Document:

KAI Form 10-Q 2Q 2007 Exhibit 10.1

    Exhibit
      10.1

     

                                                                           
Kadant Inc.

                                                                           
ID: 52-1762325

    Notice of Grant of
      Award                            
 One Technology Park Drive

    and Award
      Agreement                                  
Westford, MA    01886

    
       

    

     

    [Recipient
      name]                                           
Award Number:         
[##]

    [Recipient
      address]                                       
Plan:                           
[##]

                                                                           
ID:                             
 [##]

    
       

    

     

    Effective 5/24/2007, you have been granted
      an
      award of [##] restricted stock units. These units are restricted until the
      vest
      date(s) shown below, at which time you will receive shares of Kadant Inc. (the
      Company) common stock.

     

    The current total value of the award is
      $[##].

     

    The award will vest in increments on the
      date(s) shown.

     

                                       
Shares                         
Full Vest

    [##]                             
1/2/2010

     

     

     

    
       

    

     

    By your signature and the Company’s signature
      below, you and the Company agree that this award is granted under and governed
      by the terms and conditions of the Company’s Award Plan as amended and the Award
      Agreement, all of which are attached and made a part of this document.

    
       

    

     

     

    ___________________________________                         
May 24, 2007_________________

    Kadant
      Inc.                                                                             
Date  

     

     

    ___________________________________                         
May 24, 2007_________________

    [Recipient
      name]                                                                      
Date  

     

     

    
      
        
        

      

      
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    KADANT
      INC.

     

    AWARD
      AGREEMENT FOR

    PERFORMANCE-BASED
      RESTRICTED STOCK UNITS

    (“Award
      Agreement”)

     

    1.   Preamble. 
      On the effective date shown on the first page of this Award Agreement (“Award
      Date”), the Company granted to the Recipient restricted stock units (“RSUs”)
      with respect to the number of shares of common stock of the Company identified
      on the first page of this Award Agreement (“Award Shares”), subject to the
      terms, conditions and restrictions set forth in this Award Agreement and the
      provisions of the Company’s 2006 Equity Incentive Plan (“Plan”). The RSUs
      represent a promise by the Company to deliver the Award Shares upon vesting.
      Any
      consideration due to the Company on the issuance of Award Shares pursuant to
      this Award Agreement will be deemed to have been satisfied by services rendered
      by the Recipient to the Company during the vesting period.  

     

    2.   Restrictions
      on Transfer.  Unless and until the Award Shares shall have vested
      as provided in Section 3 below, the Recipient shall not sell, transfer, pledge,
      hypothecate, assign or otherwise dispose of, by operation of law or otherwise,
      any RSUs, or any interest therein. 

     

    3.   Vesting
      Date.  Subject to the terms, conditions and restrictions of this
      Award Agreement, including the Forfeiture provisions described in Section 4
      below, the Recipient shall vest in all RSUs on January 2, 2010 (the “Vesting
      Date”), provided that the performance measure set forth in this Section 3 is
      met. 

     

    The Company has established as the
      performance measure earnings before interest, taxes, depreciation and
      amortization (EBITDA) generated by its continuing operations during the
      nine-month period beginning April 1, 2007 and ending December 29, 2007 (the
      “Measurement Period”), equal to the amount set forth in Exhibit A to this Award
      Agreement and as such amount may be adjusted as set forth in such Exhibit A
      (the
“Target EBITDA”). Upon the conclusion of the Measurement Period, the Company
      shall calculate and determine the actual EBITDA generated by its continuing
      operations during the Measurement Period as set forth in Exhibit A (“Actual
      EDITDA”). The number of Award Shares deliverable to the Recipient will be
      adjusted and determined by a continuous line graph based on the following data
      points, which graph is included as Exhibit B:

     

    Actual EDITDA
      is:                                  
 Number of Award Shares Deliverable

    Less than 80% of Target
      EBITDA                         
0% of Award Shares

    80% of Target
      EBITDA                                        
50% of Award Shares

    100% of Target
      EBITDA                                      
100% of Award Shares

    125% or greater of Target
      EBITDA                       150%
      of Award
      Shares                                   

     

    In the event that the Company does not
      generate Actual EBITDA equal to or more than 80% of Target EBITDA, then all
      of
      the RSUs shall be automatically forfeited to the Company. The Compensation
      Committee of the Company’s Board of Directors shall be responsible for 

     

     

    
      
        
        

      

      
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    certifying the extent to which the
      performance measure has been met, prior to the release of the Company’s earnings
      for the full 2007 fiscal year.

