Exhibit 10.1
 
Execution

Dated 22 November 2010

HARBIN ELECTRIC, INC.
as Borrower

and

CHINA DEVELOPMENT BANK CORPORATION HONG KONG BRANCH
(国家开发银行股份有限公司香港分行)
as Lender
 

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USD35,000,000 and RMB100,000,000
TERM LOAN FACILITY AGREEMENT
 

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KING & WOOD
9/F., Hutchison House
Central, Hong Kong

Tel.: (852) 2848 4848
Fax: (852) 2845 2995
Ref.: 710110036/CR/JL

HRBN - Term Loan Facility Agreement

 
 

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Execution
 
CONTENTS

CLAUSE
PAGE
     
1.
DEFINITIONS AND INTERPRETATION
1
     
2.
THE FACILITY
10
     
3.
PURPOSE
11
     
4.
CONDITIONS OF UTILISATION
11
     
5.
UTILISATION
12
     
6.
REPAYMENT
13
     
7.
PREPAYMENT AND CANCELLATION
13
     
8.
INTEREST
15
     
9.
INTEREST PERIODS
16
     
10.
CHANGES TO THE CALCULATION OF INTEREST
16
     
11.
FEES
17
     
12.
TAX GROSS UP AND INDEMNITIES
18
     
13.
INCREASED COSTS
20
     
14.
MITIGATION BY THE LENDER
20
     
15.
OTHER INDEMNITIES
21
     
16.
COSTS AND EXPENSES
22
     
17.
REPESENTATIONS AND WARRANTIES
23
     
18.
UNDERTAKINGS
23
     
19.
EVENTS OF DEFAULT
23
     
20.
CHANGES TO THE PARTIES
24
     
21.
DISCLOSURE OF INFORMATION
25
     
22.
PAYMENT MECHANICS
26
     
23.
SET-OFF
27
     
24.
NOTICES
27
     
25.
CALCULATIONS AND CERTIFICATES
28
     
26.
PARTIAL INVALIDITY
28
     
27.
REMEDIES AND WAIVERS
28
     
28.
AMENDMENTS AND WAIVERS
29
     
29.
COUNTERPARTS
29
     
30.
GOVERNING LAW
29
     
31.  
ENFORCEMENT
29

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Execution

SCHEDULE 1
31
   
COMMITMENTS
31
   
SCHEDULE 2
32
   
CONDITIONS PRECENDENT
32
   
SCHEDULE 3
35
   
UTILISATION REQUEST
35
   
SCHEDULE 4
36
   
REPRESENTATIONS AND WARRANTIES
36
   
SCHEDULE 5
40
   
UNDERTAKINGS
40
   
SCHEDULE 6
46
   
EVENTS OF DEFAULT
46
   
SCHEDULE 7
50
   
DEBT SERVICE ACCOUNT
50
   
EXECUTION
51

 
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Execution

THIS AGREEMENT is dated 22 November 2010 and made between:

1
HARBIN ELECTRIC, INC., a limited liability company incorporated under the laws
of the State of Nevada with its principal place of business at No. 9 Ha Ping Xi
Lu, Ha Ping Lu Ji Zhong Qu, Harbin Kai Fa Qu, Harbin, People's Republic of China
150060 as borrower (the “Borrower”); and

2
CHINA DEVELOPMENT BANK CORPORATION HONG KONG BRANCH ( 国家开发银行股份有限公司香港分行) of Suite
3307-15, 33/F., One International Finance Centre, No. 1 Harbour View Street,
Central, Hong Kong as lender (the “Lender”).

IT IS AGREED as follows:

1.
DEFINITIONS AND INTERPRETATION

1.1
Definitions

 
In this Agreement:

 
“Authorised Person” means a person duly authorised to act on behalf of any of
the Obligors, as the case may be, and any permitted attorney-in-fact or delegate
of such person.

 
“Availability Period” means the period six (6) months from and including the
date of this Agreement.

 
“Available Facility” means, in relation to a Facility, at any time the Lender's
Commitment under that Facility minus:

 
(a)
the aggregate amount of any outstanding Loans under that Facility; and

 
(b)
in relation to any proposed Utilisation, the aggregate amount of any Loan that
is due to be made under that Facility on or before the proposed Utilisation
Date.

“Baring Asia” means Baring Private Equity Asia Group Limited.

“Break Costs” means the amount (if any) by which:

 
(a)
the interest which the Lender should have received pursuant to the terms of this
Agreement for the period from the date of receipt of all or any part of the
principal amount of a Loan or Unpaid Sum to the last day of the current Interest
Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid
Sum received been paid on the last day of that Interest Period;

 
exceeds:

 
(b)
the amount of interest which the Lender would be able to obtain by placing an
amount equal to the principal amount or Unpaid Sum received by it on deposit
with a leading bank in the Relevant Interbank Market for a period starting on
the business day following receipt or recovery and ending on the last day of the
current Interest Period.

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“Commitment”  means  Facility A  Commitment  or  Facility B  Commitment; and
“Commitments” means both of them.

 
“Common Stock” means any stock of any class of the Borrower which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Borrower
and which is not subject to redemption by the Borrower.

 
“Consortium Agreement” means a consortium agreement dated 10 October 2010
between Baring Asia and the Share Pledgor.

 
“Debt Service Account” has the meaning ascribed to it in Schedule 7 (Debt
Service Account).

 
“Default Notice” means a notice issued in accordance with this Agreement by the
Lender to the Borrower notifying the Borrower of the occurrence of an Event of
Default.

 
“Event of Default” means any event or circumstance specified as such in Schedule
6 (Events of Default).

 
“Facility” means Facility A or Facility B; and “Facilities” means both of them.

 
“Facility A” means the US Dollar term loan facility made available under this
Agreement as described in Clause 2 (The Facility).

 
“Facility A Commitment” means the amount under the heading “Facility A
Commitment” in Schedule 1 (Commitments) to the extent not cancelled or reduced
by the Lender under this Agreement.

 
“Facility A Margin” means three per cent. (3%) per annum.

 
“Facility A Loan” means, as the context requires, a loan made or to be made
under Facility A or the principal amount outstanding at any time of that loan.

 
“Facility B” means the RMB term loan facility made available under this
Agreement as described in Clause 2 (The Facility).

 
“Facility B Commitment” means the amount under the heading “Facility B
Commitment” in Schedule 1 (Commitments) to the extent not cancelled or reduced
by the Lender under this Agreement.

 
“Facility B Margin” means two and a half per cent. (2.5%) per annum.

 
“Facility B Loan” means, as the context requires, a loan made or to be made
under Facility B or the principal amount outstanding at any time of that loan.

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Execution

“Finance Documents” means the followings:-

 
(a)
this Agreement;

 
(b)
the Security Documents; and

 
(c)
any other document or agreement designated in writing as such by the Borrower
and the Lender.

“Financial Indebtedness” means any indebtedness for or in respect of:

 
(a)
moneys borrowed;

 
(b)
any amount raised by acceptance under any acceptance credit facility;

 
(c)
any amount raised pursuant to any note purchase facility or the issue of bonds,
notes, debentures, loan stock or any similar instrument;

 
(d)
the amount of any liability in respect of any lease or hire purchase contract
which would, in accordance with the general applicable accounting standards, be
treated as a finance or capital lease;

 
(e)
receivables sold or discounted (other than any receivables to the extent they
are sold on a non-recourse basis);

 
(f)
any amount raised under any other transaction (including any forward sale or
purchase agreement) having the commercial effect of a borrowing;

 
(g)
any derivative transaction entered into in connection with protection against or
benefit from fluctuation in any rate or price (and, when calculating the value
of any derivative transaction, only the marked to market value shall be taken
into account);

 
(h)
any counter-indemnity obligation in respect of a guarantee, indemnity, bond,
standby or documentary letter of credit or any other instrument issued by a bank
or financial institution; and

 
(i)
the amount of any liability in respect of any guarantee or indemnity for any of
the items referred to in paragraphs (a) to (h) above.

 
“Final Maturity Date” means the date falling thirty-six (36) months after the
first Utilisation Date.

 
“GAAP” means United States Generally Accepted Accounting Principles.

 
“Group” means the Borrower and its subsidiaries from time to time.

 
“Group Companies” means the members of the Group; and “Group Company” means each
of them.

 
“Hong Kong” means the Hong Kong Special Administrative Region of the People's
Republic of China.

 
“Interest Payment Date” means the last day of each Interest Period.

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“Interest Period” means, in relation to a Loan, each period determined in
accordance with Clause 9 (Interest Periods) and, in relation to an Unpaid Sum,
each period determined in accordance with Clause 8.3 (Default interest).

 
“LIBOR” means, in relation to any Loan:

 
(a)
the applicable Screen Rate; or

 
(b)
if no Screen Rate is available for US Dollars for the Interest Period of that
Loan, the arithmetic mean of the rates (rounded upwards to four decimal places)
quoted by the Reference Banks to leading banks in the London interbank market
(as supplied to the Lender at its request),

 
as of 11:00am (London time) on the Quotation Day for which an interest rate is
to be determined for the offering of deposits in US Dollars and for a period of
comparable to the Interest Period for that Loan.

 
“Loan” means a Facility A Loan or a Facility B Loan.

 
“Margin” means in relation to a Facility A Loan, Facility A Margin and in
relation to a Facility B Loan, Facility B Margin.

 
“Material Adverse Change” means any event or circumstance that has or could
reasonably be expected to have a material adverse effect.

 
“Obligors” means the Borrower, the Share Pledgor and any other person (other
than the Lender) who is a party to a Finance Document; and “Obligor” means any
of them.

 
“Original Financial  Statements” means the audited and consolidated financial
statements of the Group for the financial year ended 31 December 2009.

 
“Party” means a party to this Agreement.

 
“Permitted Holders” means the Share Pledgor and its estate, spouse, ancestors
and lineal descendants, the legal representatives of any of the foregoing and
the trustees of any bona fide trusts of which the foregoing are the sole
beneficiaries or the grantors, or any entity of which the foregoing beneficially
own, individually or collectively with any of the foregoing, at least 80% of the
total voting power of the voting shares of such entity.

 
“Permitted Security Interest” means

 
(i)
the Security Interests created pursuant to the Security Documents;

 
(ii)
any Security Interest arising or constituted under any retention of title or
similar provision in a supplier's or vendor's terms and conditions of supply or
sale of goods or materials acquired by the Borrower in the ordinary course of
business and provided no default exists in respect of the obligations which the
Security Interest secures;

  
(iii)
any Security Interest for any Taxes which are not yet due or remain payable
without penalty (other than those which are currently being contested in good
faith by appropriate proceedings and in respect of which the Borrower has made
adequate reserve (being not less than an amount which would be required to be
reserved in accordance with GAAP)) provided always that no document has been
filed, registered, recorded or lodged with any court, registry, office, or
regional, provincial, governmental or other authority by any person for the
purpose of perfecting or preserving such Security Interest or the priority
thereof;

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Execution

 
(iv)
any Security Interest arising or constituted by any lease, rental, hire,
conditional sale or similar agreement entered into by the Borrower relating to
the assets acquired by it in the ordinary course of business (and not for the
primary purpose of raising finance) provided always that the entry into and
performance of such arrangements does not contravene any provision of any of the
Finance Documents;

 
(v)
any Security Interest on property acquired by the Borrower after the date hereof
which existed on such property at the time of its acquisition (but which was not
created in anticipation thereof) provided that the terms thereof and the
acquisition of such property do not contravene any provision of any of the
Finance Documents and the principal amount secured thereby has not been
increased in contemplation of, or since the acquisition of that property by the
Borrower;

 
(vi)
any netting or set-off arrangement entered into by the Borrower in the ordinary
course of its banking arrangements for the purpose of netting debit and credit
balances.

 
“Potential Event of Default” means any event or circumstance specified in
Schedule 6 (Events of Defaults) which would (with the expiry of a grace period,
the giving of notice, the making of any determination under the Finance
Documents or any combination of any of the foregoing) be an Event of Default.

 
“PRC” means the People's Republic of China excluding, for the purpose of this
Agreement, Hong Kong.

