KAI Form 10-Q 2Q 2007 Exhibit 10.3


    Exhibit
      10.3

     

    JPMorgan

    


     

    Date:
      July 30, 2007

    


    Short-Term
      Advised Credit Line Facility Agreement

    


    


    1.         
      Facility

    


    JPMorgan
      Chase Bank, N.A., Shanghai Branch (the “Bank”)
      is
      pleased to make available to Kadant Pulp and Paper Equipment (Yanzhou) Co.,
      Ltd.(凯登制浆濠纸瑂备ø兖州÷有榰公司),
      a
      company incorporated in P.R. China having its principal office at Chuang Ye
      Road
      (N), Yanzhou Economic Development Zone, Yanzhou, Shandong Province, P.R. China
      (the “Borrower”)
      a
      short term advised credit line facility (“Facility”)
      up to
      an aggregate principal amount not at any time exceeding RMB Fifteen million
      Only
      (RMB15,000,000) (the “Advised
      Amount”)
      subject to the terms and conditions of this Agreement.

    


    2.         
      Purpose

     

                   The
      Borrower will apply the proceeds of the Loan towards its general working capital
      requirements. The Loan will not be used for other purposes without the prior
      consent of the Bank provided that the Bank is not obliged to monitor or verify
      the application of the Loan.

    


    
      	
              3.

            	
              Availability

            


    

    


    
      	 	
              The
                Facility offered by the Bank is uncommitted. No Advance will be available
                for drawdown and no Bank Guarantee will be available for issuance
                after
                the expiration of the Drawdown Period after which time the Facility
                will
                automatically lapse. In any event, the availability of the Facility
                even
                during such Drawdown Period will be at the sole discretion of the
                Bank.
                The Bank may, in its sole and absolute discretion, agree to provide
                the
                Facility on such terms and conditions as the Bank deems appropriate.
                

            


    

    


    4.         
      Loans

    


    
      	
              4.1

            	
              Subject
                to the terms and conditions of this Agreement (including without
                limitation, clause 3 hereof), the Facility may be used by one or
                more
                Advances and or Bank Guarantees to the Borrower following receipt
                by the
                Bank of an irrevocable duly completed Request in respect of the particular
                Advance no later than 10:00am (Shanghai) time, three (3) Business
                Days
                immediately preceding the proposed Drawdown Date, provided that the
                aggregate amount of any and all Loans which may from time to time
                be
                outstanding, will not in any case exceed the Advised Amount (unless
                otherwise agreed by the Bank) and provided further that the Term
                of any
                Advance or Bank Guarantee will not exceed the Specified Period. The
                Borrower may at any time during the Drawdown Period re-borrow the
                Loan or
                any part thereof which may at that time have been repaid subject
                to and in
                accordance with the terms and conditions of this
                Agreement.

            


    

    


    4.2        
      The
      Request will not be regarded as having been duly completed unless:-

    


    
      	(a)        
               	
              the
                proposed Drawdown Date is a Business Day falling on or before the
                expiration of the Drawdown Period;

            


    

    


    
      
        
          
          

        

        
          1

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

    
      	(b)        
               	
              the
                amount of the relevant Advance is:

            


    

    


    
      	 	
              (i)

            	
              a
                minimum of RMB One million (RMB1,000,000) and an integral multiple
                of RMB
                One hundred thousand (RMB100,000) ;
                or

            


    

    


    
      	(ii)        
                	
              such
                other amount as the Bank may agree;
                and

            


    

     

    (c)        
      the
      amount selected under sub-clause 4.2(b) does not cause clause 4.1 to be
      contravened.

    


    5.         
      Conditions
      Precedent

    


    
      	
              5.1

            	
              In
                addition to the terms of clause 3, the availability of the Facility
                will
                be subject to the availability of funds, the availability of room
                within
                the Bank’s regulatory ceiling and completion or performance, as
                applicable, of each of the following conditions precedent to the
                satisfaction of the Bank: 

            


    

    


    
      	(a)         
               	
              receipt
                by the Bank of each of the following documents in form and substance
                acceptable to it not less than three (3) Business Days immediately
                preceding the earlier date on which (i) the first Advance is intended
                to
                be made or (ii) the first Bank Guarantee is intended to be issued
                (each
                such document (other than an original) being duly certified by an
                authorised officer of the Borrower as true, complete and
                up-to-date):

            


    

    


    
      	 	
              (i)

            	
              the
                original of this Agreement duly executed by the Borrower;
                

            


    

    


    
      	 	
              (ii)

            	
              copies
                of the constitutional documents of the Borrower and/or other relevant
                corporate documents, and the relevant internal rules of the
                Borrower;

            


    

    


    
      	 	
              (iii)

