secret or confidential data and information relating to the Company or its business or operations or belonging to any of the other Parties, or disclosed to a Party by any of the other Parties at any time during or for the purpose of negotiation of this Contract or the establishment or operation of the Company (Confidential Information).

 

  

22

  

	
17.2  

	
No Party shall use any Confidential Information of any of the other Parties for its own purposes or any purpose other than implementing the Company’s business.

 

	
17.3  

	
Each Party shall abide by these obligations of confidentiality and non-use during the entire term of this Contract (including any extension thereof) or so long as the Company continues to exist, and for five (5) years after that.

 

	
17.4  

	
The Company shall cause its personnel, agents and subcontractors, and each Party shall cause its Affiliates, having access to Confidential Information (Party Personnel), to be bound by and comply with the obligations set out in this Article 17.  To this effect, an undertaking of secrecy and non-use shall be included in all labor or services contracts signed by relevant Party Personnel.  If any Party Personnel breaches this undertaking, the Parties shall take all actions permitted under PRC law against the Party Personnel and any party that illegally uses the Confidential Information.

 

	
17.5  

	
A Party’s obligations under this Article 17 shall continue even if such Party transfers its whole interest in the Company to a third party.

 

Article 18                   Term and Survival

 

	
18.1  

	
The term of the operation of the Company (Company Term) shall be thirty (30) years starting from the date on which the new business license of the Company is issued by SAIC.  The effective term of this Contract shall end (i) when ZAP becomes sole owner of the Company, (ii) when the Company Term expires and is not renewed by the Parties, or (iii) upon dissolution of the Company.

 

	
18.2  

	
Articles 16, 17, 19.2, 23 and 24 shall survive the termination of this Contract.

 

Article 19                   Breach and Penalties for Breach

 

	
19.1  

	
Breach

 

If a Party fails to perform any of its material obligations under this Contract or if any representation or warranty of that Party under this Contract is materially untrue or inaccurate, then that Party (Breaching Party) has breached this Contract.  In this case, a Performing Party (Performing Party) may give the Breaching Party written notice that it has breached this Contract and should remedy such breach within a reasonable time period, which shall not exceed, sixty (60) days of the date of such notice.

 

  

23

  

	
19.2  

	
Liability in Case of Breach

 

In the event of a breach of this Contract, the Breaching Party shall be liable to the Performing Party(ies) for damages incurred as a result of such Breaching Party’s breach of contract.

 

Article 20                   Termination and Dissolution

 

	
20.1  

	
Events of Termination and Dissolution

 

The Company may be dissolved and this Contract may be terminated if any of the following events occurs:

 

	
(a)  

	
the Company is unable to continue operations due to the occurrence of an Event of Force Majeure, as provided in Article 22;

 

	
(b)  

	
the Parties unanimously agree in writing to dissolution of the Company; or

 

	
(c)  

	
an event of termination otherwise provided hereunder or under PRC law occurs.

 

	
20.2  

	
Procedures for Termination

 

	
20.2.1  

	
Unless otherwise provided in this Contract, when any event set out in Article 20.1 occurs, any Party may request that a special meeting of the Board be convened to discuss how to deal with such event.  The Chairman shall convene such meeting within thirty (30) days of the receipt of such request.  Each Party shall ensure that the directors appointed by them attend such meeting in person or by proxy.

 

At this special Board meeting, the representatives shall engage in good faith discussion to find a way to continue the Company, taking into account the operations, the current state and future outlook of the market in the PRC and the economic impact that termination and liquidation of the Company would have on each of the Parties.  The directors shall use their reasonable efforts to find a solution acceptable to all Parties to continue the Company.  If after such good faith discussion, the directors are unable to find an acceptable way to continue the Company, then the Board shall vote on one of the following solutions, in a descending order:

 

	
(a)  

	
valuation of the assets, and purchase by a Party;

 

	
(b)  

	
termination and liquidation of the Company pursuant to Article 21;

 

	
(c)  

	
sale of the Company on a going concern basis to a third party or parties at a value to be agreed between the Parties and such third party purchaser(s); or

 

	
(d)  

	
another course of action acceptable to the Parties.

 

  

24

  

	
20.2.2  

	
If the special meeting of the Board adopts one of the above solutions, the Chairman and the management of the Company shall promptly complete formalities required for the solution chosen.

 

Article 21                   Liquidation

 

	
21.1  

	
Appointment of the Liquidation Committee

 

	
21.1.1  

	
Upon the Board’s approval of dissolution of the Company pursuant to Article 20.1 or Article 20.2, the Company shall notify the Approval Authority to obtain approval for liquidation of the Company.  Within fifteen (15) days from the date of such approval, the Board shall appoint a Liquidation Committee (Liquidation Committee).

 

	
21.1.2  

	
The Liquidation Committee shall be composed of five (5) members appointed by the Board, of which ZAP shall appoint three (3), and the Chinese Shareholders shall jointly nominate two (2).  If and when the equity ratio jointly held by the Chinese Shareholders and by ZAP is subject to change, the composition of the Liquidation Committee shall be adjusted to reflect such change.

 

	
21.1.3  

	
Members of the Liquidation Committee may be directors or senior employees of the Company, or other qualified persons such as accountants and lawyers qualified either in the PRC or abroad.

 

	
21.2  

	
Principles of Operation of the Liquidation Committee

 

	
21.2.1  

	
Within ten (10) days of the appointment of the Liquidation Committee, the Liquidation Committee shall notify in writing the creditors of the Company to report the amounts the Company owes the creditors.  The Liquidation Committee shall also publish announcements of the liquidation in newspapers in accordance with the relevant laws and regulations.

 

	
21.2.2  

	
The Liquidation Committee shall carry out its duties according to applicable law and, in particular, shall:

 

	
(a)  

	
conduct an overall inventory of the Company’s and the JVC Group’s property, creditors’ rights and liabilities;

 

	
(b)  

	
prepare a balance sheet and property inventory;

 

	
(c)  

	
value all the property of the Company at fair market value;

 

	
(d)  

	
prepare a liquidation plan;

 

	
(e)  

	
apply the assets of the Company to satisfy the costs of the liquidation and the Company’s liabilities; and

 

	
(f)  

	
carry out other duties required by relevant laws and regulations.

 

	
21.2.3  

	
The priority of the asset distribution shall be in accordance with the PRC law.

 

  

25

  

	
21.2.4  

	
The remaining assets of the Company may be distributed to the Parties in accordance with the ratio of their capital contributions; provided, however, that any property to be distributed to the Breaching Party(ies) may be used to pay for the damages sustained by the Performing Party.  The Liquidation Committee shall discuss with and inform the Parties on the distribution of the assets to the Parties.