 
“Quotation Day” means, in relation to any currency for any period for which an
interest rate is to be determined, the day as determined by the Lender in
accordance with market practice in the Relevant Interbank Market (and if
quotation would normally be given by leading banks in the Relevant Interbank
Market on more than one day, the Quotation Day will be the last of those days).

 
“Reference Banks” means such banks as may be appointed by the Lender.

 
“Related Business” means any designing, developing, manufacturing, supplying,
and servicing of electric motors including linear motors, specialty
micro-motors, and industrial rotary motors.

 
“Release Date” means the date on which the Lender has certified that the Secured
Indebtedness has been irrevocably and unconditionally paid and discharged in
full.

 
“Relevant Interbank Market” means in relation to US Dollars, the London
interbank market and, in relation to RMB, the Shanghai interbank market.

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Execution

 
“Repayment Dates” means the dates falling twenty-four (24) and thirty-six (36)
months respectively after the first Utilisation Date (irrespective of the
Facility under which the first Utilisation is made); and “Repayment Date” means
each of them.

 
“Screen Rate” means:

 
(a)
in relation to LIBOR, the British Bankers' Association Interest Settlement Rate
for the relevant currency and period; and

 
(b)
in relation to SHIBOR, the Shanghai Interbank Offered Rate calculated by
National Interbank Funding Center for the relevant currency and period,

 
displayed on the appropriate page of the (in relation to LIBOR) Reuters screen
and (in relation to SHIBOR) the website www.shibor.org. If the agreed page is
replaced or service ceases to be available, the Lender may specify another page
or service displaying the appropriate rate after consultation with the Borrower.

 
“Security Documents” means

 
(a)
the Share Pledge Agreement; and

 
(b)
any other security documents for the time being or from time to time
constituting security for the Secured Indebtedness and any other document which
may be designated a Security Document with the consent of the Borrower

 
and shall include all notices, acknowledgements or other documents required
pursuant thereto or in connection therewith and reference to “Security Document”
includes reference to any one thereof.

 
“Secured Indebtedness” means all present and future indebtedness, obligations
and liability (whether actual or contingent and whether owed on a joint and
several basis, or in any capacity whatsoever) of the Obligors to the Lender
under the Finance Documents.

 
“Security Interest” means (i) a mortgage, charge, pledge, lien or other
encumbrance securing any obligation of any person, (ii) any arrangement under
which money or claims to, or for the benefit of, a bank or other account may be
applied, set-off or made subject to a combination of accounts so as to effect
payment of sums owed or payable to any person or (iii) any other type of
preferential arrangement (including title transfer and retention arrangements)
having a similar effect.

 
“Share Pledge Agreement” means a pledge and security agreement entered or to be
entered into between the Share Pledgor as pledgor and the Lender as pledgee in
respect of the Common Stock including all amendments attached thereto pursuant
to the terms of the Share Pledge Agreement.

 
“Share Pledgor” means Mr. Yang Tianfu (杨天夫), holder of PRC passport No.
G33266303.

 
“Share Value” has the meaning ascribed to it in the Share Pledge Agreement.

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Execution

 
“SHIBOR” means, in relation to any Loan:

 
(a)
the applicable Screen Rate; or

 
(b)
if no Screen Rate is available for RMB for the Interest Period of that Loan, the
arithmetic mean of the rates (rounded upwards to four decimal places) quoted by
the Reference Banks to leading banks in the Shanghai interbank market (as
supplied to the Lender at its request),

 
as of 11:30am (Beijing time) on the Quotation Day for which an interest rate is
to be determined for the offering of deposits in RMB and for a period of
comparable to the Interest Period for that Loan.

 
“Tax” means any tax, levy, impost, duty or other charge or withholding of a
similar nature (including any penalty or interest payable in connection with any
failure to pay or any delay in paying any of the same).

 
“Tax Deduction” has the meaning given to such term in Clause 12.1 (Tax
definitions).

 
“Trading Day” shall mean (a) if the Common Stock is listed or admitted for
trading on the New York Stock Exchange, a day on which trades may be made on
such exchange, (b) if the Common Stock is quoted on the Nasdaq Stock Market, a
day on which trades may be made thereon or (c) if the Common Stock is not so
listed, admitted for trading or quoted, any day other than a Saturday or Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.

 
“Trading Market” has the meaning ascribed to it in the Share Pledge Agreement.

 
“Unpaid Sum” means any sum due and payable but unpaid by the Borrower under this
Agreement.

 
“Utilisation” means a utilisation of a Facility.

 
“Utilisation Date” means the date of a Utilisation, being the date on which the
relevant Loan is to be made.

 
“Utilisation Request” means a notice substantially in the form set out in
Schedule 3 (Utilisation Request).

1.2
Construction

(a)  Unless a contrary indication appears, any reference in this Agreement to:

 
(i)
the “Borrower”, the “Lender”, any “Obligor” or any “Party” shall be construed so
as to include its successors in title, permitted assigns and permitted
transferees;

 
(ii)
“affiliate” of any specified person means:

 
(a)
any other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person, or

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Execution

 
(b)
any other person who is a director or officer of:

 
(1)
such specified person,

 
(2)
any subsidiary of such specified person,

 
(3)
any person described in (a) above, or

 
(c)
any spouse, parent, child, brother or sister of any personal described in (a) or
(b) above;

 
(iii)
“applicable law or regulation” includes any law, regulation, rule, official
directive, request or guideline (whether or not having the force of law) of any
governmental, intergovernmental or supranational body, agency, department or
regulatory, self-regulatory or other authority or organisation;

 
 
(iv)
a document is in “agreed form” if it is agreed and initialled for the purpose of
identification as such by the Borrower and the Lender;

 
(v)
“assets” includes present and future properties, revenues and rights of every
description;

 
(vi)
“authorisation” means:

 
(a)
an authorisation, consent, approval, resolution, licence, exemption, filing,
notarisation, lodgement or registration; or

 
(b)
in relation to anything which will be fully or partly prohibited or restricted
by law if a government agency intervenes or acts in any way within a  specified
 period  after lodgement,  filing,  registration or notification, the expiry of
that period without intervention or action;

 
(vii)
“business day” means a day (other than a Saturday or Sunday) on which banks are
open for general business in New York, Hong Kong and (if such reference relates
to a date for a payment in US Dollars) London or (if such reference relates to a
date for a payment in RMB) Shanghai;

 

 
(viii)
“contractual obligations” means, as to any person, any provision of any security
issued by such person or of any agreement, undertaking, contract, indenture,
mortgage, deed of trust or other instrument or arrangement (whether in writing
or otherwise) to which such person is a party or by which it or any of such
person's property is bound;

 
 
(ix)
“control” means the power to direct the management and policies of a body
corporate, whether through the ownership of voting capital, by contract or
otherwise and “controlled” shall be construed accordingly;

 
(x)
a “Finance Document” or any other agreement or instrument is a reference to that
Finance Document or other agreement or instrument as amended, novated,
supplemented, extended or restated;

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Execution

 
(xi)
“governmental agency” means any government or any governmental agency,
semi-governmental or judicial entity or authority (including, without
limitation, any stock exchange or any self-regulatory organisation established
under statute);

 
(xii)
“holding company” means, in relation to a company or corporation, any other
company or corporation in respect of which it is a subsidiary;

 
(xiii)
“including” shall be construed as “including without limitation” (and cognate
expressions shall be construed similarly);

 
(xiv)
“indebtedness” includes any obligation (whether incurred as principal or as
surety) for the payment or repayment of money, whether present or future, actual
or contingent;

 
(xv)
“indirect tax” means any goods and services tax, consumption tax, value added
tax or any tax of a similar nature;

 
(xvi)
“material adverse effect” means a material adverse effect on (a) the property,
business, operations, financial condition, liabilities or capitalization of the
Group , taken as a whole, (b) the ability of any Obligor to perform its payment
obligations or any of its material obligations under any of the Finance
Documents to which it is a party, (c) the validity or enforceability of any of
the Finance Documents, (d) the material rights and remedies of the Lender under
any of the Finance Documents or (e) the timely repayment of the Loan or payment
of interest accrued or any other amount payable by the Borrower under this
Agreement;

 
(xvii)
“month” means a period starting on one day in a calendar month and ending on the
numerically corresponding day in the next calendar month, except that:

 
(a)
if the numerically corresponding day is not a business day, that period shall
end on the next business day in that calendar month in which that period is to
end if there is one, or if there is not, on the immediately preceding business
day;

 
(b)
if there is no numerically corresponding day in the calendar month in which that
period is to end, that period shall end on the last business day in that
calendar month; and

 
(c)
if an Interest Period begins on the last business day of a calendar month, that
Interest Period shall end on the last business day in the calendar in which that
Interest Period is to end;

The above rules will apply only to the last month of any period.
 

 
(xviii)
“subsidiary” means in relation to any company or corporation, a company or
corporation:

 
 
(a)
which is controlled, directly or indirectly, by the first mentioned company or
corporation;

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Execution

 
(b)
more than half the issued equity share capital of which is beneficially owned,
directly or indirectly, by the first mentioned company or corporation; or

 
(c)
which is a subsidiary of another subsidiary of the first mentioned company or
corporation, and for this purpose, a company or corporation shall be treated as
being controlled by another if that other company or corporation is able to
direct its affairs and/or to control the composition of its board of directors
or equivalent body;

 
(xix)
a “person” includes any individual, firm, company, corporation, government,
state or agency of a state or any association, trust, joint venture, consortium
or partnership (whether or not having separate legal personality);

 
 
(xx)
a provision of law is a reference to that provision as amended or re-enacted;
and

 

 
(xxi)
unless a contrary indication appears, a time of day is a reference to Hong Kong
time.

 
(b)
Clause and Schedule headings are for ease of reference only.

(c)
Unless a contrary indication appears, a term used in any other Finance Document
or in any notice given under or in connection with any Finance Document has the
same meaning in that Finance Document or notice as in this Agreement.

(d)
A Potential Event of Default or an Event of Default is “continuing” if it has
not been remedied or waived.

(e)
Where this Agreement specifies an amount in a given currency (the “specified
currency”) “or its equivalent”, the “equivalent” is a reference to the amount of
any other currency which, when converted into the specified currency utilising
the Lender's spot rate of exchange for the purchase of the specified currency
with that other currency at or about 11 a.m. on the relevant date, is equal to
the relevant amount in the specified currency.

1.3
Currency Symbols

 
(a)
“USD” or “US Dollars” or “Dollars” denotes the lawful currency of the United
States of America.

 
(b)
“RMB” denotes the lawful currency of the PRC.

2.
THE FACILITY

2.1
The Facility

 
Subject to the terms of this Agreement, the Lender make available to the
Borrower:

 
(a)
a US Dollar term loan facility in an aggregate amount equal to the Facility A
Commitment; and

 
(b)
a RMB term loan facility in an aggregate amount equal to the Facility B
Commitment.

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2.2
Commitments

(a)
Subject to paragraph (b) below, on the date of this Agreement, the currency and
amount of the Commitment of the Lender in respect of each Facility is the
currency and amount set out in Schedule 1 (Commitments) in respect of that
Facility.

(b)
The Commitments of the Lender are subject to any cancellation or reduction
thereof in accordance with this Agreement.

3.
PURPOSE

3.1
PURPOSE

 
The Borrower shall apply all amounts borrowed by it under the Facilities for
working capital requirements of the Group.

3.2
Monitoring

 
The Lender shall not be bound to monitor or verify the application of any amount
borrowed pursuant to this Agreement.

4.
CONDITIONS OF UTILISATION

4.1
The Borrower may not deliver the first Utilisation Request unless all conditions
precedent set out in Part A of Schedule 2 (Conditions Precedent) have been
satisfied in accordance with this Clause 4 (Conditions of Utilisation). The
Lender shall notify the Borrower promptly upon being satisfied with the same.

4.2
The Borrower's right to submit a Utilisation Request (including the first
Utilisation Request) is further subject to all conditions precedent set out in
Part B of Schedule 2 (Conditions Precedent) having been satisfied in accordance
with this Clause 4 (Conditions of Utilisation).