     

    As soon as administratively practicable
      after the Vesting Date, but in any event within the period ending on the later
      to occur of the date that is 75 days from the end of the (i) Recipient’s tax
      year that includes the Vesting Date, or (ii) the Company’s fiscal year that
      includes the Vesting Date, the Company shall instruct its transfer agent to
      issue the Award Shares in the name of the Recipient, subject to payment of
      all
      applicable withholding taxes pursuant to Section 6 below. 

     

    4.     
      Forfeiture.

     

    (a)  Definitions.
       For purposes of this Award Agreement, “Forfeiture” shall mean any
      forfeiture of RSUs pursuant to Section 4(b) below.  For purposes of this
      Award Agreement, “employ” or “employment” with the Company shall include
      employment with a parent or subsidiary of the Company, which controls, is
      controlled by, or under common control of the Company.

     

    (b)  
      Termination of Employment.

     

    (i)   In
      the event that the Recipient ceases to be employed by  the Company prior to
      the Vesting Date for any reason or no reason (except for death or disability),
      with or without cause, then all of the Recipient’s RSUs shall be automatically
      and immediately forfeited and returned to the Company as of the date employment
      ceases.

     

    (ii)  In the
      event that the Recipient ceases to be employed by the Company by reason of
      death
      or disability, then the Company shall deliver to the Recipient a pro rata
      portion of the Award Shares covered by the RSUs determined in accordance with
      the schedule set forth below.  The balance of the Recipient’s RSUs and
      Award Shares that are not so delivered shall be automatically and immediately
      forfeited and returned to the Company as of the date of the Recipient’s death or
      disability. For purposes of this Award Agreement, “disability” means that you
      are receiving disability benefits under the Company’s Long Term Disability
      Coverage, as then in effect, on the date employment ceases.

     

    Event
      occurs:      
                       
            %
      of Award Shares Delivered

    Prior to December 29,
      2007                                              
   0%

    On or after December 29,
      2007                                         
33 1/3%

    On or after January 3,
      2009                       
                       
66 2/3%

    On or after January 2,
      2010                                               
100%

     

    (c)  Change
      in Control. In the event of a “Change in Control” that occurs (i) prior to
      the Vesting Date and before the last day of the Measurement Period and (ii)
      on a
      date on which the Recipient is employed by the Company, then 100% of the
      Recipient’s RSUs that have not previously been forfeited shall become
      immediately vested and shall no longer be subject to the Forfeiture provisions
      in this Section 4, and the Company shall 

    

    
      
        
        

      

      
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    immediately issue that number of Award
      Shares to the Recipient equal to the number shown on the first page of this
      Award Agreement, without adjustment. In the event of a “Change in Control” that
      occurs (i) prior to the Vesting Date and on or after the last day of the
      Measurement Period and (ii) on a date on which the Recipient is employed by
      the
      Company, then 100% of the Recipient’s RSUs that have not previously been
      forfeited shall become immediately vested and shall no longer be subject to
      the
      Forfeiture provisions in this Section 4, and the Company shall immediately
      issue
      that number of Award Shares to the Recipient equal to the number of Award Shares
      deliverable based on the achievement of the performance measures, as adjusted
      and determined in Section 3. A “Change in Control” shall have the same meaning
      for the purposes of this Award Agreement as set forth in Section 8 of the Plan,
      as the same may be amended from time to time.

     

    5.   No
      Stockholder Rights.  Except as set forth in the Plan, neither the
      Recipient nor any person claiming under or through the Recipient shall be,
      or
      have any rights or privileges of, a stockholder of the Company in respect of
      the
      Award Shares issuable pursuant to the RSUs until the Award Shares are issued
      in
      the name of the Recipient.

     

    6.   Withholding
      Taxes.  The Company’s obligation to deliver Award Shares to the
      Recipient upon the vesting of the RSUs shall be subject to the satisfaction
      of
      all income tax (including federal, state, local and foreign taxes), social
      insurance, payroll tax, payment on account or other tax-related withholding
      requirements of any applicable jurisdiction, based on minimum statutory
      withholding rates for all tax purposes, including payroll and social security
      taxes (“Withholding Taxes”). In order to satisfy all Withholding Taxes due in
      connection with the award or vesting of the RSUs or the delivery of the Award
      Shares, the Recipient hereby irrevocably agrees to the following actions by
      the
      Company, at the Company’s sole election:

     

    (a)  The
      Company may sell, or arrange for the sale of, such number of the Award Shares
      that the Recipient is entitled to receive on the Vesting Date, with no further
      action by the Recipient, as is sufficient to generate net proceeds at least
      equal to the value of the Withholding Taxes, and the Company shall retain such
      net proceeds in satisfaction of such Withholding Taxes. The Company shall remit
      to the Recipient in cash any portion of such net proceeds in excess of the
      value
      of such Withholding Taxes.