            	
              copy
                of each of the Borrower’s current valid business license and IC Card
                (Credit Information Card) issued by the People's Bank of
                China;

            


    

    


    
      	 	
              (iv)

            	
              copy
                of the supporting board resolution/s of the Borrower with respect
                to this
                Agreement, authorising the execution, delivery and performance of
                this
                Agreement and any Request;

            


    

    


    
      	 	
              (v)

            	
              the
                names and specimen signatures of the persons authorised to sign,
                on behalf
                of the Borrower, this Agreement, each Request and any other documents
                in
                connection with this Agreement;

            


    

    


    
      	 	
              (vi)

            	
              the
                original of each approval, authorisation, permit, registration and/or
                filing and any other document required by any applicable law for
                the
                Borrower to enter into and perform any and all terms of this Agreement,
                including the drawing of any Loans, issued by the applicable regulatory
                authority, entity or body, including without limitation, the relevant
                government authorities of the People’s Republic of
                China;

            


    

    


    
      	 	
               (vii)

            	
              original
                guarantee issued by Kadant Inc., parent company of the Borrower (the
                “Guarantor”),
                in favour of the Bank, in respect of the obligations of the Borrower
                under
                this Agreement, in form and substance satisfactory to the Bank (the
                “Guarantee”);

            


    

    


    
      
        
          
          

        

        
          2

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

    
      	 	
              (viii)

            	
              Evidence
                that the Borrower has paid all the stamp duties chargeable on this
                Agreement (including the renewal or extension
                thereof);

            


    

    


    
      	 	
              (ix)

            	
              any
                other authorisation or other document, opinion or assurance which
                the Bank
                considers necessary or desirable in connection with the entry into
                and
                performance of, and the transactions contemplated by, any Finance
                Document
                or for the validity and enforceability of any Finance Document;
                and

            


    

    


    
      	 	
              (x)

            	
              the
                Borrower’s current financial information (including without limitation
                audited annual and unaudited semi-annual financial statements, promptly
                prepared and received), in form and substance satisfactory to the
                Bank;
                which information will be furnished to the Bank as it may from time
                to
                time reasonably request; and

            


    

    


    
      	(b)        
               	
              the
                Bank’s satisfaction with the business affairs, financial condition and
                prospects of the Borrower or the Guarantor; and there being in the
                opinion
                of the Bank no material adverse change in the financial condition
                of the
                Borrower or the Guarantor, in the financial, banking or capital market
                conditions, or in the international financial
                environment.

            


    

    


    
      	
              5.2

            	
              In
                addition to the terms of clauses 3 and 5.1, the availability of each
                Advance or Bank Guarantee subsequent to the initial Advance or Bank
                Guarantee is subject to each of the documents delivered or to be
                delivered
                under clause 5.1 remaining true complete and up to date as at the
                date
                upon which that relevant Advance or Bank Guarantee is made or issued
                by
                the Bank and to the Bank continuing to be satisfied as that date
                in
                relation to each of the matters referred to in sub-clauses 5.1 (b).
                

            


    

    


    6.        
      Borrowings
      in excess of the Advised Amount/Other Purposes

    


    Should
      the Bank, in its sole discretion, allow the aggregate drawings under the
      Facility at any time to exceed the Advised Amount or allow the Facility to
      be
      used for any purposes other than as set out in clause 2, such drawings will
      be
      subject to the same terms and conditions stipulated in this Agreement and for
      the purpose of such drawings, the Borrower shall from time to time at the
      request of the Bank, execute, sign, perfect, do and procure the doing of and
      if
      required, register every document, act or thing as, in the opinion of the Bank,
      may be necessary or desirable for the preservation and the perfection of all
      rights and powers of the Bank. The terms of this clause should not, however,
      be
      construed as agreement on the part of the Bank to make any modifications
      whatsoever to this Agreement or the Facility.

    


    7.        
      Covenants

    


    In
      consideration of the Bank entering into this Agreement, the Borrower undertakes
      to the Bank during the period while any sum is due or payable under this
      Agreement that it shall:

    


    
      	 	
              (i)

            	
              obtain
                and maintain in full force, validity and effect all governmental
                and other
                approvals, authorizations, licences, consents and registrations required
                in connection with the Facility and do or cause to be done all other
                acts
                and things necessary or desirable for the performance of its obligations
                under this Agreement;

               

            


    

    
      	(ii)        
                	
              within
                120 days after the end of each fiscal year, supply to the Bank audited
                financial statements of the Borrower of
                such fiscal year,
                provided that as to Guarantor, the filing of the Guarantor’s Annual Report
                on Form 10-K with the U.S. Securities and Exchange Commission on
                the
                Electronic Data Gathering, Analysis and Retrieval computer system
                (“EDGAR”) shall be deemed to satisfy such requirement;