 

Article 22                   Force Majeure

 

	
22.1  

	
General

 

Should any Party be prevented from performing its obligations under this Contract by an Event of Force Majeure (as defined below), the prevented Party shall give the other Parties written notice without delay, and within fifteen (15) days of the event provide detailed information about and documents evidencing the event (including documents from official authorities if applicable), explaining the reasons for its inability to perform, or for its delay in the performance of, all or part of this Contract.

 

An Event of Force Majeure means an event that any of the Parties could not have foreseen at the time of the conclusion of this Contract, and could not have been able to avoid and overcome the occurrence and consequences thereof.  Events of Force Majeure shall include among other things, but without limitation, earthquake, typhoon, flood, or other acts of nature, fire, explosion, embargo, strikes, riots, war, or epidemic, or a significant decline in the financial or credit markets or a significant deterioration in economic conditions in the United States of America, the PRC or elsewhere.

 

	
22.2  

	
Excuse and Notification

 

If an Event of Force Majeure occurs, no Party shall be responsible for any damage, increased costs or loss that the other Parties may sustain by reason of its inability to perform or delayed performance, and such inability or delay shall not be deemed a breach of this Contract.  The Party claiming force majeure shall take appropriate means to minimize or remove the effects of force majeure and, within the shortest possible time, attempt to resume the performance affected by the Event of Force Majeure.

 

	
22.3  

	
Extended Force Majeure

 

Should an Event of Force Majeure or the effects of an Event of Force Majeure prevent any of the Parties from performing part or all of its or their obligations under this Contract for a period of 120 days or more commencing from the occurrence date of such Event of Force Majeure, then the Parties shall, through consultations and unanimous Shareholders vote, decide whether to terminate this Contract, to exempt the affected Party from part of its or their obligations, in whole or in part, under this Contract, or to delay the performance of such obligations in accordance with the effects of the Event of Force Majeure.

 

  

26

  

Article 23                   Applicable Law

 

This Contract shall be governed by, and interpreted in accordance with, the laws of the PRC.

 

Article 24                   Settlement of Disputes

 

	
24.1  

	
Any dispute, controversy or claim (a Dispute) arising out of or in relation to this Contract, including any question regarding its existence, validity or termination, shall be resolved through friendly consultations between the Parties.  If no resolution is reached within sixty (60) Business Days from the date of notification by a Party to any of the other Parties that a Dispute has arisen, then such Dispute shall be referred to arbitration in accordance with Article 24.2 below.

	
24.2  

	
If a Dispute is referred to arbitration pursuant to Article 24.1 above, the Parties agree that they shall seek to resolve the Dispute in accordance with this Article 24.2 before pursuing any other remedies available to them:

	
(a)  

	
The Parties shall submit the Dispute to China International Economic and Trade Arbitration Commission, Shanghai Branch (CIETAC) to be arbitrated according to its then current rules and regulations.

	
(b)  

	
The arbitral tribunal shall be three (3) arbitrators.  ZAP shall appoint one (1) arbitrator, and the Chinese Shareholders shall jointly appoint one (1) arbitrator.  The two arbitrators shall be selected within thirty (30) days after giving or receiving of the request for arbitration.  The presiding arbitrator shall be appointed by the two Party-appointed arbitrators, provided that such presiding arbitrator shall not be a national or resident of the PRC or USA.  If either of ZAP (on one hand) or the Chinese Shareholders (on the other hand) fail to appoint their respective Party-appointed arbitrator within thirty (30) days after the date of commencement of the arbitration, the chairman of CIETAC shall make the appointment.

	
(c)  

	
The arbitration proceedings shall be conducted in both Chinese and English.

	
(d)  

	
The arbitral award shall be final and binding on the parties to the arbitration proceedings.  Such parties shall execute and perform the award.  The Parties expressly confirm that any arbitral award rendered in proceedings conducted pursuant to this Contract shall be rendered in Shanghai.

	
(e)  

	
The losing party or parties shall bear the costs of the arbitration, unless the arbitral tribunal determines otherwise.

  

27

  

	
24.3  

	
When any dispute occurs and when any dispute is under arbitration, except for the matters under dispute, the Parties shall continue to exercise their remaining respective rights, and fulfill their remaining obligations under this Contract.

 

Article 25                   Language

 

This Contract shall be written in both English and Chinese, in ten (10) or multiple originals each version.  In case of any discrepancy, the Chinese version shall prevail.  Each of the Parties shall each keep one (1) original in each language.  The rest of the originals shall be submitted, as required, to the Approval Authority and SAIC.

 

Article 26                   Effectiveness, Amendment, and Miscellaneous

 

	
26.1  

	
Headings

 

The headings to Articles are for ease of reference only and shall have no legal effect.

 

	
26.2  

	
Approval and Registration

 

 

	
26.2.1  

	
This Contract shall be submitted for approval to the Approval Authority and shall come into force beginning from the date on which it is approved by the Approval Authority.

 

 

	
26.2.2  

	
If this Contract is not approved within nine (9) months of the date of this Contract, or the Approval Authority requires the Parties to amend this Contract in a manner that is unacceptable or imposes conditions that are unacceptable to any of the Parties, then any Party may terminate the effectiveness of its signature of this Contract by written notice to the other Parties, and upon receipt of such notice this Contract shall be void.

 

 

	
26.2.3  

	
This Contract shall be submitted to SAIC for registration.

 

	
26.3  

	
Amendment

 

Any amendment of this Contract shall come into force only when a written agreement is signed by the Parties, and approved by the Approval Authority.

 

	
26.4  

	
Waiver

 

A Party’s failure to exercise any right, power or interest under this Contract shall not operate as a waiver of it, and any single or partial exercise of any right, power or interest shall not preclude exercise of any other right, power or interest.

 

	
26.5  

	
Notices

 

	
26.5.1  

	
All notices between the Parties shall be written in Chinese and in English and delivered, either by messenger, fax or courier service, to the following addresses:

 

  

28

  

	
(a)  

	
ZAP

	
  

	
Address:

	
501 Fourth Street, Santa Rosa, CA 95401 USA

	 	
Fax: 

	
+1 707 525 8692

	 	
Attention: 

	
Steven Schneider

	
(b)  

	
the Chinese Shareholders

	
  

	
Address:

	
Lu Nan Hou Yuan, Lu Qiao District, Taizhou, Zhejiang Province, PRC

	 	
Fax: 

	
+86 576 8255 5888

	 	
Attention: 

	
WANG Huaiyi

	
26.5.2  

	
Notice shall be deemed delivered:

 

	
(a)  

	
in the case of delivery by hand, when delivered;

 

	
(b)  

	
in the case of fax, at the time of transmission; ; and

 

	
(c)  

	
if sent by courier service, on the fourth (4th) business day from the date of posting.