4.3
The Borrower shall be deemed to have satisfied the conditions precedent in this
Clause 4 (Conditions of Utilisation) if:

     
 
(i)
the documents and other evidence referred to in Schedule 2
(Conditions Precedent) and any documentary evidence relating to the satisfaction
of the conditions precedent set out in Schedule 2 (Conditions Precedent) are
delivered to the Lender in form and substance satisfactory to it; and

 
(ii)
no Material Adverse Change has occurred and no change in applicable law or
regulation or in the interpretation thereof shall be applicable that either
restrains or prevents or imposes materially adverse conditions upon the
transactions contemplated by or in connection with the Finance Documents.

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Execution

4.4
All copies of documents delivered to the Lender as required under this Clause 4
(Conditions of Utilisation) shall be certified by an Authorised Person as being
true and complete copies of the originals.

5.
UTILISATION

5.1
Delivery of a Utilisation Request

The Borrower may utilise a Facility by delivery to the Lender of a duly
completed Utilisation Request not later than 10:00am (Hong Kong time) on the
third business day before the proposed Utilisation Date.

5.2
Completion of Utilisation Request

(a)
Each Utilisation Request is irrevocable and will not be regarded as having been
duly completed unless:

 
(i)
it identifies the Facility to be utilised;

 
(ii)
the proposed Utilisation Date is a business day within the Availability Period
applicable to that Facility;

 
(iii)
the currency and amount of the Utilisation comply with Clause 5.3 (Currency and
amount); and

 
(iv)
the bank account specified in the Utilisation Request to which the proceeds of
the Utilisation are to be credited is a bank account of the Borrower maintained
with a bank acceptable to the Lender or such other account as is acceptable to
the Lender.

(b)
Only one Loan may be requested in each Utilisation Request.

5.3
Currency and amount

(a)
The currency specified in each Utilisation Request utilising Facility A and
Facility B must be US Dollars and RMB respectively.

(b)
The amount of the proposed Loan must be an amount which is not more than the
Available Facility in respect of the corresponding Facility and which is a
minimum of USD5,000,000 (in the case of Facility A) or RMB20,000,000 (in the
case of Facility B) or, if less, the Available Facility in respect of that
Facility.

5.4
Advance

 
If the conditions set out in Clause 4 (Conditions of Utilisation) and 5.1
(Delivery of a Utilisation Request) to 5.3 (Currency and amount) above have been
met, the Lender shall make the Loan available to the Borrower on the Utilisation
Date.

5.5
Cancellation of Available Facility

 
On the expiry of the Availability Period (in the principal financial centre of
the country of the relevant currency):

 
(a)
the Available Facility (if any) in respect of each Facility shall be immediately
and automatically reduced to zero; and

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(b)
the Commitment under each Facility shall be immediately and automatically
reduced by the amount (if any) of the Available Facility in respect of that
Facility immediately before the reduction to zero of that Available Facility in
accordance with paragraph (a) above.

 
6.
REPAYMENT

6.1
Repayment of Loans

The Borrower shall repay the Facility A Loans in two (2) equal instalments on
the Repayment Dates. The Borrower shall repay the Facility B Loans in two (2)
equal instalments on the Repayment Dates.

6.2
Reborrowing

 
The Borrower may not reborrow any part of a Facility which is repaid.

 
7.
PREPAYMENT AND CANCELLATION

 
7.1
Illegality

 
If, at any time, it is or will become unlawful in any applicable jurisdiction
for the Lender to perform any of its obligations as contemplated by this
Agreement or to make, fund or allow to remain outstanding any Loan:

 
 
(a)
upon the Lender notifying the Borrower of that event, the Commitments of the
Lender will be immediately cancelled; and

 
(b)
the Borrower shall repay the Loans on the last day of the Interest Period of
each Loan occurring after the Lender has notified the Borrower or, if earlier,
the date specified by the Lender in the notice delivered to the Borrower (being
no earlier than the last day of any applicable grace period permitted by law).

7.2
Cancellation

The Facilities may not be cancelled except as otherwise provided in this
Agreement.

7.3
Change of Control

 
(a)
Upon the occurrence of a Change of Control:

 
(i)
the Borrower shall promptly notify the Lender upon becoming aware of that event;
and

 
(ii)
the Lender may, by not less than 30 days notice to the Borrower, cancel the
Facilities and declare all outstanding Loans together with accrued interest, and
all other amounts accrued under the Finance Documents immediately due and
payable, whereupon the Facilities will be cancelled and all such outstanding
amounts will become immediately due and payable.

 
(b)
For the purpose of this Clause 7.3 (Change of Control), a “Change of Control”
means the occurrence of any of the following event:-

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(i)
the Permitted Holders cease to be the beneficial owners, directly or indirectly,
of a majority of the total voting power of the voting shares of the Borrower or
of at least 30% of the total voting power of the voting shares of the Borrower
or any person or persons, acting together, other than the Permitted Holders
become the beneficial owner(s) of a higher percentage of the total voting power
of the voting shares of the Borrower than that of which the Permitted Holders
are beneficial owners, directly or indirectly, whether as a result of the
issuance of securities of the Borrower, any merger, consolidation, liquidation
or dissolution of the Borrower, any direct or indirect transfer of securities by
the Permitted Holders or otherwise (for this purpose, the Permitted Holders will
be deemed to beneficially own any voting shares of the specified company held by
a parent company so long as the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a majority of the total voting power of the voting
shares of such parent company); or

 
 
(ii)
the sale, transfer, assignment, lease, conveyance or other disposition, directly
or indirectly, of all or substantially all the assets of the Borrower and its
subsidiaries, considered as a whole (other than a disposition of such assets as
an entirety or virtually as an entirety to a wholly owned subsidiary or one or
more Permitted Holders), shall have occurred, or the Borrower merges
consolidates or amalgamates with or into any other person (other than one or
more Permitted Holders) or any other person (other than one or more Permitted
Holders) merges, consolidates or amalgamates with or into the Borrower, in any
such event pursuant to a transaction in which the outstanding voting shares of
the Borrower is reclassified into or exchanged for cash, securities or other
assets, other than such transaction where:

 
 
(1)
the outstanding voting shares of the Borrower is reclassified into or exchanged
for other voting shares of the Borrower or for the voting shares of the
surviving entity, and

 
(2)
the holders of the voting shares of the Borrower immediately prior to such
transaction own, directly or indirectly, not less than a majority of the voting
shares of the Borrower or the surviving entity immediately after such
transaction and in substantially the same proportion as before the transaction;
or

 
(iii)
individuals who on the date of this Agreement constitute the board of directors
 (together with any  new directors  whose election  or appointment by such board
or whose nomination for election by the shareholders of the Borrower is approved
by a vote of not less than three-fourths of the directors then still in office
who are either directors on the date of this Agreement or whose election or
nomination for election has been previously so approved) cease for any reason to
constitute a majority of the board of directors then in office; or the
shareholders of the Borrower shall have approved any plan of liquidation or
dissolution of the Borrower.

 
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7.4
Voluntary Prepayment

 
 
(a)
The Borrower may, if it gives the Lender not less than one (1) month's (or such
shorter period as the Lender may agree) prior notice, prepay on an Interest
Payment Date or a Repayment Date the whole or any part of any Loan (but, if in
part, being an amount that is an integral multiple of USD500,000 (in the case of
a Facility A Loan) or RMB2,000,000 (in the case of a Facility B Loan)).

 
(b)
A Loan may be prepaid only after the last day of the Availability Period (or, if
earlier, the day on which the Available Facility is zero).

7.5
Restrictions

(a)
Any notice of cancellation or prepayment given by any Party under this Clause 7
(Prepayment and Cancellation) shall be irrevocable and, unless a contrary
indication appears in this Agreement, shall specify the date or dates upon which
the relevant cancellation or prepayment is to be made and the amount of that
cancellation or prepayment.

(b)
Any prepayment under this Agreement shall be made together with accrued interest
on the amount prepaid and, subject to any Break Costs, without premium or
penalty.

(c)
The Borrower may not reborrow any part of a Facility which is prepaid.

(d)
The Borrower shall not repay or prepay all or any part of any Loan or reduce any
Commitment except at the times and in the manner expressly provided for in this
Agreement.

(e)
If any Commitment is reduced in accordance with this Agreement, the amount of
such reduction may not be subsequently reinstated.

 
(f)
Any prepayment under Clause 7.3 (Change of Control) or Clause 7.4 (Voluntary
Prepayment) shall satisfy the obligations under Clause 6.1 (Repayment of Loans)
in inverse chronological order.

 
8.
INTEREST

 
8.1
Calculation of interest

The rate of interest on each Loan for each Interest Period is the percentage
rate per annum which is the aggregate of the applicable:

 
(a)
Margin; and

 
(b)
in relation to a Facility A Loan, LIBOR and in relation to a Facility B Loan,
SHIBOR.

8.2
Payment of interest

The Borrower shall pay accrued interest on that Loan on each Interest Payment
Date.

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8.3
Default interest

 
(a)
If the Borrower fails to pay any amount payable by it under this Agreement on
its due date, interest shall accure on the Unpaid Sum from the due date to the
date of actual payment (both before and after judgment) at a rate which is five
per cent. (5%) higher than the rate which would have been payable if the Unpaid
Sum had, during the period of non-payment, constituted a Loan for successive
Interest Periods, each of a duration selected by the Lender (acting reasonably).
Any interest accruing under this Clause 8.3 (Default interest) shall be
immediately payable by the Borrower on demand by the Lender.

 
(b)
If any Unpaid Sum consists of all or part of a Loan which became due on a day
which was not the last day of an Interest Period relating to that Loan the first
Interest Period for that Unpaid Sum shall have a duration equal to the unexpired
portion of the current Interest Period relating to that Loan.

 
(c)
Default interest (if unpaid) arising on an Unpaid Sum will be compounded with
the Unpaid Sum at the end of each Interest Period applicable to that Unpaid Sum
but will remain immediately due and payable.

8.4
Notification of rates of interest

The Lender shall promptly notify the Borrower of the determination of a rate of
interest under this Agreement.

9.
INTEREST PERIODS

9.1
Interest Periods

     
 
(a)
Each Interest Period for a Loan shall be of a duration of six (6) months.

 
(b)
Each Interest Period for a Loan shall start on the Utilisation Date or (if a
Loan has already been made, whether or not in respect of the same Facility) on
the last day of the preceding Interest Period of such Loan.

 
(c)
An Interest Period shall not extend beyond the Final Maturity Date.

9.2
Non-Business Days

If an Interest Period would otherwise end on a day which is not a business day,
that Interest Period will instead end on the next business day in that calendar
month (if there is one) or the preceding business day (if there is not).

9.3
Consolidation of Loans

If the Interest Periods of two or more Loans end on the same date, those Loans
will be consolidated into, and treated as, a single Loan on the last day of that
Interest Period PROVIDED THAT a Facility A Loan and a Facility B Loan will not
be consolidated into, nor be treated as, a single Loan.

10.
CHANGES TO THE CALCULATION OF INTEREST

10.1
Absence of quotations

Subject to Clause 10.2 (Market disruption), if LIBOR or SHIBOR (as the case may
be) is to be determined by reference to the Reference Banks but a Reference Bank
does not supply a quotation by noon on the Quotation Day, the applicable LIBOR
or SHIBOR (as the case may be) shall be determined on the basis of the
quotations of the remaining Reference Banks.

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10.2
Market disruption

(a)
Subject to any alternative basis agreed and consented to as contemplated by
paragraphs (a) and (b) of Clause 10.3 (Alternative basis of interest or
funding), if a Market Disruption Event occurs in relation to a Loan for any
Interest Period, then the rate of interest on that Loan for the Interest Period
shall be the rate per annum which is the sum of:

 
(i)
the Margin; and

 
(ii)
the rate notified to the Borrower by the Lender as soon as practicable and in
any event before interest is due to be paid in respect of that Interest Period
to be that which expresses as a percentage rate per annum the cost to the Lender
of making, funding or allowing to remain outstanding that Loan from whatever
source it may reasonably select.

