Joint Venture Letter Agreement

GRAPHIC]


EXHIBIT 10.16


LETTER AGREEMENT


This Letter Agreement entered into this 16th day of December, 1998 at Bangalore, between:


Sudarshan K. Maini, an Indian citizen, having his addresses at Maini Sadan, Lavelle Road, Bangalore, acting for himself and Maini Materials Movement Pvt.Ltd., a company incorporated and registred under the Companies Act, 1956, having its registered office at 122 Bommasandra Industrial Estate, Bangalore, and Maini Precision Products Pvt.Ltd., a company incorporated and registered under the Companies Act, 1956 and having its registered office at B-59 Peenya Industrial Estate, Bangalore, hereinafter collectively referred to as "Maini" (which expression shall unless be repugnant to the context or meaning thereof be deemed to include their successors in interest and permitted assigns) of the FIRST PART.


AND


Amerigon Incorporated, a company incorporated under the laws of the United States of America, having its principal place of business at 5462, Irwindale Avenue, California, 91706, U.S.A., hereinafter referred to as "Amerigon", (which expression shall unless it be repugnant to the context or meaning thereof, be deemed to include its successors in interest and permitted assigns) of the SECOND PART.


This letter sets forth our agreement with respect to the formation, capitalization and operation of a proposed joint venture company ("Newco") which will design, manufacture, test, distribute, sell, and service Road Worthy (as defined below) electric powered vehicles (collectively, the "Products") in India, Sri Lanka, Bangladesh, Pakistan, Nepal, Myanmar, Seychelles and the Maldives (collectively, the "Territory")


[SEAL]


RANGA SWAMY


utilizing technology owned by Amerigon Incorporated ("Amerigon"). Road Worthy vehicles shall mean cars, vans, trucks, busses, 3-wheel and 2-wheel electric vehicles for on-road use, but excluding industrial, construction, agricultural, golf and other non-road vehicle types.


Our understanding includes the following terms and conditions to be incorporated in definitive agreements:


1. Background.
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(a) Amerigon has developed, designed and tested preproduction prototypes of an electric powered automobile known as the "REVA" (the "REVA") and has manufactured REVA vehicles is small quantities. Amerigon owns a variety of technology relevant to the design and manufacturing of electric automobiles, including a patented energy management system. Amerigon owns certain tooling for pre-production of the REVA and has considerable production know-how. Amerigon will license its technology and know-how for Road Worthy electric vehicles to Newco which will include: (1) exclusive rights to manufacture and sell the REVA in the Territory, (2) exclusive license to all of Amerigon's patents related to its Energy Management System, Climate Control Seat System and Electric Vehicle Safety Systems for all electric vehicles manufactured in the Territory and (3) exclusive license to all of Amerigon's current and future electric vehicle technology in connection with the manufacture and sale of electric vehicles in the Territory.


(b) Sudarshan K. Maini, acting for himself, Maini Materials Movement (an Indian corporation) and Maini Precision Products, Pvt. Ltd. (collectively "Maini") manufactures and assembles precision automotive components, castings and granite tiles. In addition, Maini designs, manufactures, sells and services in-plant material handling equipment including electric tow tractors, pallet trucks, stackers and dock levelers. Maini has also been involved in various aspects of the REVA project including market research, vehicle design, vendor development, part costing, homologation and testing. Maini has land, buildings, equipment, infrastructure, capital and management expertise that would be valuable to launching Newco and desires to have an equity stake in Newco. Maini may include as investors in such members of his family and also such companies or bodies corporate owned and controlled by Maini and nominated by him to be participants in Newco.


(c) Chetan Maini ("CM") has been an employee of Amerigon and the program manager for the REVA project for over four years. He is also the son of Sudarshan Maini. It is anticipated that CM will initially serve as the Managing Director of Newco.