     

    (b)  The
      Company may retain such number of the Award Shares that the Recipient is
      otherwise entitled to receive on the Vesting Date, with no further action by
      the
      Recipient, by deducting and retaining from the number of Award Shares to which
      the Recipient is entitled that number of Award Shares as is equal to the value
      of the Withholding Taxes. The Recipient understands that the fair market value
      of the surrendered Award Shares will be determined in accordance with the
      Company’s Stock Option and Equity Award Grant and Exercise Procedures as then in
      effect. 

     

    (c)  The
      Recipient hereby appoints each of the Chief Financial Officer, General Counsel
      and the Secretary of the Company as his or her attorney in fact to sell or
      transfer the Recipient’s Award Shares in accordance with this Section 6. The
      Recipient agrees to execute and deliver such documents, instruments and
      certificates as may reasonably be 

    

    
      
        
        

      

      
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    required in connection with the sale,
      transfer or retention of Award Shares pursuant to this Section 6, including
      an
      irrevocable order to sell shares authorizing a brokerage firm selected by the
      Company to sell the Recipient’s Award Shares. 

     

    7.   No
      Compensation Deferral. Neither the Plan nor this Award Agreement is
      intended to provide for an elective deferral of compensation that would be
      subject to Section 409A (“Section 409A”) of the U.S. Internal Revenue Code of
      1986, as amended. The Company reserves the right, to the extent the Company
      deems necessary or advisable in its sole discretion, to unilaterally amend
      or
      modify the Plan and/or this Award Agreement to ensure that no awards (including,
      without limitation, the RSUs) become subject to the requirements of Section
      409A.

     

    8.   Administration. 
      The Compensation Committee of the Company’s Board of Directors or other
      committee designated in the Plan, shall have the authority to manage and control
      the operation and administration of this Award Agreement.  Any
      interpretation of the Award Agreement by any of the entities specified in the
      preceding sentence and any decision made by any of them with respect to the
      Award Agreement is final and binding.

     

    9.   Plan
      Definitions.  Notwithstanding anything in this Award Agreement to
      the contrary, the terms of this Award Agreement shall be subject to the terms
      of
      the Plan, a copy of which has already been provided to the Recipient.

     

    10. 
      Recipient’s Undertakings. In signing this Award Agreement and
      accepting the RSU, the Recipient acknowledges that:

     

    (a)  The
      Plan and this Award were established voluntarily by the Company, each is
      discretionary in nature, and each may be modified, amended, suspended or
      terminated by the Company at any time, unless otherwise provided in the Plan
      and
      this Award Agreement;

     

    (b)  The
      grant of RSUs is voluntary and occasional and does not create any contractual
      or
      other right to receive future awards of RSUs, or benefits in lieu of RSUs even
      if RSUs have been awarded repeatedly in the past or future;

     

    (c)   
      All decisions with respect to future grants of RSUs, if any, will be at the
      sole
      discretion of the Company;

     

    (d)  
      The Recipient’s participation in the Plan and receipt and acceptance of the
      Award is voluntary;

     

    (e)   RSUs
      are an extraordinary item that do not constitute compensation of any kind for
      services of any kind rendered to the Company or to the Recipient’s employer, and
      RSUs are outside the scope of the Recipient’s employment contract, if any;

     

    (f)   RSUs
      are not part of normal or expected compensation or salary for any purpose,
      including, but not limited to, calculation of any severance, resignation,
      termination, 

    

    
      
        
        

      

      
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    redundancy,
      end of service payments, bonuses, long-service awards, pension or retirement
      benefits or similar payments and in no event should be considered as
      compensation for, or relating in any way to, past services for the Company
      or
      the Recipient’s employer;

     

    (g) 
      The future value of the underlying Award Shares is unknown and cannot be
      predicted with certainty;

     

    (h)  The
      value of the Award Shares underlying the RSUs may increase or decrease in value
      during the period from the Award Date to the Vesting Date;

     

    (i)   In
      consideration of the grant of RSUs, no claim or entitlement to compensation
      or
      damages arises from termination of the RSUs or diminution in value of the RSUs
      or Award Shares received upon vesting of RSUs resulting from termination of
      the
      Recipient’s employment by the Company or the Recipient’s employer (for any
      reason whatsoever and whether or not in breach of local labor laws) and the
      Recipient irrevocably releases the Company and his or her employer from any
      such
      claim that may arise; and if, notwithstanding the foregoing, any such claim
      is
      found by a court of competent jurisdiction to have arisen, then, by signing
      this
      Award Agreement, the Recipient shall be deemed irrevocably to have waived his
      or
      her entitlement to pursue such claim; and

     

    (j)   Further,
      if the Recipient ceases to be an employee (whether or not in breach of local
      labor laws), the Recipient’s right to receive RSUs and vest under the Award
      Agreement or Plan, if any, will terminate effective as of the date that the
      Recipient is no longer actively employed by the Company and will not be extended
      by any notice period mandated under local law (e.g., active employment would
      not
      include a period of “garden leave” or similar period pursuant to local law); and
      the Compensation Committee of the Company’s Board of Directors shall have the
      exclusive discretion to determine when the Recipient is no longer actively
      employed for purposes of this Award Agreement and the Plan.