(b)
In this Agreement “Market Disruption Event” means:

 
(i)
at or about noon on the Quotation Day for the relevant Interest Period the
Screen Rate is not available or the Screen Rate is zero or negative and none or
only one of the Reference Banks supplies a rate to the Lender to determine LIBOR
for US Dollars or SHIBOR for RMB (as the case may be) for the relevant Interest
Period;

 
or

 
(ii)
before noon (Hong Kong time) on the business day immediately following the
Quotation Day for the relevant Interest Period, the Lender (acting in good
faith) notifies the Borrower that the cost to it of obtaining matching deposits
in the Relevant Interbank Market would be in excess of LIBOR or SHIBOR (as the
case may be).

10.3
Alternative basis of interest or funding

(a)
If a Market Disruption Event occurs and the Lender or the Borrower so requires,
the Lender and the Borrower shall enter into negotiations (for a period of not
more than thirty days) with a view to agreeing a substitute basis for
determining the rate of interest.

(b)
Any alternative basis agreed pursuant to paragraph (a) above in writing by the
Lender and the Borrower shall be binding on each of them.

(c)
For the avoidance of doubt, in the event that no substitute basis is agreed at
the end of the thirty day period, the rate of interest shall continue to be
determined in accordance with the terms of this Agreement.

10.4
Break Costs

The Borrower shall, within three business days of demand by the Lender, pay to
the Lender its Break Costs attributable to all or any part of a Loan or Unpaid
Sum being paid by the Borrower on a day other than the last day of an Interest
Period for that Loan or Unpaid Sum.

 
11.
FEES

 
The Borrower shall pay to the Lender an arrangement fee in the amount of five
hundred thousand US Dollars (US$500,000) within one (1) month of the date of
this Agreement.

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Execution

12.
TAX GROSS UP AND INDEMNITIES

12.1
Tax definitions

(a)
In this Clause 12 (Tax Gross Up and Indemnities):

 
“Tax Credit” means a credit against, relief or remission for, or repayment of
any Tax.

 
“Tax Deduction” means a deduction or withholding for or on account of Tax from a
payment under a Finance Document.

 
“Tax Payment” means an increased payment made by the Borrower to the Lender
under Clause 12.2 (Tax gross-up) or a payment under Clause 12.3 (Tax indemnity).

(b)
Unless a contrary indication appears, in this Clause 12 (Tax Gross Up and
Indemnities) a reference to “determines” or “determined” means a determination
made in the absolute discretion of the person making the determination.

12.2
Tax gross-up

(a)
All payments to be made by the Borrower to the Lender under the Finance
Documents shall be made free and clear of and without any Tax Deduction unless
the Borrower is required to make a Tax Deduction, in which case the sum payable
by the Borrower (in respect of which such Tax Deduction is required to be made)
shall be increased to the extent necessary to ensure that the Lender receives a
sum net of any deduction or withholding equal to the sum which it would have
received had no such Tax Deduction been made or required to be made.

(b)
The Borrower shall promptly upon becoming aware that the Borrower must make a
Tax Deduction (or that there is any change in the rate or the basis of a Tax
Deduction) notify the Lender accordingly.

(c)
If the Borrower is required to make a Tax Deduction, the Borrower shall make
that Tax Deduction and any payment required in connection with that Tax
Deduction within the time allowed and in the minimum amount required by law.

(d)
Within thirty days of making either a Tax Deduction or any payment required in
connection with that Tax Deduction, the Borrower shall deliver to the Lender
evidence reasonably satisfactory to the Lender that the Tax Deduction has been
made or (as applicable) any appropriate payment paid to the relevant taxing
authority.

12.3
Tax indemnity

(a)
Without prejudice to Clause 12.2 (Tax gross-up), if the Lender is required to
make any payment of or on account of Tax on or in relation to any sum received
or receivable under the Finance Documents (including any sum deemed for purposes
of Tax to be received or receivable by the Lender whether or not actually
received or receivable) or if any liability in respect of any such payment is
asserted, imposed, levied or assessed against the Lender, the Borrower shall,
within three business days of demand of the Lender, promptly indemnify the
Lender, together with any interest, penalties, costs and expenses payable or
incurred in connection therewith, provided that this Clause 12.3 (Tax indemnity)
shall not apply to:

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(i)
any Tax imposed on and calculated by reference to the net income actually
received or receivable by the Lender (but, for the avoidance of doubt, not
including any sum deemed for purposes of Tax to be received or receivable by the
Lender but not actually receivable) by the jurisdiction in which the Lender is
incorporated; or

 
(ii)
any Tax imposed on and calculated by reference to the net income of the office
or offices of the Lender through which the Lender will perform its obligations
under this Agreement actually received or receivable by the Lender (but, for the
avoidance of doubt, not including any sum deemed for purposes of Tax to be
received or receivable by the Lender but not actually receivable) by the
jurisdiction in which such office or offices the Lender is/are located.

 
(b)
The Lender intending to make a claim under paragraph (a) shall notify the
Borrower of the event giving rise to the claim.

 
12.4
Tax credit

 
If the Borrower makes a Tax Payment and the Lender determines that:

 
 
(a)
a Tax Credit is attributable to that Tax Payment; and

 
(b)
the Lender has obtained, utilised and retained that Tax Credit,

the Lender shall pay an amount to the Borrower which the Lender determines will
leave it (after that payment) in the same after-Tax position as it would have
been in had the Tax Payment not been required to be made by the Borrower.

12.5
Stamp taxes

 
The Borrower shall:

 
(a)
pay all stamp duty, registration and other similar Taxes payable in respect of
any Finance Document, and

 
(b)
within three business days of demand, indemnify the Lender against any cost,
loss or liability the Lender incurs in relation to any stamp duty, registration
or other similar Tax paid or payable in respect of any Finance Document.

12.6
Indirect tax

(a)
All consideration expressed to be payable under a Finance Document by any
Obligor to the Lender shall be deemed to be exclusive of any indirect tax. If
any indirect tax is chargeable on any supply made by the Lender to any Party in
connection with a Finance Document, that Party shall pay to the Lender (in
addition to and at the same time as paying the consideration) an amount equal to
the amount of the indirect tax.

(b)
Where a Finance Document requires any Party to reimburse the Lender for any
costs or expenses, that Party shall also at the same time pay and indemnify the
Lender against all indirect tax incurred by the Lender in respect of the costs
or expenses to the extent the Lender reasonably determines that it is not
entitled to credit or repayment in respect of the indirect tax.

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13.
INCREASED COSTS

13.1
Increased costs

(a)
Subject to Clause 13.3 (Exceptions) the Borrower shall, within three business
days of a demand by the Lender, pay the Lender the amount of any Increased Costs
incurred by the Lender or any of its affiliates as a result of (i) the
introduction of or any change in (or in the interpretation, administration or
application of) any law or regulation or (ii) compliance with any applicable law
or regulation made after the date of this Agreement. The term “applicable law or
regulation” in this paragraph (a) shall include, without limitation, any law or
regulation concerning capital adequacy, prudential limits, liquidity, reserve
assets or Tax.

(b)
In this Agreement “Increased Costs” means:

 
(i)
a reduction in the rate of return from a Facility or on the Lender's (or its
affiliate's) overall capital (including, without limitation, as a result of any
reduction in the rate of return on capital brought about by more capital being
required to be allocated by the Lender);

 
(ii)
an additional or increased cost; or

 
(iii)
a reduction of any amount due and payable under any Finance Document,

which is incurred or suffered by the Lender or any of its affiliates to the
extent that it is attributable to the undertaking, funding or performance by the
Lender of any of its obligations under any Finance Document or the making,
funding or allowing to remain outstanding any Loan or Unpaid Sum.
 
13.2
Increased cost claims

(a)
The Lender intending to make a claim pursuant to Clause 13.1 (Increased costs)
shall notify the Borrower of the event giving rise to the claim.

 
13.3
Exceptions

Clause 13.1 (Increased costs) does not apply to the extent any Increased Cost
is:

 
(a)
attributable to a Tax Deduction required by law to be made by the Borrower;

 
(b)
compensated for by Clause 12.3 (Tax indemnity) (or would have been compensated
for under Clause 12.3 (Tax indemnity) but was not so compensated solely because
the exclusion in paragraph (a) of Clause 12.3 (Tax indemnity) applied); or

 
(c)
attributable to the wilful breach by the Lender or its affiliates of any
applicable law or regulation.

14.
MITIGATION BY THE LENDER

14.1
Mitigation

(a)
The Lender shall, in consultation with the Borrower, take all reasonable steps
to mitigate any circumstances which arise and which would result in any amount
becoming payable under or pursuant to, or cancelled pursuant to, any of Clause
7.1 (Illegality), Clause 12

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(Tax gross-up and indemnities) or Clause 13 (Increased costs), including (but
not limited to):
 
 
(i)
providing such information as the Borrower may reasonably request in order to
permit the Borrower to determine its entitlement to claim any exemption or other
relief (whether pursuant to a double taxation treaty or otherwise) from any
obligation to make a Tax Deduction; and

 
(ii)
in relation to any circumstances which arise following the date of this
Agreement, transferring its rights and obligations under the Finance Documents
to another affiliate or another office.

(b)
Paragraph (a) above does not in any way limit the obligations of any Obligor
under the Finance Documents.

 
14.2
Limitation of liability

(a)
The Borrower shall indemnify the Lender for all costs and expenses reasonably
incurred by the Lender as a result of steps taken by it under Clause 14.1
(Mitigation).

(b)
The Lender is not obliged to take any steps under Clause 14.1 (Mitigation) if,
in the opinion of the Lender (acting reasonably), to do so might be prejudicial
to it.

14.3
Conduct of business by the Lender

No provision of this Agreement will:

 
(a)
interfere with the right of the Lender to arrange its affairs (tax or otherwise)
in whatever manner it thinks fit;

 
(b)
oblige the Lender to investigate or claim any credit, relief, remission or
repayment available to it or the extent, order and manner of any claim; or

 
(c)
oblige the Lender to disclose any information relating to its affairs (tax or
otherwise) or any computations in respect of Tax.

15.
OTHER INDEMNITIES

15.1
Currency indemnity

(a)
If any sum due from the Borrower under the Finance Documents (a “Sum”), or any
order, judgment or award given or made in relation to a Sum, has to be converted
from the currency (the “First Currency”) in which that Sum is payable into
another currency (the “Second Currency”) for the purpose of:

 
 
(i)
making or filing a claim or proof against the Borrower; or

 
(ii)
obtaining or enforcing an order, judgment or award in relation to any litigation
or arbitration proceedings,

The Borrower shall as an independent obligation, within three business days of
demand, indemnify the Lender against any cost, loss or liability arising out of
or as a result of the conversion including any discrepancy between (A) the rate
of exchange used to convert that Sum from the First Currency into the Second
Currency and (B) the rate or rates of exchange available to that person at the
time of its receipt of that Sum.

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(b)
The Borrower waives any right it may have in any jurisdiction to pay any amount
under the Finance Documents in a currency or currency unit other than that in
which it is expressed to be payable.

15.2
Other indemnities

The Borrower shall, within three business days of demand, indemnify the Lender
against any cost, loss or liability incurred by the Lender as a result of:

 
(a)
the occurrence of any Event of Default;

 
(b)
investigating any event which it reasonably believes is an Event of Default or
Potential Event of Default;

 
(c)
the information produced or approved by any Obligor being or being alleged to be
misleading and/or deceptive in any respect;

 
(d)
any enquiry, investigation, subpoena (or similar order) or litigation with
respect to any Obligor or with respect to the transactions contemplated or
financed under this Agreement;

 
(e)
a failure by an Obligor to pay any amount due under a Finance Document on its
due date or in the relevant currency;

 
(f)
funding, or making arrangements to fund, a Loan requested by the Borrower in a
Utilisation Request but not made by reason of the operation of any one or more
of the provisions of this Agreement (other than by reason of default or
negligence by the Lender alone);

 
(g)
acting or relying on any notice, request or instruction which it reasonably
believes to be genuine, correct and appropriately authorised; or

 
(h)
a Loan (or part of a Loan) not being prepaid in accordance with a notice of
prepayment given by the Borrower.

16.
COSTS AND EXPENSES

16.1
Transaction expenses

The Borrower shall, within three business days of demand, pay the Lender the
amount of all costs and expenses (including legal fees) reasonably incurred by
it in connection with the negotiation, preparation, printing and execution of:

 
(a)
this Agreement and any other documents referred to in this Agreement; and

 
(b)
any other Finance Documents.

