Document:

Exhibit
10.1

 

Confidential
Materials omitted and filed separately with the

Securities
and Exchange Commission.  Asterisks
denote omissions.

 

JOINT VENTURE CONTRACT

 

 

BETWEEN

 

SAIC
MOTOR CO. LTD.

 

AND

 

A123
SYSTEMS HONG KONG LIMITED

 

 

FOR THE ESTABLISHMENT OF

 

SHANGHAI
ADVANCED TRACTION BATTERY SYSTEMS CO., LTD. 

 

 

DECEMBER 16, 2009

 

 

[The signed agreement includes a Chinese language
version of the agreement.]

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE 1 GENERAL PROVISIONS

  	
  1

  
	
  ARTICLE 2 PARTIES TO THE CONTRACT

  	
  5

  
	
  ARTICLE 3 REPRESENTATION AND WARRANTIES OF PARTIES

  	
  6

  
	
  ARTICLE 4 ESTABLISHMENT OF THE JOINT VENTURE COMPANY

  	
  7

  
	
  ARTICLE 5 COMPANY’S PURPOSE, SCOPE OF BUSINESS AND SCALE OF
  PRODUCTION

  	
  8

  
	
  ARTICLE 6 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

  	
  9

  
	
  ARTICLE 7 TRANSFER OF THE EQUITY INTEREST

  	
  12

  
	
  ARTICLE 8 CHANGE OF CONTROL

  	
  14

  
	
  ARTICLE 9 RESPONSIBILITIES OF THE PARTIES

  	
  14

  
	
  ARTICLE 10 PURCHASING

  	
  18

  
	
  ARTICLE 11 OPERATION PREMISES OF THE COMPANY

  	
  19

  
	
  ARTICLE 12 LICENSE OF TECHNOLOGY AND TRADEMARKS

  	
  19

  
	
  ARTICLE 13 SALES AND SERVICES

  	
  20

  
	
  ARTICLE 14 BOARD OF DIRECTORS

  	
  20

  
	
  ARTICLE 15 SUPERVISORS

  	
  25

  
	
  ARTICLE 16 MANAGEMENT

  	
  26

  
	
  ARTICLE 17 PERSONNEL AND LABOR MANAGEMENT

  	
  27

  
	
  ARTICLE 18 FINANCIAL AFFAIRS AND ACCOUNTING

  	
  28

  
	
  ARTICLE 19 TAXATION AND INSURANCE

  	
  31

  
	
  ARTICLE 20 DEADLOCK

  	
  31

  
	
  ARTICLE 21 CONFIDENTIALITY

  	
  32

  
	
  ARTICLE 22 NON-COMPETITION

  	
  33

  
	
  ARTICLE 23 JOINT VENTURE TERM

  	
  35

  
	
  ARTICLE 24 BUY-OUT/SALE OF THE COMPANY

  	
  35

  
	
  ARTICLE 25 TERMINATION

  	
  40

  
	
  ARTICLE 26 LIABILITY FOR BREACH OF CONTRACT AND REMEDY

  	
  40

  
	
  ARTICLE 27 LIQUIDATION

  	
  41

  
	
  ARTICLE 28 FORCE MAJEURE

  	
  42

  
	
  ARTICLE 29 APPLICABLE LAW AND DISPUTE SETTLEMENT

  	
  43

  
	
  ARTICLE 30 MISCELLANEOUS

  	
  44

  
	
  ARTICLE 31 SCHEDULES AND ATTACHMENTS

  	
  46

  

 

i

 

JOINT
VENTURE CONTRACT

 

THIS JOINT VENTURE CONTRACT
is entered into on December 16, 2009 by and between:

 

SAIC Motor Co., Ltd. (“SAIC
Motor” or “Party A”), a corporation incorporated and existing pursuant to the
laws of the People’s Republic of China (“PRC”) and having its main business
office at No 489, Weihai Road, Shanghai, PRC, and

 

A123 Systems Hong Kong
Limited (“Party B”), a company incorporated and existing under the laws of Hong
Kong Special Administrative Region and having its registered address at 5705,
57th Floor, The Center, 99 Queen’s Road, Central,
Hong Kong.

 

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

 

ARTICLE 1

GENERAL PROVISIONS

 

1.1          Preliminary
Statement.

 

Through friendly
consultations conducted in accordance with the principles of equality and
mutual benefit, the Parties have agreed to establish an equity joint venture
enterprise, using advanced technology and modern management methods for the
development, production and sale of the vehicle battery systems in accordance
with the Law of the People’s Republic of China on Joint Ventures Using Chinese
and Foreign Investment (“Joint Venture Law”), the implementing regulations
issued thereunder (“Joint Venture Regulations”), other relevant laws and
regulations of PRC, and the provisions of this Joint Venture Contract (this “Contract”).

 

1.2          Definitions.

 

The following term as used
in this Contract shall have the meanings set forth bellow:

 

“A123”
shall mean A123 Systems, Inc., a corporation organized and existing under
the laws of the State of Delaware in the United States.

 

An
“Affiliate” of a Party means a company, State-owned enterprise,
corporation, partnership, trust or other entity directly or indirectly
Controlling or Controlled by the Party or under direct or indirect common
Control with the Party.  For the purpose
of this definition “Control” means possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
an entity, whether through the ownership of registered capital or voting
securities, by contract or otherwise, and includes, without limitation (i) ownership
directly or indirectly of fifty percent (50%) or more of the shares or other
equity interests in issue or registered capital of such entity, (ii) ownership,
directly or indirectly of fifty percent (50%) or more of the voting power of
such Person or (iii) the power directly or indirectly to appoint a
majority of the members of the board of directors or similar governing body of
such entity, and the terms “Controlled” and “Controlling” shall
have correlative meanings.

 

 

“AIC”
means the competent branch of the State Administration for Industry and
Commerce of the PRC.

 

“Ancillary
Agreements” means the agreements related to this Contract at the time or
after this Contract is signed, to be executed by and between the Company and
one Party or the Parties, including the Technology License Contract, Trademark
License Contract, Lease Contract in respect of the Company’s initial operating
premises and the Letter of Intent regarding Production Programs.

 

“Approval
Authority” means the competent bureau of commerce responsible for examining
and approving the establishment of the Company, this Contract and the Articles
of Association.

 

“Articles
of Association” means the articles of association of the Company formulated
and signed by the Parties pursuant to and consistent with this Contract and
approved by the Approval Authority.

 

“Board”
means the board of directors of the Company.

 

“Breaching
Party” means a Party which has materially breached this Contract.

 

“Change
of Control” means, with respect to a Party (the “Acquired Party”),
the acquisition by any Third Party, which is an original equipment manufacturer
(OEM) of automotives with operations in China or a “tier one” supplier of automotive
components with operations in China, of more than 50% of the voting securities
of the Acquired Party, or the completion of a merger of the Acquired Party into
a Third Party, which is an original equipment manufacturer (OEM) of automotives
with operations in China or a “tier one” supplier of automotive components with
operations in China, whereby the Acquired Party is not the surviving entity.

 

“Company”
means the joint venture company to be established pursuant to the laws of PRC
and the terms and conditions of this Contract.

 

“Confidential
Information” shall have the meaning set forth in Article 21.1(1) of
this Contract.

 

“Deadlock”
means any matter involving a value in excess of RMB [**] which the Board votes
upon in accordance with the requirements of this Contract or Articles of
Association and which results in a tie vote in [**] consecutive meetings, or
which the Board is unable to decide on due to the failure of the Board to
achieve a quorum after [**] consecutive attempts to convene a meeting due to
non-attendance of the Directors appointed by one Party.

 

“Employee”
means any employee of the Company, including members of the Company’s
Management Team.

 

“Establishment
Date” means the date on which the business license of the 

 

2

 

Company is issued by the
relevant administration for industry and commerce.

 

“Event
of Force Majeure” shall have the meaning set forth in Article 28.1 of
this Contract.

 

“Feasibility
Study” means the feasibility study report setting out the business plan and
key operating assumptions for the first [**] years of the Company’s operations,
jointly prepared by the Parties, and approved by
the Approval Authority, which shall include the business plan dated December 10,
2009 (version 7.0) in the form of the excel spreadsheet with the document
identification “New JV Business Modelv7.0.xls”, including any modifications
requested by the Approval Authority and agreed by both Parties.

 

“Independent
Appraiser” means one of the “Big Four” international accounting firms to be
jointly selected by the Parties, provided that if required by applicable PRC
law for a valuation of Party A’s equity interest in the Company, the selected
accounting firm shall select an independent and competent appraiser qualified
to perform appraisals of State-owned assets and instruct such appraiser to
perform the necessary valuation using the valuation method and principles set
out in Article 24.3 to the fullest extent permitted by PRC law.

 

“Insolvency
Event” means one Party (the “Affected Party”) enters into bankruptcy,
liquidation, reorganization, arrangement, restructure or similar proceedings
under the bankruptcy laws or under the laws of any jurisdiction; the Affected
Party makes a general assignment for the benefit of creditors; A receiver,
liquidator, assignee, custodian, trustee, or other similar official is
appointed for some or all of the business or property of the Affected party;
the Affected Party becomes insolvent or generally fails to pay its debts as
they become due.

 

“Intellectual
Property” means (a) patents, patent applications, patent disclosures
and all related continuation, continuation-in-part, divisional, reissue,
reexamination, utility model, certificate of invention and design patents, patent
applications, registrations and applications for registrations; (b) trademarks,
service marks, trade dress, Internet domain names, logos, trade names and
corporate names and registrations and applications for registration thereof; (c) copyrights
and registrations and applications for registration thereof; (d) mask
works and registrations and applications for registration thereof; (e) computer
software, data and documentation; (f) inventions, trade secrets and
confidential business information, whether patentable or non-patentable and
whether or not reduced to practice, know-how, manufacturing and product
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information;
and (g) copies and tangible embodiments thereof.

 

“[**]
Program” means a production program for PHEVs/ EVs developed by SAIC Motor
or its Affiliates which will incorporate battery systems manufactured by and
purchased from the Company.

 

3

 

“Letter of Intent regarding Production
Programs” means the binding letter of intent entered into by the Parties
(or a Party’s Affiliate) in their own capacities as well as on behalf of the
Company prior to its establishment, in relation to the supply of battery cells
for the [**] Program and other PHEV and EV programs, which shall be executed
before or simultaneous with the execution of this Contract.

 

“Licensed
Technology” has the definition in the Technology License Contract entered
into by Party B as licensor and the Company as licensee.

 

“Management
Team” means the committee in charge of the Company’s daily operations,
consisting of the General Manager, the Deputy General Manager, Chief Financial
Officer (“CFO”), Chief Technology Officer (“CTO”), Head of Sales, Head of
Manufacturing and Head of Purchasing and other first level department managers
the Board may appoint to be part of the Management Team.  Members of the Management Team may be
referred to in this Contract as “managers”.

 

“PRC” means for the
purpose of this Contract, the People’s Republic of China, excluding Hong Kong
SAR, Macau SAR and Taiwan.

 

“Products”
means complete Vehicle Traction Battery Systems (defined below) and modules
primarily used in hybrid electric and pure electric vehicles.

 

“Purchase
Price” means the price of the equity interest in the Company subject to
sale from one Party to another, determined according to Article 24.3.

 

“RMB”
means Renminbi, the lawful currency of the PRC.

 

“Recourse
Financing” means for the purpose of this Contract, a type of financing in
which the lender, in the event of default by the borrower (i.e. the Company),
not only has recourse against the Company, but also against such security as is
provided by the Company’s shareholders (i.e. Party A or Party B) in relation to
such borrowing.

 

“Registered
Auditor” means an internationally recognized accounting firm registered in
PRC (and qualified to evaluate state-owned assets, if required by PRC laws)
which is capable of performing accounting work meeting Chinese domestic
accounting standards, United States’ Generally Accepted Accounting Standards
and engaged by the Company to examine and verify the annual accounts.

 

“SAIC
Group” means Shanghai Automotive Industry Corporation (Group), its
Affiliates and all other companies, enterprises and other legal person entities
in which it has a direct or indirect ownership interest, regardless of size of
ownership interest or degree of management control.

 

“SAIC
Motor” means SAIC Motor Corporation Limited, a company duly organized and
existing under the laws of PRC and having its principal office at 489 Weihai
Road, Shanghai.

 

“Third
Party” means any individual, firm, enterprise, corporation, agency, 

 

4

 

organization or person
within or outside the PRC including, but not limited to, any Affiliate of
either Party and any enterprise or corporation affiliated with any
successor-in-interest to either Party.

 

“Three
Funds” has the meaning described in Article 18.5(b).

 

“Vehicle Traction Battery System”
means a complete energy storage system for a vehicle, comprising of battery
cells, modules, a battery management system, a cell balance circuit,
monitoring/sensing, a thermal management system, a safety management system,
other components and physical integration, but shall not mean the individual
components, such as battery cells, as stand-alone products, unless otherwise decided
by the Board and subject to the execution of relevant technology license
contracts between Party B and the Company.

 

1.3          Headings.  The headings of articles hereof are inserted
for convenience only and neither limit nor amplify the provisions of this
Contract.

 

1.4          References.

 

(a)           References to
PRC law in this Contract shall include any laws, regulations, rules, and
regulatory documents publicly promulgated by the relevant PRC authorities
(including central and local authorities) and amended from time to time.

 

(b)           Words in the
singular form may be interpreted as referring to the plural and vice versa.
Words denoting the masculine include a reference to the feminine and neutral
and vice versa.

 

ARTICLE 2

PARTIES TO THE CONTRACT

 

2.1          Parties.

 

The Parties to this Contract
are as follows:

 

Party A:                 SAIC Motor Co., Ltd., a
company incorporated and existing pursuant to the laws of PRC and having its
main business address at No. 489, Weihai Road, Shanghai, China.

 

The legal representative of Party A is:

 

Name:                     [**]

 

Position:                Chairman of the
board

 

Nationality:           Chinese

 

Party B:                  A123 Systems
Hong Kong Limited, a company incorporated and existing under the laws of the
Hong Kong Special Administrative Region and

 

5

 

having
its registered address at 5705, 57th Floor, The
Center, 99 Queen’s Road, Central, Hong Kong.

 

The legal representative of Party B is:

 

Name:                     [**]

 

Position:                Director

 

Nationality:           American

 

ARTICLE 3

REPRESENTATION AND WARRANTIES OF PARTIES

 

3.1          Representation
and Warranties of Party A.  Party A hereby represents and warrants to
Party B as follows:

 

(a)           Party A is a
corporation duly organized, validly existing and in good standing under the
laws of PRC, and is listed on the Shanghai Stock Exchange.

 

(b)           Party A has
full legal right, power and authority to execute and deliver this Contract and
all of the agreements and documents referred to in this Contract to which it is
Party and to observe and perform its obligations hereunder and thereinafter.

 

(c)           Party A has
taken all appropriate and necessary corporate actions to authorize the
execution and delivery of this Contract and all of the agreements and documents
referred to in this Contract to which it is a Party and to authorize the
performance and observance of the terms and conditions hereof and thereof.