 

	
26.5.3  

	
Any Party may change its address for receiving notices at any time by giving the other Parties written notice of such change pursuant to this Article 26.5.

 

 [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

  

29

  

(Signature Page)

 

 

IN WITNESS WHEREOF, this Contract is signed in Shanghai, the PRC by the Parties or their duly authorized representatives on the date first written above.

 

	
Jonway Group Co., Ltd. (Seal)

 

	  	
ZAP

 

	
By: /s/ Alex Wang

	  	
By:           /s/ Priscilla Lu

	
Name:

	  	
Name:      Priscilla Lu

	
Title:      Authorized Representative

	  	
Title:       Authorized Representative

	  	  	  
	
WANG Gang

	  	
By:           /s/ Steven Schneider

	
By: /s/ Wang Gang                                

	  	
Name:     Steven Schneider

	  	  	
Title:       Authorized Representative

	
WANG Xiaoying

	  	  
	
By:           /s/ Wang Xiaoying

	  	  
	  	  	  

 

 

 

 

 

 

  

30ex10-1.htm

 

NORTHERN DYNASTY MINERALS LTD.

1020 – 800 West Pender Street, Vancouver, BC  V6C 2V6

Telephone: 604-684-6365 / Facsimile:  604-684-8092

 

 

June 29, 2010

 

 

Liberty Star Uranium & Metals Corp.

Big Chunk Corp.

5610 E. Sutler Lane

Tucson, AZ  85712

 

Attention:  James Briscoe, President and Director

 

Dear Mr. Briscoe

 

RE:           Offer of Convertible Loan with Mining Claims Sale

 

This letter when signed by you is intended to constitute a letter agreement in respect of the below described mining claims sale in consideration for a cash payment and convertible loan funding agreement, which is binding on each of us on timely acceptance hereof by you. The acceptance hereof by Liberty Star Uranium & Metals Corp. and Big Chunk Corp. (together referred to herein for convenience “Liberty Star”) will also be deemed an acceptance by any other subsidiary or affiliate of Liberty Star holding any asset of the consolidated entity. All figures are US$.

 

The Loan and Purchased Claims Sale

 

	
1.  

	
On the transaction completion date (the “Closing”) to be a date mutually agreed but on or before July 1, 2010 unless we otherwise agree, Northern Dynasty will advance for the benefit of Liberty Star, up to $4 million (the “Advanced Amount”) in order to discharge all of Liberty Star’s secured notes issued May 2007 through August 2009 (“Notes”) which are now in default. Northern Dynasty will make this cash advance in its discretion either directly to the lenders’ agent or to a licensed Alaska legal counsel who will act as escrow agent and will coordinate the repayment of the Notes with the lenders’ collateral agent and counsel. If the funds are paid to the escrow agent, the escrow agent will be irrevocably directed by Northern Dynasty to release the funds to or on behalf of the lenders subject only to receiving cancelled Note certificates and a release of the lenders security against all of Liberty Star’s Alaskan mining claims (the “Claims”), the shares of Big Chunk Corp. and any other assets of Liberty Star or its subsidiaries.

 

	
2.  

	
$1 million of the Advanced Amount shall constitute the cash portion of the consideration for the sale to Northern Dynasty or its nominated subsidiary of the claims

  

  

  

 

	
3.  

	
listed and delineated in Schedule “A” sometimes referred to as the Southwest claims (herein the “Purchased Claims”) which will be conveyed by Liberty Star to Northern Dynasty’s nominated US-corporation affiliate concurrently with Northern Dynasty’s payment of the $4 million into escrow or to the lenders.  The remainder of the Advanced Amount (i.e. the Advanced Amount less $1 million) together with interest accrued thereon, shall be considered a loan (the “Loan”), and the advancement of the Loan on the terms described herein, shall constitute the remainder of the consideration for the sale to Northern Dynasty of the Purchased Claims.  The purchase of the Purchased Claims and the Loan are interdependent.

 

Loan Terms and Earn-in / Joint Venture

 

	
4.  

	
In respect of the Loan, the following are the applicable terms:

 

	
(a)  

	
The Loan will be a secured convertible loan, secured against Liberty Star’s assets including the claims listed and delineated in Schedule “C” (the “Joint Venture Claims”) with a customary UCC general security interest generally in the form attached as Schedule “B” (“General Security Agreement”).

 

	
(b)  

	
The Loan will bear interest at 10 % per year calculated monthly, until it is repaid or deemed repaid as herein provided.

 

	
(c)  

	
The Loan will be due for repayment 45 days after the earlier to occur of (i) Northern Dynasty’s completion of its earn-in to the Joint Venture Claims described below unless it has elected to deem the entire outstanding balance of the Loan (including interest thereon) to be part of the earn-in expenditure requirements and (ii) termination of Northern Dynasty’s earn-in right by voluntary abandonment provided that $1,000,000 expenditure under section 3(d) has been made; or (iii) termination of Northern Dynasty’s earn-in right on account of a superior third party joint venture offer as described in section 3(i) below.

 

	
(d)  

	
The Loan will be convertible until repaid or deemed repaid, into Liberty Star common shares at the 5 day volume weighted average trading price immediately prior to Northern Dynasty giving a notice of conversion less the maximum allowable discount applicable as if Liberty Star were listed on the TSX Venture Exchange..  Northern Dynasty acknowledges there are customary US securities laws resale restrictions in the event of conversion and it will observe such restrictions. The only condition to exercise of the convertibility right is that Northern Dynasty will have expended at least $1 million of the earn-in expenditures contemplated by paragraph (f). Northern Dynasty is an accredited investor.

 

	
(e)  

	
The Loan may be pre-paid by Liberty Star without penalty at any time on 10 days prior notice during which time Northern Dynasty’s conversion rights are unaffected.