            


    

    


    
      
        
        

      

      
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        JPMorgan

      

    

    


    
      	(iii)         
               	
              cause
                the Guarantor to comply with its obligations under (x) the Credit
                Agreement dated May 9, 2005, entered into between JPMorgan Chase
                Bank,
                N.A. as Agent, the Lenders named therein, the Foreign Subsidiary
                Borrowers
                from time to time parties thereto, and the Guarantor as Borrower,
                (as the
                same may be amended, supplemented, modified or extended from time
                to time,
                the “US Credit Agreement”); (y) any credit agreement that in whole
                substantially replaces the US Credit Agreement and in which JPMorgan
                Chase
                Bank, N.A. is a participant (the “Successor US Credit Agreement”) or (z)
                in the event of the termination of the US Credit Agreement or the
                Successor US Credit Agreement prior to the repayment of the loans
                hereunder, Sections 6, 7 and 8 of the US Credit Agreement or their
                equivalent sections of the Successor US Credit Agreement, as the
                same
                shall be in effect immediately prior to such termination (the agreements
                referred to in subclauses (x), (y) and (z) are collectively referred
                to as
                the “Guarantor
                Credit Agreement”).
                Any event of default which is continuing under the Guarantor Credit
                Agreement shall be deemed an event of default
                hereunder;

            


    

    


    
      	 	
              (iv)

            	
              ensure
                that at all times the claims of the Bank against it under this Agreement
                rank at least pari
                passu
                with the claims of all its other unsecured creditors;

            


    

    


    
      	 	
              (v)

            	
              notify
                the Bank immediately if the Guarantor ceases to hold a beneficial
                interest
                of greater than fifty per cent (50%) in the Borrower;
                

            


    

    


    
      	 	
              (vi)

            	
              on
                demand from the Bank, provide the Bank with full cash cover satisfactory
                to the Bank in immediately available funds in respect of any actual
                or
                contingent liability incurred by the Bank under the Facility;
                and

            


    

    


    
      	 	
              (vii)

            	
              other
                than Permitted Security Interests, not create or allow to exist any
                Security Interest on any of its
                assets;

            


    

    


    other
      than Permitted Security Interests, the Borrower may not:

     

    
      
        	 	
                 
                  (1)

              	
                sell,
                  transfer or otherwise dispose of any of its assets on terms where
                  it is or
                  may be leased to or re-acquired or acquired by it or any of its
                  related
                  entities;

              	 
	 	 	 	 
	 	
                 
                  (2)

              	
                sell,
                  transfer or otherwise dispose of any of its receivables on recourse
                  terms;

              	 
	 	 	 	 
	 	
                 
                  (3)

              	
                enter
                  into any arrangement under which money or the benefit of a bank
                  or other
                  account may be applied, set-off or made subject to a combination
                  of
                  accounts; or

              	 
	 	 	 	 
	 	
                 
                  (4)

              	
                enter
                  into any other preferential arrangement having a similar effect,
                  in
                  circumstances where the transaction is entered into primarily as
                  a method
                  of raising financial indebtedness or of financing the acquisition
                  of an
                  asset.

              	 


      


       

    

    


    
      
        
          
          

        

        
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    8. Representations
      and Warranties

    


    8.1       
      The
      Borrower represents and warrants to the Bank that:

    


    
      	
              a)

            	
              the
                Borrower is an enterprise duly registered and validly existing in
                accordance with the laws of The People's Republic of
                China;

            


    

    


    
      	
              b)

            	
              the
                Borrower, pursuant to applicable laws and its articles of association,
                has
                full power to enter into and perform, and has taken all necessary
                legal
                and other action to authorise the entry into, performance and delivery
                of,
                this Agreement, the relevant documents in connection herewith and
                the
                transactions contemplated by this
                Agreement;

            


    

    


    
      	
              c)

            	
              all
                verifications, business license, approvals, authorizations and other
                documents and permits required or desirable in connection with the
                entry
                into, performance, validity and enforceability of the Finance Documents
                and the transactions contemplated by, and the admissibility in evidence
                of, the Finance Documents have been obtained or effected and are
                in full
                force and effect;

            


    

    


    
      	
              d)

            	
              the
                Finance Documents constitute valid and legally binding obligations
                of the
                Borrower, enforceable in accordance with their respective
                terms;

            


    

    


    
      	
              e)

            	
              the
                Borrower’s obligations under each Finance Document constitute its direct,
                unconditional, unsubordinated and unsecured obligations and rank
                and will
                rank at least pari passu with all its other existing and future unsecured
                and unsubordinated obligations, except for obligations mandatorily
                preferred by law applying to companies
                generally;