16.2
Amendment costs

If an Obligor requests an amendment, waiver or consent, the Borrower shall,
within three business days of demand, reimburse the Lender for the amount of all
costs and expenses (including legal fees) reasonably incurred by the Lender in
responding to, evaluating, negotiating or complying with that request or
requirement.

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16.3
Enforcement costs

The Borrower shall, within three business days of demand, pay to the Lender the
amount of all costs and expenses (including legal fees) incurred by the Lender
in connection with the enforcement of, or the preservation of any rights under,
any Finance Document.

17.
REPESENTATIONS AND WARRANTIES

17.1
Matters represented

The Borrower makes the representations and warranties set out in Schedule 4
(Representations and Warranties) to the Lender.

17.2
Reliance

The Borrower acknowledges the reliance by the Lender on the representations and
warranties in entering into this Agreement and each other Finance Document to
which it is a party.

17.3
Repetition

The representations and warranties set out in Schedule 4 (Representations and
Warranties) shall be deemed to be repeated in the manner and at this provided
for in Clause 2 (Repetition) of Schedule 4 (Representations and Warranties).

18.
UNDERTAKINGS

18.1
Content

The Borrower undertakes to the Lender that it shall comply with the undertakings
contained in Schedule 5 (Undertakings).

18.2
Duration

The undertakings in Schedule 5 (Undertakings) shall, save as otherwise provided
herein, remain in force from the date of this Agreement until the Release Date.

18.3
“Know your customer” checks

The Borrower shall promptly upon the request of the Lender supply, or procure
the supply of, such documentation and other evidence as is reasonably requested
by the Lender for conducting any “know you customer” or other similar procedures
under applicable laws and regulations.

19.
EVENTS OF DEFAULT

19.1
Events of Default

Each of the events set out in Schedule 6 (Events of Defaults) shall constitute
an Event of Default (howsoever caused and resulting).

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19.2
Acceleration

On and at any time after the occurrence of an Event of Default which is
continuing the Lender may by notice to the Borrower:

 
(a)
without prejudice to any Loans then outstanding:

 
(i)
cancel the Commitments  (and  reduce them  to zero), whereupon they shall
immediately be cancelled (and reduced to zero); or

 
(ii)
cancel  any  part  of any  Commitment  (and reduce  such
Commitment  accordingly), whereupon the relevant part shall immediately be
cancelled (and  the relevant    Commitment    shall be immediately reduced
accordingly); and/or

 
(b)
declare that all or part of the Loans, together with accrued interest, and all
other amounts accrued or outstanding under the Finance Documents be immediately
due and payable, whereupon they shall become immediately due and payable; and/or

 
(c)
declare that all or part of the Loans be payable on demand, whereupon they shall
immediately become payable on demand by the Lender.

20.
CHANGES TO THE PARTIES

20.1
Successors and assigns

This Agreement shall be binding upon and enure to the benefit of each Party and
its or any subsequent successors, transferees and assigns.

20.2
No assignments and transfers by the Borrower

The Borrower shall not be entitled to assign or transfer all or any of its
rights, benefits and obligations hereunder without the prior written consent of
the Lender.

20.3
Assignments and transfers by Obligors

An Obligor may not assign or transfer any of its rights or obligations under any
Finance Document, except with the prior written consent of the Lender.

20.4
Assignments and transfers by Lender

The Lender may, subject to Clause 20.5 (Restrictions), at any time, assign all
or any of its rights and benefits hereunder and under any Finance Documents to
which it is a party or transfer all or any of its rights, benefits and
obligations hereunder and under any Finance Documents to which it is a party.

20.5
Restrictions

The Borrower  shall  not become  liable as a result of any assignment  or
transfer  as contemplated  by  Clause  20.4  (Assignments and transfers by
Lender) above to pay an amount or amounts pursuant to Clause 12 (Tax Gross Up
and Indemnities) and Clause 13 (Increased Costs) in excess of the amount, if
any, which at the time of such assignment or transfer would have been payable
had no such assignment or transfer occurred, unless:

 
20.5.1
such assignment or transfer was made to avoid the occurrence of any illegality;

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Execution

 
20.5.2
any assignment or transfer was made following an Event of Default which had
occurred and not been remedied; or

 
20.5.3
such assignment or transfer was requested by or otherwise made at the
instigation of the Borrower.

21.
DISCLOSURE OF INFORMATION

The Lender may deliver copies of the Finance Documents and/or disclose any
information received by it under or pursuant to any Finance Document or any
other information about any Obligor or the Finance Documents as the Lender shall
consider appropriate (if, in relation to paragraphs  (i)(i)  and  (i)(ii) below,
the  person  to whom the copies and/or information are to  be delivered  or
disclosed has undertaken  to keep  such information confidential on terms set
out in this Clause 21 (Disclosure of Information) to:
 
 
(a)
any of its affiliates;

 
(b)
its head office and any other branch;

 
(c)
any of its professional  advisers  and any other  person providing services  to
it (provided that  such person is under a duty of
confidentiality,  contractual  or otherwise, to the Lender);

 
(d)
any Obligor;

 
(e)
any person permitted by any Obligor;

 
(f)
any person to the extent required for the purpose of any litigation, arbitration
or regulatory proceedings or procedure;

 
(g)
any  person  to whom, and to the extent  that,  information  is required to be
disclosed by any applicable law or regulation; and

 
(h)
any other person:

 
(i)
to (or through) whom the Lender assigns or transfers (or may potentially assign
or transfer) all or  any of its rights and obligations  under this Agreement; or

 
(ii)
with (or through) whom the Lender enters into (or may potentially enter into)
any sub-participation in relation to, or any other transaction under
which  payments  are  to  be  made  by  reference  to, a  Facility,  this
Agreement or any Obligor;

This Clause 21 (Disclosure of Information) supersedes any previous agreement
relating to the confidentiality of such information.

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22.
PAYMENT MECHANICS

22.1
Payments by the Borrower

(a)
On each date on which the Borrower is required to make a payment under a Finance
Document, the Borrower shall make the same available to the Lender (unless a
contrary indication appears in a Finance Document) for value on the due date at
the time and in such funds specified by the Lender as being customary at the
time for settlement of transactions in the relevant currency in the place of
payment.

(b)
Payment shall be made to such account with such bank as the Lender specifies.

22.2
Payment by the Lender

Subject to any requirement in Clause 5.2 (Completion of Utilisation Request),
any amounts payable to the Borrower under this Agreement shall be paid into the
bank account specified by the Borrower and acceptable to the Lender or in such
manner as the Lender and the Borrower shall from time to time agree.

22.3
Partial payments

(a)
If the Lender receives a payment that is insufficient to discharge all the
amounts then due and payable by the Borrower under this Agreement, the Lender
shall, save only as expressly provided in paragraph (b) below, apply that
payment towards the obligations of the Borrower under this Agreement in the
following order:

 
(i)
first, in or towards payment of any unpaid fees, costs and expenses of the
Lender under the Finance Documents;

 
(ii)
secondly, in or towards payment of any accrued interest or commitment fees due
but unpaid under this Agreement;

 
(iii)
thirdly, in or towards payment of any principal due but unpaid under this
Agreement; and

 
 
(iv)
fourthly, in or  towards payment  of any other  sum due but  unpaid under the
Finance Documents.

 
(b)
The Lender may vary the order set out in sub-paragraphs (a)(ii) to (iv) above.

(c)
Paragraphs (a) and (b) above will override any appropriation made by the
Borrower.

22.4
No set-off by the Borrower

All payments  to be made by  the  Borrower  under the Finance Documents
shall  be calculated and be made without (and free and clear of
any  deduction  for) set-off or counterclaim.

22.5
Business Days

(a)
Any payment which is due to be made on a day that is not a business day shall be
made on the next business day in the same calendar month (if there is one) or
the preceding business day (if there is not).

 
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(b)
During any extension of the due date for payment of any principal or Unpaid Sum
under paragraph (a) above, interest is payable on the principal or Unpaid Sum at
the rate payable on the original due date.

   
22.6
Currency of account
   

(a)
Subject to paragraphs (b), (c) and (d) below, US Dollars is the currency of
account and payment for any sum due from the Borrower under any Finance
Document.

(b)
Any repayment or prepayment of a Loan or payment of interest (including default
interest) in respect of Facility B shall be made in RMB.

(c)
Each payment in respect of costs, expenses or Taxes shall be made in the
currency in which the costs, expenses or Taxes are incurred.

(d)
Any amount expressed to be payable in a currency other than US Dollars shall be
paid in that other currency.

23.
SET-OFF

 
The Lender may set off any matured obligation due from the Borrower under the
Finance Documents  against  any  matured  obligation  owed by the Lender  to the
Borrower,  regardless of the place of payment, booking branch or currency of
either obligation. If the obligations are in different  currencies,
the  Lender  may  convert  either  obligation at a market rate of exchange in
its usual course of business for the purpose of the set-off. If either
obligation is unliquidated or unascertained, the Lender may set off in an amount
estimated by it in good faith to be the amount of that obligation without
prejudice to the duty of the Lender to account for any surplus upon the amount
becoming liquidated or ascertained.
 
24.
NOTICES

24.1
Communications in writing

Any communication to be made under or in connection with this Agreement shall be
made in writing and, unless otherwise stated, may be made by fax or letter.

24.2
Addresses

The address and fax number (and the department or officer, if any, for whose
attention the communication is to be made) of each Party for any communication
or document to be made or delivered under or in connection with this Agreement
is that identified with its name below or any substitute address, fax number or
department or officer as the Parties may notify each other by not less than five
business days' notice.

24.3
Delivery

(a)
Any communication or document made or delivered by one person to another under
or in connection with this Agreement will be effective:

 
 
(i)
if by way of fax, only when received in legible form; or

 
(ii)
if  by way  of  letter,  only when  it  has  been  left  at  the relevant
address  or five business days after being deposited in the post postage prepaid
in an envelope addressed to it at that address;

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Execution

and, if a particular department or officer is specified as part of its address
details provided under Clause 24.2 (Addresses), if addressed to that department
or officer.
 
(b)
Any communication or document to be made or delivered to the Lender will be
effective only when actually received by the Lender and then only if it is
expressly marked for the attention of the department or officer identified with
the Lender's signature below (or any substitute department or officer as the
Lender shall specify for this purpose).

 
24.4
English language

(a)
Any notice given under or in connection with any Finance Document must be in
English.

(b)
All other documents provided under or in connection with this Agreement must be:

 
(i)
in English; or

 
(ii)
if not in English, and if so required by the Lender, accompanied by a certified
English translation and, in this case, the English translation will prevail
unless the document is a constitutional, statutory or other official document.

25.
CALCULATIONS AND CERTIFICATES

25.1
Accounts

In any litigation or arbitration proceedings arising out of or in connection
with a Finance Document, the entries made in the accounts maintained by the
Lender are prima facie evidence of the matters to which they relate.

25.2
Certificates and determinations

Any certification or determination by the Lender of a rate or amount under any
Finance Document is, in the absence of manifest error, conclusive evidence of
the matters to which it relates.

25.3
Day count convention

Any interest accruing under this Agreement will accrue from day to day and is
calculated on the basis of the actual number of days elapsed and a year of 360
days (or as may be customary in the relevant market).

26.
PARTIAL INVALIDITY

 
If, at any time, any provision of the Finance Documents is or becomes illegal,
invalid or unenforceable in any respect under any law of any jurisdiction,
neither the legality, validity or enforceability of the remaining provisions nor
the legality, validity or enforceability of such provision under the law of any
other jurisdiction will in any way be affected or impaired.

 
27.
REMEDIES AND WAIVERS

 
 
No failure to exercise, nor any delay in exercising, on the part of the Lender,
any right or remedy under the Finance Documents shall operate as a waiver, nor
shall any single or partial exercise of any right or remedy prevent any further
or other exercise or the exercise of any other right or remedy. The rights and
remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.

 
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28.
AMENDMENTS AND WAIVERS

 
 
Any term of the Finance Documents may be only amended or waived with the written
consent of the Party against whom the amendment or waiver is claimed to be
binding.