  

2

  

 

	
(f)  

	
Northern Dynasty and Liberty Star will endeavour to negotiate an earn-in option and joint venture agreement under which Northern Dynasty or its assignee, Pebble Limited Partnership, can earn a 60% joint venture interest in the Joint Venture Claims by spending $10 million on exploration and claim maintenance costs and related expenses within 6 years from execution of the joint venture agreement.  Northern Dynasty can deem all or any portion of the Loan to constitute part of its exploration expenditure requirements of $10 million except the $1,000,000 expenditure under section 3(d) (meaning, for example, that $10 million less the principal amount of the Loan and accrued interest on the Loan would need to be spent by Northern Dynasty to achieve the $10 million aggregate requirement) at which time a 60/40 (NDM:Liberty Star) joint venture would be formed.  Northern Dynasty’s minimum annual expenditures under the earn-in would be the minimum level necessary to keep the Joint Venture Claims in good standing. Northern Dynasty may elect to abandon the earn-in at any time on 30 days notice, so long as sufficient annual labor is performed, or a cash payment in lieu of labor is made, in order to fulfil the annual labor requirements for the Joint Venture Claims for a minimum of 12 months after termination of the earn-in.

 

	
(g)  

	
The form of joint venture would be based on a conventional Rocky Mountain Mineral Law Foundation precedent and the parties would, after Northern Dynasty’s earn-in requirements are met, be jointly responsible for funding ongoing exploration and development expenditures with customary dilution for non-participation and two elections not to participate will preclude the right of further participation. Northern Dynasty would be operator for a customary fee and a management committee would direct the joint venture based on a simple majority vote (by interest held) of the participating parties. Elections to participate in programs which are proposed by the operator and approved by the management committee would be required within 30 days for exploration and 90 days for production.

 

	
(h)  

	
Notwithstanding any other provision in this agreement, if Northern Dynasty and Liberty Star are unable to agree the form of joint venture after 60 days from Closing then the Loan may be called by Northern Dynasty at any time and shall be due 45 days after being called .

 

	
(i)  

	
If, prior to Northern Dynasty incurring expenditures above the minimum annual maintenance expenditures, Liberty Star receives a bona fide offer from a third party prepared to pay a larger amount per percentage to earn at least a 60% interest (the “Increased Interest”) in all of the Joint Venture Claims (larger than $166,667 per percentage), Northern Dynasty shall have a right to agree to increase the exploration expenditure requirements of $10 million hereunder, to such larger amount per percentage in consideration for an Increased Interest. In the event that Northern Dynasty fails to agree to such increase within 60 days of its receipt of notice from Liberty Star setting out full particulars of the third party offer, then at the time of execution of the third party earn-in and joint venture: (i)

  

3

  

 

	
(j)  

	
Northern Dynasty shall forfeit its interest in the Joint Venture Claims (except as security for the Loan); (ii) Northern Dynasty shall be immediately refunded all expenditures made pursuant to the earn-in; (iii) notwithstanding sections 3(d) and 3(e) above, the Loan shall not be convertible into Liberty Star shares; and (iv) the Loan shall be due 45 days thereafter.

 

Liberty Star Representations

 

	
5.  

	
Northern Dynasty’s obligation to pay the lenders directly or fund the escrow agent are subject to the following representations of Liberty Star being true at Closing:

 

	
(a)  

	
Liberty Star has all necessary corporate power and has taken all necessary proceedings to execute and deliver this agreement as a legal binding obligation.

 

	
(b)  

	
This agreement and the obligations assumed by Liberty Star herein do not conflict with any agreement, law or court or governmental order to which Liberty Star is subject, except terms of the Notes which are to be terminated. .

 

	
(c)  

	
All the Claims are described either on Schedule A or Schedule C and are duly located, validly recorded and registered in the name of Liberty Star and no third party other than the lenders has any interest in them whatsoever and there are no royalty or other interests reserved in them to Liberty Star or any other person;.

 

	
(d)  

	
there are no existing environmental remediation obligations relating to any of the Claims and no operations have taken place on them which were contrary to environmental laws;

 

	
(e)  

	
upon discharge of the Notes Liberty Star will hold good unencumbered title to the Claims and will convey good  and clear title to the Purchased Claims to Northern Dynasty’s US-corporation nominee on Closing against payment of the Advanced Amount;

 

	
(f)  

	
Liberty star has not committed an act of bankruptcy, upon discharge of the Notes it will not be insolvent and will be under no legal impediment from dealing with the Claims;

 

	
(g)  

	
there is no litigation involving Liberty Star or its assets and except for the Notes, no party has any basis to sue Liberty Star nor has any party threatened to do so;

 

	
(h)  

	
the public disclosure filings of Liberty Star at www.sec.gov are up to date and true in all material respects and do not omit to disclose any material information.

 

Liberty Star Covenants

 

	
6.  

	
Liberty Star agrees from execution hereof that:

  

4

  

 

	
7.  

	
for purposes of the joint venture, Liberty Star shall make its books and records open to review by Northern Dynasty and Northern Dynasty may review such facts in connection with Liberty Star’s business, properties and legal and financial status as Northern Dynasty may reasonably request to ensure compliance with the representations of Liberty Star and terms hereof;

 

	
(a)  

	
Northern Dynasty, acting in its sole discretion, may assume responsibility for negotiations with the lenders and their counsel and may initiate legal proceedings in the name of Liberty Star to defend Liberty Star’s and Northern Dynasty’s interests in the Claims as represented by this agreement. Northern Dynasty shall have full control of the prosecution of such litigation and may settle, restructure, extend or otherwise compromise the lenders claims as long as the aggregate amount settled or compromised does not exceed the Advanced Amount. If the amount accepted by the Lenders is less than the Advanced Amount in full satisfaction then 50% of the compromised amount shall be deemed included in the Loan amount and the Loan shall be deemed increased by the other 50% notwithstanding the amount was not actually advanced by Northern Dynasty. In no event will Northern Dynasty assume any liability to Liberty Star for any action taken by the lenders in connection with the amounts owing them;

 

	
(b)  

	
it shall duly observe the terms of this Agreement and those of the General Security Agreement and any other collateral agreement; and

 

	
(c)  

	
it shall cooperate with Northern Dynasty in any negotiations with the Lenders and shall keep such negotiations (including negotiations between Liberty Star and Northern Dynasty) confidential, but Liberty Star shall be permitted to disclose the terms hereof under applicable disclosure laws and, prior to such disclosure, Liberty Star will provide a draft news release to Northern Dynasty for its comment.

 

Northern Dynasty Conditions to Closing

 

	
8.  

	
The conditions to which Northern Dynasty’s obligations hereunder are subject are as follows (each of which may be waived by Northern Dynasty in whole or in part):

 

	
(a)  

	
as of acceptance hereof by Liberty Star and as of Closing, all of the representations of Liberty Star will be true and all of its covenants shall have been fulfilled;

 

	
(b)  

	
the lenders will have not have refused to accept repayment or have claimed an amount in excess of $3.9 million or claimed any other relief or damages including a right to realize on or take an interest in the claims; and

 

	
(c)  

	
no litigation shall have been initiated or threatened by any person or governmental authority to enjoin or inhibit the transactions contemplated hereby.