 

(d)           Party A has
obtained all consents, approvals and authorizations necessary for the valid
execution and delivery of this Contract and all of the agreements and documents
referred to in this Contract to which it is a Party and to observe and perform
its obligations hereunder and thereinafter provided, however that this Contract
is subject to the approval of the Approval Authority before the same may become
effective.

 

(e)           Except as
disclosed in Schedule B, Party A has not established any business, whether in
the form of a wholly-owned subsidiary, joint venture company or other type of
business entity or arrangement, in any part of the world, which competes with
the Products or A123’s battery cell business.

 

(f)            The
representations made by Party A within the scope of this Contract are true,
accurate, complete and not misleading.

 

3.2          Representations
and Warranties of Party B.  Party B hereby represents and warrants to
Party A as follows:

 

6

 

(a)           Party B is
company duly organized, validly existing and in good standing under the laws of
Hong Kong SAR.

 

(b)           Party B has
full legal capacity to execute and deliver this Contract and all of the
agreements and documents referred to in this Contract to which it is a Party
and to observe and perform its obligations hereunder and thereinafter.

 

(c)           Party B has
taken all appropriate and necessary corporate actions to authorize the
execution and delivery of this Contract and all of the agreements and documents
referred to in this Contract to which it is a Party and to authorize the
performance and observance of the terms and conditions hereof and thereof.

 

(d)           Party B has
obtained all consents, approvals and authorizations necessary for the valid
execution and delivery of this Contract and all of the agreements and documents
referred to in this Contract to which it is a Party and to observe and perform
its obligations hereunder and thereinafter provided, however that this Contract
is subject to the approval of the Approval Authority before the same may become
effective.

 

(e)           Except as
disclosed in this Article 3.2(e) and in Schedule B, Party B has not
established any business, whether in the form of a wholly-owned subsidiary,
joint venture company or other type of business entity or arrangement, in any
part of the PRC, which competes with the Products for sale in the PRC, except
as otherwise permitted by this Contract. Except as disclosed in Schedule B,
Party B has not sold any similar products which compete with the Products to any
original equipment manufacturer (OEM) of automotives located in any part of the
PRC.

 

Party
A acknowledges A123 has three wholly-owned subsidiaries in the PRC existing as
of the date of this Contract, namely A123 Systems Energy Materials (Changzhou)
Co. Ltd., A123 Systems Energy Technology (Changzhou) Co. Ltd. and A123 Systems
Energy Technology (Zhenjiang) Co. Ltd. 
Party B agrees that the operation of these three subsidiaries will be in
compliance with Article 22 herein.

 

(f)            The
representations made by Party B in this Article 3.2 are true, accurate,
complete and not misleading in all material respects.

 

ARTICLE 4

ESTABLISHMENT OF THE JOINT VENTURE COMPANY

 

4.1          Establishment of the Joint Venture
Company.  In
accordance with the Joint Venture Law and the Joint Venture Regulations and
relevant Chinese laws and regulations, the Parties hereby agree to establish
the Company pursuant to the terms and conditions of this Contract. The Parties
shall further procure that the Company will perform its obligations as set out
in this Contract.

 

4.2          Name and Address of the Company.

 

4.2.1       The name of the Company shall be 

 

7

 

in Chinese and “Shanghai Advanced Traction Battery Systems Co. Ltd.”
(abbreviated as “ATBS”) in English.

 

4.2.2       The initial legal address of
the Company is No. 201 An Yan Road, Jiading District, Shanghai
Municipality, People’s Republic of China.

 

4.3          Limited Liability Company.  The Company shall be a limited liability
company.  Except as expressly agreed in
this Contract or other agreements between the Parties and the Company from time
to time, the liability of each Party with respect to the Company shall be
limited to the amount of its respective subscribed capital contributions
required under this Contract. Neither Party shall have any liability jointly or
severally to any Third Party in respect of the debts or obligations of the
Company. Subject to the foregoing, the Parties shall share the profits, and be
responsible for the losses of the Company in accordance with the ratio of their
respective contributions to the registered capital of the Company.

 

4.4          Legal Person.  The Company shall be a legal person under the
laws of PRC.

 

4.5          Compliance with laws.  The activities of the Company shall be
governed and protected by the relevant published laws, regulations, measures
and rules of PRC and other applicable laws, and the interests of the
Company and the investors shall be protected by PRC law.

 

ARTICLE 5

COMPANY’S PURPOSE, SCOPE OF BUSINESS AND SCALE OF PRODUCTION

 

5.1          Purpose of the Company.  The purpose of the Company is to become the
leading battery system power provider with a dominant market share in China,
for transportation and other applications to be mutually agreed by the Parties,
thereby creating satisfactory economic results for its shareholders.  The Company will seek to achieve these goals
by:

 

(a)           Relying on a
team of outstanding employees with team work and innovation spirit;

 

(b)           Combining
agreed resources and knowledge of both shareholders;

 

(c)           Vigorously
enhancing technology and service; and

 

(d)           Constantly
providing high quality customer-tailored products and services.

 

5.2          Scope of Business of the Company.  The business scope of the Company shall be to
conduct the following operations within the PRC: research & development,
integration, assembly and manufacture of complete Vehicle Traction Battery
Systems and modules primarily used in hybrid electric and pure electric vehicles
(the “Products”), sale of its Products and provision of technical services and
other after-sales services.

 

5.3          Change of business scope.  If the Board unanimously decides to expand
the Company’s business scope, the Parties shall cooperate to amend the business
scope and obtain

 

8

 

necessary regulatory approvals and registrations for the amendment.

 

5.4          Estimated
Scale of Production.  The
Company’s operations will be carried out in phases, as follows: (i) in
Phase 1, the Company will [**].  The
Board will decide when the Company will move from one phase of operations to
the next and will establish corresponding working capital needs.  The initial registered capital of the Company
is based on the working capital needs in Phase 1 and may be increased with the
approval of the Board in later phases according to expansion plans.  The Company’s phases of operations and
estimated scale of production of Products are set forth in greater detail in
the Feasibility Study. The figures contained in the Feasibility Study related
to production and capacity are estimates and may be either increased or
decreased by the Board during actual production based on the market situation,
improvements in productive capacity and other relevant factors.

 

5.5          Feasibility
Study/ Business Plan.  In
the Feasibility Study, the Parties undertook a detailed analysis of the
technical and economic feasibility of the Company for the first [**] years of
the Company’s operations. The Feasibility Study, which the Parties jointly
prepared and presented to the competent authorities for approval, shall serve
as guidance for the Company’s operations and for annual budgeting and business
planning by the Management Team and the Board. 
The Parties shall cause their appointed directors to adhere to the key
operating assumptions, including budgets, and to achieve the sales and revenue
forecasts set out in the Feasibility Study when making Board decisions, and to
direct and incentivize the Management Team to do the same, subject to changing
market conditions and the Company’s evolving business.

 

5.6          New
Products.  Based on
the [**] in the PRC and A123 battery cell’s [**] a majority of the Board,
including a Party B-appointed director, may decide that the Company will
develop, manufacture and sell battery cells [**] in the future.  Once such decision is made by Board, the
Company’s launch program for the battery cell production will also take account
of A123’s existing production capacity. A123 agrees to negotiate in good faith
at that time to supply, at A123’s sole discretion, the necessary [**] and [**]
expertise to assist the Company in this endeavor. It is contemplated that A123
will continue to sell battery cells to the Company as a supplement if the
Company’s capacity cannot meet the market demand as well as support production
of battery cells within the Company.  Further, A123 will consider [**].

 

ARTICLE 6

TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

 

6.1          Total
Investment.  The total
amount of investment in the Company shall be US$23,750,000 (Twenty Three
Million Seven Hundred and Fifty Thousand United States Dollars).  The total investment includes registered
capital as provided in Article 6.2 below, plus additional funds the
Company may borrow.

 

6.2          Registered
Capital.  The total
amount of the registered capital of the Company shall be US$9,500,000 (Nine
Million Five Hundred Thousand United States Dollars), representing
approximately 40% of the total amount of investment.  The remainder of the total investment shall
be raised by funds borrowed by the Company (including without limitation,
direct loans or entrusted loans to the Company by the Parties in their sole
discretion in proportion 

 

9

 

to the agreed ratio of contributions to the registered capital) unless,
pursuant to Article 6.8, the Parties decide to increase their respective
capital contributions.

 

(a)           Party A shall
contribute the Renminbi (“RMB”) equivalent of US$4,845,000 (Four Million
Eight Hundred and Forty-Five Thousand United States Dollars)] in the form of
cash, comprising fifty-one percent (51%) of the registered capital of the
Company.

 

(b)           Party B shall
contribute US$4,655,000 (Four Million Six Hundred and Fifty-Five Thousand
United States Dollars), comprising forty-nine (49%) of the registered capital
of the Company, in the form of cash.

 

6.3          Rate of Exchange.  For purposes of calculating the United States
dollar equivalent of capital contributions designated in RMB, the applicable
exchange rate shall be the average of the buying and selling rates for United
States dollars quoted by the People’s Bank of China (“PBOC”)
on the date the contribution is paid.  Any losses or gains caused by fluctuations in
the exchange rates after such capital contributions are
paid will be borne or enjoyed by the Company and shall not affect the
respective contributions of the Parties to the registered capital of the
Company.

 

6.4          Timing of Capital Contributions.

 

6.4.1       Schedule.  The Parties will make their capital
contributions in installments according to Schedule A of this Contract.

 

6.4.2       Statutory
Requirements.  Pursuant to
applicable Chinese laws and regulations, both Parties agree that the first
installment of capital contribution will not be less than fifteen percent (15%)
of the Registered Capital and shall be paid in within three (3) months
after the issuance of the business license to the Company, with the remainder
to be paid in within two years after the issuance of the business license to
the Company in accordance with Schedule A.

 

6.5          Conditions Precedent to Capital
Contributions. 
Notwithstanding the foregoing provisions of Article 6.4 and except
as required by the applicable officially published laws and regulations of the
PRC, neither Party shall have any obligation to make its contributions to the
registered capital of the Company unless within [**] days after the
Establishment Date:

 

(a)           the parties
thereto have entered into the Ancillary Agreements and such Ancillary
Agreements have become effective;

 

(b)           no breach of
this Contract or Event of Force Majeure shall have occurred and be continuing;

 

(c)           the circumstances described in Article 24.1.1(c) have not
occurred; and

 

(d)           all of the respective representations, warranties and covenants of the
Parties set forth in this Contract are true and correct in every material respect.

 

10

 

If, after [**] days of the Establishment Date:

 

(i)            any of the
Ancillary Agreements has not become effective; or

 

(ii)           there has been
a material breach of Contract which remains uncured, or an Event of Force
Majeure has occurred and continues to exist;
or

 

(iii)          any of the circumstances described in Article 24.1.1(c) has
occurred; or

 

(iv)          one or
more of the respective representations, warranties and covenants of the Parties
set forth in this Contract is materially untrue or incorrect in any respect,

 

and both Parties have not
waived such condition precedent, then a non-breaching Party shall not be
obliged to make its capital contributions and shall have the right to exercise
its options under Article 24.2.2.

 

6.6          Loans.  The Company may borrow funds from authorized
financial institutions within or outside the PRC.  If permitted by applicable laws and
regulations of the PRC, the Company may also borrow direct or entrusted funds
from the Parties, on terms to be separately agreed.  In the event that the borrowings required by
the Company would result in the total amount of investment of the Company
exceeding the amount set forth in Article 6.1, the Parties shall amend
this Contract and the Articles of Association and obtain the approval of such
amendment by the Approval Authority prior to incurring such borrowing.  If the Company borrows funds from an
authorized financial institution and such financial institution requires a
guaranty as collateral or security for its loan, the Company may, with the
approval of the Board, use its own assets as collateral and issue its own
guarantees and similar instruments to secure the loans.

 

6.7          Government Grants.  The projected income statement for the
Company upon which the Company’s total investment and registered capital were
calculated assumes that an additional [**]% of the Company’s registered capital
will be made available for the Company’s use through grants from the [**]
government.  If the Company’s actual working
capital is insufficient and the Company has not received the [**]% grant, both Parties
will amicably negotiate the provision of an entrusted loan of equivalent funds
to the Company bearing interest at a favorable rate no higher than the [**]
rate in the PRC. The loan shall be provided by one Party or both Parties in
good faith based on the understanding and assumptions underlying this Contract.

 

6.8          Increases in Registered Capital.  To meet additional capital requirements of
the Company as determined by the Board unanimously, and if the Company has
reached its borrowing limit based on the debt-equity ratio prescribed under PRC
law, the Parties may agree, but shall not be obligated, to make
additional contributions to the Company’s registered capital in the amount of
any necessary financing, in accordance with their respective percentage
interests in the Company’s registered capital, or in any other ratio and on
such terms as the Parties may agree and subject to unanimous approval by the
Board and the approval of the Approval Authority.

 

11

 

6.9          Reduction in Registered Capital.  During the term of the Company, the Company
shall not reduce the amount of its registered capital, unless justified by
change of the total investment and/or production scale of the Company. Any
reduction of the registered capital of the Company shall require the unanimous
approval of the Board and the approval of the Approval Authority.

 

6.10        Investment Certificates.  After the Parties have made capital
contributions, the Company shall engage an accountant registered in PRC to
verify the contributions. Upon the issuance of a verification report by such
accountant, the Company shall issue an investment certificate to each of the
Parties in accordance with the Joint Venture Law.

 

ARTICLE 7

TRANSFER OF THE EQUITY INTEREST

 

7.1          Transfer to Third Party other
than an Affiliate.

 

(1)           Subject to the provisions of
paragraphs (2) and (3) of Article 7.3 below, any Party who has
fully injected its capital contribution into the Company may only assign, sell
or otherwise dispose of all or part of its equity interest in the Company to a
Third Party with the prior written consent of the other Party (such consent not
to unreasonably withheld or delayed) and subject to the other Party’s
pre-emptive right (or right of first refusal) to the Transfer.

 

(2)           When a Party (the “Transferring
Party”) wishes to assign, sell or otherwise dispose of all or part of its
equity interest in the Company to a Third Party other than an Affiliate (“Non-Affiliate
Third Party”) (the “Transfer”), it shall notify the other Party in writing of (i) its
wish to make the Transfer, (ii) the interest it wishes to transfer, (iii) the
price of the Transfer and (iv) the identity of the proposed transferee
(the “Transfer Notice”). The other Party shall have the right of first refusal
to purchase such interest on terms no less favorable than those offered to or
by such proposed transferee.

 

(3)           The other Party shall notify
the Transferring Party within [**] days of the Transferring Party’s delivery of
the Transfer Notice whether it will purchase the Transferring Party’s interest
in the Company.  If the other Party in
response expresses that it will exercise its right to purchase the Transferor
Party’s interest in the Company, such response will have binding effect on the
other Party.  If the other Party does not
give consent to the intended transfer, it shall purchase the Transferor Party’s
interest under transfer.  If the other
Party fails to respond to the Transfer Notice within the aforementioned [**]
day period, it shall be deemed to have agreed to the Transfer to the proposed
transferee on the terms specified in the Transfer Notice, and the Transferring
Party shall assign, sell or otherwise dispose of such interest to such proposed
transferee, on the terms and conditions set out in the Transfer Notice. The
Transferring Party shall provide the other Party with a duplicate of the
executed written agreement with the transferee within [**] days of the
execution of the agreement.