            


    

    


    
      	
              f)

            	
              the
                entry into and performance by it of, and the transactions contemplated
                by,
                the Finance Documents do not and will not conflict with (a) any law
                or
                regulation or judicial or official order applicable to the Borrower;
                (b)
                the constitutional documents of the Borrower, or (c) any document
                which is
                binding upon the Borrower or any of its assets;


            


    

    


    
      	
              g)

            	
              it
                will use the Loan according to the purpose provided under this Agreement.
                The Borrower specifically warrants that it will not use any Advance
                outside the legal business scope of its business licence issued by
                the
                State Administration of Industry and Commerce,
                PRC;

            


    

    


    
      	
              h)

            	
              No
                litigation, arbitration or administrative proceedings are current
                or, to
                its knowledge, pending or threatened, which might, if adversely
                determined, have a material adverse effect on the
                Borrower;

            


    

    


    
      	
              i)

            	
              No
                breach of this Agreement by the Borrower has occurred or may result
                from
                the making of any Loan and no other event is outstanding which constitutes
                (or with the giving of notice, lapse of time, determination of materiality
                or the fulfilment of any other applicable condition or any combination
                of
                the foregoing, might constitute) a default under any
                

            


    

    


    
      
        
          
          

        

        
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          JPMorgan

        

      

    

    


    document
      which is binding on the Borrower or any of its assets to an extent or in a
      manner which might have a material adverse effect on the Borrower;
      and

    


    
      	
              j)

            	
              All
                amounts payable by the Borrower under the Finance Documents may be
                made
                free and clear of and without deduction for or on account of any
                tax.

            


    

    


    
      	
              8.2

            	
              The
                representations and warranties set out in clause 8.1 (a) are made
                on the
                date of this Agreement and (b) are deemed to be repeated by the Borrower
                on the date of each Request, the date of any Advance being made and
                the
                first day of each Interest Period with reference to the facts and
                circumstances then existing. 

            


    

    


    
      	
              9.

            	
              Repayment

            


    

    


    Each
      Advance or Bank Guarantee together with all interest accrued thereon to the
      date
      of repayment and all fees and other amounts due and payable under this Agreement
      are repayable upon the expiry of the Term of that Advance or Bank Guarantee
      or
      within 3 Business Days of any written demand for repayment thereof made by
      the
      Bank, whichever is earlier.

    


    10.       
      Prepayment

    


    The
      Borrower may prepay the Loan in full or any part thereof subject to the Borrower
      providing the Bank with not less than 15 Business Days’ prior written notice of
      such intention to prepay and obtaining the prior written consent of the Bank
      (such consent shall not be unreasonably withheld or delayed) and any necessary
      government approval thereto. In the event that a prepayment is accepted, the
      Bank reserves the right to charge penalties, break funding costs and fees
      arising from such prepayment at its sole discretion. Break funding costs are
      the
      amounts (if any) determined by the Bank which would indemnify the Bank against
      any loss or liability that it incurs as a consequence of any part of the Loan
      is
      prepaid on a date other than the expiry date of the Term of such Loan and
      includes any costs incurred as a result of the Bank terminating all or any
      part
      of its fixed rate, swap or other hedging arrangements. The Bank will supply
      to
      the Borrower applicable rate of break funding costs after claiming such break
      funding costs. 

     

    11.       
      Modification
      and Cancellation of Facility and Terms

    


    The
      Bank
      has the right to revise, modify or cancel the un-drawn portion of the Facility
      at any time without prior notice to the Borrower. Further, the Bank has the
      right to review and supervise the Facility drawn by the Borrower and shall
      be
      entitled to accelerate the Loan pursuant to the provisions of this Agreement
      and
      PRC laws, rules and regulations. 

    


    12.       
      Interest
      and Fees

    


    12.1     
       Interest
      Periods

    


    Each
      Interest Period will be three months or such periods as the Bank and Borrower
      may mutually agree from time to time, provided that the first Interest Period
      for any Advance will commence on and include its Drawdown Date and extend up
      to
      and excluding the immediately succeeding Interest Settlement Date. Each
      subsequent Interest Period for that Advance will commence on and include
      Interest Settlement Date of the immediately 

    


    
      
        
          
          

        

        
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          JPMorgan

        

      

    

    


    preceding
      Interest Period for that Advance and extend up to and excluding the immediately
      succeeding Interest Settlement Date. If an Interest Period for a particular
      Advance would otherwise
      overrun the expiry date of the Term of that Advance, it will be shortened so
      that it ends on that expiry date.