 
29.
COUNTERPARTS

 
 
Each Finance Document may be executed in any number of counterparts, and this
has the same effect as if the signatures on the counterparts were on a single
copy of the Finance Document.

 
30.
GOVERNING LAW

 
 
This Agreement, and all non-contractual obligations arising from or in
connection with this Agreement, are governed by Hong Kong law.

 
31.
ENFORCEMENT

31.1
Jurisdiction of Hong Kong courts

(a)
The courts of Hong Kong have exclusive jurisdiction to settle any dispute
arising out of or in connection with this Agreement (including any dispute
relating to any non-contractual obligation arising from or in connection with
this Agreement and any dispute regarding the existence, validity or termination
of this Agreement) (a “Dispute”).

(b)
The Parties agree that the courts of Hong Kong are the most appropriate and
convenient courts to settle Disputes and accordingly no Party will argue to the
contrary.

(c)
This Clause 31.1 (Jurisdiction of Hong Kong courts) is for the benefit of the
Lender only. As a result, the Lender shall not be prevented from taking
proceedings relating to a Dispute in any other courts with jurisdiction. To the
extent allowed by law, the Lender may take concurrent proceedings in any number
of jurisdictions.

31.2
Service of process

Without prejudice to any other mode of service allowed under any relevant law,
the Borrower:

 
(a)
irrevocably agrees to appoint in Hong Kong an agent for service of process in
relation to any proceedings before the Hong Kong courts in connection with any
Finance Document prior to the first Utilisation Date; and

 
(b)
agrees that failure by a process agent to notify the Borrower of the process
will not invalidate the proceedings concerned.

31.3
Waiver of immunities

 
The Borrower irrevocably waives, to the extent permitted by applicable law, with
respect to itself and its revenues and assets (irrespective of their use or
intended use), all immunity on the grounds of sovereignty or other similar
grounds from:

 
 
(a)
suit;

 
(b)
jurisdiction of any court;

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(c)
relief by way of injunction or order for specific performance or recovery of
property;

 
(d)
attachment of its assets (whether before or after judgment); and

 
(e)
execution or enforcement of any judgment to which it or its revenues or assets
might otherwise be entitled in any proceedings in the courts of any jurisdiction
(and irrevocably agrees, to the extent permitted by applicable law, that it will
not claim any immunity in any such proceedings).

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SCHEDULE 1

COMMITMENTS

Facility A Commitment

USD35,000,000

Facility B Commitment

RMB100,000,000

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SCHEDULE 2
 
CONDITIONS PRECENDENT
PART A - Conditions Precedent to the First Utilisation
 
1.
Constitutive and Registration Documents

1.1
Receipt of copies of constitutive and organisational documents and all documents
evidencing the registration of the corporate Obligors with the appropriate
authorities and their qualification to conduct their business as follows, each
as certified by such Obligor's Secretary or Assistant Secretary:

 
1.1.1
the certificate of incorporation or certificates of formation, including
restatements and amendments thereof, and the certificate on change of registered
office or registered agent if applicable;

 
1.1.2
the bylaws or limited liability company agreement or limited partnership
agreement or other equivalent governing documents, including amendments and
supplements thereof;

 
1.1.3
other certificates, agreements or merger or consolidation, plans of
reorganization, or other instruments which are filed with Nevada Secretary of
State under Chapter 78 (Private Companies) of the Nevada Revised Statutes with
the effect of amending or supplementing the certificate of incorporation; and

 

 
1.1.4
the certificate of good standing in such Obligor's jurisdiction of formation or
incorporation and any other jurisdiction in which it conducts business where a
qualification to conduct business as a foreign entity is required.

 
1.2
Receipt of copies of passport or other identification documents of the Share
Pledgor.

2.
Corporate Documents

2.1
Corporate approvals: Evidence (in the form of copies of resolutions in agreed
forms and/or certified extracts from the commercial register) that all corporate
or constitutional action required by any relevant law, regulation or
constitutional document to be taken by the corporate Obligors to authorise:

 
2.1.1
the entry into the Finance Documents to which it is a party;

 

 
2.1.2
the execution by it of the Finance Documents to which it is a party; and

 

 
2.1.3
an Authorised Person to sign on behalf of it all other documents, notices and
communications required to be given by or on its behalf, under or for the
purposes of the Finance Documents,

 
has been duly taken.

2.2
Specimen signatures: Receipt of original specimen signatures of the Authorised
Person or Authorised Persons referred to in Clause 2.1.3 of this Schedule.

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3.
Finance Documents

3.1
Finance Documents: Execution and receipt of originals of:

 
3.1.1
each Finance Document; and

 
3.1.2
each document to be delivered to the Lender pursuant to the Finance Documents
prior to the Utilisation.

3.2
Security Documents: Receipt of written confirmation from the Borrower's counsel,
confirming that the Security Documents have been registered or otherwise
perfected under applicable laws and regulations.

3.3
Notices: Receipt of copies of each of the notices for the time being required to
be given pursuant to the terms of the Finance Documents, together with
acknowledgements from each person to whom notice was given, in the form required
by each such document.

3.4
Stamp duties, etc.: Evidence that all stamp, registration and similar taxes and
other fees payable in connection with the Finance Documents have been paid.

3.5
Fees: Payment of all fees which, under the terms of this Agreement, are due
prior to the Utilisation Date.

4.
Legal Issues

4.1
Legal opinions: Receipt of legal opinions in agreed form from:

 
4.1.1
King & Wood, the Hong Kong legal counsel to the Lender, relating to matters of
Hong Kong law relevant to the Finance Documents; and

 
4.1.2
Loeb & Loeb, the Nevada and New York legal counsel to the Borrower relating to
matters of the United States federal laws, the laws of the State of Nevada and
the laws of the State of New York.

5.
Others

5.1
Process agents: Evidence of the acceptance by the process agents named in the
Finance Documents of their appointment pursuant to the provisions of the Finance
Documents.

5.2
Debt Service Account: Evidence of the Debt Service Account having been opened
and maintained in accordance with Clause 1 (Opening and maintenance of Debt
Service Account) of Schedule 7 (Debt Service Account).

5.3
Audited Reports: Receipt of copies of the Original Financial Statements.

5.4
Consortium Agreement: Evidence of any necessary consent and/or waiver of Baring
Asia having been obtained for the transactions contemplated in the Finance
Documents in connection with the obligations of the Share Pledgor under the
Consortium Agreement.

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Execution
 
PART B - Conditions Precedent to each Utilisation
 
6.
Utilisation Request

 
 
The Utilisation Request, duly completed and duly executed by an Authorised
Person.

7.
Additional Share Pledge

7.1
(Except for the first Utilisation) Execution and receipt of the original
amendment to the Share Pledge Agreement in the form set out in Schedule II to
the Share Pledge Agreement in respect of additional shares of the Common Stock
of the Borrower having a Share Value not less than (a) (in the case where the
Common Stock of the Borrower is listed or quoted on a Trading Market) 200% or
(b) (in any other case) 143% of the aggregate of the proposed Utilisation and an
amount determined by the Lender to be an approximation of the expected interest
payments in respect of the Loan so made within the twelve (12) month period
following the proposed Utilisation Date.

7.2
Receipt of any other document required to be delivered and/or evidence of any
step required to be taken having been so taken under Section 14(c) of the Share
Pledge Agreement in respect of such amendment.

7.3
Receipt of the items referred to Clauses 3.2, 3.3 and 3.4 of this Schedule in
respect of such amendment.

8.
Representations and Warranties

 
All representations and warranties in the Finance Documents are true in all
material respects on and as of the Utilisation Date, before and after giving
effect to the Utilisation and to the application of the proceeds therefrom, as
though made on and as of such date (save for those representations and
warranties which, by their terms, are made as of a specified date, which
representations and warranties shall be true in all material respects as of such
specified date only and save also as otherwise provided in Clause 2 (Repetition)
of Schedule 4 (Representations and Warranties)).

 
9.
No Events of Default

 
 
No Event of Default or Potential Event of Default has occurred and is
continuing, or would result from the Utilisation.

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Execution

SCHEDULE 3

UTILISATION REQUEST
 
From: Harbin Electric, Inc.

To:
China Development Bank Corporation Hong Kong Branch

 
Dated:
 
Dear Sirs

Harbin Electric, Inc. - USD35,000,000 and RMB10,000,000 Term Loan Facility
Agreement
 
Dated 22 November 2010 (the “Facility Agreement”)

1.
We refer to the Facility Agreement. This is a Utilisation Request. Terms defined
in the Facility Agreement shall have the same meaning in this Utilisation
Request.

2.
We wish to borrow a Loan on the following terms:

Proposed Utilisation Date:
[•] 2010 (or, if that is not a business day, the
 
next business day)
Facility to be utilised:
[Facility A] / [Facility B]
Amount:
USD [•] / RMB [*]

3.
We confirm that each condition specified in Clause 4 (Conditions of Utilisation)
and Schedule 2 (Conditions precedent) is satisfied on the date of this
Utilisation Request.

4.
The proceeds of this Loan shall be credited to the following account:-

Account Holder:
[•]
   
Bank:
[•]
   
Branch:
[•]
   
Account No.:
[•]

5.
This Utilisation Request is irrevocable.

Yours faithfully
 
      
authorised signatory for
Harbin Electric, Inc.

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SCHEDULE 4
 
REPRESENTATIONS AND WARRANTIES
 
1.
The Borrower represents and warrants to the Lender that as at the date hereof:

 
(a)
Status and Due Authorisation

 
(i)
Each corporate Obligor is a company with limited liability duly incorporated and
validly existing under the laws of its place of incorporation with power to
enter into each Finance Document to which it is a party and to exercise its
rights and perform its obligations thereunder and all corporate and other action
required to authorise its execution of each Finance Document to which it is a
party and the performance of its obligations thereunder have been duly taken. It
has the power to own its assets and carry on its business as it is being
conducted.

 
(ii)
The Share Pledgor has the  capacity  and  power to enter into  each Finance
Document  to  which  he  is a  party and  to exercise  his rights and perform
his obligations thereunder and all action required to authorise his execution of
each Finance Document to which he is a party and the performance of his
obligations thereunder have been duly taken.

(b)
Execution, Delivery and Performance

 
The execution,  delivery  and  performance  by each of the Obligors of the
Finance Documents to which it is a party and its exercise of its rights and
performance of its obligations thereunder does not and will not:

 
 
(i)
conflict with any existing agreement or other instrument to which it is a party
or which is binding upon it or any of its assets other than any such conflict
which has been effectively waived by the relevant counterparty prior to the date
of this Agreement;

 
(ii)
(in the case of a corporate Obligor) conflict with its memorandum and articles
of association or constitutional documents;

 
(iii)
conflict with any applicable law, regulation or official or judicial order
currently in effect; or

 
 
(iv)
result in the existence of, or oblige it to create any security interest over
all or any of its present or future revenues or assets save as expressly
contemplated by the Security Documents.

(c)
Authorisations

 
 
All authorisations and necessary approvals from any governmental or regulatory
body and all material third party consents required in connection with the entry
into, performance, validity, enforceability or admissibility in evidence of, and
the transactions contemplated by, the Finance Documents to which the Borrower or
any other Obligor is a party and to enable the Borrower or any other Obligor or
any other Group Company to conduct its business and perform its obligations as
contemplated in the Finance Documents, which are then required to have been
obtained or effected in accordance with such Finance Documents or applicable law
or regulation including all applicable securities laws and regulations in the
United States are in full force and effect and with respect to any
authorisations and necessary approvals which are not required to be obtained or
effected until a later date, the Borrower has reasonable grounds to believe that
such authorisations and necessary approvals will be obtained and will be in full
force and effect when so required.

 
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(d)
Binding Obligations

 
 
The obligations expressed to be assumed by each of the Borrower and the other
Obligors in each Finance Document to which it is a party are legal and valid
obligations binding on the Borrower or such Obligor, as the case may be, and
enforceable in accordance with the terms of such Finance Document.