 

(4)           In
any instance where Party A is the Transferring Party and to the extent that
Party B’s right to purchase all or part of Party A’s interest in the Company
pursuant to the above-described right of first refusal is subject to restrictions
under relevant PRC laws and 

 

12

 

regulations, Party B undertakes
to exercise its right in good faith.  With
good cause, Party B will have the right to refuse to consent to the intended
Transfer, but shall endeavor to designate a qualified transferee to make such
purchase on its behalf on terms no less favorable than those offered to or
by any other intended transferee.  If no such qualified transferee is identified
or agrees to purchase pursuant to the above, the Parties will negotiate in good
faith a commercially reasonable solution that does not hinder Party A’s ability
to sell its interest but also does not force Party B into a joint venture with
a third party.

 

7.2          Transfer
to an Affiliate.

 

(1)            Notwithstanding the
foregoing, the Parties agree that either Party may transfer all or any part of
its registered capital interest in the Company to any of its Affiliates for tax
or other reasons related to reasonable business reorganizations in accordance
with the following process: the
Transferring Party will notify the other Party of any such intended transfer
and the other Party will communicate any concerns or objections to the
Transferring Party within [**] business days. 
The Transferring Party will endeavor to address any such concerns and
the other Party shall then give its consent and cause its appointed directors
to give their consent to any such transfer if (i) the proposed Affiliate
assignee has sufficient capability to perform the assigning Party’s obligations
under this Contract and (ii) the Transfer will not adversely affect the
Company’s business and implementation of any agreements to which the Company is
a party.

 

(2)           If the assignee of such
equity interest under Article 7.2(1) ceases to be an Affiliate of the
Transferring Party, prior to the assignee ceasing to be an Affiliate the
Transferring Party together with the assignee shall procure the transfer back
to the Transferring Party or another Affiliate of the Transferring Party of all
of such equity interest held by the assignee.

 

7.3          General
Transfer Provisions.  Any
transfer under Article 7 shall not become effective unless:

 

(1)           such transfer has been
approved by the other Party in the case of transfers pursuant to Article 7.1;

 

(2)           the transferee has agreed in
writing to be bound by all the terms of this Contract and shall acquire
relevant rights and assume corresponding obligations and responsibilities of
the Transferring Party under this Contract;

 

(3)           Such transfer shall be
approved by relevant Approval Authorities; and

 

(4)           The assignee shall assume
the obligation of providing guarantee or security in relation to the Recourse
Financing pro rata to the assignee’s equity interest in the Company in
accordance with this Contract, or where any of the relevant lenders does not
permit such arrangement the Transferring Party shall continue to be obligated
to provide the guarantee or security.

 

7.4          Encumbrance
of Registered Capital. 
Neither Party shall mortgage, pledge or otherwise encumber all or any
part of its contribution to the registered capital of the Company without the
prior written consent of the other Party.

 

13

 

7.5          Investment Certificates.  Upon any Transfer by a Party of all or any
part of its registered capital interest in the Company pursuant to this Article 7,
the Transferring Party shall turn in to the Company for cancellation its
investment certificate issued by the Company, and the Company shall issue in
its place a new investment certificate or certificates, as appropriate.

 

ARTICLE 8

CHANGE OF CONTROL

 

8.1          The Acquired Party shall
notify the other party (the “Non-Acquired Party”) in writing (the “Change
Notice”) of any proposed Change of Control which may affect the Acquired
Party.  Such Change Notice shall be given
no later than the earlier of (a) the public announcement of the proposed
Acquisition, or (b) the signing by the Acquired Party of a binding
memorandum of understanding or letter of intent in relation to the proposed
Acquisition.

 

8.2          Upon receiving the Change
Notice, the Non-Acquired Party shall have the right to initiate, upon written
notice given no later than [**] calendar days following receipt of the Change
Notice (the “Notice Period”), the Change Impact Assessment pursuant to Article 8.3;
provided, however, that if no such Change Impact Assessment is initiated by the
Non-Acquired Party during the Notice Period, then the Non-Acquired Party shall
continue to be a shareholder of the Company and party to this Contract.

 

8.3          Change Impact Assessment.  In the event that the Non-Acquired Party
elects during the Notice Period to initiate a Change Impact Assessment, the
Parties hereby agree with the following procedure (the “Change Impact
Assessment”):

 

8.3.1       The Board shall assess, in
good faith, the impact of the Change of Control on the business, management and
operations of the Company.

 

8.3.2       If, in good faith, the
majority of the Board determines that the Change of Control has caused a
material adverse effect on the business, management or operations of the
Company such that the Company can no longer meet the goals of this Contract as
set forth in Article 1.1 and the purpose of the Company as set forth in Article 5.1,
then the Non-Acquired Party shall have the right to exercise its options
pursuant to Article 24.2.2.

 

8.4          Should the Non-Acquired
Party choose to purchase some or all of the equity interest of the Company
owned by the Acquired Party pursuant to Article 24.2, then the
Non-Acquired Party shall pay related fees and expenses incurred in connection
with the determination of the Purchase Price.

 

ARTICLE 9

RESPONSIBILITIES OF THE PARTIES

 

9.1          Responsibilities of the Parties.  In addition to its other responsibilities
under this Contract, the Parties shall mutually:

 

(a)           assist in
handling relative matters relating to the establishment of the Company,
including submission of the applications to the Approval Authority and any
other relevant governmental authority whose approval is required for approval
of this 

 

14

 

Contract,
the registration of the Company and the issuance of the Company’s business
license and the establishment of RMB and foreign exchange bank accounts;

 

(b)           assist the
Company to handle procedures in connection with the submission of applications
for, and the grant of, all necessary approvals, permits, certificates and
licenses required in connection with all matters regulated by Chinese
governmental authorities, including without limitation, safety and
environmental matters, foreign exchange matters and approvals, and Chinese tax
preferences, holidays and concessions and any other investment incentives
available to or for the Company and the Parties;

 

(c)           assist the
Company, if required, to handle procedures and obtain all relevant import and
export licenses and approvals for (i) any import supply agreements and
arrangements, (ii) the Company’s imported equipment, machinery, vehicles,
raw materials and export products;

 

(d)           assist the Company
to recruit appropriate management and personnel;

 

(e)           assist the
Company to procure from abroad, at price deemed competitive by the Company,
equipment, supplies and raw materials.

 

9.2          Responsibilities
of Party A.  In addition
to its other responsibilities under this Contract, Party A shall:

 

(a)           ensure the
Company has an initial base of business through producing and supplying 100% of
the battery systems and parts thereof required under the [**] Program or other
replacement programs on the terms set out in the Letter of Intent regarding
Production Programs,

 

(b)           procure that
the Company signs and ratifies the Letter of Intent regarding Production
Programs;

 

(c)           procure that
the Company shall be the preferential supplier of Vehicle Traction Battery
Systems for all hybrid electric/pure electric vehicles manufactured by SAIC
Motor or any of its joint venture companies or wholly-owned subsidiaries,
provided the terms of supply are competitive in terms of quality, service,
technology and price. The detailed terms and conditions of supply will be
agreed upon by the relevant purchasing entity and the Company;

 

(d)           assist the
Company with receiving tax, duty exemption and other investment incentives the
Company may be eligible for according to PRC laws and regulations applicable to
Chinese-foreign joint ventures;

 

(e)           use its best
endeavors to fully utilize its resources to determine the applicability to the
Company of existing or potential preferential policies encouraging the
development of the clean energy industry and to immediately notify Party B and
the Company of the same;

 

15

 

(f)            use its best
endeavors to utilize its resources and influence to assist the Company with
receiving the maximum incentives available under State, provincial, municipal
and local government policies encouraging the development of new energy
vehicles, including government funding, subsidies, grants, loans, purchase
contracts, tax exemptions and reductions, subsidized land grants or preferential
rent rates for operating premises and other forms of incentives available under
relevant stimulus plans for as long as the policies are available, provided
that the Company will meet the relevant requirements set by the government;

 

(g)           use its best
endeavors to assist the Company to receive cash grants from the [**] municipal
or [**] district government equivalent to [**] percent ([**]%) of the Company’s
total registered capital and if possible, to increase the amount of cash grants
to [**]% of the Company’s total registered capital

 

(h)           assist the
Company in promotion of its related products in the sectors Company engaged;

 

(i)            use best
endeavors to assist the Company in obtaining government funding, subsidies,
grants, loans, purchase contracts, tax exemptions and reductions, subsidized
land grants, or preferential rent rates for operating premises and other forms
of incentives available under stimulus plans and other preferential policies
applicable to clean energy or the automotive sectors;

 

(j)            assist the
Company to be certified as a High and New Technology Enterprise entitled to the
reduced corporate income tax rate;

 

(k)           obtain all
necessary governmental approvals for the establishment of the Company, obtain
the business license of the Company, complete all post-establishment
formalities and attend to other matters related to the establishment of the
Company and the Company becoming operational;

 

(l)            assist
directors and foreign personnel of Party B and the Company to obtain all
necessary entry visas, travel documents and work permits;

 

(m)          assist the
Company in its relations with local government authorities;

 

(n)           enter into
those Ancillary Agreements to which it is a party;

 

(o)           as to the
matters provided in Article 9.3 as regards Party B’s responsibilities,
provide necessary and reasonable assistance;

 

(p)           to use its best
endeavors to procure the Company (i) to use Party B’s Intellectual
Property solely for the purposes permitted by, and strictly in accordance with,
the Technology License Contract, and not for any other purpose, (ii) to
promptly notify Party B of any circumstances involving the Company or any
director, employee, customer or contractor of the Company which may constitute
infringement of Party B’s Intellectual Property; (iii) to take all
reasonable action that Party B may request in 

 

16

 

connection
with its Intellectual Property to prevent infringement or unauthorized use
thereof by the Company or any director, employee, customer or contractor of the
Company; and (iv) not to use any Intellectual Property which includes or
is covered by Party B’s Intellectual Property to design, make or sell any
product to or for any third party; and

 

(q)           handle other
matters entrusted to it by the Company and as agreed from time to time by Party
A.

 

9.3          Responsibilities
of Party B.  In addition
to its other responsibilities under this Contract, Party B shall:

 

(a)           as requested by
the Company, provide certain services to the Company to be agreed between A123
and the Company, and grant necessary advanced technology licenses to the
Company, as mutually agreed, for the development, manufacture and service of
the Products under a royalty and fee structure to be mutually agreed in the
applicable Technology License Agreement(s) and Professional Services
Agreement(s) that will compensate A123 for providing its know-how,
intellectual property (to be identified by A123), engineering capabilities and
technical assistance to the Company and which contains other terms and
conditions acceptable to A123 and the Company.

 

(b)           without any
limitation on Article 5.6, if the Board (including at least one director
appointed by Party B) decides to engage in the development and manufacture of
vehicle traction battery cells, grant the Company relevant licenses to develop
and manufacture the cell of Vehicle Traction Battery Systems, provided (i) the
terms and conditions of the licenses are acceptable to A123 and Company and (ii) the
Company purchases certain materials from A123 (to be agreed in the relevant
technology license contract) for the production of such cells;

 

(c)           if requested by
the Company, provide after-sales services and other professional services to
the Company’s customers pursuant to relevant service agreements;

 

(d)           supply the
Company with battery cells according to the Company’s production plan and
according to purchase contracts to be agreed by the Company and A123.

 

(e)           assist the
Company in its sourcing components and related supply chain activities

 

(f)            enter into or
cause its Affiliates to enter into those Ancillary Agreements, to which it or
any of its Affiliates is a party;

 

(g)           assist
directors and foreign personnel of Party A and the Company to obtain all
necessary entry visas, travel documents and work permits;

 

(h)           as to the
matters provided in Article 9.2 as regards Party A’s 

 

17

 

responsibilities,
provide necessary and reasonable assistance;

 

(i)            handle other
matters entrusted to it by the Company and agreed from time to time by Party B.

 

ARTICLE 10

PURCHASING

 

10.1        As a general
principle, the Company shall have the right to purchase materials and
components at its own discretion on domestic and foreign markets, subject to Article 10.2,
Article 10.3 and other provisions in this Contract.

 

10.2        In accordance
with the Company’s production plan, Party B will supply the Company with
battery cells on terms and conditions to be agreed in good faith in relevant
purchase contracts. The General Manager and Deputy General Manager, acting
jointly, may approve purchases of battery cells from suppliers other than A123
subject to Article 10.3 below, if all the following conditions are
satisfied: (i) A123 has been given a First and Last Look at the offering
conditions and suitable time to effect changes necessary to achieve a
competitive position, meaning that A123 has confirmed in writing within [**]
working days after being provided by the Company with the [**] other supplier’s
conditions, that it is unable to meet the other supplier’s conditions, having
been provided by the Company with targets, milestones and other relevant
information in writing as would be necessary for A123 to effect changes to make
A123’s supply conditions reasonably competitive with the other supplier’s
conditions; (ii) the Company has used its best efforts to promote to the
relevant customer the use of A123 cells over all other suppliers’ cells; and (iii) there
will not be a violation of Article 10.3 or Article 22.3 as a result
of the purchase of cells from that other supplier.

 

10.3        The Company
must at any time fulfill at least [**] percent ([**]%) of its cumulative cell
requirements with purchases of A123 battery cells.  If at any time a quotation incorporates cells
other than A123 battery cells and the usage of those non-A123 cells would cause
the Company to fulfill less than [**] percent ([**]%) of its cumulative cell
requirements with A123 battery cells, the Company may not issue the quotation,
except with the approval of the majority of the Board including a Party
B-appointed director.  Any sales
quotation must be examined and approved by both the General Manager and Deputy
General Manager in accordance with the above requirement to be effective.  The Parties agree to commence a review of the
minimum percentage requirement on [**].  With
a minimum of [**] concrete examples of the non-competitiveness of the A123
cells in the areas of [**], the Board may at that time decide based on a
majority vote that includes at least one Party B-appointed director to lower
the A123 cell percentage requirement. The Board shall not unreasonably
withhold, condition or delay a decision in this regard. The A123 cell
percentage requirement shall in no case be lower than [**] percent ([**]%).

 

10.4        The Company
shall make its own purchasing decisions and purchases of raw materials, oil,
chemical materials, spare parts of equipment and tooling needed for the
business.

 

18

 

ARTICLE 11

OPERATION PREMISES OF THE COMPANY

 

Based on the Feasibility Study and the planned
phases of operation, the Company may lease, purchase or build its offices and
production facilities with the approval of the majority of the Board.  Party A shall use its best efforts to obtain
the maximum reduction in land prices and related costs for the Company under
the [**] government policies encouraging the development of the new energy
vehicle industry and other policies applicable to the Company.

