THIS SETTLEMENT AGREEMENT (the “ Settlement Agreement ”) is entered into by and between
The Pinnacle Fund, L.P. (“ Pinnacle ”) and China BAK Battery, Inc. (the “ Company ”) and its subsidiary BAK
International, Ltd. (“ BAK International ” and, together with the Company, “ CBAK ”). Pinnacle and CBAK are
also each referred to separately as a “ Party ” and together as the “ Parties .” The Parties, in order to resolve
disputed and contested issues and to limit the hazards, uncertainties and inconvenience of potential litigation, enter
into this Settlement Agreement.
Escrow Agreement . On January 20, 2005, BAK International consummated a private placement of
its common stock with unrelated investors whereby it issued an aggregate of 8,600,433 shares of common stock
for gross proceeds of US$17,000,000 (the “ Private Placement ”). Immediately thereafter, the shares of BAK
International were exchanged for shares of the Company. Pinnacle was an investor in the Private Placement and
entered into a subscription agreement (the “ Subscription Agreement ”) in connection therewith. In conjunction
with the Private Placement, pursuant to an Escrow Agreement dated January 20, 2005, Mr. Li Xiangqian, the
Chairman and Chief Executive Officer of the Company, placed 2,179,550 shares of the Company’s common
stock owned by him (the “ Make Good Shares ”) into an escrow account. The terms and conditions regarding
release of the Make Good Shares from escrow was set forth in the Escrow Agreement. A dispute has arisen
between Pinnacle and CBAK regarding 1,089,775 Make Good Shares (herein referred to as the “ Released
Shares ”) released from the escrow account to Mr. Li and subsequently delivered by Mr. Li to BAK
International, which then delivered the shares to the Company.
The Parties have agreed, without any admission of liability, that it is in the interests of all of the Parties to
resolve the issues relating to the Released Shares amicably.
Definitions . Capitalized