(d) It is contemplated that Newco will be jointly owned by Amerigon, Maini, CM, David Bell, Bob Marcellini and one or more additional investors (the "Investors") who have yet to be determined.


2. Formation of Newco.
------------------


(a) Newco will be an Indian Private Limited Company registered under the Companies Act. Maini and Amerigon shall take the necessary steps for registration of Newco. If legally available, the name of the new company will be "REVA Electric Car Company Private Limited". Mutually acceptable charter and bylaw documents shall be prepared and shall give effect to the terms agreed upon between Maini and Amerigon in conformity with the terms hereof. Maini shall take responsibility for securing additional investors and Amerigon shall assist Maini in the process.


(b) The principal business purposes of Newco will be (i) the design, manufacture, assembly and testing of the Products(s) throughout the Territory, (ii) marketing, distributing and selling the Products(s) throughout the Territory, (iii) servicing the Products(s) sold throughout the Territory, (iv) developing technology related to electric vehicles, (v) establishing a manufacturing facility as further described in the mutually agreed upon outline of the Operating Plan attached hereto as Schedule A and (vi) engaging in such
---------- other activities as may be incidental or necessary to the foregoing.


3. Capitalization of Newco.
-----------------------


(a) The parties will seek to capitalize Newco as described in Schedule B attached hereto. Amerigon's capital contribution to Newco shall - ---------- consist of (1) the license to Newco of its electric vehicle ("EV") technology on an exclusive basis for the manufacture, distribution, sale and servicing of the Products in the Territory, (2) the contribution in-kind of certain tangible assets (electric vehicles and manufacturing kits as set forth on Schedule A),
---------- and (3) those other assets described in Schedule A attached hereto. Maini's
---------- capital contribution will consist of (1) the homologation certification of the earlier version of the REVA and any other exemptions/concessions including sales tax and road tax exemptions/concessions, (2) market research and studies for the REVA, (3) supplier information and test results and (4) cash and in-kind capital contribution as described in Schedule A attached hereto and shall be made at the
---------- times and in the manner specified in Schedule A hereto. CM, Bob Marcellini and
---------- David Bell will each receive equity as set forth on Schedule B in the form of a
---------- restricted stock grant for services rendered in the past and future. Such restricted stock will be non-transferable until vested. 30% of such stock for each will vest immediately and the remainder will vest in equal monthly amounts over a three year period from the formation of Newco or earlier upon such person completing providing services to Newco as specified in the Schedule A. Failure to provide ----------


services as contemplated by the Operating Plan will result in a forfeiture
of the restricted stock grant. In addition, US$2.67 million is intended to
be raised from Investors. A portion of the equity (4.5%) will be reserved
for future issuance for purposes including a stock option plan (which may
not exceed 2% of the total capital), raising additional capital, and
issuance to employees in exchange for salary reductions (for such purpose,
at a price of 50% of the then fair market value of the equity). Except as
set forth in the preceding sentence, all future non-cash contributions
shall be valued at fair market value or other mutually agreeable valuation
method.


(b) The charter documents of Newco will contain effective
prohibitions on Maini and CM individually or collectively having 50% or
greater ownership of Newco or having the right to appoint a majority of the
members of the Board of Directors of Newco. It is understood that if at
start-up we do not have all the investors, and hence there exists
unclassified shares, Maini Group and CM will not be allowed to purchase
additional shares such that their cumulative ownership in the company
exceeds 50%. Notwithstanding the previous sentences, under the following
conditions Maini and CM, collectively or individually can be allowed to
have greater than 50% ownership and consequently rights to appoint a
majority of the Board of Directors: (1) if Amerigon sells more than half of
its initial equity holding in Newco to Maini or any other third party,
excluding transfers to persons as required by contracts existing on the
date hereof, (2) if future additional financing is required and approved by
the Board of Directors, and Amerigon or other investors do not invest
additional funds to maintain their proportionate ownership, and Maini
provides financing and obtains a 50% or greater ownership interest in
Newco, (3) per section 6 (c), if a third party sells its interest in Newco,
and Maini participates in such a sale that its ownership exceeds 50% and
(4) if financial guarantees are required as per section 13 (c), then the
resultant compensation for providing such guarantees may result in Maini
and CM owning greater than 50%.