 

ARTICLE 12

LICENSE OF TECHNOLOGY AND TRADEMARKS

 

12.1                        Technology.  The Parties shall agree on the term sheet of
the Technology License Contract by the time this Contract is signed and shall
enter into, and cause the Company to enter into the Technology License Contract
promptly after the Establishment Date.  Pursuant to
the Technology License Contract, Party B will provide a
royalty-bearing technology license to the Company to use, market and
otherwise make available the Licensed Technology for purposes related to operations
of the Company in China.  In consideration for the license granted under
the Technology License Contract, Party A and the Company each agree that it
shall not enter into any form of cooperation with any entity that engages in
businesses similar to that of Party B or its Affiliates for the term of this
Contract including, with respect to Party A, the business of the Company.  Each Party shall, and cause the Company to,
use its respective best efforts to police copyright, trademark and patent infringement
of the Licensed Technology and the Products within the PRC.

 

12.2                        Trademark.

 

(a)                                  The Company
shall develop and utilize its own brand to produce and sell the Products.

 

(b)                                 Where Products
incorporate A123 battery cells, the Company shall be required to display A123
trademarks (as designated by Party B) prominently in a manner that is visible
on the outer casing of the Products, on a royalty-free basis and in accordance
with other terms and conditions of the Trademark License Contract, to distinguish
the origin of the battery cells.

 

(c)                                  The Parties
shall agree substantially on the form of the Trademark License Contract at the
time of signing this Contract, and shall enter into, and cause the Company to
enter into the Trademark License Contract promptly after the Establishment
Date.  After the Trademark License
Contract has been signed, it shall be filed
with the relevant trademark authorities for the record.

 

12.3                        Professional
Services.  The Parties
shall agree substantially on the form of the Professional Services Contract at
the time of signing this Contract, and shall enter into, and cause the Company
to enter into the Trademark License Contract promptly after the Establishment
Date.  Pursuant to the Professional Services Contract,
Party B shall provide the Company
with continuing technical and consulting services relating to the Company’s development of  the
Products and use of the Licensed Technology.

 

19

 

ARTICLE 13

SALES AND SERVICES

 

13.1                        Domestic
Sales.  The primary
purpose of the Company shall be to develop, manufacture, market and sell
Products in the PRC market.

 

13.2                        Exports.  The Company may export Products to the [**],
and to other locations, which Party A provides [**] days’ prior written notice
of to Party B, to support Party A’s manufacturing of [**] branded vehicles
outside China, provided the General Manager and Deputy General Manager acting
jointly determine that the vehicles manufactured outside China were developed
by Party A in China and the export activity would not cause Party A to breach Article 22.

 

13.3                        After
Sales Services.  The Company
is entitled to set up its after-sales services network based on related Board
approval.

 

ARTICLE 14

BOARD OF DIRECTORS

 

14.1                        Establishment.  The Board shall be established on the
Establishment Date. The first meeting of the Board shall be held within [**]
days after the Establishment Date.

 

14.2                        Composition
and Term.  The Board
shall consist of [**] directors, appointed as follows:

 

(a)                                  [**] directors
to be appointed by Party A, one of whom shall be the Chairman of the Board for
the first term (collectively the “Party A Directors” and individually a “Party
A Director”); and

 

(b)                                 [**] directors
to be appointed by Party B, one of whom shall be the Vice Chairman of the Board
for the first term (collectively the “Party B Directors” and individually a “Party
B Director”).

 

After the first term, Party
B shall have the right to appoint the Chairman and Party A shall have the right
to appoint the Vice Chairman. 
Thereafter, the right to appoint the Chairman and Vice Chairman shall
rotate between the Parties for terms of [**] years each. The term of office of
the Board shall be [**] years, and directors may serve consecutive terms if
reappointed by the appointing Party.

 

14.3                        Appointment
and Removal of Directors.

 

(1)                                  Each Party
shall have the right, at any time, to remove with or without cause and replace
any director appointed by it (including the Chairman and Vice-Chairman), before
the expiration of such director’s term. In the event that a director is
removed, becomes incapacitated, dies, resigns or otherwise ceases to be a
director, the Party that appointed such director shall appoint a new director
to serve for the remainder of the term of office of such former director.

 

20

 

(2)                                  All
appointments and removals and replacements of directors shall be made by
written notice signed by the Party making or revoking the appointment and sent
to the Company and to the other Party.

 

14.4                        Authority.

 

14.4.1              The Board shall be the
Company’s highest authority. The Board shall decide on all major issues
concerning the Company, including without limitation the following matters:

 

(1)       approving any amendment of
this Contract or the Articles of Association;

 

(2)       approving the dissolution or
liquidation of the Company;

 

(3)       approving the increase or
reduction of the registered capital of the Company, or the transfer of a Party’s
equity interest in the Company;

 

(4)       approving any merger,
acquisition or division of the Company;

 

(5)       approving the Company’s
annual financial budget and final accounts in accordance with the Feasibility
Study, and the amount and timing of allocations to, and use of, the Three Funds
(as defined in Article 18.5(a));

 

(6)       approving the Company’s
annual production and operations plan in accordance with the Feasibility Study,
including the Products that the Company will produce, and purchases of battery
cells and other components required for the Company’s operations;

 

(7)       approving purchases by the
Company of battery cells from a supplier other than A123 in accordance with Article 10.3;

 

(8)       deciding whether and to
where the Company should export its Products except for export pursuant to Article 13.2;

 

(9)       approving any investment
project not included in the Board-approved annual budget;

 

(10)         approving the
Company’s plans for profit distribution and recovery of losses;

 

(11)         deciding on
changes to the Company’s organization and management structure and operating
principles;

 

(12)         appointing
managers in the Management Team, based on nominations of the Party specified in
Article 16.1, defining or redefining managers’ scopes of duties, and
deciding their remuneration and benefits;

 

(13)         dismissing and
replacing managers in the Management Team at the 

 

21

 

request
of a Party;

 

(14)         appointing and
removing the Company’s Registered Auditor, external auditors, accountants and
legal counsel;

 

(15)         borrowing and
entering into any borrowing arrangements by the Company with any Third Party or
any Party;

 

(16)         entering into,
amending, modifying, and terminating any contracts, agreements or arrangements
between the Company and any Party, its Affiliates or the Company’s directors or
managers;

 

(17)         creating any
mortgage, pledge or other encumbrance over shares, equity interests, or any
asset of the Company, or the provision of any guarantee, for the debts of any
other person; establishing bank credit facilities or the borrowing of loans
having an aggregate value in excess of RMB [**] in a single transaction or a
series of related transactions, in each case, except as provided for in the
relevant annual budget approved by the Board in accordance with Article 14.4.1(5);

 

(18)         adopting or
amending the Company’s general business policies including its branding policy;

 

(19)         adopting or
amending the Company’s internal policies and procedures regarding management of
financial accounts, execution of legal documents, applicable ethical rules and
ethical practices;

 

(20)         commencing any
legal or dispute resolution proceedings involving amounts exceeding RMB [**];

 

(21)         approving any
capital expenditure by the Company in excess of RMB [**], except as
specifically provided for in the relevant annual budget approved by the Board
in accordance with Article 14.4.1(5);

 

(22)         incorporating a
subsidiary or entering into any partnership, joint venture or agency
arrangement;

 

(23)         establishing a
branch or other place of business for the Company;

 

(24)         selecting any
site and buildings for the establishment or expansion of the Company’s
operations, approving real estate lease or purchase contracts and approving the
budget and plans for any construction, renovation or refurbishment of any of
the Company’s operations and business premises;

 

(25)         opening of bank
accounts and designation of signing authority;

 

(26)         deciding any
other matter reserved to the Board by PRC law or as determined from time to
time by the Parties.

 

22

 

14.4.2              Resolutions of the Board
shall be adopted in accordance with relevant PRC laws such as the Joint Venture
Law and Company Law, this Contract and the Articles of Association.

 

14.4.3              Resolutions with respect to
the following matters shall require the unanimous approval of all of the
directors of the Company, whether present and voting in person or voting by
proxy at a Board meeting at which a quorum has been established:

 

(1)                                  amendment of
this Contract or the Articles of Association;

 

(2)                                  dissolution or
liquidation of the Company;

 

(3)                                  increase or
reduction of the registered capital of the Company;

 

(4)                                  merger,
acquisition or division of the Company.

 

14.4.4              All other resolutions shall
be made by approval of a majority of the directors voting in person or by proxy
at a Board meeting at which a quorum has been established, provided that at
least one director appointed by Party A and one director appointed by Party B
has given their approval.  The Board may
also delegate certain matters for decision and implementation by the Management
Team.

 

14.4.5              Each director shall have
only one vote when voting at Board meetings. The Chairman shall not have a
casting vote.

 

14.4.6              The directors shall observe
the Articles of Association, faithfully perform their duties and protect the
interests of the Company.

 

14.5                        Legal
Representative.  The
Chairman of the Board shall be the legal representative of the Company and
shall act for an on behalf of the Company only pursuant to this Contract, the
Articles of Association and resolutions of the Board.  If the Chairman is unable to perform his or
her duties for any reason, the Chairman of the Board shall authorize the Vice
Chairman of the Board, or, if the Vice Chairman cannot perform the duties under
such authorization, the Chairman may authorize another director to discharge
such responsibilities.  If the Chairman
is unable to perform such authorization, the Board shall authorize another
director to perform such duties.

 

14.6                        Compensation
and Expenses.  Directors
shall in principle serve the Company without compensation.  Expenses incurred by any directors in
connection with attending meetings of the Board shall be borne by the Company.

 

14.7                        The Company
shall indemnify each director against all claims and liabilities incurred by
reason of his being a director of the Company, provided that the director’s
acts or omissions giving rise to such claim or liability did not constitute willful misconduct, fraud,
gross negligence or a violation of the criminal laws of the PRC.  In addition, the Company reserves the right
to pursue any claims  against
directors who cause the Company to incur unauthorized claims or liabilities.

 

23

 

14.8                        Meetings.

 

14.8.1              The Board shall have not
less than [**] meetings every year. The Chairman of the Board shall inform the
directors of the date, place and agenda of the meeting in a written notice at
least [**] days before the meeting is convened.

 

14.8.2              The first meeting of the
Board shall take place within [**] from the Establishment Date. The Parties
agree that the resolutions which shall be approved by the Board at such first
meeting shall include, but not be limited to, the following:

 

(1)                                  Appointment of
the managers nominated in accordance with this Contract and the Articles of
Association;

 

(2)                                  Authorization
to the Chairman of the Board or the General Manager to sign or ratify the
following Contracts signed by the Parties on behalf of the Company before the
establishment of the Company:

 

(a)                                  the Technology
License Contract between the Company and Party B;

 

(b)                                 the Trademark
License Contract between the Company and Party B;

 

(c)                                  the
Professional Services Contract between the Company and Party B;

 

(d)                                 the Lease
Contract relating to the Company’s initial operation premises; and

 

(e)                                  the Letter of
Intent regarding Production Programs.

 

Each of the Parties agrees to cause the directors appointed by it to
the Board to vote in favor to the adoption of the resolutions referred to under
items (1) and (2) above at the first Board meeting in accordance with
the agreement between the Parties.

 

14.8.3              The board may, in lieu of
meeting in person, conduct any meeting by means of telephone, video
conferencing, tele-presence and other electronic communications involving
telephony provided that every director participating in at the meeting is able
to hear and speak to all other directors present at all times.

 

14.8.4              In lieu of a meeting of the
Board, a written resolution signed by all the directors of the Company shall
have the same effect as a resolution taken by the Board in at a duly convened
meeting of the Board and approved by the requisite number of directors.

 

14.9                        Quorum
and Interim Meeting.

 

(1)                                  A quorum of
[**] of all directors of the Company, present in person, by telephonic means by
their proxies, including at least one director appointed by Party A and at 

 

24

 

least one director appointed by Party B, shall be required to conduct
business at any Board meeting.  No
meeting shall be held at which a quorum is not present. Except due to an Event
of Force Majeure, neither Party shall unreasonably refuse to attend a Board
meeting or grant a proxy for the meeting.

 

(2)                                  Should any
director be unable to attend a meeting of the Board, he may authorize another
director by written proxy to attend such meeting and vote on his or her behalf.
In the event that no proxy is appointed by the absent director to attend a
meeting of the Board, the absent director shall be deemed to have waived his or
her right to vote at such meeting.

 

(3)                                  If a scheduled
Board meeting cannot be held because of the lack of a quorum, such a meeting
shall be automatically postponed by [**] business days.  There shall be no change to the time, venue
and agenda of meeting, but the secretary of the Chairman shall send a written
notice to all directors informing them of the new meeting date.

 

(4)                                  Upon the
written request of [**] or more directors specifying the matters to be
discussed, the Chairman of the Board shall convene an interim meeting of the
Board.

 

14.10                 Minutes
of Meeting.

 

(1)                                  Board meetings
shall be conducted in English and Chinese. 
The Company shall provide translation services for all meetings of the
Board. As soon as possible after each meeting of the Board, minutes of the
meeting shall be given to all directors for their review. Any director wishing
to amend or supplement the record shall, within [**] weeks of his/her receipt
of the minutes of such meeting, submit a written report containing his/her
comments to the Chairman and the Vice Chairman.

 

(2)                                  The minutes of
the meeting as finalized and adopted shall be signed by all directors attending
the meeting and shall be filed to the Company with complete copies thereof
being promptly distributed to the Parties and all directors. Minutes of all
meetings of the Board and resolutions adopted in lieu of a meeting, in both
English and Chinese shall be kept in the minute book of the Company at the
Company’s legal address.

 

ARTICLE 15

SUPERVISORS

 

15.1                        The Company
shall have [**] supervisors, to be appointed by each Party respectively, for a
term of not more than [**] years.  The
Directors or senior management and financial personnel shall not concurrently
serve as supervisors of the Company.  The
supervisors, if reappointed, may serve consecutive terms.

 

15.2                        Supervisors
shall have the following responsibilities:

 

(1)                                  inspect the
financial situation of the Company;

 

(2)                                  monitor the
performance of corporate duties by directors and senior management; propose
dismissal of directors and/or senior management who materially violate
applicable laws and regulations, this Contract and/ or the Articles of
Association of the Company;

 

25

 

(3)                                  request directors
and senior management to make correction if their acts are detrimental to the
interests of the Company;

 

15.3                        The supervisors
may attend the Board meeting as non-voting delegates, and may inquire and
propose to the Board in respect of issues decided by the Board.

 

15.4                        The supervisors
shall keep all written records of the decisions and actions they made or took
during their tenure as supervisor, and the copy of such record shall be
provided to both Parties.

 

15.5                        The Company
shall bear the necessary expenses of the supervisors in performing their
responsibilities.

 

15.6                        The Company
shall indemnify the supervisors from and against any and all claims and
liabilities caused by the supervisors in relation to their legitimate
performance of duties as supervisor to the extent that the supervisors are
responsible for such claims and liabilities, provided that the acts or
omissions of the supervisors causing such claims or liabilities do not
constitute willful misconduct or gross negligence or violation of applicable
laws and regulations, or the rules, regulations and policies of the Company.

