CONVERTIBLE PROMISSORY NOTE TRANSFER AGREEMENT

 

This CONVERTIBLE PROMISSORY NOTE TRANSFER AGREEMENT (the “Agreement”) is entered
into as of the 28th day of April, 2012, by and among, Great Essential
Investment, Ltd., a company registered in the Virgin Islands (“Great
Essential”), Carlyle Asia Growth Partners III, L.P., a limited partnership
organized under the laws of the Cayman Islands (“CAGP”) and CAGP III
Co-Investment, L.P., a limited partnership organized under the laws of the
Cayman Islands (“CAGP III,” and together with CAGP, the “Holders”) and China
Recycling Energy Corporation, a Nevada corporation (the “Company”). Any
capitalized terms in this Agreement not otherwise defined shall have the meaning
ascribed to them in the Subscription Agreement and the Note (as hereinafter
defined).

 

RECITALS

 

WHEREAS, on April 29, 2009, the Holders and the Company entered into a Note
Subscription and Amendment Agreement (the “Subscription Agreement”) pursuant to
which the Company issued to the Holders collectively an 8% secured convertible
promissory note in the principal amount of $3,000,000 (the “Note”).

 

WHEREAS, the Holders have determined that it is in their best interests to sell,
subject to the terms and conditions set forth herein, the Note to Great
Essential;

 

WHEREAS, Great Essential has determined that it is in its best interest to
purchase, subject to the terms and conditions set forth herein, the Note from
the Holders; and

 

WHEREAS, the Company has agreed to the provisions of this Agreement that are
necessary for the parties to complete the transaction which they have
negotiated.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

 

ARTICLE I

 

The Note Transfer

 

Section 1.01. The Note Transfer. Subject to the terms and conditions of this
Agreement, Great Essential and the Holders have agreed that Great Essential
shall pay US$ 3 million to the Holders for their entire right, title and
interest in the Note. The Note transfer shall take effect on the Transfer Date
and the US$3 million transfer price (the “Transfer Price”) shall be paid on or
before May 29, 2012 (the “Transfer Date”) by wire transfer of immediately
available funds to an account designated in writing by the Holders and delivered
to Great Essential on or prior to the Transfer Date. In addition, Great
Essential shall pay, together with the Transfer Price, interest on any
outstanding Transfer Price at 8.0% per annum between April 29, 2012 and the
Transfer Date. If Great Essential fails to pay the Transfer Price in full on or
before May 29, 2012, the interest rate applicable on the outstanding amount
shall be at 16% per annum until the Transfer Price is paid in full. Interest on
the outstanding Transfer Price shall be computed on the basis of the actual
number of days elapsed and a year of three hundred and sixty (360) days. It is
understood all interest due and payable on the Note as of April 29, 2012 will
have been paid by the Company to the Holders. The Note shall be transferred with
all the conversion rights described in the Note (and in the related Transaction
Documents as that term is defined in the Note) but Great Essential shall not
have any of other rights granted to the Holders under the Transaction Documents.
Unless otherwise provided in this Agreement, the risks and full economic
benefits with respect to the Note shall pass to Great Essential on the Transfer
Date. If Great Essential fails to pay the Transfer Price in full before the
Transfer Date, the Transfer Date shall be postponed accordingly until such date
when the Holders receive the full payment of the Note and any interest accrued
thereon, provided that if Great Essential fails to pay outstanding amount in
full before June 30, 2012, this Agreement and the Note transfer shall be
terminated. The Holders and Great Essential agree with the Company that the
maturity date of the Note shall be extended for a period of 60 days following
the Transfer Date and that Great Essential shall have registration rights with
respect to shares issuable upon conversion of the Note consistent with the
registration rights of the Holders pursuant to the Amended and Restated
Registration Rights Agreement between the Holders and the Company dated April
29, 2009.

 

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Section 1.02. Further Documentation. The parties hereby agree to execute such
other documents as may be required to carry out this transaction including the
issuance of a replacement note as provided in section 5.4 of the Note, if
necessary. Despite the requirement under section 5.4 of the Note, Parties agree
that the Holders shall surrender the Note to Great Essential upon the Transfer
Price being paid in full, and the Holders can choose to deliver the Note to the
offices of the Company’s outside counsel in Washington D.C. for it to send the
Note to Great Essential.