  

5

  

 

	
(d)  

	
General and Miscellaneous

 

	
9.  

	
This agreement will be deemed to have been made in British Columbia and will be enforceable in the Courts of British Columbia.

 

	
10.  

	
This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their successors according to law.

 

	
11.  

	
Northern Dynasty may assign its rights under this agreement in whole or in part and from time to time provided that Northern Dynasty shall remain liable for its obligations hereunder.

 

	
12.  

	
Liberty Star Uranium & Metals Corp. and Big Chunk Corp. shall be jointly and severally liable for the obligations of Liberty Star hereunder.

 

Execution

 

If the foregoing reflects your agreement would you kindly execute this letter where indicated below and return it to us by 5pm PDT on June 29, 2010.

 

Yours truly,

 

Northern Dynasty Minerals Ltd.

 

Per:

 

/s/ Ron Thiessen                                                           

Authorized Signatory

 

 

The foregoing is agreed this 29th day of June, 2010.

 

 

Liberty Star Uranium & Metals Corp.

 

/s/ James Briscoe                                                           

Authorized Signatory

 

Big Chunk Corp.

 

/s/ James Briscoe                                                           

Authorized Signatory

 

cc Bernard Pinsky

cc Bernhard Zinkhofer

  

6

  

 

SCHEDULE A

 

PURCHASED CLAIMS

 

  

7

  

 

SCHEDULE B

 

GENERAL SECURITY AGREEMENT

 

 

THIS AGREEMENT made effective June _______,2010.

 

BETWEEN:

 

NORTHERN DYNASTY MINERALS LTD.

1020 – 800 West Pender Street, Vancouver, BC  V6C 2V6

Telephone: 604-684-6365 / Facsimile:  604-684-8092

 

(the “Secured Party”)

 

AND:

 

LIBERTY STAR URANIUM & METALS CORP.

BIG CHUNK CORP.

5610 E. Sutler Lane

Tucson, AZ  85712

 

(together, the “Debtor”)

 

 

	
1.  

	
Consideration

 

1.1 For valuable consideration, the receipt and sufficiency of which are acknowledged by each party, the Debtor enters into this security agreement with the Secured Party.

 

	
2.  

	
Obligations

 

2.1 The Security Interest (as hereinafter defined) is granted to the Secured Party by the Debtor as continuing security for the payment of all present and future indebtedness and liabilities of the Debtor to the Secured Party, including interest thereon, and for the payment and performance of all other present and future obligations of the Debtor to the Secured Party, whether direct or indirect, contingent or absolute, matured or not, and whether the Debtor is bound alone or with another or others, including obligations under this Agreement and the obligations of the Debtor under any loan agreement or other agreement whereby the Secured Party may provide or advance consideration to or for the benefit of the Debtor (collectively, the “Obligations”).

 

	
3.  

	
Creation of Security Interest

 

3.1 The Debtor hereby grants, mortgages, charges, transfers, assigns and creates to and in favour of the Secured Party a security interest in:

  

8

  

 

3.2 Mining Claims

 

(a) all mining claims, mineral interests and titles and rights related thereto in respect of mineral properties  situated in State of Alaska;

 

Equipment

 

(b) all present and after-acquired equipment of the Debtor  in respect of mineral properties situated in State of Alaska, including all machinery, fixtures, plant, tools, furniture, vehicles of any kind or description, all spare parts, accessories installed in or affixed or attached to any of the foregoing, and all drawings, specifications, plans and manuals relating thereto (the “Equipment”);

 

Inventory

 

(c) all present and after-acquired inventory of the Debtor  in respect of mineral properties situated in State of Alaska, including all raw materials, materials used or consumed in the business or profession of the Debtor, work-in-progress, finished goods, goods used for packing, materials used in the business of the Debtor not intended for sale, and goods acquired or held for sale or lease, or that have been leased by the Debtor as lessor or furnished or to be furnished under contracts of rental or service (the “Inventory”);

 

 

Intangibles

 

(d) all present and after-acquired intangibles of the Debtor  in respect of mineral properties situated in State of Alaska, including all contract rights, goodwill, patents, trade marks, copyrights and other intellectual property, licences, and all other choses in action of the Debtor of every kind, whether due at the present time or hereafter to become due or owing (the “Intangibles”);

 

Documents of Title

 

(e) all present and after-acquired documents of title of the Debtor  in respect of mineral properties situated in State of Alaska, whether negotiable or otherwise including all warehouse receipts and bills of lading (the “Documents of Title”);

 

Chattel Paper

 

(f) all present and after-acquired writings in favour of the Debtor as secured party which evidence both a monetary obligation and a security interest in, or a lease of, specific goods or specific goods and accessions in respect of mineral properties situated in State of Alaska (the “Chattel Paper”);

  

9

  

 

(g) Instruments

 

(h) all present and after-acquired bills, notes and cheques, all other writings that evidence a right to payment of money and are of a type that in the ordinary course of business are transferred by delivery without any necessary endorsement or assignment and all letters of credit or advices of credit which state thereon that the letter of credit or advice of credit must be surrendered on claiming payment thereunder in respect of mineral properties situated in State of Alaska (the “Instruments”);

 

(i) 

 

Securities

 

(j) all present and after-acquired securities held by the Debtor, including shares, options, rights, warrants, joint venture interests, interests in limited partnerships, bonds, debentures and all other documents that are recognized in the jurisdiction in which issued or dealt with as evidencing a share, participation or other interest in property or in an enterprise or that evidence of an obligation of the issuer  in respect of mineral properties situated in State of Alaska (the “Securities”);

 

Documents

 

(k) all books, accounts, financial statements, invoices, letters, papers, documents and other records in any form  in respect of mineral properties situated in State of Alaska (the “Documents”);

 

Undertaking

 

(l) as and by way of a floating charge all present and after-acquired personal property, business, and undertaking of the Debtor not being Inventory, Equipment, Accounts, Intangibles, Documents of Title, Chattel Paper, Instruments, Money, Securities, Documents or Permits  in respect of mineral properties situated in State of Alaska (the “Undertaking”); and

 

Proceeds

 

(m) all personal property, fixtures and crops in any form derived directly or indirectly from any dealing with Collateral (as hereinafter defined) or proceeds therefrom, including rights to insurance payments and any other payments representing indemnity or compensation for loss of or damage to Collateral or proceeds therefrom (the “Proceeds”).