 

ARTICLE 16

MANAGEMENT

 

16.1                        The Company
shall establish a management structure as authorized by the Board to be responsible for
the Company’s day-to-day operations under the authorization and supervision of
the Board.  The management structure of
the Company shall consist of the Management Team reporting to the General
Manager and Deputy General Manager jointly. 
Party A shall nominate persons for the following positions, and subject to
unanimous approval of the Board of such nominations, the Board shall appoint
the persons so nominated:

 

(a)                                  General Manager

 

(b)                                 Chief Financial
Officer

 

(c)                                  Head of
Purchasing

 

Party B shall nominate persons for the following
positions, and subject to unanimous approval of the Board of such nominations,
the Board shall appoint the persons so nominated:

 

(d)                                 Deputy General
Manager

 

(e)                                  Chief
Technology Officer

 

(f)                                    Head of
Manufacturing

 

The General Manager and Deputy General
Manager shall jointly nominate the Head of Sales, and the Board shall appoint
the person so nominated if the Board unanimously 

 

26

 

approves the nomination.

 

All things being equal, the Company shall
recruit people with local knowledge, experience and connections for the
positions in the Management Team.

 

16.2                        The duties of
the Management
Team shall be to implement the various Board resolutions and to organize and
lead the day-to-day operations management work of the Company as more fully
provided in the Articles of Association. Within the scope authorized by the
Board, either the General Manager or Deputy General Manager shall represent the Company
in external matters in its day-to-day operations.  Within the scope authorized by the Board, the
General Manager and Deputy General Manager shall jointly make decisions
concerning the Company’s daily operations. 
To be effective, any sales quotation issued by the Company to its
customers and any written report to the Board must signed by both the General
Manager and Deputy General Manager.  The
other managers in the Management Team shall assist the General Manager and
Deputy General Manager within their respective scopes of duties (as determined
by the Board) and report to the General Manager and Deputy General Manager
jointly.

 

16.3                        The term of the
managers shall be [**] years each, subject to [**] performance reviews
conducted by the Board, and shall be renewable at the end of [**] years by a
majority of the Board.

 

16.4                        The Board shall
conduct [**] performance reviews of every manager, unless a majority of the
Board decides on a different frequency of review.  Upon the request of either Party at a
performance review or at any time for cause, the Board shall dismiss a manager
from his or her position.  If any manager
is dismissed, resigns, dies or becomes incapacitated, a successor shall be
nominated and appointed in the same manner set forth in Article 16.1 and Article 16.3.

 

16.5                        The salaries
and welfare and other benefits of the personnel of the Company shall be
determined by the Board with regard to PRC laws and regulations, and set in
writing in the executive employment agreement between the Company and the
relevant manager.

 

16.6                        Directors and
managers may not take advantage of their position and authority in the Company
to seek their own personal gain.  Without
the express prior written consent of the Board, throughout the term of their service as directors and/or managers of the
Company and for a period of [**] years after the termination or expiration of
their service as directors and/or managers of the Company, directors and
managers may not engage for their own account or for other persons (including
the Parties and their respective Affiliates) in businesses that directly
compete with the business of the Company, the Parties or the Parties’
Affiliates.  Except as provided in Article 21
or with the consent of the Board, directors and managers may not disclose the
secrets or Confidential Information of the Company.

 

ARTICLE 17

PERSONNEL AND LABOR MANAGEMENT

 

17.1                        All matters
concerning labor management of the Company, including the establishment of a
trade union organization, the conclusion of labor contracts between the Company
and the individual employees of the Company and the recruitment, compensation, 

 

27

 

dismissal, welfare benefits and labor insurance of employees shall be
handled in accordance with the pertinent stipulations of the Joint Venture Law, the Labor Law of the PRC, the Labor
Contract Law of the PRC, the Provisions of the PRC for
Labor Management in Foreign Invested Enterprises and other
officially published laws and regulations of the PRC related to labor and
social security, and the applicable implementing measures thereunder, including
all local legislation on labor management and other applicable rules and
regulations.

 

17.2                        Subject to Article 16,
the Company shall have the right directly to recruit, hire and dismiss
employees in accordance with PRC law.  In all cases,
the Company shall employ only those employees who are sufficiently qualified
for employment as determined through open examinations.

 

17.3                        The Company
shall sign an individual labor contract with attached code of ethics with each
of its employees.  Relevant employees
will also be required to sign Proprietary Information and Inventions
Agreements.  Each labor contract shall
include the agreement reached between the Company and the employee in question
concerning the type of work, technical ability, total wages of such employee
(including, but not limited to, bonuses, housing subsidies and welfare
benefits) and protection of the Company’s proprietary and licensed technology
and information.  Increases in wages and
bonuses shall be determined by the Board upon the recommendation of the
Management Team.

 

17.4                        The individual
labor contracts for employees of the Company shall be signed in the form agreed
to by the Parties prior to the execution of this Contract and upon execution
thereof the individual labor contracts shall be submitted to the competent
local bureau of the Ministry of Human Resources and Social Security within one
month for certification.

 

17.5                        For so long and
to the extent required by law, the Company shall pay monthly a percentage of
the actual wages to be paid to the PRC employees of the Company for such month
in accordance with the applicable PRC laws and as determined by the Board of
Directors into the Company’s trade union fund for such trade union’s use.

 

17.6                        Throughout the
term of their service as employees of the Company and, in the case of employees
who had access to Confidential Information or Intellectual Property, a period
of [**] years after the termination or expiration of their service as employees
of the Company, employees may not engage for their own account or for other
persons (including the Parties and their respective Affiliates) in businesses
that directly compete with the business of the Company or engage in any
activities that harm the interests of the Company.

 

ARTICLE 18

FINANCIAL AFFAIRS AND ACCOUNTING

 

18.1                        Accounting
System.

 

(a)                                  The Company
shall formulate its accounting rules (the “Financial and Accounting System”)
and keep official books and accounts in accordance with the

 

28

 

Enterprise
Accounting System of the PRC and other relevant Chinese laws and regulations,
this Contract, the Articles of Association and, to the extent not inconsistent
with the published laws and regulations of the PRC, keep another set of books
in accordance with the United States generally accepted accounting principles (“US
GAAP”) for A123’s use.  The Company shall
bear all costs related to compliance with US GAAP.

 

(b)                                 The financial
year of Company shall run from January 1 to December 31 of the same
calendar year. All accounting records, vouchers, bonds and statements of the
Company shall be made and kept in the Chinese language. All important financial
statements shall be prepared in Chinese and English and require written
confirmation of the chief financial officer and then the approval and signature
by the General Manager and such financial statements shall be true and complete
and shall fairly represent the financial position of the Company as of the date
of each such statement and the results of operations for the fiscal period
covered thereby.

 

(c)                                  The Financial
and Accounting System shall be implemented after approval by the Board.  Unless expressly required by officially
published laws and regulations of the PRC, changes in accounting procedures and
practices may be implemented only upon approval by a majority of the
Board.  The Financial and Accounting
System, and changes thereto, shall be filed with the relevant PRC government
departments for the record as may be required by PRC law.

 

18.2                        Audit.

 

(a)                                  Annual Audit.  A Registered Auditor shall be engaged by the
Company to examine and verify its annual accounts, and submit its report (in
Chinese and English) to the Board and the Management Team.  If requested by either Party, the Company
shall also retain independent accountants or auditors from an internationally
recognized accounting firm to work jointly with the Registered Auditor.  Expenses incurred in respect of this work
shall be paid by the requesting Party. 
Any significant differences between the determinations of the Registered
Auditor and such independent accountants or auditors shall be immediately
referred to the Board.

 

(b)                                 Reports.  The Company shall prepare monthly, quarterly
and annual financial statements of the Company for distribution to the Parties
and submission to relevant departments of the PRC government, as may be
required in accordance with officially published laws and regulations of the
PRC.  Monthly and quarterly statements
shall be distributed to the Parties within [**] days after the end of the
relevant month or quarter.  The Company
shall submit to the Parties for their respective financial reporting purposes
and to each Director the audited annual accounts within [**] days after the end
of the fiscal year, together with the audit report of the Registered Auditor.

 

(c)                                  Outside Audit.  With [**] calendar days prior written
notification to the Company, each Party may appoint on its behalf and at its
own expense an accountant(s) registered either in PRC or abroad (including
an accountant from a foreign firm of certified public accountants) or it’s own
employee to audit the Company’s accounts. 
The Company will permit such personnel to have access to the Company’s 

 

29

 

books
and records and will provide such accountant with office space and all other
reasonable facilities to enable the personnel to carry out the audit. The Party
appointing the personnel shall ensure that the accountant keeps confidential
all documents audited by such person. In case material difference between the
audit result and the financial report issued under the Article 18.2(a),
and the determinations of any such audit are accepted by the Board, the Company
shall make a retroactive adjustment as regards the preceding annual accounts in
the next year, and the Board should determine whether to replace the Registered
Auditor or not.

 

18.3                        Bank
Accounts.  The Company
shall open RMB bank accounts and foreign exchange accounts in accordance with
relevant PRC laws and regulations.

 

18.4                        Settlement
of Expenses.  In
principle, except where payment in foreign exchange is required pursuant to
this Contract or other agreements entered into by the Company, all payments to
be made by the Company in PRC (including but not limited to expenses and
compensation for labor other than expatriate personnel) shall be settled and
paid by the Company in RMB.

 

18.5                        Profits
Distribution.

 

(a)                                  The Company
shall determine the amount of its after-tax distributable profit, in accordance
with the Financial and Accounting System, on an [**] basis.

 

(b)                                 After the
payment of income taxes by the Company, the Board shall determine, based on the
applicable laws and regulations and the Company’s business needs, the [**]
allocations of after-tax profits to the Company’s Reserve Fund, Bonus and
Welfare Fund, and Enterprise Expansion Fund (“Three Funds”).

 

(c)                                  After using the
after-tax profits to make up for the losses of the previous years and making
allocations to the Three Funds, the Company shall, unless otherwise decided by
the Board, distribute the remaining profits to the Parties.

 

(d)                                 The plan of
profit distribution or retention shall be decided within the first Board
meeting of the next fiscal year.

 

(e)                                  The Company
shall not distribute profits unless the accumulated losses have been made up in
full.

 

(f)                                    Any profit
distribution declared by the Board will be paid to the Parties in proportion to
the actual amount of the registered capital contributed by each Party at the
time of the profit distribution and within [**] days after the end of the
previous fiscal year.

 

18.6                        Access
to records. Each Party shall be entitled to obtain at any time
complete information with respect to all accounts and financial reports of the
Company, and representatives or consultants of the Parties shall have full
access to all books and financial records, at each such Party’s own
expense.  ‘The Company and the other
Party shall extend full 

 

30

 

cooperation to any such inspection.

 

ARTICLE 19

TAXATION AND INSURANCE

 

19.1                        Income
Tax, Customs Duties and Other Taxes.

 

(a)                                  The Company
shall pay taxes in accordance with the relevant national and local laws and
regulations of PRC.  Chinese and foreign
employees shall pay individual income taxes in accordance with applicable
Chinese laws and regulations.

 

(b)                                 The Company
shall, immediately after the establishment of the Company, submit a tax
registration application to appropriate tax authorities in PRC.

 

19.2                        Insurance.  The Company will take out appropriate
insurance in accordance with its business requirements.

 

ARTICLE 20

DEADLOCK

 

20.1                        In case of any
Deadlock arising out this Contract, the Parties agree to settle such Deadlock
according to Article 20.2.

 

20.2                        Deadlock
Resolution Procedure.  In
the event of a Deadlock, either Party may serve a notice (the “Deadlock Notice”)
in writing to the other Party, electing to invoke the following “Deadlock
Resolution Procedure”:

 

(1)                                  For Deadlock
matters relating to approval of the annual budget or annual business plan for
any single year, the Board shall adopt the prior year’s inflation-adjusted
budget or annual business plan, as the case may be, until the Board adopts a
new annual budget or annual business plan for such year.

 

(2)                                  For all other
Deadlock matters, during the initial [**] days following receipt of the
Deadlock Notice, the Chairman and Vice Chairman shall attempt in a commercially
reasonable manner to resolve the Deadlock.

 

(3)                                  If, following
such initial [**] day period, the Deadlock continues to exist, then the Chief
Executive Officers of each Party shall attempt in a commercially reasonable
manner to resolve the Deadlock for a [**] day period (the “Secondary
Negotiations”).

 

(4)                                  If a Deadlock
continues to exist after the Secondary Negotiations, either Party may submit
the dispute for arbitration in accordance with Article 29 of this
Contract.

 

(5)                                  If neither
Party submits the Deadlock to arbitration and the Deadlock continues to exist
[**] calendar days after the Deadlock Notice, then either Party shall have the
right to exercise its options under Article 24.2.1.

 

Any negotiated resolution of the Deadlock pursuant to the Deadlock
Resolution Procedure shall 

 

31

 

be binding on the Parties and the Board.

 

20.3                        In all other
cases where the Board is unable to come to a decision, but the matter does not
rise to the level of the Deadlock as defined, the proposed resolution shall be
deemed rejected.

 

20.4                        Both Parties
shall use their reasonable best efforts to avoid the occurrence of a Deadlock.

 

ARTICLE 21

CONFIDENTIALITY

 

21.1                        Confidentiality.

 

(1)                                  Each Party
shall maintain the secrecy and confidentiality of, and not disclose to any entity
or person other than the Parties and the Company, any proprietary, secret or
confidential data and information relating to the Company, or its business
operations, or belonging to the other Party, or disclosed by the other Party at
any time during or for the purpose of negotiation of this Contract or the
establishment or operation of the Company (the “Confidential Information”).

 

(2)                                  The Parties
agree not to, and agree to ensure its appointed directors and managers will
not, use any Confidential Information for their own purposes or for any purpose
other than the implementation of the Company’s business.

 

(3)                                  Each Party
agrees to abide by these obligations of confidentiality and non-use during the
term of this Contract, including any extension thereof, or for so long as the
Company continues to exist, and for a period of [**] years thereafter.

 

(4)                                  The Company
shall cause its personnel to be bound by and comply with the obligations set
out in this Article 21. To this effect, and undertaking of secrecy and
no-use, in form and substance satisfactory to the Parties, shall be included in
all labor or service contracts signed by Company personnel.

 

21.2                        This Article shall
not prohibit disclosure or use of any information if and to the extent:

 

(1)                                  the disclosure
or use is required by law and any regulatory body pursuant to the law;

 

(2)                                  the disclosure
or use is required for the purpose of any judicial proceedings arising out of
this Contract or any other agreement or contract entered into under or pursuant
to this Contract or the disclosure is reasonably required to be made to a
taxation authority in connection with the taxation affairs of the disclosing
Party;

 

(3)                                  the disclosure
is made to professional advisers of the Parties provided that 

 

32

 

such professional advisers comply with provisions of this Article 21
in respect of such information as if they were a Party to this Contract;

 

(4)                                  the information
becomes publicly available (other than by breach of this Contract);

 

(5)                                  the Parties
have given prior written approval to the disclosure or use.