    


    12.2    
       Interest

    


    
      	(i)           
               	
              The
                rate of interest per annum on each Advance shall be ninety per cent
                (90) %
                of the applicable short term interest rate for an RMB loan having
                a term
                equal to the Term of that Advance as published by The People's Bank
                of
                China prevailing as at the Drawdown Date of that
                Advance.

            


    

    


    
      	(ii)         
                	
              The
                Borrower shall pay the due and payable interest for each Advance on each
                Interest Settlement Date, and upon the expiry date of the Term of
                that
                Advance.

            


    

    


    
      	(iii)           	
              If
                the Borrower fails to pay any sum on its due date for payment under
                this
                Agreement or applies the proceeds of the Loan other than the purposes
                provided in clause 2 hereunder, the Borrower will pay interest at
                the rate
                per annum determined by the Bank according the regulations issued
                by the
                People's Bank of China.

            


    

    


    12.3      
      Commission

    


    The
      Borrower shall, in respect of each Bank Guarantee requested by it, pay to the
      Bank a commission in the amount of the higher of the following: (i) RMB1,200
      flat; and (ii) at the rate of 1.25% per annum on the maximum actual and
      contingent liability of the Bank under that Bank Guarantee. Such commission
      shall be paid on the issuance date of that Bank Guarantee.

    


    12.4      
      Fees
      for
      Bank Guarantee

    


    Notwithstanding
      otherwise provided in this Agreement, if the Borrower intends to amend any
      Bank
      Guarantee, the
      Borrower shall pay to the Bank an amendment fee in the amount of RMB600 flat.
      If
      any cable fee or postage or such other fees as customary from time to time
      is
      incurred by the Bank, the Borrower shall pay to the Bank a cable fee in the
      amount of RMB150 per page and shall reimburse the Bank with all postage or
      such
      other fees incurred. 

    


    13.       
      Set-Off 
      

    


    With
      notice to the Borrower and the Guarantor, the Bank may set off credits in any
      accounts at any time held by the Borrower with the Bank or any of its affiliates
      located anywhere in the world, whether in transit or for safe keeping, custody,
      pledge, transmission, collection, deposit or otherwise, which set off may be
      exercised at any time in satisfaction of all or any part of the amounts due
      and
      payable by the Borrower under the Facility. 

    


    The
      Borrower waives any rights of set-off it may have at law or otherwise against
      the Bank with respect to amounts owed by the Borrower to the Bank from time
      to
      time.

    


    
      
        
          
          

        

        
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          JPMorgan

        

      

    

    


    14.       
      Increased
      Costs

    


    The
      Borrower will forthwith on demand by the Bank pay to the Bank the amount of
      any
      increased cost incurred by the Bank as a result of the introduction of, or
      any
      change in, the interpretation or application of, any law or regulation or
      compliance with any regulation made after the date of this Agreement provided
      that this clause 14 does not apply to any change in the rate of, or change
      in
      the basis of calculating, tax on the overall net income of the Bank or any
      of
      its branches.

    


    The
      term
“increased cost” when used in this Agreement means an additional cost incurred
      by the Bank as a result of it having entered into, or performing, maintaining
      or
      funding its obligations under the Finance Documents or a reduction in any amount
      payable to the Bank or in the effective return to the Bank under this Agreement
      (or to the extent that it is attributable to this Agreement) on its capital
      but
      does not include any increased cost compensated for under clause
      15.

    


    15.      
      Taxes

    


    All
      payments made by the Borrower under the Finance Documents will be made without
      any deduction and free and clear of and without deduction for or on account
      of
      any taxes, except to the extent that the Borrower is required by law to make
      payment subject to any taxes. If any tax or amounts in respect of tax must
      be
      deducted, or any other deductions must be made, from any amounts payable or
      paid
      by the Borrower under the Finance Documents, the Borrower will pay such
      additional amounts as may be necessary to ensure that the Bank receives a net
      amount equal to the full amount which it would have received had payment not
      been made subject to tax or any other deduction. The Borrower will:

    


    
      	a)        
                	
              pay
                when due all taxes required by law to be deducted or withheld by
                it from
                any amounts paid or payable under the Finance
                Documents;

            


    

    


    
      	b)        
                	
              within
                15 days of the payment being made, deliver to the Bank evidence
                satisfactory to the Bank (including all relevant tax receipts) that
                the
                payment has been duly remitted to the appropriate authority;
                and

            


    

    


    
      	c)          
               	
              forthwith
                on demand indemnify the Bank against any loss or liability which
                the Bank
                incurs as a consequence of the payment or non-payment of those
                taxes.