 

3.3 The Debtor hereby charges as and by way of a floating charge and grants to the Secured Party in and to:

 

(a) all of the right, title and interest of the Debtor in and to all its presently owned or held and after-acquired real, immoveable and leasehold property and all interests therein, including all structures, plant and fixtures; and

  

10

  

 

(b) all presently owned or held and after-acquired assets and undertaking of the Debtor, not otherwise and effectively subject to the charges and security interests created by this Section 3.2 and Section 3.1.

 

3.4 All present and after-acquired personal property of the Debtor, including Equipment, Inventory, Accounts, Intangibles, Documents of Title, Chattel Paper, Instruments, Money, Securities, Documents, Undertaking and Proceeds are, or any part thereof, collectively referred to in this Agreement as the “Collateral” unless the context otherwise requires.

 

3.5 The grants, mortgages, charges, transfers, assignments and security interests herein created are collectively referred to in this Agreement as the “Security Interest”.

 

3.6 The terms “equipment”, “inventory”, “accounts”, “intangibles”, “documents of title” and “securities”, as used in this Section 3 have the meanings specified in the Uniform Commercial Code (the “UCC”).

 

	
4.  

	
Further Description of Collateral

 

4.1 The Debtor agrees to promptly inform the Secured Party in writing of the acquisition by the Debtor of any personal property which is not of the nature or type described herein, and the Debtor agrees to execute and deliver at its own expense from time to time amendments to this Agreement or additional security agreements as may be reasonably required by the Secured Party in order that the Security Interest shall attach to all of the personal property of the Debtor.

 

	
5.  

	
Attachment

 

5.1 The Debtor acknowledges that:

 

(a) value has been given;

 

(b) the Debtor has rights in the Collateral (other than after-acquired property); and

 

(c) the parties have not agreed to postpone the time for attachment of the Security Interest.

 

	
6.  

	
Dealings with Collateral

 

6.1 Subject to compliance with the Debtor’s covenants contained herein and 7 hereof, the Debtor may, until the occurrence of an Event of Default (hereinafter defined), possess, operate, collect, use and enjoy and deal with the Collateral in the ordinary course of the Debtor’s business in any manner not inconsistent with the provisions hereof.

 

	
7.  

	
Notification to Account Debtors Before Demand

 

7.1 The Secured Party may, after the occurrence of an Event of Default:

  

11

  

 

7.2 Notify Debtors

 

(a) notify any person obligated to the Debtor in respect of an Account, Intangible, Chattel Paper or Instrument to make payment to the Secured Party of all such present and future amounts due or to become due under any Account, Intangible, Chattel Paper or Instrument;

 

Control of Proceeds

 

(b) take control of the Proceeds; and

 

Apply Money

 

(c) apply any money taken as Collateral to the satisfaction of the Obligations.

 

	
8.  

	
Exceptions

 

8.1 The last day of the term of any lease, sublease or agreement therefor is specifically excepted from the Security Interest, but the Debtor agrees to stand possessed of such last day in trust to assign and dispose of as the Secured Party shall direct.

 

8.2 With respect to each agreement that requires the consent or approval of another party thereto for the creation of the Security Interest, the Security Interest will not become effective therein until all such consents or approvals have been obtained, or until such other assurances as may be acceptable to the Secured Party have been received, but until then the Debtor will stand possessed of such agreement in trust to dispose of as the Secured Party shall direct.

 

	
9.  

	
Representations of Debtor

 

9.1 The Debtor represents and warrants that:

 

(a) this Agreement is granted in accordance with resolutions of the directors  of the Debtor and all other matters and things have been done and performed so as to authorize and make the execution and delivery of this Agreement and the performance of the obligations of the Debtor hereunder legal, valid and binding; and

 

(b) the Debtor lawfully owns and possesses all presently held Collateral and has good title thereto, free from all security interests, charges, encumbrances, liens and claims, save only security interests, if any, consented to in writing by the Secured Party or shown in any Schedule hereto, and the Debtor has good right and lawful authority to grant the Security Interest.

 

	
10.  

	
Covenants of Debtor

 

10.1 The Debtor covenants and agrees:

  

12

  

 

10.2 Disposition of Collateral

 

(a) not to sell, exchange, transfer, assign, lease or otherwise dispose of or deal in any way with Collateral or release, surrender or abandon possession of Collateral or move or transfer Collateral, or enter into any agreement or undertaking to do any of the foregoing except as may be permitted in this Agreement;

 

Other Security Interests

 

(b) not to create or permit to exist any encumbrance or security interest in, charge, encumbrance or lien over, or claim against any of its property, assets or undertaking which ranks or could rank in priority to or pari passu with the Security Interest;

 

Defend Title

 

(c) to defend the title to the Collateral for the benefit of the Secured Party against all claims and demands;

 

Repair

 

(d) to keep the Collateral in good order and repair;

 

Taxes and Charges

 

(e) to promptly pay all taxes, assessments, rates, levies, payroll deductions, workers’ compensation assessments, and any other charges which could result in the creation of a statutory lien or deemed trust in respect of the Collateral;

 

Further Assurances

 

(f) to do, make, execute and deliver such further and other assignments, transfers, deeds, security agreements and other documents as may be required by the Secured Party to establish in favour of the Secured Party and perfect the Security Interest intended to be created hereby and to accomplish the intention of this Agreement; and

 

Payment of Expenses

 

(g) to pay all expenses, including solicitors’ fees and disbursements (on a solicitor and own client basis) and receivers’ fees and disbursements, incurred by the Secured Party or its agents or including any Receiver, as hereinafter defined, in connection with inspecting the Collateral, investigating title to the Collateral, the preparation, perfection, preservation, and enforcement of this Agreement, including taking, recovering and keeping possession of the Collateral and all expenses incurred by the Secured Party or such agents in dealing with other creditors of the Debtor in connection with the establishment and confirmation of the priority of the Security Interest; all of which expenses shall be payable forthwith upon demand with interest at 12% per annum

  

13

  

 

(h) calculated monthly, not in advance, (the “Interest Rate”) and shall form part of the Obligations.

 

	
11.  