 
(e)
No Proceedings

 
 
No litigation,  arbitration or  administrative proceeding of  or before any
court, arbitral  body or agency has been started or threatened against the
Borrower or any other Group Company or any  other  Obligor  or any of their
respective  affiliates which could  reasonably be expected to have a material
adverse effect or otherwise affect the legality, validity, binding effect or
enforceability of any Finance Document.

 
(f)
No Event of Default

 
 
No Event of Default or Potential Event of Default has occurred and is continuing
or would result from the making of the Utilisation.

 
(g)
Law and Jurisdiction

 
 
The choice of Hong Kong law or the laws of the State of New York (as the case
may be) as the governing law in the Finance Documents will be recognised and
upheld in the jurisdictions in which the relevant Obligors are incorporated or
reside.  Any judgment  obtained in Hong Kong or in the State of New York (as the
case may be) in relation to a Finance Document  will be recognised and
enforced  in the jurisdictions in  which the relevant Obligors are incorporated
or reside.

 
(h)
Deduction of Tax

 
 
Neither the Borrower nor any other Obligor is required under any applicable law
to make any deduction for or on account of Tax from any payment it may make
under any Finance Document, save for any  withholding  tax which may arise in
respect  of any interest payable by the Borrower hereunder under the applicable
federal laws of the United States or the laws of the State of Nevada.

 
(i)
Full Disclosure

 
 
Any written information provided by the Borrower was true and accurate in all
material respects as at the date it was provided or as at the date (if any) at
which it is stated and any financial projections have been prepared on the basis
of recent information and on the basis of reasonable  assumptions.  Nothing has
occurred  or been omitted  and no information has been given or withheld that
results in the information provided taken as a whole being untrue or misleading
in any material respect.

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(j)
Financial Statements

 
 
The Original Financial Statements were prepared in accordance with GAAP
consistently applied and give a true and fair view and represent the financial
condition and operations of the Group during the financial year save to the
extent expressly disclosed in such financial statements.

 
(k)
Security

 
 
Each Security Document confers the Security Interests purported to be conveyed
thereby over the assets referred to in such Security Document and such assets
are not subject to any prior Security Interests.

 
(l)
Claims Pari Passu

 
 
The claims of the Lender against each of the Borrower and the other Obligors
under the Finance Documents will rank at least pari passu as to priority of
payments with the claims of all its other unsecured, unsubordinated creditors
save those whose claims are preferred solely by any bankruptcy, insolvency,
liquidation or other similar laws of general application.

 
(m)
Immunity

 
 
Neither the Borrower, any other Obligor nor any of its assets are entitled to
immunity from suit, execution, attachment or other legal process.

 
(n)
Taxes, Returns and Payments

 
 
Each of the Borrower and the other Group Companies has filed or caused to be
filed all tax returns which are required to be filed by it and has paid or
caused to be paid all taxes shown to be due or payable on such returns or on any
assessment received by it, to the extent such taxes have become due and payable
in a timely manner, except those taxes the validity, application or amount of
which is being contested by it in good faith (and for the payment of which
adequate reserves have been provided, being not less than an amount which would
be required to be reserved in accordance with the applicable accounting
standards) by appropriate proceedings being diligently pursued.

 
(o)
No Winding-up

 
 
No corporate action nor any other steps have been taken or legal proceedings
have been started or (to the best of the Borrower's knowledge and belief)
threatened for the bankruptcy, winding-up, dissolution, administration or
insolvent re-organisation or for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer of any Obligor or any Group
Company or to any or all of its assets or revenues.

 
(p)
Nevada

 
 
The Lender is not and will not be deemed to be resident, domiciled or carrying
on business in the State of Nevada or the United States by reason only of the
execution, delivery, performance or enforcement of the Finance Documents to
which any of them is party. It is not necessary under the laws of the State of
Nevada or the federal laws of the United States (i) in order to enable the
Lender to enforce its rights under the Finance Documents or (ii) by reason of
the execution, delivery and performance of the Finance Documents by the Lender
that it be licensed, qualified or otherwise entitled to carry on business in the
State of Nevada or the United States.

 
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Execution

2.
REPETITION

 
 
The Borrower shall be deemed to have repeated each of the representations and
warranties set out in Clause 1 (Representations and Warranties) of this Schedule
4 on the date on which a Utilisation Request is issued and on each Utilisation
Date with reference to the facts and circumstances then subsisting.

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Execution

SCHEDULE 5
 
UNDERTAKINGS
 
PART A - INFORMATION UNDERTAKINGS
 
1.
INFORMATION COVENANTS

1.1
Financial Statements

 
The Borrower shall:

 
1.1.1
within 90 days of the end of each of its financial years, deliver to the Lender,
in sufficient copies, its audited consolidated financial statements for such
financial year.

 
1.1.2
within 45 days of the end of each quarter of its financial year, deliver to the
Lender, in sufficient copies, its unaudited consolidated financial statements
for such quarter of the financial year.

1.2
Requirements as to Financial Statements

 
 
The Borrower shall ensure that each set of financial statements delivered by it
pursuant to Clause 1.1 (Financial Statements) of this Schedule 5 (Undertakings)
is certified by a director of the Borrower as having been prepared in accordance
with GAAP.

 
1.3
Compliance Certificate

 

 
1.3.1
The Borrower shall deliver to the Lender, within 90 days after the end of each
financial year of the Borrower, a compliance certificate stating that a review
of the activities of the Borrower during the preceding financial year has been
made with a view to determining whether the Borrower and its subsidiaries have
kept, observed, performed and fulfilled their obligations under this Agreement,
and further stating, as to the person signing such certificate , that to the
best of his or her knowledge the Borrower has kept, observed, performed and
fulfilled each and every covenant contained in this Agreement and there is no
default in the performance or observance of any of the terms, provisions and
conditions of this Agreement (or, if a Potential Event of Default or Event of
Default shall have occurred, (subject  to  Clause 1.5 (Insider Information) of
this Schedule) describing all such Potential Event of Default or Events of
Default of which he or she may have knowledge and what action the Borrower is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
repayment of the Loan(s) and payment of any interest accrued and any other
amount payable under this Agreement is prohibited or if such event has occurred,
a description of the event and what action the Borrower is taking or proposes to
take with respect thereto.

 
1.3.2
Each compliance certificate delivered pursuant to Clause 1.3.1 of this Schedule
shall be signed by a director of the Borrower.

 
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Execution

1.4
Other Information

 
 
The Borrower shall supply to the Lender (in sufficient copies):

 
 
1.4.1
all documents dispatched by the Borrower to its shareholders (or any class of
them) or its creditors generally at the same time as they are despatched;

 
1.4.2
promptly, any announcement, notice or other document relating specifically to
the Borrower posted onto any electronic website maintained by any stock exchange
on which shares in or other securities of the Borrower are listed or any
electronic website required by any such stock exchange to be maintained by or on
behalf of the Borrower;

 
1.4.3
(subject to Clause 1.5 (Insider Information) of this Schedule) promptly upon
becoming aware of them, the details of any litigation, arbitration or
administrative proceedings which are current, threatened or pending against the
Borrower or any other Group Company, and which might, if adversely determined,
have a material adverse effect;

 
1.4.4
(subject to Clause 1.5 (Insider Information) of this Schedule) promptly, such
further information regarding the financial condition, business and operations
of the Borrower or any other Group Company as the Lender may reasonably request;
and

 
1.4.5
promptly, notice of any change in any Authorised Person of any corporate Obligor
signed by a director or company secretary of such corporate Obligor accompanied
by the specimen signature of any new Authorised Person.

1.5
Insider Information

 
 
The Borrower hereby acknowledges that the Lender does not wish to receive
material non-public information with respect to the Borrower or its securities
for the purpose of United States federal and state securities laws (“Insider
Information”). The Borrower hereby agrees that it will use commercially
reasonable efforts to omit any Insider Information from any notice, document or
information required to be provided to the Lender under Clauses 1.3 (Compliance
Certificate), 1.4 (Other Information) and 2.1 (Notification and Default) of this
Schedule and that by delivering such notice, document or information to the
Lender, the Borrower shall be deemed to have authorized the Lender to treat such
notice, document or information as not containing any material non-public
information (although it may be sensitive and proprietary) with respect to the
Borrower or its securities for purposes of United States federal and state
securities laws.

PART B - POSITIVE UNDERTAKINGS
 
2.
POSITIVE UNDERTAKINGS

 
 
The Borrower shall comply with the following positive covenants:

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Execution

2.1
Notification of Default

 
Subject to Clause 1.5 (Insider Information) of this Schedule, the Borrower shall
promptly inform the Lender of the occurrence of any Event of Default or
Potential Event of Default of which it becomes aware and, upon receipt of a
written request to that effect from the Lender, confirm to the Lender that, save
as previously notified to the Lender or as notified in such confirmation, no
Event of Default or Potential Event of Default has, to the best of its
knowledge, occurred.

2.2
Corporate Existence

 
The Borrower shall and shall procure each corporate Obligor and each other Group
Company maintain its corporate existence and its right to carry on operations.

2.3
Authorisations

 
The Borrower shall obtain, maintain in full force and effect and comply with the
terms of and if requested, supply certified copies to the Lender of each
authorisation, approval and registration required under any applicable law or
regulation including all applicable securities laws and regulations in the
United States to enable it to perform its obligations under, or for the
validity, enforceability or admissibility of, any Finance Document.

2.4
Ranking

 
The Borrower shall ensure that at all times the claims of Event of Default or
Potential Event of Default against each of the Borrower and the other Obligors
under the Finance Documents will rank at least pari passu with the claims of its
other unsecured creditors other than those whose claims are preferred by any
bankruptcy, insolvency, liquidation or other similar laws of general
application.

2.5
Compliance with Law and Taxes

 
The Borrower shall and shall procure each other Group Company to comply in all
material respects with all applicable laws and regulations to which it is
subject and to file all relevant tax returns and pay all taxes promptly upon the
same becoming due except to the extent taxes are being contested in good faith
(and adequate reserves have been provided in relation thereto in an amount not
less than that which would be required to be reserved in accordance with GAAP).

2.6
Accounting Records

 
The Borrower shall and shall procure each other Group Company at all times
maintain proper and accurate books and records prepared in accordance with GAAP.

2.7
Security - General Covenants

 
(i)
The Borrower shall duly make all such filings and registrations with the
relevant authorities as may be necessary in connection with the creation,
perfection or protection of any security interest which it may, or may be
required to, create in connection with the Security Documents (including,
without limitation, any mortgage amendment registration formalities and foreign
security amendment registration formalities in connection with a change in the
particulars of any of the Security Documents);

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Execution

 
(ii)
The Borrower shall promptly make payment of all relevant fees, charges and taxes
payable in relation to any Security Documents and all notarisation and
registration fees in relation to the Security Documents from time to time and
produce to the Lender copies of receipts or other evidence of such payments duly
certified by an Authorised Person;

 
(iii)
The Borrower shall procure that no person shall be or become entitled to assert
any proprietary or other like right or interest which might affect the value of
the subject matter under any of the Security Documents without the prior written
consent of the Lender;

 
(iv)
The Borrower shall at all times keep the Lender indemnified against all actions,
suits, claims, costs and expenses which may be incurred or sustained on account
of the non-payment of any sum pursuant to this Clause 2.7 (Security –
General Covenants) or any other provision of a Security Document or the breach
or non-performance of the covenants, obligations and agreements herein
contained;

 
(v)
The Borrower shall provide the Lender with copies of all notices to or from all
relevant government authorities or otherwise relating to the Security Documents
within fourteen (14) days of the service of such notices and comply with all
governmental or other legal requirements and notices in respect of the Security
Documents; and

 
(vi)
The Borrower shall take and procure to be taken all such action as is reasonably
available to it to register, perfect and protect the security intended to be
conferred on the Lender by or pursuant to the terms of the Security Documents.

2.8
Access

 
The Borrower shall and shall procure each other Group Company to allow the
Lender, its representatives or the auditors or consultants engaged by the Lender
to have reasonable access to any premises of the Borrower or any other Group
Company so as to carry out inspection or conduct financial review or audit on
them upon prior reasonable notice to the Borrower. The Borrower shall, and shall
procure each other Group Company to, fully cooperate with the Lender and its
auditors and consultants and provide such information as requested for the
purpose of the review or audit.