(c) No party to Newco shall have any obligation to contribute
additional capital to Newco unless agreed upon by such party.


4. Newco Governance.
----------------


(a) Newco shall have a Board of Directors (the "Board")
consisting of not more than fifteen (15) directors, with at least one
director to be selected by each of Maini, Amerigon and the Investors. The
Board will also have outside directors. One director shall be the Managing
Director of Newco. The Managing Director shall be appointed by the mutual
consent of Amerigon and Maini and shall be a professionally qualified
person. The Managing Director shall serve at the pleasure of the Board of
Directors and be appointed upon such terms and conditions as the parties
may mutually agree upon. Chetan Maini shall be the first Managing Director
of the company. The Chairman of the Board shall


be a director appointed by Maini and the Vice-Chairman shall be a director appointed by Amerigon. The term of each of the other directors, except the Chairman, shall be for three (3) years. A director appointed by a particular party may be replaced at any time by such party upon notice to the other parties. Any replacement director shall be satisfactory to the other parties. A director may be removed only by the party appointing such director or by a majority vote of the other directors, but only for cause (e.g. breach of fiduciary duty or malfeasance). In the event that the number of directors is increased, the number of directors a party will appoint in general will be proportionate to its ownership interest in Newco. For every Amerigon director, Amerigon will and for every Maini director, Maini may, appoint an alternate director resident in India, approved by the Board of Directors of Newco as required by The Companies Act of India. The attendance of at least one Amerigon director or his alternate and at least one Maini director or his alternate shall constitute a quorum.


(b) Except for the actions described in the immediately succeeding sentence or as may otherwise be agreed upon, all actions of Newco require the affirmative vote of a majority of the directors present and voting at the meeting. Certain actions (including without limitation amendments or changes to the charter documents of Newco, liquidation or winding-up of Newco, merger of Newco with another entity, sale or transfer of all or substantially all of the business or of certain key assets of Newco, changes in capital structure of Newco, recapitalization, restructuring or stock reclassification of Newco, issuance of additional equity interests in Newco, admittance of new investors or shareholders into Newco, amendment of the Operating Plan, borrowing of monies or granting of loans to third parties, undertaking any substantial expansion of Newco operations, any related party transactions, declaration of dividends, etc.) will be regarded as Reserved Matters. Reserved Matters require (i) at least one affirmative vote from each of Amerigon and Maini and (ii) the approval of at least 75% of the directors constituting a quorum.


(c) The Board shall appoint the officers of the Newco, which shall include a Managing Director, a Chief Operating Officer, a Chief Financial Officer and a Secretary. The same person may hold more than one officer position. Officers shall serve at the pleasure of the Board and may be removed by the Board at any time. The Board shall meet on a regular basis (not less frequently than quarterly) and, in the first two years after the formation of the JV, management shall have monthly meetings and subsequent telephonic conference calls with the members of the Board to discuss Newco's operations and progress relative to the Operating Plan. The shareholders of Newco shall meet at least once per year at a time and place to be determined by the Board. All Board members are to be notified on the agenda to be discussed at the board meeting, at least one week prior to the Board meeting unless mutually agreed upon in writing by Amerigon and Maini.


(d) Newco shall maintain true and accurate books of accounts and records in accordance with generally accepted accounting principles in India consistently applied. Subject to Indian law, Maini, Amerigon and the Investors shall be provided with monthly, quarterly and annual financial reports, which shall include income statements, balance sheets and cash flow statements. Maini, Amerigon and the Investors shall also receive from Newco projected cash flow reports, sales and marketing reports, production and quality control reports, annual budgets, business plans and such other information and reports as may be agreed upon and at such times as may be agreed upon. Newco shall hire an internationally recognized "Big Five" independent accounting firm, satisfactory to Amerigon and Maini, to audit the annual financial statements. Such auditor's report shall be supplied to all shareholders. The books and records of Newco shall be accessible to the Maini, Amerigon and the Investors and their representatives.