            


    

     

    16.      
       Indemnity

    


    The
      Borrower will indemnify the Bank against any cost, liability, damage, loss
      or
      expense (including without limitation legal fees, costs and expenses) which
      the
      Bank may suffer, incur or sustain directly or indirectly, as a consequence,
      of
      or in connection with (a) any default or shortfall in payment by the Borrower
      of
      any sum due under this Agreement (including where the amount received by the
      Bank in a currency other than RMB when converted into RMB at a market rate
      in
      the usual course of the Bank’s business is less than the amount owed in RMB
      under this Agreement);(b) any prepayment of the Loan or an overdue amount being
      received otherwise than on the Interest Settlement Date; (c) a change in
      currency of the PRC; (d) any breach by the Borrower of any term of this
      Agreement or (e) an Advance not being made for any reason (excluding any default
      or negligence of the Bank) after a Request has been delivered or made by the
      Borrower. 

    


    
      
        
          
          

        

        
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          JPMorgan

        

      

    

     

    17.    
       
      Expenses

     

    The
      Borrower will pay the Bank upon demand all costs, charges and expenses
      (including any stamp taxes) incurred by the Bank in connection with the
      negotiation,   preparation,  execution, performance and
      enforcement of this Agreement (or any amendment, variation, extension or renewal
      thereof).

    


    18.        Disclosure

    


    The
      Bank
      may disclose confidential information and documents relating to the Borrower
      in
      connection with the Facility which are in the Bank’s possession if required
      under court orders or in order to comply with requests or orders made under
      applicable laws and regulations or in order to, in the Bank’s sole and absolute
      discretion, pass on such information and documents to bank examiners, the Bank’s
      head office and other branch offices, its affiliates and associates, assignees
      and prospective assignees and the Bank’s auditors, counsel and other
      professional advisers.

     

    
      	19.   
                    	
              SAFE
                registration upon claim

            


    

     

    Unless
      otherwise provided by the applicable laws and regulations, if the Guarantee
      is
      claimed, the Borrower shall register with State Admin. of Foreign Exchange
      for
      actual foreign debt registration according to the Notice regarding the
      Perfection of Foreign Debt Management (《国家外汇管理局关于完善外债管理有关樒杨的濦知》)issued
      by State Admin. of Foreign Exchange on 21 October 2005, whereby the same quota
      system (total investment of the Borrower minus registered capital of the
      Borrower) shall apply.

    


     

    
      	20.        
               	
              Notices

            


    

     

    
      	
              20.1

            	
              General
                Requirements for Notices

            


    

     

    
      	
              a)

            	
              Any
                communication in connection with this Agreement must be in writing
                and,
                unless otherwise stated, may be given in person, by post or
                fax.
                All communications and notices shall be written in English, or in
                Chinese
                if any law or regulation of the PRC requires, provided that any such
                notice provided to the Guarantor shall be translated into
                English.

            


    

     

    
      	
              b)

            	
              Unless
                it is agreed to the contrary, any consent or agreement required under
                this
                Agreement must be given in writing.

            


    

     

    
      	
              c)

            	
              In
                the event that (i) the Borrower failures to pay on the due date any
                amount
                payable by it under this Agreement; (ii) the Bank declares that all
                or
                part of any amounts outstanding under the Facility are immediately
                due and
                payable; (iii) the Bank provides any notice or communication relating
                to
                the Guaranty; or (iv) the Bank provides any notice or consent relating
                to
                prepayment and break funding costs under Section 10, the notices addressed
                to the Borrower in relation to the above-mentioned matters shall
                be copied
                to the Guarantor via air courier and provided in
                English.

            


    

     

    


    
      
        
          
          

        

        
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              20.2

            	
              Contact
                details 

            


    

     

    The
      contact details of the Borrower are: 

    


    Address:           
      Chuang
      Ye
      Road (N)

    Yanzhou
      Economic Development Zone

    Yanzhou,
      Shandong Province

    P.R.
      China

    Fax
      number:        0537-2073189

    Attention:         
      Chairman

    


     

    The
      contact details of the Guarantor are: 

    


    Address:           
      One
      Technology Park Drive

    Westford,
      MA 01886 USA

    Fax
      number:        
      978-635-1593

    Attention:          
      Treasurer

     

    The
      contact details of the Bank are:

    


    Address:  31F,
      HSBC
      Building

    1000
      Lu
      Jia Zui Ring Road 

    Shanghai
      200120

    People’s
      Republic of China

    Fax
      number:       
      86-21-6160
      2707

    Attention:        
       Betty
      Wang/Christine
      Lin/Carol CZ Cai

    Commercial
      Banking

     

    Any
      party
      may change its contact details by giving five (5) Business Days' notice to
      the
      other parties.

    


    21.          Miscellaneous

    


    21.1      
      Certificates

    


    A
      certificate by the Bank shall be conclusive evidence of the indebtedness of
      the
      Borrower under this Agreement save in the case of manifest error on the Bank’s
      part.