 

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

 

Section 2.01. Representations and Warranties of Great Essential. Great Essential
represents and warrants to the Holders and the Company as follows:

 

(a) Great Essential has all power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance by Great Essential of
this Agreement and the transactions contemplated hereby including, without
limitation, the purchase of the Note, have been duly authorized by Great
Essential.

 

(b) This Agreement has been duly executed and delivered by Purchaser and
constitutes the legal, valid and binding obligation of Great Essential,
enforceable against Great Essential in accordance with its terms.

 

(c) The Note will be acquired for investment for the account of Great Essential,
and not as a nominee or agent, and not with a view to the distribution or public
offering thereof. In connection therewith, Great Essential confirms that it is
neither a U.S Person, as such term is defined in Rule 902(k) of Regulation S,
under the Securities Act of 1933, as amended (the “Securities Act”) nor located
within the United States, and that the transaction will be between non-U.S.
Persons, and take place outside of the United States.

 

(d) Great Essential has not been contacted concerning the acquired Note or the
matters set forth in this Agreement by means of any advertisement or other
general solicitation.

 

(e) Great Essential understands that a registration statement on Form S-3 has
been filed with the Securities and Exchange Commission of the United States (the
“SEC”) covering the shares issuable upon the conversion of the Note;, however,
it has not been declared effective by the SEC and that the Note has not been
registered under either the Securities Act or the securities laws of any state
by reason of specific exemptions therefrom and that such securities may be
resold in the United States without registration under the Securities Act only
in certain limited circumstances.

 

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(f) Great Essential is a sophisticated and experienced investor, with experience
in buying and selling securities and has the ability to evaluate the merits and
risks of buying the Note. Great Essential has had access to information relating
to the Company, and has had the opportunity to do due diligence concerning the
Company, as Great Essential deems necessary to make an informed investment
decision in connection with the purchase of the Note. Great Essential has made
an independent decision to acquire the Note based on the information available
to it. Great Essential has determined that it has adequate information
concerning the business and financial condition of the Company and understands
the disadvantage to which it may be subject on account of the disparity of
information between Great Essential and the Holders. Great Essential understands
that, except as provided in Section 2.02 below, the Holders are making no
representations and warranties concerning the Note or the business and financial
condition of the Company.

 

Great Essential understands that the Company and/or its affiliates (including
the Holders) may now or at any other time have material confidential information
that could affect the value of the Note and that this information has not been,
and may not be in the future, made available to Great Essential. Great Essential
hereby waives any claim against, and covenants not to sue, the Company, the
Holders and their respective controlling persons, officers, directors, members,
partners, agents or employees and their respective successors and assigns, from
any and all claims, demands, causes of action, damages, losses, expenses or
liabilities, of any nature whatsoever, whether accrued or unaccrued, contingent
or liquidated, known or unknown, arising from or connected to any action
heretofore or hereafter taken or omitted to be taken in connection with this
Agreement or any transaction contemplated hereby, including without limitation
any failure to disclose to Great Essential any information concerning the
Company, including, without limitation, confidential information in connection
with any sale of the Note.

 

(g) Great Essential understands that Regulation S promulgated under the
Securities Act, is available only for offers and sales of securities outside the
United States, and will comply with Regulation S, specifically complying with
the restrictions on re-sale of the securities of Rules 903 (a) and (b)(3) of
Regulation S.

 

(h) Legends. Great Essential acknowledges that the Note it acquires will bear
the following restrictive legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE (A) ABSENCE OF (I) A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR (II) AN
OPINION OF COUNSEL TO THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (B)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF THE SECURITIES ACT. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.

 

(i) Great Essential acknowledges that it is aware of its obligations under the
Securities Exchange Act of 1934 (the “1934 Act”), including, but not limited to
those filing obligations that are triggered as a result of the consummation of
the sale of the Note pursuant to Sections 13 and 16 of the 1934 Act, together
with filings required to be made by the Company and the Holders, after the
consummation of the sale of the Note or their conversion into shares of the
Company’s common stock.

 

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(j) Great Essential understands that one or more stockholders, including the
Holders, may be an “affiliate” of the Company within the meaning of U.S. federal
and state securities laws.

 

(k) The execution, delivery and performance of this Agreement by Great Essential
and the consummation of the transactions contemplated thereby, do not and will
not (a) violate any requirement of law applicable to Great Essential, or (b)
result in a material breach or default under any of the contractual obligations
of Great Essential, or under any order, writ, judgment, injunction, decree,
determination or award of any governmental authority, in each case applicable to
Great Essential or its properties.