(e) It is understood that section 4(a), 4(b), 4(c) and 4(d) may possibly need to be modified to conform to existing company laws in India. It is anticipated that such changes will not significantly alter the content of the above.


5. Transactions between Newco and Amerigon or Maini or Others.
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(a) Concurrently with formation and capitalization of a Newco, Amerigon will enter into a royalty bearing license (the "EV License") with Newco pursuant to which Amerigon will license Amerigon's EV technology on an exclusive basis in the Territory. Newco will have no right to sublicense and no rights to the EV technology outside the Territory; provided, however, that with Amerigon's prior written consent, which will not be unreasonably withheld, Newco may manufacture products in the Territory for export outside the Territory in order to fulfill commitments given to the Indian government and outlined in the Operating Plan (currently, 15%-20% of vehicles manufactured). The parties recognize that Amerigon retains all rights to the technology outside the Territory and may limit or restrict Newco's exports of finished products incorporating the technology. Amerigon intends to enter into additional joint ventures with other parties outside the Territory and may grant to such parties exclusive rights which would prevent Newco from exporting products to certain areas. Prior to making any significant investments to modify the REVA for export outside the Territory, Newco will consult with Amerigon to determine appropriate terms and conditions on such exports to assure minimum export time period and volume. Newco will pay Amerigon royalties of 5% on domestic sales and 8% on export sales for a period of 5 years (commencing with the first year of operating profit, which the parties anticipate to be year 3). Royalty payments will be calculated per the Indian Industrial Policy. Royalties will be paid no less frequently than annually and once a quarter in the 3rd, 4th and 5th year of royalty payment, and the EV License will contain other customary terms and conditions


acceptable to Amerigon. If in year 3 Newco has an operating profit but would have a net loss if it paid Amerigon the required royalty, Newco will have an option to defer payment of such party of the royalty for year 3 as would cause it to have a net loss and pay such portion of the royalty the following year, without interest.


(b) Amerigon will enter into an exclusive, royalty-free, nontransferable license with Newco to manufacture and sell Amerigon's proprietary Climate Control Seat system ("CCS") in the Territory, but only for electric vehicles manufactured in the Territory (the "CCS License"). The CCS License will contain other terms and conditions acceptable to Amerigon. In connection with the CCS License, Newco will send one engineer to visit Amerigon's offices to learn more about the CCS for the purpose of integrating it into the REVA. It is anticipated that this process would take about 6 weeks. It is also anticipated that Newco will select one of Amerigon's existing CCS models for integration into the REVA. If Newco desires to purchase finished CCS modules from Amerigon, Amerigon will supply them, regardless of quantity ordered, at the same price that Amerigon charges its principal customer for the same model. If Newco assembles CCS units in the Territory but desires to purchase parts from Amerigon, Amerigon will attempt to supply Newco with parts and will charge Newco cost plus 10% (plus all applicable taxes, duties, etc.), FOB Amerigon's facility in Irwindale, California. All sales of products will be made pursuant to Amerigon's standard terms and conditions of sale. In Newco desires to manufacture the CCS in the Territory, Amerigon will cooperate with Newco and provide technical assistance; provided, however, that Newco will reimburse Amerigon for all direct costs associated with such assistance.


(c) Except as otherwise provided herein, all services, parts, components, supplies and other materials and services provided to Newco by Amerigon or Maini or any other owner of Newco shall be valued at prevailing world market rates or such other mutually acceptable valuation method. All agreements, contracts or other arrangements between Newco and Maini, Amerig ...