Agreement No.: ZMZ-2013-0031-12

 

Collateral Agreement

[English Translation]

 

Agreement Date: June 16, 2013

 

 

 

 

Table of Contents

 

1 Secured Principal Debt 2       2 Scope of Collateral 3       3 Collateral 3  
    4 Collateral Registration 3       5 Entire Collateral Agreement 4       6
Possession and Keeping of the Collateral 4       7 Insurance 4       8
Realization of Collateral 5       9 Representations and Warranties of Party B 6
      10 Rights and Obligations for Both Parties 8       11 Breach Liability 9  
    12 Dispute Settlement 10       13 Advice and Delivery 10       14
Effectiveness of Agreement 11       15 Other Terms 11       16 Other Agreed
Terms 11       Appendix I Collateral List 14

 

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Collateral Agreement

 

Agreement No.: ZMZ-2013-0031-12

 

Mortgagee: China National Foreign Trade Financial & Leasing Co., Ltd
(hereinafter called “Party A”)

Address: Building #11 of Beijing Xiyuanfandian, No.1, Sanlihe Road, Haidian
District, Beijing

Post Code: 100044

Legal Representative: Jianping Ding

Telephone: 010-68321866

Fax: 010-68322705

 

Mortgagor: Hebei Baoding Orient Paper Milling Co., Ltd (hereinafter called
“Party B”)

Address: Science Park, Xushui County, Baoding City, Hebei Province

Postcode: 072550

Legal Representative: Zhenyong Liu

Telephone: 0312-8698051

Fax: 0312-8698217

 

In order to ensure the realization of Party A’s rights as a creditor, Party B
voluntarily provides collateral as guarantee to Party A. To specify both
parties’ rights and liabilities, Party A and Party B agree to enter into this
Agreement according to the “Contract Law”, “Guarantee Law” and other relevant
law and regulations of the People’s Republic of China

 

1Secured Principal Debt

 

1.1The secured principal debt is Party A’s right of all the receivable rents and
relevant charges to Hebei Baoding Orient Paper Milling Company Limited
(hereinafter called “Lessee”) according to the “Financing & Lease Agreement”
(hereinafter called “Principal Agreement”) numbered ZMZ-2013-0031, which is
entered into by Party A and the Lessee on June 16, 2013.

 

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1.2The amount and terms of the principal debt are subject to the “Actual Rent
Payment Schedule,” which is specified in the Principal Agreement. If any
adjustment of the People’s Bank of China benchmark lending rate occurs during
the term of the lease, the amount and terms shall be subject to changes
according to the “Notice of Rent Adjustment.”

 

1.3If the Principal Agreement fails to take effect, becomes invalid in all or in
part, is revoked or is canceled, the secured principal rights shall be the
Lessee’s liabilities to Party A for returning property and reimbursement for
losses under the Principal Agreement.

 

2Scope of Collateral

 

2.1The scope of Collateral under the Agreement includes the rent, penalty,
damages, all expenses paid by Party A to reinforce the creditor’s rights
(including but not limited to litigation fees, arbitration fees, legal fees,
travel expenses, and expenses for auction and evaluation for retrieving leased
property under the Principal Agreement) and all other fees attributable to the
Lessee. The scope of guarantee also includes any amounts arising from
adjustments triggered by change in the interest rate according to provisions
under the Principal Agreement.

 

3Collateral

 

3.1The collateral is the usage right of a State-owned land possessed by Party B
sited at Jingshang Village and Wuji Village of Dayin Town, Xushui County (the
State-owned Land Use Right No. XUGUOYONG(2012)DI011HAO). For the quantity,
address, acreage, ownership certificate and other information, see Collateral
List (Appendix I).

 

3.2The valuation (if any) set forth in the Collateral List on the collateral is
not Party A’s valuation basis for purposes of collateral disposition, and is not
a limitation to Party A for executing the collateral. The final valuation of the
collateral is determined by the proceeds actually collected from the disposition
of the collateral.

 

3.3Party A has the right to request Party B to submit all property right or
usage right certificate or other valid certificate files and relevant materials
of the collateral to Party A’s keeping if Party A deems necessary, and Party B
shall submit it in time according to Party A’s request.

 

4Collateral Registration

 

4.1Collateral registration should be made with the appropriate collateral
registration authority within 10 business days after the Agreement is signed by
the two parties.