 

(l) No approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any governmental authority or any other person
in respect of any requirement of law, and no lapse of a waiting period under any
requirement of law, is necessary or required in connection with the execution,
delivery or performance by Great Essential (including, without limitation, the
acquisition of the Note) or enforcement against Great Essential of this
Agreement or the transactions contemplated hereby.

 

(m) There are no brokerage commissions, finder’s fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with Great Essential or any
action taken by Great Essential. Holders shall not be liable for any costs or
expenses incurred by or on behalf of Great Essential in connection with this
Agreement or the transactions contemplated hereby.

 

 

Section 2.02. Representations and Warranties of the Holders. Each of the Holders
represents and warrants to Great Essential as follows:

 

(a) The Holder has all power and authority to execute, deliver and perform this
Agreement.

 

(b) This Agreement is the valid and binding obligation of the Holder,
enforceable against the Holder in accordance with its terms.

 

(c) The Holder is the record and beneficial owner of the Note acquired by Great
Essential, and the Note conveyed pursuant to this Agreement has not been
assigned, pledged, sold, transferred or otherwise previously conveyed.

 

(d) Except for the representations and warranties contained in this Section
2.02, neither the Holders, the Company nor any other person makes any other
express or implied representation or warranty with respect to the Note or the
business and financial condition of the Company, and the Holders disclaim any
other such representations, warranties, forecasts, projections, statements or
information.

 

Section 2.03. Modification of S-3 Registration Statement. The Company agrees
that it shall modify the registration statement described in Section 2.01(d)
above to identify the shares issuable upon conversion of the Note either to
remove such shares from registration or to identify them to Great Essential, as
Great Essential shall direct, after consummation of the purchase of the Note
pursuant to this Agreement.

 

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ARTICLE III

 

MISCELLANEOUS

 

Section 3.01. Governing Law; Successors and Assigns. This Agreement shall be
governed and construed in accordance with the laws of the State of New York and
applicable federal law without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York and shall be binding upon the heirs, personal
representatives, executors, administrators, successors and assigns of the
parties.

 

Section 3.02. Confidentiality. Each Party agrees to hold and keep the
information in this Agreement confidential and will not disclose any of such
information in any manner whatsoever, except as may otherwise be required by
applicable law or NASDAQ rule.

 

Section 3.03. Entire Agreement and Severability. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes and replaces any prior agreement or understanding among Great
Essential, the Holder and the Company with respect to the transfer of the Note
between Great Essential and the Holders. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired.

 

Section 3.04. Headings. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.

 

Section 3.05. Counterparts. This Agreement may be executed in any number of
counterpart copies, all of which copies shall constitute one and the same
instrument.

 

Section 3.06. Independent Counsel. Great Essential and the Holders each
acknowledge that this Agreement has been prepared by McKenna Long & Aldridge
LLP, counsel to the Company, and that McKenna Long & Aldridge LLP is not
representing, and is not acting on behalf of, Great Essential or the Holders in
connection with this Agreement. Great Essential and the Holders have been
provided with an opportunity to consult with their own counsel and their own
business, securities and tax advisors with respect to this Agreement.

 

Section 3.07. Effective. This Agreement becomes effective upon the parties’
execution.

 

Section 3.08. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement.

 

Section 3.09. Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.

 

Section 3.10. Amendments. This Agreement may be amended, modified or
supplemented at any time by the parties hereto only by an instrument in writing
signed on behalf of each of the parties hereto.

 

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Section 3.11. Fees and Expenses. All fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fees or expenses.

 

 

 

(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)

(SIGNATURE PAGE FOLLOWS)

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this CONVERTIBLE PROMISSORY
NOTE TRANSFER AGREEMENT on the date first written above.

 

 

  For and on behalf of:       CARLYLE ASIA GROWTH PARTNERS III, L.P.          
By:                                                              
Name:                                                          
Title:                                                                       
For and on behalf of:       CAGP III CO-INVESTMENT, L.P.      
By:                                                              
Name:                                                         
Title:                                                                       
For and on behalf of:       GREAT ESSENTIAL INVESTMENT, LTD.      
By:                                                              
Name:                                                         
Title:                                                                       
For and on behalf of:       CHINA RECYCLING ENERGY CORPORATION      
By:                                                              
Name:                                                         
Title:                                                         

 

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