	
Events of Default

 

11.1 The following shall be events of default (the “Events of Default”) under this Agreement:

 

(a) if the Debtor fails to satisfy or perform any of the Obligations when due;

 

(b) if any representation or warranty made by or on behalf of the Debtor to the Secured Party is or becomes incorrect or untrue, or the Debtor breaches or fails to comply with any term of this Agreement or any other agreement or undertaking now or hereafter given by the Debtor to the Secured Party;

 

(c) if the Debtor becomes insolvent or bankrupt or makes a proposal under creditor legislation in any jurisdiction, a petition in bankruptcy is filed against the Debtor, the Debtor makes an assignment for the benefit of creditors, a trustee, receiver, receiver-manager or similar procedure is appointed in respect of the Debtor or any of its assets, proceedings under bankruptcy code are commenced with respect to the Debtor, or steps are taken by or against the Debtor for any other formal or informal type of proceeding for the settlement of claims against the Debtor, or for the dissolution, liquidation, or winding-up of the affairs of the Debtor;

 

(d) if the Debtor ceases or threatens to cease to carry on its business or any material part thereof as presently carried on, or makes or agrees to make a bulk sale of its assets;

 

(e) if an execution or any similar process of any court becomes enforceable against the Debtor, or a distress or any similar process is levied upon any property of the Debtor;

 

(f) if any encumbrance affecting the Collateral becomes enforceable;

 

(g) if the Secured Party in good faith believes and has commercially reasonable grounds to believe that the prospect of payment or performance of the Obligations is or is about to be impaired or that the Collateral is in jeopardy or is about to be placed in jeopardy and the Secured Party has given notice of same to the Debtor and the Debtor fails to remedy the situation within the time period provided in such notice; and

 

(h) if there is, in the opinion of the Secured Party, a change in control of the Debtor.

 

	
12.  

	
Enforcement and Remedies

 

12.1 Upon the occurrence of one or more Events of Default, the Debtor shall be in default under this Agreement, the Obligations shall, at the option of the Secured Party, be immediately due and payable, the Security Interest shall become enforceable and the floating charge hereof shall crystallize at the option of the Secured Party.  Upon the Security Interest becoming enforceable, the Secured Party shall have the following remedies in addition to any

  

14

  

 

12.2 other remedies available under the UCC or otherwise at law or in equity or contained in any other agreement between the Debtor and the Secured Party, all of which remedies shall be independent and cumulative:

 

(a) entry of any premises where Collateral may be located;

 

(b) possession of Collateral by any method permitted by law;

 

(c) the sale or lease of Collateral;

 

(d) the collection of any rents, income, and profits received in connection with the business of the Debtor or the Collateral;

 

(e) the collection, realization, sale or other dealing with any Accounts of the Debtor;

 

(f) the appointment by instrument in writing of a receiver, or a receiver-manager (each of which is herein called a “Receiver”) of the Collateral;

 

(g) the exercise by the Secured Party of any of the powers set out in Section 13, without the appointment of a Receiver;

 

(h) proceedings in any court of competent jurisdiction for the appointment of a Receiver or for the sale of the Collateral; and

 

(i) the filing of proofs of claim and other documents in order to have the claims of the Secured Party lodged in any bankruptcy, winding-up, or other judicial proceeding relating to the Debtor.

 

12.3 The floating charge created by this Agreement over real property and interests therein shall become a fixed charge thereon upon the earlier of:

 

(a) the occurrence of an event described in Section 11.1(c) or Section 11.1(d); or

 

(b) the Secured Party taking any action to enforce the Security Interest.

 

	
13.  

	
Powers of Receiver

 

13.1 Any Receiver appointed by the Secured Party may be any person licensed and the Secured Party may remove any Receiver so appointed and appoint another or others instead.  Any Receiver appointed shall act as agent for the Debtor for all other purposes, including the occupation of any premises of the Debtor and in carrying on the Debtor’s business.  The Debtor agrees to ratify and confirm all actions of the Receiver acting as agent for the Debtor, and to release and indemnify the Receiver in respect of all such actions.  Any Receiver so appointed shall have the power:

 

(a) to enter upon, use, and occupy all premises owned or occupied by the Debtor;

 

(b) to take possession of the Collateral;

  

15

  

 

(c) to carry on the business of the Debtor;

 

(d) to borrow money required for the maintenance, preservation or protection of the Collateral or for the carrying on of the business of the Debtor, and in the discretion of such Receiver, to charge and grant further security interests in the Collateral in priority to the Security Interest, as security for the money so borrowed;

 

(e) to sell, lease, or otherwise dispose of the Collateral in whole or in part and for cash or credit, or part cash and part credit on such terms and conditions and in such manner as the Receiver shall determine in its discretion;

 

(f) to demand, commence, continue or defend any judicial or administrative proceedings for the purpose of protecting, seizing, collecting, realizing or obtaining possession or payment of the Collateral, and to give valid and effectual receipts and discharges therefor and to compromise or give time for the payment or performance of all or any part of the Accounts or any other obligation of any third party to the Debtor; and

 

(g) to exercise any rights or remedies which could have been exercised by the Secured Party against the Debtor or the Collateral.

 

	
14.  

	
Performance of Obligations

 

14.1 If the Debtor fails to perform any of its obligations hereunder, the Secured Party may, but shall not be obliged to, perform any or all of such obligations without prejudice to any other rights and remedies of the Secured Party hereunder, and any payments made and any costs, charges, expenses and legal fees and disbursements (on a solicitor/client basis) incurred in connection therewith shall be payable by the Debtor to the Secured Party forthwith upon demand with interest at the Interest Rate.

 

	
15.  

	
Failure to Exercise Remedies

 

15.1 The Secured Party shall not be liable for any delay or failure to enforce any remedies available to it or to institute any proceedings for such purposes.  The Secured Party may waive any Event of Default, provided that no such waiver shall be binding upon the Secured Party unless in writing nor shall it affect the rights of the Secured Party in connection with any other or subsequent Event of Default.

 

	
16.  

	
Application of Payments

 

16.1 All payments made in respect of the Obligations and all monies received by the Secured Party or any Receiver appointed by the Secured Party in respect of the enforcement of the Security Interest (including the receipt of any Money) may be held as security for the Obligations or applied in such manner as may be determined in the discretion of the Secured Party and the Secured Party may at any time apply or change any such appropriation of such payments or monies to such part or parts of the Obligations as the Secured Party may determine in its discretion.  The Debtor shall remain liable to the Secured Party for any deficiency and any

  

16

  

 

16.2 surplus funds realized after the satisfaction of all Obligations shall be paid in accordance with applicable law.

 

	
17.  

	
Dealings by Secured Party

 

17.1 The Secured Party may grant extensions of time and other indulgences, take and give up securities, accept compositions, grant releases and discharges, and otherwise deal with the Collateral, the Debtor, debtors of the Debtor, sureties of the Debtor, and others as the Secured Party may see fit, without prejudice to the Obligations and the rights of the Secured Party to hold and realize upon the Security Interest.  The Secured Party has no obligation to keep Collateral identifiable, or to preserve rights against other persons in respect of any Collateral.