 

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4.2Collateral amendment registration should be made by the two parties with the
appropriate collateral registration authority within 10 business days if any
collateral registration amendments need to be registered according to applicable
law.

 

5Entire Collateral Agreement

 

5.1This Agreement has an independent irrevocability. The effectiveness of the
secured rights and debts under this Agreement shall not affect the effectiveness
of this Agreement. Even if the secured principal debt is invalid in all or in
part due to any reason, this Agreement is still valid.

 

6Possession and Keeping of the Collateral

 

6.1The collateral under the Agreement is possessed and kept by Party B. Party B
shall maintain the integrity of the collateral during possession of the
collateral, and shall not use the collateral in any unreasonable way to detract
the value of the collateral. Party A has the right to inspect how the collateral
is being used and kept.

 

6.2When the collateral is damaged or lost, Party B shall inform Party A in time
and take measures to keep the loss from worsening. Meanwhile, Party B shall also
submit the certificate of the collateral damage and loss issued by the relevant
government administration to Party A.

 

7Insurance

 

7.1Party B ¨ is or ¨√ is not required (Mark with “√”) to obtain insurance
coverage for the collateral under the Agreement. If required, Party B shall
obtain insurance coverage with the insurance company approved by the two parties
as requested by Party A before signing the Agreement.

 

7.2The insurance period shall be no less than the Principal Agreement
performance period, and the amount covered should be no less than the rent
amount under the Principal Agreement. Party B shall provide the original
insurance policy for Party A to keep.

 

7.3Party A shall be indicated as the primary beneficiary in the insurance policy
and there shall not be any term that imposes restriction on Party A’s rights and
interests.

 

7.4Party B shall not suspend or cancel the insurance for any reason during the
Agreement’s effective term. Otherwise, Party A shall have the right to handle
the insurance matters on Party B’s behalf. All relevant charges incurred shall
be borne by Party B.

 

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7.5If an insurable event occurs, all insurance policy payout shall be served as
the collateral to pay Party A for any unpaid debt or, as agreed to by Party A,
be used to restore the value of the collateral.

 

8Realization of Collateral

 

8.1Party A shall have the right to execute the collateral rights to pay off the
unpaid debt with the proceeds of the collateral under the following
circumstances:

 

(a)The Lessee fails to pay rent, liquidated damages, compensation damages or
other payables according to the requested term, amount and currency set forth in
the Principal Agreement for any lease term;

 

(b)Other defaults by the Lessee under the Principal Agreement;

 

(c)Party B’s refusal to perform the obligations under this Agreement such that
the Party A’s collateral rights are jeopardized;

 

(d)Party B’s lawsuit, arbitration or major administrative legal case that may
have negative impact on the collateral;

 

(e)Party B suffers from bankruptcy, out of business, dissolution, being brought
to bankruptcy and reorganization, and cancellation or revocation of the business
license;

 

(f)Party B fails to recover the value of the collateral or otherwise provides
equivalent security with the detracted value in accordance with the Agreement;

 

(g)Circumstances that make it difficult or unable for Party A to realize the
collectability of its credit under the Principal Agreement.

 

8.2Party A has the right to take any of the following methods to execute
collateral:

 

(a)Negotiate with Party B to apply the value of the collateral as a payment to
repay the debt, or to use the proceeds from the auction or sale of the
collateral to first repay the unpaid debt;

 

(b)Petition the People’s Court to auction or sell the collateral, and use the
proceeds to first repay the unpaid debt.

 

8.3Party B shall cooperate with Party A in disposing the collateral in
accordance with the Agreement. Party B must not block or interfere with the
disposition.

 

8.4Payments to Party A from Party B shall be applied in the following order:

 

(a)the expenses related to the collection of the principal debt or exercising
the guarantee rights;

 

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(b)defaults paid by Party B;

 

(c)damage compensation paid by Party B;

 

(d)defaults paid by the Lessee;

 

(e)damage compensation paid by the Lessee;

 

(f)Accrued unpaid rent or other payables paid by the Lessee.

 

Party A has the right to adjust the above distress order as necessary.