 

21.3                        In connection
with the negotiations of this Contract, confidential information and
documentation has been and will be exchanged between the Parties.  The receiving Party agrees that it will keep
confidential such information and documentation and that it will use such
information and documentation only for the purpose of achieving the common
goals in this Contract and the Ancillary Agreements, unless prior written
approval to use it otherwise is received from the other Party.  Neither Party will permit its representative
to issue any press release, public statement or other public notice with
respect to the establishment of the Company or the other transactions
contemplated by this Contract and the Ancillary Agreements without the consent
of the other party except as required by applicable law or regulation.  If a disclosure is required by law or
regulation, the Parties will make every effort to consult with each other on
the contents of the disclosure prior to any required public disclosure. The
Confidentiality Agreement between the parties dated as of [**] shall otherwise
apply to this Contract and is hereby incorporated by reference.

 

ARTICLE 22

NON-COMPETITION

 

22.1                        During the term
of the Company, each Party undertakes not to (i) establish any new joint
venture with any Third Party or any new business to develop, manufacture or
market products that compete directly or indirectly with the Products
manufactured for the PRC market; nor (ii) enter into any new license to provide
technical and manufacturing technology or know-how for products to a Third
Party that compete directly or indirectly with Products manufactured for sale
in the PRC market.  The foregoing shall
not limit or restrict A123 or its wholly-owned subsidiaries in the PRC (a) from
conducting business in the PRC for all purposes, provided that they do not
directly or indirectly compete with Products manufactured by the Company for
sale in the PRC market or (b) from supporting A123 customers who are not
Chinese automotive original equipment manufacturers (OEMs) and whose final
product, including the battery pack, is not manufactured in the PRC, but who
want to source and purchase products from A123 for delivery in the PRC.

 

22.2                        Nothing in this
Contract shall restrict or prohibit A123 from selling A123 battery cells to
customers in China other than to the Company. 
A123 shall offer the Company the most favorable price terms offered to
its customers in China for battery cells under similar circumstances, including
similar purchase volumes.

 

22.3                          Without any limitation to Article 22.1,
each Party warrants that it will not, and that it will procure that, in the
case of Party A, its controlled subsidiaries (as defined in Article 22.7),
excluding the Company, and in the case of Party B, its Affiliates, excluding
the Company, will not provide development, manufacturing and sales or services in
relation to the Products in 

 

33

 

the PRC during the Term of the Contract.  Party A will use its best efforts to prevent
any related entities which are not controlled subsidiaries as defined in Article 22.7
from developing, manufacturing, selling or providing services in relation to
the Products in the PRC during the Term of the Contract, and will immediately
notify A123 of any such potential competition. 
Notwithstanding the above, in the event that any equipment manufacturer
(OEM) of automotives in PRC insists it will not directly purchase the Products
from the Company, Party B or its Affiliates may supply Products to such OEM,
provided that the Products, excluding the cells, are sourced from the Company.  In special cases, Party B or its Affiliates
may also sell the Products to Chinese automotive OEMs other than the SAIC
Group, without procuring the Products from the Company, if (i) the OEM
refuses to do business with the Company despite commercially reasonable efforts
on the part of the Company and Party B to promote the Company’s products to the
OEM and both Parties have exhausted all options to convince the OEM; (ii) a
majority of the Board negotiating in good faith agrees to such sales; and (iii) in
any case Party B cannot sell directly to a Chinese OEM without procuring the
Products from the Company to more than [**] customer programs over any [**]
year period.

 

22.4                        A123 shall be
free from the obligations in Article 22.1 above not to develop,
manufacture or market products that compete directly with the Products
manufactured for sale in the PRC market or license third parties to do so, if (i) SAIC
Motor buys relevant battery system products
from any of its other subsidiary or joint venture companies (regardless of
whether SAIC Motor has management control over those subsidiary or joint
venture companies); (ii) SAIC Motor buys relevant battery system products
or battery cells from any entity in the SAIC Group;  (iii) the Company fulfills less than the
percentage stipulated in Article 10.3 of its cumulative cell requirements
with purchases of A123 battery cells; or (iv) Party A breaches Article 22.3.

 

22.5                        In the
circumstances pursuant to Article 22.4 that A123 is entitled to establish
new businesses to make and sell products similar to the Products, A123 will
also be entitled to grant technology licenses to Third Parties or its Affiliates
to develop and manufacture products similar to the Products of the
Company.  If A123 intends, pursuant to Article 22.4,
to establish a new business in China to make and sell products similar to the
Products, it shall give the Company and Party A written notice thereof [**]
days prior to the establishment of the new business. Upon service of the notice
to the Company and Party A, Article 22.1 shall have no further binding
force on either Party. Party B may also avail itself of other remedies under
this Contract, including remedies pursuant to Article 24.2.2 herein, on
the grounds of material breach of Contract by Party A.

 

22.6                        If Party B
breaches Article 22.1 and Article 22.3, then without prejudice to
other remedies in this Contract, Party A shall be entitled to establish a new
business to manufacture and sell the same products as the Products. In these
circumstances, Party A is also free from its obligations as stipulated in
Articles 9.2(a), 10.3, 22.1 and 22.3. If Party A intends, pursuant to this Article 22.6,
to establish a new business in China to make and sell products similar to the
Products, it shall give the Company and Party B written notice thereof [**]
days prior to the establishment of the new business. Upon service of the notice
to the Company and Party B, Article 22.1 shall have no further binding
force on either Party.  Alternatively to
the above, Party A may also avail itself of other remedies under this Contract,
including remedies pursuant to Article 24.2.2 herein, on the grounds of material
breach of Contract by Party B.

 

34

 

22.7                        Party A agrees
that during the term of the Company, it will not and will not allow any of its
controlled subsidiaries, employees, directors or executive officers or those of
its controlled subsidiaries, to develop, produce or sell battery cell products
that compete with A123’s battery cell business or establish any new legal
entity or business, either directly or indirectly, to do the same.  For purposes of the foregoing, “controlled
subsidiaries” shall include, without limitation, joint venture companies or
affiliated companies in which Party A has management control or at least 50%
direct or indirect equity ownership. 
Party A will use its best efforts to prevent any related entities in
which it does not have such control from competing with A123’s battery cell
business and will immediately notify A123 of any such potential competition.

 

ARTICLE 23

JOINT VENTURE TERM

 

23.1                        Effective
Date.  This
Contract may only be submitted to the relevant PRC authorities for approval
and/ or registration jointly by the Parties upon due execution by the duly
authorized representatives of the Parties of the Contract and the Letter of
Intent regarding Production Programs. The Party submitting this Contract and
other relevant documents on behalf of the Parties shall keep the other Party
fully informed throughout the submission process of any feedback from the
Approval Authority and shall consult with the other Party regarding responses
to the Approval Authority.  The Contract,
Ancillary Agreements, Feasibility Study and other documents submitted for
approval may only be amended with the approval of both Parties.  For the avoidance of doubt, the Contract
shall come into effect on the date (the “Effective Date”) which is the later of
(a) the date the Approval Authority issues its certificate of approval and
(b) the date of execution of the Letter of Intent regarding Production
Programs.

 

23.2                        Joint
Venture Term.  The term of
the Contract and the Company (“Term”) shall be twenty (20) years commencing
from the Establishment Date.

 

23.3                        Extension
of Joint Venture Term. 
Prior to the expiration of the initial Term of this Contract, or any
extension thereof, the Parties may agree to extend the term, subject to
approval by the Approval Authority. 
Negotiations for such extension shall begin not later than five hundred
and forty (540) days prior to the expiration of the initial Term (or any
extension thereof) of this Contract and subject to the successful conclusion of
such negotiations, an application for extension shall be submitted to the
Approval Authority for approval no later than six (6) months prior to the
expiration of the Term or extension.

 

ARTICLE 24

BUY-OUT/SALE OF THE COMPANY

 

24.1                        Events
Creating Right to Buy-Out/Sale Option.

 

24.1.1              Company
Termination Events.  The
following events shall be defined as the “Company Termination Events”:

 

(a)                                  Inability of
the Company to continue operations because of significant losses suffered by
the Company in [**] consecutive years or accumulated losses of up to [**]% of
the share capital of the Company and, after consultations, the 

 

35

 

Parties
are unable to agree on a method to improve the economic situation of the
Company to the extent satisfactory to both Parties;

 

(b)                                 Inability of
the Company to continue operations for a continuous period of six (6) consecutive
months or more because of an Event of Force Majeure;

 

(c)                                  Any government
authority having authority over either Party or the Company requires any
provision of this Contract to be revised in such a way as to cause significant
adverse consequences to the Company or either Party;

 

(d)                                 Any approval,
permit, license, certificate, waiver or right materially affecting the Company’s
ability to conduct the full scope of activities contemplated in this Contract
is not obtained or is declared void, rescinded or amended in a materially
adverse manner;

 

(e)                                  Expropriation
or requisition of all or a material portion of the assets or property of the
Company in the PRC, with the effect that the operations of the Company are, in
the reasonable opinion of either Party, materially adversely affected;

 

(f)                                    Issuance of an
order by the PRC government to cease operations because of serious violations
by the Company of PRC law;

 

(g)                                 The Company is
subject to an Insolvency Event;

 

(h)                                 The Company is
unable to obtain financing for operations; and

 

(i)                                     A Deadlock
remains unresolved after the Parties have attempted, in good faith, the
Deadlock Resolution Procedure pursuant to Article 20.2.

 

24.1.2              Breach
Termination Events.  The
following events shall be defined as the “Breach Termination Events”:

 

(a)                                  A material
breach by, or failure of either Party to perform its obligations under this
Contract or the failure of any party to an Ancillary Agreement to perform its
obligations under such contract if, in the reasonable opinion of the
non-breaching Party or, in the case of an Ancillary Agreement, the
non-breaching party to such Ancillary Agreement which is also a Party to this
Contract or the Company, such non-performance defeats the economic objectives
of this Contract and of the establishment of the Company or creates a material
risk of loss to such non-breaching Party or, in the case of an Ancillary
Agreement, the non-breaching party to such Ancillary Agreement which is also a
Party to this Contract, or the Company or materially and adversely affects the
value of its interest in the Company;

 

(b)                                 Failure of
either Party to make its contributions in accordance with Article 6.2
where such failure continues for a period of more than [**] months;

 

(c)                                  Failure of any
of the conditions set forth in Article 6.5 to be satisfied within [**]
days after the Establishment Date;

 

36

 

(d)                                 A Party is
subject to an Insolvency Event and the Party that is not the Affected Party
gives thirty (30) days’ prior written notice of termination to the Affected
Party;

 

(e)                                  Pursuant to Article 8.3.2,
the Non-Acquired Party has the right to exercise its options under Article 24.2.2;

 

(f)                                    An action, suit
or proceeding is pending or threatened against either Party or any of its
properties before any court, arbitrator or governmental department, commission,
board, bureau, agency, authority or instrumentality, domestic or foreign, with
respect to, or which could have a material effect on, this Contract or the
Company;

 

(g)                                 Definitive
Contracts (as defined in the Letter of Intent regarding Production Programs) in
relation to the supply of 100% of the battery systems required under
the IP 24 Program, or similar definitive contracts in relation to the
supply of 100% of battery systems for the first of Party A or its controlled
subsidiaries’ electric vehicle or hybrid electric vehicle program to go into
production, have not been executed with the Company by [**] or such extension
as the Parties may mutually agree upon;

 

(h)                                 There is a
material breach by Party A of the Letter of Intent regarding Production
Programs; and

 

(i)                                     Failure of
either Party to act in good faith in conducting the Change Impact Assessment,
Deadlock Resolution Procedure, or determination of the Purchase Price under Article 24.3.

 

24.1.3              Party
B Option Event.  If the
Company fulfills less than the percentage required by Article 10.3 of its
cumulative cell requirements with purchases of A123 battery cells, such event
shall be defined as the “Party B Option Event.”

 

24.1.4              Revenue
Target Event.  If the Company does not achieve audited
annual sales revenues of at least US$[**] by the end of [**], or revenues after
the end of [**]fall below US$[**] and remain below that level for [**] years
consecutively, such event shall be defined as the “Revenue Target Event.”

 

24.2                        Right
to Exercise Buy-Out/Sale Options.

 

24.2.1              If any of the Company
Termination Events occur and are continuing, either Party shall have the right,
subject to any required governmental approvals, to elect, in a written notice
to the other Party within [**] business days of the occurrence of such event
(the “Election Period”), to continue the business by:

 

(a)                                  Purchasing all
of the equity interest of the other Party pursuant to the buy-out procedures in
the provisions that follow (the “Full Buy-Out Option”); or

 

(b)                                 Purchasing a
specified part, but not all, of the equity interest of the other Party pursuant
to the buy-out procedures in the provisions that follow (the “Partial 

 

37

 

Buy-Out
Option”).

 

If neither Party elects to
continue the business during the Election Period, either Party shall have the
right to elect, in a written notice to the other Party, to terminate this
Contract.

 

24.2.2              If any of the Breach
Termination Events occur and are continuing, the non-breaching Party shall have
the right, subject to any required governmental approvals, to elect, in a
written notice to the other Party, to:

 

(a)                                  Continue the
business by exercising the Full Buy-Out Option

 

(b)                                 Continue the
business by exercising the Partial Buy-Out Option

 

(c)                                  Requiring the
other Party to purchase all of the equity interest of such Party pursuant to
the buy-out procedures in the provisions that follow (the “Full Put Option”);

 

(d)                                 Requiring the
other Party to purchase a specified part, but not all of the equity interest of
such Party pursuant to the buy-out procedures in the provisions that follow
(the “Partial Put Option”); or

 

(e)                                  Not continue
the business and, by written notice to the other Party, to terminate this
Contract.

 

24.2.3              If the Party B Option Event
occurs and is continuing, Party B shall have the right, subject to any required
governmental approvals, to elect, in a written notice to the other Party, to
exercise a Partial Put Option or Full Put Option.

 

24.2.4              If the Revenue Target Event
occurs and is continuing, unless otherwise agreed, either Party may have the
right to terminate this Contract by written notice to the other Party.

 

24.2.5              The existence of the right
to exercise any of the buy-out or put options pursuant to this Article 24.2
shall not limit the right of a party to sell its equity interest to Third
Parties pursuant to Article 7.1.

 

24.3                        Procedure
for Valuation and Sale of Equity Interests.  Pursuant to a buy-out or put option under Article 24.2,
the Party purchasing the equity interest (the “Purchasing Party”) shall be
obligated to purchase the equity interest of the other Party (the “Selling
Party”) at a price calculated and paid as follows:

 

24.3.1              The Selling Party and the
Purchasing Party shall discuss and agree upon a purchase price of the interest
of the Selling Party (the “Purchase Price”) based on a valuation of the equity
interest in the Company performed by the Independent Appraiser.  To the fullest extent permitted by PRC law,
the Independent Appraiser shall be instructed to appraise the equity interest
in the Company based on the net assets of the Company, to be determined by the
Company’s balance sheet effective on the date of the exercise of the applicable
option pursuant to Article 24.2 (the “Exercise Date”), plus an additional
payment to be negotiated in good faith to

 

38

 

reflect the going concern value (including goodwill)
of the Company based on the actual circumstances of the Company and taking into
account the market value of companies in similar industries and internationally
accepted principles relevant to the determination of the going concern
value.  After the valuation of the equity
interest, the Purchase Price shall be determined by multiplying the valuation
by the percentage of the Company’s registered capital contributed by the
Selling Party.