    


    21.2      
      No
      waivers

    


    Any
      delay
      or omission by the Bank in enforcing its rights under this Agreement will not
      constitute a waiver of any of its rights at any time.

    


    21.3      
      Assignment,
      Transfer and Participation

    


    The
      Borrower hereby consents that the Bank may at any time assign or transfer to
      one
      or more banks or other entities all or a portion of its rights and/or
      obligations under the Facility and any Finance Documents without any further
      consent from the Borrower in relation thereto. 

    


    
      
        
          
          

        

        
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    The
      Borrower hereby consents that the Bank may at any time sell participations
      to
      one or more banks or other entities of all or a portion of its rights and
      obligations under the Facility without any further consent from the Borrower
      in
      relation thereto.

    


    The
      Bank
      may, in connection with (i) any assignment, or any proposed assignment, under
      the Facility; (ii) any participation, or any proposed participation, under
      the
      Facility; (iii) the purchase or sale of any credit insurance or any other
      contractual protection or hedging with respect to the Borrower’s obligations
      under the Facility; or (iv) the processing and management of data relating
      to
      the Facility, disclose to third parties any information relating to the Borrower
      furnished to the Bank by the Borrower, provided that, prior to such disclosure,
      such third party shall agree in writing to preserve the confidentiality of
      any
      confidential information relating to the Borrower received by it from the
      Bank.

    


    The
      Borrower may not assign, transfer or otherwise dispose of any of its rights,
      benefits or obligations under the Facility.

    


    21.4.     
      Severance

    


    If
      at any
      time any of the terms and conditions of the Offer Letter is or becomes illegal,
      invalid or unenforceable in any respect, the legality, validity or
      enforceability of the remaining terms and conditions shall not be affected
      thereby.

    


    21.5      
      Language

    


    This
      Agreement is written in both Chinese and English. If there is any inconsistency
      between the two versions in the interpretation or otherwise, the English version
      shall prevail.

    


    22.       
      Governing
      Law and Jurisdiction

    


    This
      Agreement shall be governed by and construed in all respects in accordance
      with
      the laws of the PRC and each of the parties to this Agreement, for the benefit
      of the Bank, hereby submits to the non-exclusive jurisdiction of the courts
      of
      the PRC.

    


    23.       
      Effectiveness

    


    This
      Agreement shall be effective on the date that the authorized representatives
      of
      the Bank and the Borrower have duly executed this Agreement (If the execution
      by
      the Bank and the Borrower is not at the same date, the effective date shall
      be
      the later date that this Agreement is executed). 

    


    24.       
      Definitions
      and Interpretation

    


    24.1      
      The
      following terms have the following meanings when used in this
      Agreement:

    


    “Advance”
      means the borrowing under the Facility of all or any portion of the Advised
      Amount by the Borrower or as the context may require, the principal amount
      of
      such borrowing;

    


    “Advised
      Amount” means RMB Fifteen million Only (RMB15,000,000);

    


    
      
        
          
          

        

        
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    “Agreement”
      means the agreement constituted by the acceptance by the Borrower of the terms
      and conditions of this Offer Letter, as the same may be amended, varied or
      extended from time to time;

    


    “Business
      Day” means a day (other than a Saturday, a Sunday or a public holiday) on which
      Banks are open for general business in Shanghai;

    


    “Drawdown
      Date” means in relation to any Advance, the date of that Advance or in relation
      to any Bank Guarantee, the date of issuance of that Bank Guarantee;

    


    “Drawdown
      Period” means in the period from the date of acceptance of this Offer Letter by
      the Borrower up to and including eleven (11) calendar months from the date
      of
      such acceptance;

    


    “Facility”
      means the
      short
      term advised credit line facility consisting of performance/financial guarantee
      (the “Bank
      Guarantee”),
      and
      Advance made available under this Agreement;

    


    “Finance
      Documents” means this Agreement, the Guarantee referred to in clause
      5.1(a)(vii); each Request and any other document designated as such by the
      Bank;

    


    “First
      Drawdown Date” means the date upon which the Borrower makes the first drawdown
      of the Loan under this Agreement;

    


    “Interest
      Period” means each period determined in accordance with clause
      12.1;

    


    “Interest
      Settlement Date” means in relation to any Advance, the 20th
      day of
      the last calendar month of each calendar quarter falling during each Interest
      Period for that relevant Advance provided that if such day is not a Business
      Day, the Business Day immediately after that day;

    


    “Loan”
      means the aggregate principal amount of the borrowing from time to time under
      any Advance or Bank Guarantee by the Borrower under this Agreement or the
      aggregate principal amount outstanding of that borrowing;

    