 

8.5Whether Party A has other security to the debt under the Principal Agreement
(including but not limited to commitment, collateral, pledge etc. ), no matter
when the above security is established, whether such security is valid, whether
Party A asserts its rights to other guarantee, whether the third party agrees to
undertake all or part of the obligations under the Principal Agreement, and
whether other security is provided by Party B, Party A’s security responsibility
under the Agreement is not remised, Party A may directly request Party B to
assume security responsibility within the security scope in accordance with the
Agreement. Party B shall not raise any objection.

 

9Representations and Warranties of Party B

 

9.1Party B is a legal entity with operations within the permitted scope of
businesses of its business license, is in good standing, and is duly
incorporated in accordance with the laws of the People’s Republic of China.

 

9.2All internal authorizations needed by Party B to sign the Agreement have been
processed and are sufficiently valid.

 

9.3Party B’s signing into the Agreement and its performance of the obligation
under the Agreement do not contradict with any existing and internal regulations
or any other binding contract, agreement and other document of Party B.

 

9.4Party B has the outright legal ownership or valid disposition rights to the
collateral under the Agreement; and the collateral is not involved in any
disputes. Relevant ownership certificates have been provided and submitted to
Party A.

 

9.5Party B guarantees that all documents relevant to the collateral submitted to
Party A are authentic and valid, and that it has made sufficient written
disclosure with respect to the ownership rights restrictions and defects (if
any).

 

9.6Party B has the ability to perform the obligations under the Agreement. There
has not been any existing legal procedure including lawsuit or arbitration,
executing enforced, bankruptcy or other events or conditions that may cause
major adverse effects to Party B’s ability to perform the obligations under the
Agreement.

 

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9.7If one of the following events occurs, without any acknowledgement of Party
B, Party B shall continue to bear the guarantee responsibility according to the
Agreement:

 

(a)Party A negotiates changes to the Principal Agreement with the Lessee, and
the changes do not increase the Lessee’s debt or extend the period of debt
performance;

 

(b)The rent changes due to floating rent rate or rent adjustment after the
confirmation of lease commencement date;

 

(c)Party A transfers the principal debt to a third party;

 

(d)If China Orient Asset Management Corporation, Shijiazhuang Branch acquires
the rights and obligations under the Principal Agreement according to the
Long-Term Acquisition Commitment Letter.

 

9.8Party B agrees that the collateral shall be transferred along with Party A’s
transfer of the debt. Party B guarantees to continue to provide collateral
security to the transferred debt with the same collateral in the Agreement and
to cooperate with the transferee of the debt to handle the relevant procedures
for registering the changes in the collateral registration.

 

9.9Party B guarantees that all of its taxes have been paid off before the
signing of this Agreement, and that it has no record of any tax delinquency or
tax evasion.

 

9.10Party B guarantees the collateral under the Agreement is not let prior to
the collateralization. If the collateral has been let, Party B guarantees that
it has informed Party A of the collateral lease in writing. If the collateral
under the Agreement is let after being collateralized, Party B guarantees that
it will inform the lessee of the collateral and inform Party A of related lease
information.

 

9.11Party B promises that before Party A’s rights under the Principal Agreement
has been fully satisfied, Party B will not cause any damage to Party A’s
interests and its claim of subrogation or recourse right to the Lessee or other
guarantors. Party B also agrees that any payment of debt under the Principal
Agreement takes priority to the realization of its own subrogation or recourse
right against the Lessee. Specifically, before the full payment of debt to Party
A:

 

(a)Party B agrees not to claim subrogation or recourse right to Lessee or other
guarantors. If for any reason, Party B realizes the above right, Party B shall
first pay off any unpaid balance of debt to Party A.

 

(b)If the debt under the Principal Agreement is collateralized by any other
property or right, Party B agrees not to claim any right to the proceeds from
the disposition of such other property or right in the grounds of excising
subrogation right or other right. The proceeds from the above mentioned property
or right disposition shall be first used to pay off the unpaid balance of debt
to Party A.

 

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(c)If the Lessee or other guarantor provide counter-guarantee to Party B, Party
B shall first use the proceeds from such counter-guarantee to pay off any unpaid
balance of debt to Party A.