 

	
18.  

	
Amalgamation by Debtor

 

18.1 The Debtor hereby acknowledges and agrees that in the event it amalgamates with any other corporation or corporations, it is the intention of the parties hereto that the term

 

Debtor, when used herein, shall apply to each of the amalgamating corporations and to the amalgamated corporation, such that the Security Interest granted hereby:

 

(a) shall extend to Collateral (as the term is herein defined) owned by each of the amalgamating corporations and the amalgamated corporation at the time of amalgamation and to any Collateral thereafter owned or acquired by the amalgamated corporation;

 

(b) shall secure the Obligations (as the term is herein defined) of each of the amalgamating corporations and the amalgamated corporation to the Secured Party at the time of amalgamation and any Obligations of the amalgamated corporation to the Secured Party arising after the amalgamation; and

 

(c) shall attach to Collateral owned by each corporation amalgamating with the Debtor, and by the amalgamated corporation, at the time of amalgamation, and shall attach to any Collateral thereafter owned or acquired by the amalgamated corporation when such becomes owned or is acquired.

 

	
19.  

	
Notice

 

19.1 All notices, requests, demands and other communications that are required or permitted under this Agreement will be in writing and delivered or mailed in British Columbia by registered mail, postage prepaid, or by facsimile as follows:

 

(a) if to the Secured party Lender

 

Northern Dynasty Minerals Ltd.

1020 – 800 West Pender Street

Vancouver, BC  V6C 2V6

 

Attention:                      Trevor Thomas

Facsimile:                      604-684-8092

Email:                      tthomas@hdgold.com

  

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(b) if to the Borrower:

 

Liberty Star Uranium & Metals Corp.

Big Chunk Corp.

5610 E. Sutler Lane

Tucson, AZ  85712

 

Facsimile:                      N/A

Email:                      jbriscoe@libertystaruranium.com

 

or to such other address as may be specified by one party to the others in a notice given in the manner herein provided.  Any notice, request, demand or other communication given in such manner herein provided will be deemed to have been received by the party to whom it is given:

 

(c) on the third Business Day following the mailing thereof in British Columbia if sent by registered mail;

 

(d) on the day of delivery, if delivered; or

 

(e) on the day of receipt, if sent by facsimile or email,

 

provided that if, in the case of notice being given pursuant to Section 7.7(d) or (e), the document is received after 5:00 p.m. (local time) or if its received on a day which is not a Business Day, receipt will be deemed to have occurred at 9:00 a.m. (local time) on the next Business Day and further provided that if normal mail service is interrupted by strike, slow down, force majeure or by other cause, a notice, request, demand or other communication sent by mail service will not be deemed to be received until actually received, and the party sending the notice, request, demand or other communication will send such notice, request, demand or other communication by facsimile or email or will deliver same to ensure prompt receipt thereof.

 

	
20.  

	
Separate Security

 

20.1 This Agreement and the Security Interest are in addition to and not in substitution for any other security now or hereafter held by the Secured Party in respect of the Debtor, the Obligations or the Collateral.

 

	
21.  

	
Secured Party Not Obliged to Advance

 

21.1 Nothing in this Agreement shall obligate the Secured Party to make any loan or accommodation to the Debtor, or extend the time for payment or satisfaction of any Obligations.

 

	
22.  

	
Severability

 

22.1 If any provision of this Agreement is be deemed by any court of competent jurisdiction to be invalid or void, the remaining provisions shall remain in full force and effect.

  

18

  

 

22.2 Joint and Several Liability

 

22.3 Liberty Star Uranium & Metals Corp. and Big Chunk Corp. shall be jointly and severally liable for the obligations of Debtor hereunder.

 

	
23.  

	
Time of Essence

 

23.1 Time is of the essence of this Agreement.

 

	
24.  

	
Grammatical Changes

 

24.1 This Agreement is to be read as if all changes in grammar, number and gender rendered necessary by the context had been made, specifically including a reference to a person as a corporation and vice-versa.

 

	
25.  

	
Including

 

25.1 The word “including”, when following any word or words is not to be construed as limiting the preceding word or words but the preceding word or words are to be construed as referring to all items or matters that could fall within the broadest possible interpretation of the preceding word or words.

 

	
26.  

	
Agreement Unconditional

 

26.1 There are no representations, warranties or collateral agreements by the Secured Party to the Debtor relating to the subject-matter hereof and possession of an executed copy of this Agreement by the Secured Party constitutes conclusive evidence that it was executed and delivered by the Debtor free of all conditions.

 

	
27.  

	
Governing Law; Attornment

 

27.1 This Agreement shall be interpreted in accordance with the laws of Alaska, and, without prejudice to the ability of the Secured Party to enforce this Agreement in any other proper jurisdiction, the Debtor hereby irrevocably submits and attorns to the jurisdiction of the courts of Alaska.

 

	
28.  

	
Successors and Assigns

 

28.1 This Agreement and the Obligations may be assigned in whole or in part by the Secured Party to any person, firm or corporation without notice to or the consent of the Debtor.  This Agreement may not be assigned by the Debtor without the prior written consent of the Secured Party.  This Agreement is binding upon the parties hereto, and their respective heirs, executors, administrators, legal personal representatives, successors and permitted assigns; “successors” includes any corporation resulting from the amalgamation of any corporation with another corporation.

  

19

  

 

28.2 Copy of Agreement

 

28.3 The Debtor acknowledges receipt of an executed copy of this Agreement.

 

	
29.  

	
Verification Statements; Financing Statements

 

29.1 The Debtor waives the right to receive any verification statement, financing statement or financing change statement related to this Agreement or related to any other security agreement in respect of the Obligations.

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties as of the date first written above.

 

	
Signed by LIBERTY STAR URANIUM & METALS CORP. in the presence of:

 

 

____________________________________

Witness:

 

	
)

)

)

)

)

)

	
LIBERTY STAR URANIUM & METALS CORP.

per

_____________________________________

Authorized signatory

	
Signed by BIG CHUNK CORP. in the presence of:

 

 

____________________________________

Witness:

 

	
)

)

)

)

)

)

	
BIG CHUNK CORP.

per

_____________________________________

Authorized signatory

 

	
Signed by NORTHERN DYNASTY MINERALS LTD. in the presence of:

 

 

____________________________________

Witness:

 

	
)

)

)

)

)

)

	
NORTHERN DYNASTY MINERALS LTD.

per

_____________________________________

Authorized signatory

  

20

  

 

SCHEDULE C

 

JOINT VENTURE CLAIMS

 

  

21

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