    “Offer
      Letter” means this letter;

    


    “Permitted
      Security Interest” means:

    


    
      	 	
              (i)

            	
              any
                Security Interest comprising a 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;

            


    

    


    
      	 	
              (ii)

            	
              any
                Security Interest arising by operation of law and in the ordinary
                course
                of business; 

            


    

    


    (iii)        
      any
      Security Interest entered into pursuant to a Finance Document;

    


    
      	 	
              (iv)

            	
              any
                Security Interest created over real property (whether by mortgage
                or lien)
                owned by the Borrower and aggregate principal amount secured by all
                such
                

            


    

    


    
      
        
          
          

        

        
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    Security
      Interest does not, at any time, exceed RMB10,000,000 (or its equivalent in
      any
      other currencies);

    


    
      	 	
              (v)

            	
              any
                Security Interest created over the fixed assets acquired by the Borrower
                provided that aggregate principal amount secured by all such Security
                Interest is for the purpose of acquiring such fixed assets and does
                not,
                at any time, exceed RMB14,000,000 (or its equivalent in any other
                currencies); 

            


    

    


    
      	 	
              (vi)

            	
              any
                Security Interests created over assets of the Borrower and aggregate
                principal amount secured by all such Security Interest does not,
                at any
                time, exceed RMB5,000,000 (or its equivalent in any other currencies);
                and

            


    

    


    (vii)      
      any
      other Security Interest with the prior written consent of the Bank;

    


    “PRC”
      means The People’s Republic of China;

    


    “Request”
      means a request in writing made by the Borrower for an Advance, in the form
      of
      the Schedule to this Agreement;

    


    “RMB”
      means the lawful currency of the PRC; 

    


    “Security
      Interest” means any mortgage, pledge, lien, charge, assignment, hypothecation or
      security interest or any other agreement or arrangement having a similar effect,
      whether created pursuant to PRC law or any other applicable law.

    


    “Term”
      means the term of each Advance, not exceeding the Specified Period, as specified
      in the Request delivered in relation to that Advance and agreed by the Bank;
      and

    


    “Specified
      Period” means in relation to each Advance or Bank Guarantee, the period of one
      year from and including the date of acceptance of this Offer Letter by the
      Borrower.

    


    
      	
              24.2

            	
              In
                this Agreement, to the extent not inconsistent with the subject or
                context, words importing the singular number shall include the plural
                number and vice versa, words importing any gender shall include other
                genders; references to “persons”
                shall include any body of persons, corporate or unincorporate and
                references to a “year”
                will mean a period of 365 days. The headings are inserted for reference
                only and shall not affect the construction of the terms and conditions
                of
                this Agreement.

            


    

    


    
      
        
          
          

        

        
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    Kindly
      acknowledge your acceptance and agreement with the terms of this Offer Letter
      by
      signing where indicated below and returning your duly completed acknowledgement
      to the Bank at the place indicated above. We look forward to being of service
      to
      you.

    


    Yours
      faithfully

    


    


    /s/
      Q.C.
      Hua.......[Legal Chop]

    JPMorgan
      Chase Bank, N.A.

    Shanghai
      Branch

    Name:
      Q.C. Hua 

    Title:
      Managing Director & General Manager

    Date:
      July 30, 2007

    


    


    Acknowledged
      and agreed:

    


    


    /s/
      Peter
      J. Flynn........[Legal Chop]

    For
      and
      on behalf of 

    Kadant
      Pulp and Paper Equipment (Yanzhou) Co., Ltd. 

    Name:
      Peter J. Flynn

    Title:
      Legal Representative

    Date:
      July 30, 2007

    


    


    
      
        
          
          

        

        
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    SCHEDULE

    


    FORM
      OF REQUEST

    


    


    To:       
      JPMorgan
      Chase Bank,N.A.

    Shanghai
      Branch

    


    From:    
      Kadant
      Pulp and Paper Equipment (Yanzhou) Co., Ltd. 

    


    Short
      Term Advised Credit Line Facility Agreement dated July 30,
      2007

    


    1.        
      We
      wish to borrow a Loan as follows:-

    


    (a)       
      Drawdown
      Date: [        ]

    (b)       Type:
      Advance / Bank Guarantee

    (c)      
      Amount:
      [        ]

    (d)      
      Payment
      instructions / Beneficiary: [       
]

    (e)     
       Term:
      [        ]

    


    


    
      	2.      
               	
              We
                confirm that each condition specified in Clause 5 is satisfied on
                the date
                of this Request.

            


    

    


    
      	3.      
               	
              This
                request is irrevocable.

            


    

    


    


    By:

    


    


    [       
      ]

    Authorised
      Signatory

    


    
      
        
        

      

      
        15