 

10Rights and Obligations for Both Parties

 

10.1Rights and Obligations for Party A

 

(a)Party A has the right to request Party B to suspend any of its behaviors that
has the effect of diminishing the value of the collateral. If there is a decline
in value of the collateral, Party A has the right to request Party B to recover
the value of the collateral, or provide additional guarantee with value equal to
the decline;

 

(b)Any excess of collateral disposition proceeds after paying off all debts
within the Scope of Collateral under the Agreement belongs to Party B.

 

(c)Party A shall assist Party B to handle the collateral registration
cancellation procedures after paying off the debt within the Scope of Collateral
under the Agreement. Party A shall return to Party B the collateral property
right or use right certificates and other documents in its possession.

 

10.2Rights and Obligations for Party B

 

(a)Party B has the right to request Party A to release the collateral under the
Agreement after the debt has been paid off within the Scope of Collateral under
the Agreement;

 

(b)Party B has no right to dispose the collateral in any way without the consent
of Party A, including but not limited to fixing any additional guarantee to the
collateral or transferring or gifting the collateral to any third party;

 

(c)Party B shall bear any and all fees caused by signing and performing the
Agreement, including but not limited to: collateral registration fee, notarial
fee, counsel fee, correspondence fee, travel charge, file and material fee,
taxes fee, property insurance fee, identify fee, appraisal fee, reiterate fee,
transfer fee etc. If Party A pays the fees on behalf of Party B, Party A has the
right to request Party B for immediate reimbursement.

 

(d)Party B has the obligation to take appropriate actions to mitigate damages at
the time the collateral is or may be in danger of being damaged by any third
party;

 

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(e)In the case Party A transfers all or part of the debt under the Principal
Agreement to others; Party B shall continue to assume collateral security
responsibilities to Party A’s assignee in accordance with the convention of the
Agreement;

 

(f)Party B shall notify Party A at least 30 days in advance under the following
circumstances:

 

(i)change of organizational structure, including spin off, merger, shareholding
restructure, etc.;

 

(ii)Party B involved in a major lawsuit;

 

(iii)The ownership of the collateral in dispute;

 

(iv)Events materially impacting the legal standing of Party B, including
bankruptcy, dissolution, suspended operations for rectification, revocation of
business license, etc.

 

(g)In the case where value of the collateral declined for reasons not
attributable to Party B, any compensation that Party B receives shall be used to
pay off the debt to Party A or be deposited with a third party designated by
Party A; or Party B may provide additional collateral to the extent of the
amount of Party B’s compensation,. To the extent value of the collateral has not
declined, it shall continue to serve as security to the principal debt.

 

11Breach Liability

 

11.1Any of the following events shall constitute a default of Party B under the
Agreement:

 

(a)Party B’s concealment of any joint ownership, disputes, confiscation,
detainment or multiple guarantees, etc, of the collateral;

 

(b)failing to providing the perfecting documents and substantive materials about
the collateral at Party A’s request;

 

(c)disposing the collateral arbitrarily without the consent of Party A;

 

(d)in the case where Party A does not receive insurance payout because of
actions of Party B’s and as a result of the insurance company’s refusal to
settle the claims or discontinuance of insurance coverage;

 

(e)Party B refusal to cooperate with Party A to handle the collateral
registration procedure under the Agreement;

 

(f)Representations made by Party B under the Agreement proved to be untrue,
inaccurate, or misleading;

 

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(g)Party B’s ability to perform the obligations under the Agreement materially
impacted when any other party gaining all or part of Party B’s business
operations or ownership of assets; or the adjudication or judgment against Party
B’s any assets is executed or enforced;

 

(h)Party B suspends or is expected to suspend its business operations or any
major segment of its business operations, or Party B disposes all or part of its
business operations or assets, consequently impacting materially Party B’s
ability to perform the obligations under the Agreement;

 

(i)any material adverse change to Party B’s financial situation or to Party B’s
ability to perform under the Agreement occurs,;

 

(j)any other circumstances affecting or may affect Party B to perform the
obligation under the Agreement.

 

11.2Party A has the right to take any one or more following measures, under the
following circumstances:

 

(a)Issue the default notice to Party B, and require Party B to curb the breach
and continue to perform the Agreement;

 

(b)Exercise the collateral right

 

(c)Request Party B to compensate the loss.

 

12Dispute Settlement

 

12.1If any dispute occurs for the interpretation and performance of this
Agreement, both parties shall resolve the disputes through friendly negotiation.
If there is any dispute that cannot be resolved through friendly negotiation,
both parties can submit a lawsuit to the People’s Court of the People’s Republic
of China in Party A’s jurisdiction.