2.9
Application of Facility Amount

 
The Borrower shall utilise the proceeds of the Facility for the purposes set out
in Clause 3.1 (Purpose).

2.10
Debt Service Account

 
The Borrower shall at all times maintain and operate the Debt Service Account
strictly in accordance with the provisions in Schedule 7 (Debt Service Account)
notwithstanding any other terms upon which monies have been deposited in the
Debt Service Account.

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Execution

2.11
Additional Collateral

 
 
Within five (5) business days after the occurrence of a Triggering Event (as
defined in the Share Pledge Agreement), the Borrower shall notify the Lender and
provide such additional security as is required pursuant to the Share Pledge
Agreement.

 
PART C - NEGATIVE UNDERTAKINGS
 
3.
NEGATIVE UNDERTAKINGS

 
 
Save as otherwise agreed by the Lender, the Borrower shall comply with the
following negative covenants.

 
3.1
Financing and Guarantees

 
 
The Borrower shall not and shall procure each other Group Company not to make
any financing, grant any credit (save in the ordinary course of business) or
give any guarantee or indemnity (save as contemplated in any Finance Document)
to or for the benefit of any person, or otherwise voluntarily assume any
liability, whether actual or contingent, in respect of any obligation of any
other person.

 
3.2
Negative Pledge

 
 
The Borrower shall not and shall procure each other Group Company not to create
or permit to subsist any Security Interest over all or any of its present or
future revenues or assets other than Permitted Security Interests.

 
3.3
No Amendments

 
 
The Borrower shall not and shall procure each other Group Company not to cause
or agree to the amendment, modification or variation of the terms of its
memorandum and articles of association or articles of association (or such
equivalent constitutional documents), in any material respect and shall not
terminate, amend, vary or grant any waivers under any of the Finance Documents
save as otherwise specifically provided for herein.

 
3.4
Disposals

 
 
The Borrower shall not and shall procure each other Group Company not to sell,
lease, transfer or otherwise dispose of any asset by one or more transactions or
series of transactions (whether related or not) other than in the ordinary
course of the Related Business. The Borrower shall not and shall procure each
other Group Company not to directly or indirectly dispose of a substantial part
of its assets or undertaking related to the Related Business without the consent
of the Lender in writing.

 
3.5
Merger

 
 
The Borrower shall not and shall procure each other Group Company not to merge
or consolidate with any other person or participate in any other type of
corporate reconstruction without the consent of the Lender in writing.

 
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Execution

3.6
Financial Year

 
The Borrower shall not and shall procure each other Group Company not to permit
any change to its financial year end without the consent of the Lender.

 
3.7
Shareholder Loan

 
 
Where the Borrower applies any of the proceeds of the Facilities to fund any
shareholder loan to any Group Company, the Borrower shall not assign, transfer
or otherwise deal with any interest in such shareholder loan or the relevant
shareholder loan agreement or any part thereof or create or permit to subsist
any Security Interest thereon or agree or purport to do any of the foregoing
without the prior written consent of the Lender.

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Execution

SCHEDULE 6

EVENTS OF DEFAULT

Each of the following events or circumstances set out below shall constitute an
Event of Default.
 
1.
Failure to Pay

 
 
Any Obligor fails to pay any amount payable under any Finance Document when due.

 
2.
Misrepresentation

 
 
Any representation or warranty made by any Obligor in any Finance Document or in
any notice or certificate delivered by it pursuant thereto or in connection
therewith is or proves to have been incorrect or misleading when made or deemed
to be made.

 
3.
Obligations

3.1
Any Obligor fails duly to perform or comply with any obligation expressed to be
assumed by it in Clause 2.1 (Notification of Default), Clause 2.2 (Corporate
Existence), Clause 2.4 (Ranking), Clause 3.1 (Financing and Guarantees) and
Clause 3.2 (Negative Pledge) of Schedule 5 (Undertakings) or any of the
covenants in Schedule 7 (Debt Service Account).

3.2
Any Obligor fails duly to perform or comply with any other obligation expressed
to be assumed by it in any Finance Document to which it is a party and, if
capable of remedy, such failure is not remedied within fifteen (15) days after
the Lender has given notice to the Borrower or such Obligor or the Borrower or
such Obligor becomes aware of the failure to perform or comply.

4.
Cross default

4.1
Any Financial Indebtedness of the Borrower or any other Group Company in an
aggregate amount in excess of USD5,000,000 or its equivalent is not paid when
due nor within any originally applicable grace period.

4.2
Any Financial Indebtedness of the Borrower or any other Group Company in an
aggregate amount in excess of USD5,000,000 or its equivalent is declared to be
or otherwise becomes due and payable prior to its specified maturity as a result
of an event of default (however described).

4.3
Any commitment for any Financial Indebtedness of the Borrower or any other Group
Company in an aggregate amount in excess of USD5,000,000 or its equivalent is
cancelled or suspended by a creditor of the Borrower or the Borrower or any of
its subsidiaries as a result of an event of default (however described).

4.4
Any creditor of the Borrower or any other Group Company becomes entitled to
declare any Financial Indebtedness of the Borrower or any other Group Company in
an aggregate amount in excess of USD5,000,000 or its equivalent due and payable
prior to its specified maturity as a result of an event of default (however
described).

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Execution

5.
Insolvency Events

5.1
The Borrower, or any other Group Company:

 
(a)
files a petition in bankruptcy or takes any action for its rehabilitation,
liquidation, winding-up or dissolution;

 
(b)
commences a voluntary case or gives notice of intention to make a proposal under
any Bankruptcy Law;

 
(c)
consents to the entry of an order for relief against it in an involuntary case
or consents to its dissolution or winding up;

 
(d)
consents to the appointment of a receiver, interim receiver, receiver and
manager, liquidator, trustee or custodian of it or for all or substantially all
of its property;

 

 
(e)
makes a general assignment for the benefit of its creditors;

 

 
(f)
is unable or admits in writing its inability to pay its debts as they become due
otherwise admits its insolvency; or

 

 
(g)
stops, suspends or threatens to stop or suspend payment of all or a material
part of its indebtedness, by reason of actual or anticipated financial
difficulties, or commences negotiations with one or more of its creditors with a
view to rescheduling any of its indebtedness.

5.2
Any bankruptcy or insolvency proceedings or other proceedings under any
Bankruptcy Law are commenced against the Borrower, the Borrower or any of its
subsidiaries.

5.3
A court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:

 
(a)
is for relief against the Borrower or any other Group Company;

 
(b)
appoints a receiver, interim receiver, receiver and manager, liquidator, trustee
or custodian of the Borrower or any other Group Company; or

 
(c)
orders the liquidation of the Borrower or any other Group Company.

5.4
For the purpose of this Clause 5 (Insolvency Event), “Bankruptcy Law” means any
law in any jurisdiction relating to bankruptcy, insolvency, winding up,
liquidation, reorganisation or relief of the debtors.

6.
Judgment

 
Any legal proceedings, judgment or arbitration award (when aggregated with any
outstanding unstayed or unsatisfied proceedings judgement or award against the
Borrower, the Borrower or any of the subsidiaries) in excess of US$5,000,000 or
its equivalent aggregate is rendered against the Borrower or any other Group
Company, and remains unstayed or unsatisfied for 30 consecutive days.

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Execution

7.
Expropriation

 
The confiscation, expropriation or nationalization by any governmental agency of
any assets of the Borrower or any other Group Company if such confiscation,
expropriation or nationalization would have a material adverse effect; or if
such revocation or repudiation could reasonably be expected to have a material
adverse effect, the revocation or repudiation by any government agency of any
previously granted authorisation that is material to the operation of the
Related Business; or the imposition or introduction of material and
discriminatory taxes, tariffs, royalties, customs or excise duties imposed on
the Borrower or other Group Company, or the material and discriminatory
withdrawal or suspension of material privileges or specifically granted material
rights of a fiscal nature.

 
8.
Repudiation

 
 
Any Obligor repudiates any Finance Document to which it is a party or does or
causes to be done any act or thing evidencing an intention to repudiate any
Finance Document to which it is a party.

 
9.
Illegality

 
 
(a)
At any time it is or becomes unlawful for any of the Obligors to perform or
comply with any or all of its material obligations under any Finance Document to
which it is a party.

 
(b)
At any time any of the material obligations of any of the Obligors under any
Finance Document to which it is a party are not or cease to be legal, valid and
binding.

 
(c)
Any authorisation or necessary approval referred to in Clause 2.3
(Authorisations) of Schedule 5 (Undertakings) is revoked, terminated or
withdrawn and such has or is likely to have a material adverse effect.

 
10.
Security Documents

 
 
The security purported to be created by any of the Security Documents shall
cease to constitute a valid, first ranking, security interest in the assets
expressed to be subject thereto or is or becomes subject to any other security
interest (other than a Security Interest permitted under the Finance Documents);
or any Security Document shall (i) cease to be in full force and effect or (ii)
cease to give the Lender all of the material rights, powers and privileges
purported to be created thereby.

11.
Constitutive Documents

 
The Borrower or any other Group Company amends or modifies their respective
constitutive documents in such a manner that would have a material adverse
effect.

12.
Other Business

 
The Borrower shall, or shall permit or any other Group Company to, directly or
indirectly, engage in or carry on any business other than in the ordinary course
of business presently engaged in by it (including with respect to an
arrangements with respect to the business) as consistent with the past custom
and practice of the Group and permitted under all necessary licenses, consents,
authorizations, approvals orders, certificates and permits duly obtained by the
Borrower or any other Group Company.

13.
Disposal of Related Business

 
The Borrower shall, or shall permit or any other Group Company, directly or
indirectly, dispose of or agree to dispose of a substantial part of its assets
or undertaking relating to the Related Business, without the prior written
consent of the Lender.

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Execution

14.
Listing Status of the Borrower

 
The Borrower fails to maintain the trading of its Common Stock on the New York
Stock Exchange or the Nasdaq Global Select Market or the Nasdaq Global Market
without the prior written consent of the Lender.

15.
Material Adverse Change

There has occurred a Material Adverse Change.

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Execution

SCHEDULE 7

DEBT SERVICE ACCOUNT

1.
Opening and maintenance of Debt Service Account

 
The Borrower shall open and maintain a bank account (the “Debt Service Account”)
with the Lender for the purpose set out in this Schedule.

2.
Operation of Debt Service Account

2.1
The Borrower undertakes, until the Release Date, not to make or authorise any
withdrawals from the Debt Service Account except in accordance with the
following provisions of this Clause 2 (Operation of Debt Service Account) and
this Schedule.

2.2
At any time during the period of thirty (30) days prior to any Interest Payment
Date or Repayment Date, the Borrower shall ensure that the credit balance of the
Debt Service Account is not less than the scheduled repayment of the Loan(s) and
payment of interest accrued and any other amount payable under the Finance
Documents for that Interest Payment Date or Repayment Date.

2.3
The Borrower may make or authorise withdrawals and transfers from Debt Service
Account only with the Lender's consent and for the purposes of repayment of the
Loan(s) outstanding or any part thereof or in payment of any interest accrued
and any other amounts due and payable by the Borrower under the Finance
Documents.

2.4
The Lender is authorised to make withdrawals and transfers from the Debt Service
Account in such amount and at such time as it shall determine for the purposes
set out in this Schedule.

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Execution

EXECUTION

IN WITNESS WHEREOF the parties have executed this Agreement on the date first
mentioned above.

BORROWER

HARBIN ELECTIC, INC.

By
:
YANG TIANFU
     
Address
:
No. 9 Ha Ping Xi Lu, Ha Ping Lu Ji Zhong Qu Harbin Kai Fa Qu, r
   
Harbin, People's Republic of China 150060
     
Fax
:
86-451-8611-6799

LENDER
 
CHINA DEVELOPMENT BANK CORPORATION HONG KONG BRANCH
 
By
:
WU PING WANG      
Address
:
Suite 3307-15, 33/F., One International Finance Centre, No. 1 Harbour
   
View Street, Central, Hong Kong
     
Fax
:
+852 2530 4083
     
Attention
:
Mr. Meng Zhongwen

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