 

24.3.2              After the Purchase
Price has been determined in accordance with Article 24.3.1, the Parties
shall use their best efforts to secure all necessary governmental approvals and
comply with all administrative procedures required in connection with the
purchase within [**] days after the date on which the Purchase Price is
determined.  Payments in connection with
a purchase of either Party’s interest in the registered capital of the Company
shall be made within [**] days following the determination of the Purchase
Price and the receipt of all necessary governmental approvals for the purchase.

 

24.3.3              In the event
that both Parties wish to exercise their Full Buy-Out Options, each Party shall
submit the proposed price at which it would purchase the other Party’s interest
in the registered capital of the Company in sealed bids to the Board, which
must provide for a cash offer calculated in United States dollars.  The Party with the higher bid (taking into
account the percentage of the registered capital to be purchased) may purchase
the other Party’s interest by paying the other Party the bid price in cash
within [**] days following the opening of the bids and the receipt of all
necessary governmental approvals for the purchase.

 

24.3.4              Payments to
Party B shall be in United States dollars, computed at the rate that is the
average of the United States dollar buying and selling rates quoted by the People’s
Bank of China (“PBOC”) on the purchase date. 
Payments to Party A shall be made in Renminbi.  If the Purchase Price is determined in
Renminbi, then it shall be computed at the rate that is the average of the
United States dollar buying and selling rates quoted by PBOC on the purchase
date.

 

24.4                        Confidential
Information.

 

24.4.1              If Party B is
no longer a shareholder of the Company or its share of equity interest in the
Company falls below 49% for any reason, Party A shall have the right to opt by
written notice either continuous performance or termination of the Technology
License Contract, Trademark License Contract, Professional Services Contract
and any other contract it has entered into with the Company within [**] days of
Party B ceasing to be a shareholder of the Company or Party B’s share of equity
interest in the Company falling below 49% for any reason, provided that in order
to continue the foregoing Contracts, the cumulative purchases of A123 battery
cells is no less than [**]%) of its cumulative cell requirements pursuant to Article 10.3.
 If at any time the Company’s cumulative
purchases of A123 battery cells pursuant to the most favorable price terms
provided in Article 22.2 of this Contract is lower than [**]%) of its
total cumulative cell purchases pursuant to Article 10.3, Party B shall be
entitled to immediately terminate the Technology License Contract, Trademark License
Contract, Professional Services Contract and any other contract it has entered
into with the Company.  Upon Party B’s
request, Party A shall procure that the Company terminates any and all
contracts between Party B and the Company. 
Party A shall further return to Party B all documentation, material,
inventory and all other items 

 

39

 

that incorporate or embody the Licensed Technology and other
Intellectual Property or Confidential Information of Party B and its
Affiliates.

 

24.4.2              If Party B and/or
a Party B designee purchases all of Party A’s interest in the registered
capital of the Company, Party B shall return to Party A all documentation,
material, inventory and all other items that incorporate or embody the
Confidential Information of Party A and its Affiliates.

 

24.5                        PRC
Restrictions.  If Party B is unable under PRC laws and regulations to acquire part
or all of Party A’s interest pursuant to this Article 24, then Party B
shall have the right to designate a qualified third party to purchase part or all of Party A’s interest in the registered
capital of the Company.

 

24.6                        Cooperation
of the Parties.  The Parties
shall execute all documents and take all other necessary actions to obtain
approvals and effect changes to the registration of the Company to reflect
changes in ownership of the Company pursuant to this Article 24.

 

ARTICLE 25

TERMINATION

 

25.1                        Termination.  This Contract shall be terminated in
accordance with the procedures set forth in the Articles of Association, Joint
Venture Law, and other officially published laws and regulations upon (i) the
expiration of the Term (if not extended) or any extension thereof, (ii) the
purchase by or transfer to one Party of the entire interest of the other Party
in the registered capital of the Company pursuant to an exercise of a Full Put
Option, Full Buy-Out Option, a voluntary transfer of interest or other transfer
of interest permitted by this Contract, (iii) the non-breaching Party
elects to terminate the Contract upon the continued occurrence of Breach
Termination Event or (iv) the mutual written agreement of the Parties to
terminate this Contract.

 

25.2                        Cooperation
of Parties.  After the
Contract terminates pursuant to Article 25.1, the Company and the Parties
shall take all reasonable steps to promptly accomplish any acts related to the
termination of the Contract or the liquidation or dissolution of the Company in
accordance with applicable officially published laws and regulations of the
PRC, and the Board shall promptly apply to the Approval Authority for approval
of such dissolution.

 

25.3                        Effects
of Termination.  The
termination of this Contract for any reason shall not release a Party from its
liability to pay any sums of money accrued, due and payable to the other Party,
or from its then-accrued and unfulfilled obligations including any liability to
the Company or the other Party in respect of any breach of this Contract, and
shall in no way affect the remedy rights of one Party against the other Party
stipulated herein.  The Parties shall
also comply with Article 24.4.

 

ARTICLE 26

LIABILITY FOR BREACH OF CONTRACT AND REMEDY

 

26.1                        Breach
of Contract.  If a Party
fails to perform any of its material obligations under this Contract, or if a
representation or warranty made by a Party is untrue or materially 

 

40

 

inconsistent with the fact, such Party is deemed to have breached this
Contract.

 

26.2                        Material
Breach.  Any
circumstance arising out of Article 24.1.2(a) or (b) 
constitutes a material breach of this Contract.

 

26.3                        Remedy.

 

26.3.1              Indemnity.

 

(a)                                  If the Company
incurs any fees, expenses, indebtedness or losses, including but not limited to
loss of profit, as a result of the breach of Contract by either Party, the
breaching Party shall indemnify and hold the Company harmless from any such
fees, expenses, indebtedness or losses.

 

(b)                                 If the
non-breaching Party incurs any fees, expenses, indebtedness or losses,
including but not limited to loss of profit, as a result of the breach of
Contract by the breaching Party, the breaching Party shall indemnify and hold
the non-breaching Party harmless from any such fees, expenses, indebtedness or
losses.

 

26.3.2              Delay
or Failure to Pay Capital Contributions.

 

(a)                                  Should any
Party fail to pay any portion of its contribution to the registered capital of
the Company at the time and in the amounts stipulated in Article 6 of this
Contract, the Breaching Party shall pay to the Company an overdue fine equal to
50/000 of the portion of capital contribution that becomes due for each day of
such delay until the day when such overdue contribution is paid in full.

 

(b)                                 In the event
that a Party’s payment of a certain portion of the capital contribution is
overdue for a period in excess of  [**]
months, the non-breaching Party may independently and at its sole discretion
elect to exercise a buy-out or put option, pursuant to Article 24.2.2, or
within [**] month after such [**]-month period, subscribe to the overdue contribution
in lieu of the breaching Party, in which case the percentage of the
shareholding by the performing Party in the Company shall be adjusted
accordingly.

 

(c)                                  In the case
that the non-breaching Party fulfills such subscription as stipulated in the above
section (b), the Breaching Party is obligated to take all necessary measures to
reflect the same change in respect of equity interests in the Company by the
Parties.  The Breaching Party shall cause
its appointed directors to vote, in favor of such adjustment in its
representation on the Board and all other necessary measures in this regard.

 

ARTICLE 27

LIQUIDATION

 

27.1                        Liquidation
Committee.  If, upon
the expiration of the term of the Company’s business license or upon any
earlier proposed dissolution of the Company, neither Party wishes to continue
the Company’s business either on its own or together with a third party, the
Board 

 

41

 

shall adopt a resolution to liquidate the Company,
formulate liquidation procedures and principles, nominate candidates of the
liquidation committee (the “Liquidation Committee”) in accordance with
laws and regulations governing the liquidation of foreign-invested enterprises
(the “Liquidation Regulations”), and submit its proposals to the
Approval Authority for verification.  The
Approval Authority shall supervise the liquidation of the Company, which shall
proceed in accordance with the applicable provisions of the Joint Venture Law,
Liquidation Regulations and Articles of Association.

 

27.2                        Payment
of Liquidation Proceeds.

 

(A)                              In formulating
applicable liquidation principles, the Board shall instruct the Liquidation
Committee that, to the extent that circumstances, including the financial
condition of the Company, permit, the Liquidation Committee shall divide and
distribute the assets to the Parties in accordance with their percentage
interests in the registered capital of the Company, provided, however, that all
Licensed Technology and other Confidential Information of Party B and its
Affiliates shall be transferred to Party B. 
If, however, and except as provided for in the foregoing sentence
regarding the Licensed Technology and other Confidential Information of Party B
and its Affiliates, such division and distribution of assets would diminish the
value of the assets, the Liquidation Committee shall not carry out such
division or distribution but shall instead sell the assets in order to realize
their maximum value.

 

(B)                                Payment of
amounts due to either Party in connection with the liquidation of the Company
shall be made within [**] days after the Liquidation Committee has
disposed of the Company’s assets and discharged all Company debts.  Payments to Party B shall be made in United
States dollars or some other mutually-agreed foreign currency.

 

27.3                        Cancellation
of Registration.  After the
liquidation of the Company is completed, the Liquidation Committee shall
promptly submit a report thereon to a meeting of the Board for approval and
submission to the relevant approval authority and shall carry out the
procedures for turning in the Company’s business license and canceling its
registration at the relevant AIC. Application shall be made with the  relevant AIC for de-registration and
cancellation of the business license of the Company and a public announcement
of the Company’s dissolution shall be made. After the dissolution of the
Company, its accounting vouchers, books and documents shall be handled in
accordance with the provisions of the relevant laws, regulations and decrees of
PRC.  The date of cancellation of the
original registration of the Company shall be the date upon which the Board
shall be dissolved and cease to exist.

 

27.4                        Survival
of Claims. The rights of each Party arising in respect of any
breach of this Contract occurring prior to the date of the Company’s
dissolution or liquidation shall remain in full force and effect.

 

ARTICLE 28

FORCE MAJEURE

 

28.1                        Force
Majeure.  “Event of
Force Majeure” means an event beyond the control of a Party, as a result of which
the Party is unable to perform its obligation under this Contract. An Event of
Force Majeure includes, but is not limited to: prohibition or acts by
government or 

 

42

 

public agency, riot, war, hostility, public disturbance, labor
disputes, failure or interruption of transportation or other utilities,
epidemic, fire, flood, earthquake, storm, tidal wave or other acts of nature.

 

28.2                        Notification
of Occurrence.  If a Party
has been prevented from performing its responsibilities stipulated in this
Contract because of an Event of Force Majeure, it shall notify the other Party
in writing within fourteen (14) days after the occurrence of such Event of
Force Majeure, and both Parties shall use reasonable endeavors to mitigate
damages, to the extent possible. If an Event of Force Majeure occurs, no Party
shall be responsible for any damage, increased costs or loss which the other
Party may sustain by reason of such a failure or delay of performance, and such
failure or delay shall not be deemed a breach of this Contract.  A Party claiming inability to perform due to
an Event of Force Majeure shall take appropriate actions to minimize or remove
the effects of the Event of Force Majeure and, within the shortest possible
time, attempt to resume performance of the obligation affected by the Event of
Force Majeure.

 

ARTICLE 29

APPLICABLE LAW AND DISPUTE SETTLEMENT

 

29.1                        Applicable
Law.  The formation, validity,
interpretation, execution, amendment and termination of this Contract shall be
governed by the published laws and regulations of PRC.

 

29.2                        Arbitration.

 

(a)                                  Any dispute
arising from, out of or in connection with this Contract shall be settled
through friendly consultation between the Parties. Such consultations shall
begin immediately after one Party has delivered to the other Party a written
request for such consultation. If within [**] days following the date on which
such notice is given, the dispute cannot be settled through consultations, the
dispute shall, upon the request of any Party with notice to the other Party, be
submitted to the Singapore International Arbitration Centre (hereinafter
referred to as SIAC) for arbitration in Singapore under the auspices of, and
according to the arbitration rules of, 
SIAC, which rules are deemed incorporated by reference to this
clause.  However, if the SIAC Rules conflict
with the provisions of this Article 29, the provisions of this Article 29
shall prevail.

 

(b)                                 There shall be
three (3) arbitrators, each of whom must be fluent in English.  Party A shall select one arbitrator and Party
B shall select one arbitrator, and both arbitrators shall be selected within
[**] days after giving or receiving the demand for arbitration. Such arbitrators
shall be freely selected, and to the extent permitted by SIAC rules, the
Parties shall not be limited in their selection to any prescribed list.  Within [**] days after the appointment of the
second arbitrator, the two arbitrators appointed by the Parties shall select a
third arbitrator to act as chairman of the tribunal.  In no event shall the chairman of the
tribunal be of the same nationality as either of the Parties.  If any arbitrator has not been appointed
within the time limits specified herein, SIAC shall make the appointment within
[**] days of a written request by either Party.

 

(c)                                  The arbitration
shall be conducted in both English and Chinese,

 

43

 

with
translation costs to be treated as arbitration costs.

 

(d)                                 The arbitral award
shall be final and binding upon all Parties, not subject to any appeal, and
shall deal with the question of costs of arbitration and all matters related
thereto.

 

(e)                                  Judgment upon
the award rendered by the arbitration may be enforced by any court having
jurisdiction, or application may be made to such court for a judicial
recognition of the award.  The Parties
hereby expressly waive any defense of sovereign immunity or any other immunity
from legal proceedings or arbitration.

 

(f)                                    Notwithstanding
anything contained in this Article 29 to the contrary, each Party shall
have the right to institute judicial proceedings in any court of competent
jurisdiction against the other Party in order to protect the instituting Party’s
Confidential Information or to enforce the instituting Party’s Intellectual
Property and other rights hereunder through specific performance, injunctions
or similar equitable relief, orders to preserve assets and evidence or other
emergency relief, including without limitation relief against any breach of Article 21.

 

29.3                        Continued
Implementation of Contract.  During the period of arbitration, the Parties
shall in all other respects which are not in dispute continue their
implementation of this Contract.

 

ARTICLE 30

MISCELLANEOUS

 

30.1                        Amendment
and Modification of the Company.  Amendments to this Contract or its Schedules
or attachments may be made only by a written agreement in English and Chinese
signed by duly authorized representatives of each of the Parties and, unless
prior approval from the Approval Authority is statutorily required, will become
effective as soon as the amendments are filed with the Approval Authority for
record.

 

30.2                        Severability.  The invalidity of any provision of this
Contract shall not affect the validity of any other provision of this Contract.

 

30.3                        Language.  This Contract is executed in English and
Chinese.  Both language versions shall be
equally authentic.

 

30.4                        Entire
Contract.  This
Contract and the Schedules and attachments attached hereto constitute the
entire Contract between the Parties with respect to the subject matter of this
joint venture and supersede all previous oral and written agreements,
contracts, understandings and communications of the Parties in respect of the
subject matter of this Contract.  The
headings to Articles are for ease of reference only and shall have no legal
effect.