 

12.2In case there is any dispute between Party A and Party B, both parties shall
continue to execute the other clauses which have no relationship with the
disputes during the disputes resolution period.

 

13Advice and Delivery

 

13.1Except as otherwise agreed in this Agreement, any advice or other
communication under this Agreement shall be made in written form, and be
delivered to the address specified in the first page of this Agreement by a
designated person, express courier, registered mail and fax.

 

(a)If delivered by a designated person, the delivery date for the material or
advice shall be the date of receipt;

 

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(b)If delivered by an express courier, the delivery date for the material or
advice shall be three days after delivery to the express courier;

 

(c)If delivered by registered mail, the delivery date for the material or advice
shall be five days after delivery to the registered mail;

 

(d)If deliver by fax, the delivery date is the day of dispatch of fax.

 

13.2If the address of any party changes, the party shall notify the other party
within seven days. Otherwise, the party failing to give notice shall bear all
liabilities and consequences.

 

14Effectiveness of Agreement

 

14.1This Agreement becomes effective after being signed and sealed by the legal
representatives (or authorized representative) of both parties.

 

14.2This Agreement is signed in four copies, with two copies retained by each
party. The copies retained by the parties have the same effect.

 

14.3Party A and Party B may sign other relevant documents at the time and for
the purpose of collateral registration or other relevant procedures. To the
extent provisions of these other documents are inconsistent with the Agreement,
provision of the Agreement shall govern.

 

15Other Terms

 

15.1The invalidity of any section in this Agreement for any reason shall not
affect the validity and enforceability for the other sections of this Agreement,
and both parties shall continue to fulfill the other sections.

 

15.2Any tolerance, grace period, preference or deferred exercise of right
provided by Party A to Party B shall not affect, prejudice or restrict any of
Party A’s right according to this Agreement, and shall not be regarded as waiver
to the right and benefit or as waiver to any liability of Party B under this
Agreement. The tolerance, grace period, preference or deferred exercise that
Party A gives to Party B has no effect, damage or limitation on the rights of
Party A over Party B.

 

15.3This Agreement is signed as a result of negotiations between the two
parties. Both parties have reviewed all sections and have no dissent at the time
of signing. Both parties have accurate understanding for the legal implication
of the sections regarding their respective rights and obligations.

 

16Other Agreed Terms

 

16.1Party B promises: If the government requisitions the collateral during the
duration of Financing & Lease Agreement, Party A has the right to request Party
B to pay off prior to the maturity.

 

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16.2During the term of the Financing and Lease Agreement, Party B agrees that
the any construction-in-progress of the collateral caused by: construction,
annexation, renovation shall also be deemed as the collateral, and shall also be
registered according to relevant laws and regulations. At the same time, Party B
commits to register at the time of the completion of construction such
construction-in-progress as collateral according to Party A’s request. If Party
B fails to cooperation and perform the registration obligation at the request of
Party A, it shall be regarded as a fundamental default of the agreement by Party
B.

 

If there is any conflict between a Chinese language provision and the
corresponding English language provision in this Agreement, the Chinese language
provision will prevail.

 

(No text in below of this page)

 

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(No text in the page, it is the signature page for “Collateral Agreement”
numbered ZMZ-2013-0031-12)

 

Party A: China National Foreign Trade Financial & Leasing Co., Ltd

 

(Company Seal)

 

Legal representative (or authorized representative) (signature or seal):

/s/Jianping Ding

 

Party B: Hebei Baoding Orient Paper Milling Co., Ltd

 

(Company Seal)

 

Legal representative (or authorized representative) (signature or seal):

/s/Zhenyong Liu

 

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Appendix I Collateral List

 

Collateral List

 

No.   Name of
Collateral   Quantity
(Piece)   Address   Area
(square
meter)   The
Ownership
Certificate
and Number   Other 1   State-owned Land Use
Right     One   Jingshang Village and
Wuji Village
of Dayin
Town, Xushui County   58,566.00   State-owned
Land Use
Right No.
XUGUOYONG(2012)DI011HAO)  

Nature of Land
Industrial Land
Type of Use
Right: Sale

 

Expire date: December 1, 2061

 

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