 

30.5                        Waiver.  Unless otherwise provided for, failure or
delay on the part of any Party hereto to exercise any right, power or privilege
under this Contract shall not operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege preclude exercise of any
other right, power or privilege.

 

44

 

30.6                        Notices.  Notices or other communications required to
be given by any Party or the Company pursuant to this Contract shall be written
in English and may be delivered personally or sent by registered airmail
(postage prepaid), by a recognized courier service or by facsimile transmission
to the addresses of the other Parties set forth below. The dates which notices
shall be deemed to have been effectively given shall be determined as follows:

 

(a)                                  Notices given
by personal delivery shall be deemed effectively given on the date of personal
delivery.

 

(b)                                 Notices given
by registered airmail (postage prepaid) shall be deemed effectively given on
the seventh day after the date on which they were mailed (as indicated by the
postmark).

 

(c)                                  Notices given
by courier shall be deemed effectively given on the third day after they were
sent by recognized courier service.

 

(d)                                 Notices given
by facsimile transmission shall be deemed effectively given on the first
business day following the date of transmission.

 

For the purpose of notices,
the addresses of the Parties are as follows:

 

	
  Party A:

  	
  SAIC
  Motor Co. Ltd.

  
	
   

  	
  No
  489, Weihai Road

  
	
   

  	
  Shanghai,
  PRC

  
	
   

  	
  Attention:
  Chen Zhixin

  
	
   

  	
  Director

  
	
   

  	
   

  
	
  With a copy to:

  	
  Zhang
  Yuli, executive director of cooperation & legal affairs Dept.

  
	
   

  	
  Tel:
  86-21-22011289

  
	
   

  	
  Fax:
  86-21-22011777

  
	
  Party B:

  	
  A123
  Systems Hong Kong Limited

  
	
   

  	
  5705,
  57th Floor, The Center

  
	
   

  	
  99
  Queen’s Road

  
	
   

  	
  Central

  
	
   

  	
  Hong
  Kong

  
	
   

  	
  Tel:

  
	
   

  	
  Fax:

  
	
   

  	
  Attention:
  [**], Director

  
	
   

  	
   

  
	
  With a copy to:

  	
  A123
  Systems, Inc.

  
	
   

  	
  Arsenal
  on the Charles

  
	
   

  	
  321
  Arsenal Street

  
	
   

  	
  Watertown,
  MA 02472

  
	
   

  	
  USA

  
	
   

  	
  Attention:
  Eric Pyenson, Esq., Vice President and General Counsel

  

 

45

 

	
   

  	
  Tel:
  (617) 778-5745

  
	
   

  	
  Fax:
  (617) 924-8910

  
	
   

  	
   

  
	
  And:

  	
  John
  H. Chory, Esq,

  
	
   

  	
  Wilmer
  Cutler Pickering Hale and Dorr LLP

  
	
   

  	
  Bay
  Colony Corporate Center

  
	
   

  	
  1100
  Winter Street

  
	
   

  	
  Waltham,
  MA 02454

  
	
   

  	
  Tel:
  617-526-6000

  
	
   

  	
  Fax:
  617-526-5000

  

 

Any
Party may at any time change its address for service by notice in writing
delivered to the other Party in accordance with the terms hereof.

 

30.7                        Each Party
agrees that the Company shall be managed in accordance with the highest
international business ethical standards and that no director, senior
management personnel or working personnel of the Company will be permitted to
engage in any act which violates applicable laws relating to corruption,
bribery, fraudulent behavior or any other criminal activity.

 

30.8                        The Company and
its officers, directors, employees and agents shall engage only in legitimate
business and ethical practices in commercial operations and in relation to
government authorities.  Neither the
Company nor any of its officers, directors, employees or agents shall pay,
offer, promise or authorize the payment, directly or indirectly, of any monies
or anything of value to any government official or employee or any political
party for the purpose of influencing any act or decision of such official or of
the government to obtain or retain business, or direct business to any person
(any such act, a “Prohibited Payment”). 
A Prohibited Payment does not include the payment of reasonable and bona
fide expenditures, such as travel and lodging expenses, which are directly
related to the promotion, demonstration or explanation of products or services,
or the execution of performance of a contract with a government authority or
agency thereof; provided that such payments are permissible under law and
customer guidelines.  The Parties hereby
represent that, in connection the performance of their obligations under this
Contract, the Parties, and their owners, directors, employees and agents, have
not, and will not, pay, offer, promise or authorize, directly or indirectly,
any Prohibited Payment.

 

ARTICLE 31

SCHEDULES AND ATTACHMENTS

 

The schedules attached
hereto are hereby made an integral part of this Contract and shall be binding
upon the Parties, along which the Articles of Association shall be submitted
with this Contract together to the Approval Authority for approval.  The attachments, when executed, shall become
binding upon the Parties thereto.  In the
event of a conflict or discrepancy between this Contract and any of the
Articles of Association, schedules or attachments, this Contract shall
prevail.  The schedules and attachments
are as follows:

 

46

 

	
  Schedule
  A

  	
  Schedule
  of Capital Contributions

  
	
   

  	
   

  
	
  Schedule
  B

  	
  Disclosures
  to Representations and Warranties

  

 

 

[Signature
page overleaf]

 

47

 

IN WITNESS WHEREOF, each
Party has executed this Contract in eight (8) counterparts (in English and
Chinese) through its duly authorized representative on the date first set forth
above.

 

	
  SAIC
  Motor Co., Ltd.

  	
  A123
  Systems Hong Kong Limited

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Chen Zhixin

  	
   

  	
  By:

  	
  /s/ David Vieau

  
	
   

  	
  Name
  Chen Zhixin

  	
   

  	
   

  	
  Name:
  David Vieau

  
	
   

  	
  Title
  Executive Vice President

  	
   

  	
   

  	
  Title:
  Authorized Representative

  

 

48

 

SCHEDULE
A

 

SCHEDULE
FOR CAPITAL CONTRIBUTIONS

 

	
   

  	
   

  	
   

  	
   

  	
  Contribution Sum (US

  Dollars)

  	
   

  	
   

  	
   

  
	
  No.

  	
   

  	
  Time

  	
   

  	
  Party A

  	
   

  	
  Party B

  	
   

  	
  Total (US Dollars)

  	
   

  
	
  1

  	
   

  	
  Within
  [**] calendar days from the Establishment Date

  	
   

  	
  1,938,000

  	
   

  	
  1,862,000

  	
   

  	
  3,800,000

  	
   

  
	
  2

  	
   

  	
  Within
  [**] calendar days from the Establishment Date

  	
   

  	
  1,453,500

  	
   

  	
  1,396,500

  	
   

  	
  2,850,000

  	
   

  
	
  3

  	
   

  	
  Within
  [**] calendar days from the Establishment Date

  	
   

  	
  1,453,500

  	
   

  	
  1,396,500

  	
   

  	
  2,850,000

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  4,845,000

  	
   

  	
  4,655,000

  	
   

  	
  9,500,000

  	
   

  

 

49

 

SCHEDULE B

 

DISCLOSURES TO REPRESENTATIONS AND WARRANTIES

 

[None.]

 

iExhibit 10.1

 

THIRD
AMENDMENT TO AMENDED AND RESTATED

FINANCING
AND SECURITY AGREEMENT

 

THIRD AMENDMENT TO

AMENDED AND RESTATED FINANCING AND
SECURITY AGREEMENT

 

This THIRD AMENDMENT TO AMENDED AND
RESTATED FINANCING AND SECURITY AGREEMENT  (this “Amendment”)
is made as of December 14, 2009, by and among (a) OPTELECOM-NKF,
INC., a corporation organized under the laws of the State of Delaware (the “U.S.
Borrower”); (b) OPTELECOM-NKF HOLDING, B.V., a private company with
limited liability organized and existing under the laws of The Netherlands (the
“Dutch Borrower”)(the U.S. Borrower and the Dutch Borrower each being sometimes
called a “Borrower” and both of them being collectively called the “Borrowers”);
(c) OPTELECOM-NKF,  B.V., a private
company with limited liability organized and existing under the laws of The
Netherlands (“NKF”); (d) OPTELECOM-NKF S.L., a private company with
limited liability organized and existing under the laws of Spain (the “Spanish
Subsidiary”); and (e) OPTELECOM UK LIMITED, a company organized and
existing under the laws of England and Wales and  OPTELECOM-NKF LIMITED, a company organized
and existing under the laws of England and Wales (each a “U.K. Subsidiary” and
collectively, the “U.K. Subsidiaries”)(the U.S. Borrower, the Dutch Borrower,
the U.K. Subsidiaries, the Spanish Subsidiary being each sometimes call an “Obligor”
and all of them collectively, the “Obligors”); and MANUFACTURERS AND TRADERS
TRUST COMPANY, a New York State Banking corporation (the “Lender”); Witnesseth:

 

On
June 25, 2008, the Obligors and the Lender executed and delivered a
certain Amended and Restated Financing and Security Agreement (the “Original
Financing Agreement”).  The Original
Financing Agreement was amended pursuant to a First Amendment to Amended and
Restated Financing and Security Agreement dated March 31, 2009 (the “First
Amendment”), by and among the Obligors and the Lender.  The Original Financing Agreement was amended
pursuant to a Second Amendment to Amended and Restated Financing and Security
Agreement dated July 1, 2009 (the “Second Amendment”), by and among the
Obligors and the Lender.  The Original
Financing Agreement as amended pursuant to the First Amendment and the Second
Amendment is hereinafter called the “Financing Agreement.”  The Obligors and the Lender have agreed to
amend certain provisions of the Financing Agreement subject to and in
accordance with this Amendment.

 

NOW THEREFORE, in
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the Lender and the Obligors agree as follows:

 

1.                                      Recitals.  The Lender and the Obligors acknowledge that the above
recitals to this Amendment are true and correct, and agree that the same are incorporated
by reference into the

 

1

 

body of this
Amendment.  Unless otherwise specifically
defined herein, all terms defined by the provisions of the Financing Agreement
shall have the same meanings ascribed to such terms by the provisions of the
Financing Agreement when used herein.

 

2.                                      Amendments to Financing
Agreement.

 

2.1.                            The Financing
Agreement is hereby amended by deleting the term “Dutch Revolving Credit
Committed Amount” appearing in Section 1.1 of the Financing Agreement in
its entirety and by substituting the following in lieu thereof:

 

“Dutch
Revolving Credit Committed Amount” is at any one time the Euro Currency
Equivalent of Five Hundred Thousand Dollars ($500,000).

 

2.2.                            The Financing
Agreement is hereby amended by deleting the term “Dutch Revolving Credit
Expiration Date” appearing in Section 1.1 of the Financing Agreement in
its entirety and by substituting the following in lieu thereof:

 

““Dutch
Revolving Credit Expiration Date” means February 28, 2010.”

 

2.3.                            The Financing
Agreement is hereby amended by deleting the term “U.S. Revolving Credit
Committed Amount” appearing in Section 1.1 of the Financing Agreement in
its entirety and by substituting the following in lieu thereof:

 

“U.S.
Revolving Credit Committed Amount” means Five Hundred Thousand Dollars
($500,000).

 

2.4.  The
Financing Agreement is hereby amended by deleting the term “U.S. Revolving
Credit Expiration Date” appearing in Section 1.1 of the Financing
Agreement in its entirety and by substituting the following in lieu thereof:

 

““U.S. Revolving
Credit Expiration Date” means February 28, 2010.”

 

2.5.  The Financing
Agreement is hereby amended by deleting Section 6.1.14 sub-section (d) in
its entirety and by substituting the following in lieu thereof:

 

“(d) 
Minimum Funds Flow. The U.S. Borrower will maintain: (i) for the
fiscal quarter ending June 30, 2009, the sum of its EBITDA plus Non Cash
Stock Option/Restricted Stock Expense of not less than $100,000, (ii) for
the fiscal quarter ending September 30, 2009, the sum of its EBITDA plus
Non Cash Stock Option/Restricted Stock Expense of not less than $1,200,000, and
(iii) for the fiscal quarter ending December 31, 2009, the sum of its
EBITDA plus Non Cash Stock Option/Restricted Stock Expense of not less than
$250,000.”

 

2

 

2.6.  The Financing
Agreement is hereby amended by deleting the date “December 31, 2009, set
forth in Section 6.1.28 (which was changed from September 8, 2009, in
the Second Amendment) in its entirety and by substituting the following in lieu
thereof:

 

“February 28, 2010”

 

3.                                      Confirmation of Security
Interest.  The Obligors hereby confirm that pursuant to
the provisions of the Financing Agreement, the Obligors has granted to the
Lender a security interest and continuing lien, in and to the Collateral.

 

4.                                      Representations and
Warranties.  The Obligors represent and warrant to the
Lender that each and all of the representations and warranties of the Obligors
in the Financing Agreement and the other Financing Documents are true and
correct on the date hereof as if the same were made on the date hereof.  The Obligors further represents and warrants
to the Lender that as of the date hereof, the Collateral is free and clear of all
assignments, security interests, liens and other encumbrances of any kind and
nature whatsoever except for those permitted under the provisions of the
Financing Agreement.

 

5.                                      Fee.  The Obligors shall pay to the Lender an amendment and
wavier fee in the amount of $15,000 simultaneously with the execution and
delivery of this Amendment.

 

3

 

6.                                      Amendment Only. 
This Amendment is only an agreement amending certain provisions of the Financing Agreement.  All of the provisions of the Financing
Agreement are incorporated herein by reference and shall continue in full force
and effect as amended by this Amendment. 
The Borrower hereby ratifies and confirms all of its obligations,
liabilities and indebtedness under the provisions of the Financing Agreement as
amended by this Amendment.  The Lender
and the Borrower agree it is their intention that nothing herein shall be
construed to extinguish, release or discharge or constitute, create or effect a
novation of, or an agreement to extinguish, any of the obligations,
indebtedness and liabilities of the Borrower or any other party under the
provisions of the Financing Agreement or under any of the other Financing
Documents, or any assignment or pledge to the Lender of, or any security
interest or lien granted to the Lender in or on, any collateral and security
for such obligations, indebtedness and liabilities.

 

7.                                      Applicable Law,
Etc.  This Amendment shall be governed by the laws of the
State of Maryland and shall be binding upon and inure to the benefit of the
Lender and the Borrower and their respective successors and assigns.

 

4

 

Signature Page for
Third Amendment to Amended and Restated

Financing
and Security Agreement

 

WITNESS WHEREOF, each of the parties hereto have
executed and delivered this Agreement under their respective seals as of the
day and year first written above.

 

	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM-NKF, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM-NKF HOLDING, B.V.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM-NKF, B.V.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM-NKF S.L.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM UK LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  OPTELECOM-NKF LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
                                  ,

  	
   

  	
   

  
	
  (Name)

  	
   

  	
   

  	
  (Name)                      (Title)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WITNESS OR ATTEST:

  	
   

  	
  MANUFACTURERS AND TRADERS TRUST
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  	
  J. Eric Goodwin, Vice President

  	
   

  	
   

  
	
  (Name)

  	
   

  	
   

  	
   

  	
   

  	
   

  
							

 

5

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