     

    11. Data
      Privacy Notice and Consent. The Recipient hereby explicitly and
      unambiguously consents to the collection, use and transfer, in electronic or
      other form, of his or her personal data as described in this paragraph, by
      and
      among, as applicable, the Recipient’s employer and the Company and its
      subsidiaries and affiliates for, among other purposes, implementing,
      administering and managing the Recipient’s participation in the Plan. The
      Recipient understands that the Company and its subsidiaries hold or will hold
      certain personal information about the Recipient, including the Recipient’s
      name, home address and telephone number, date of birth, social security number
      or identification number, salary, nationality, job title, any shares or
      directorships held in the Company, details of all options or awards or any
      other
      interests in shares awarded, canceled, exercised, vested, unvested or
      outstanding in the Recipient’s name, for the purposes of managing and
      administering the Plan (“Data”). The Recipient further understands that the
      Company and its subsidiaries will transfer Data amongst themselves as necessary
      for employment purposes, including implementation, administration and management
      of the Recipient’s participation in the Plan, 

    

    
      
        
        

      

      
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    and that the Company and any of its
      subsidiaries may each further transfer Data to a broker or other stock plan
      service provider or other third parties assisting the Company with the
      processing of Data. The Recipient understands that these third parties may
      be
      located in the United States, and that the third party’s country may have
      different data privacy laws and protections than in the Recipient’s country. The
      Recipient authorizes them to receive, possess, use, retain and transfer the
      Data, in electronic or other form, for the purposes described in this Section,
      including any requisite transfer to a broker or other stock plan service
      provider or other third party as may be required for the administration of
      the
      Plan and the subsequent holding of Award Shares on the Recipient’s behalf. The
      Recipient understands that he or she may, at any time, request access to the
      Data, request any necessary amendments to it or refuse or withdraw the consents
      herein, in any case without cost, by contacting in writing the Company’s Stock
      Option Manager at the Company’s headquarters address. The Recipient understands,
      however, that withdrawal of consent may affect the Recipient’s ability to
      participate in or realize the benefits of the Plan and this Award Agreement.
      For
      more information on the consequences of refusal to consent or withdrawal of
      consent, the Recipient understands that he or she may contact the Company’s
      Stock Option Manager.

     

    12. 
      Miscellaneous.

     

    (a)  No
      Rights to Employment. The Recipient acknowledges and agrees that the vesting
      of the RSUs pursuant to this Award Agreement is earned only in accordance with
      the terms hereof. The Recipient further acknowledges and agrees that the
      transactions contemplated hereunder and the vesting schedule set forth herein
      do
      not constitute an express or implied promise of continued engagement as an
      employee for the vesting period, for any period, or at all.

     

    (b)  Unfunded
      Rights. The right of the Recipient to receive Award Shares pursuant to this
      Award Agreement is an unfunded and unsecured obligation of the Company. The
      Receipient shall have no rights under this Award Agreement other than those
      of
      an unsecured general creditor of the Company.

     

    (c)  Severability.
      The invalidity or unenforceability of any provision of this Award Agreement
      shall not affect the validity or enforceability of any other provision of this
      Award Agreement, and each other provision of this Award Agreement shall be
      severable and enforceable to the extent permitted by law.

     

    (d) Waiver.
      Any provision for the benefit of the Company contained in this Award Agreement
      may be waived, either generally or in any particular instance, by the
      Compensation Committee of the Board of Directors of the Company.

     

    (e)  Binding
      Effect. This Award Agreement shall be binding upon and inure to the benefit
      of the Company and the Recipient and their respective heirs, executors,
      administrators, legal representatives, successors and assigns, subject to the
      restrictions on transfer set forth in this Award Agreement.

    

    
      
        
        

      

      
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    (f)   Language.
      The English version of this Award Agreement, the Plan and any other document
      delivered pursuant to either the Award Agreement or the Plan, will control
      over
      any translated version of any such document in the event such translated version
      is different from the English version.

     

    (g)  Entire
      Agreement. This Award Agreement and the Plan constitute the entire agreement
      between the parties, and supercedes all prior agreements and understandings,
      relating to the subject matter of this Award Agreement. 

     

    (h)  Governing
      Law. This Award Agreement shall be construed, interpreted and enforced in
      accordance with the internal laws of the State of Delaware without regard to
      any
      applicable conflicts of laws.

     

    (i)   Amendment. 
      This Award Agreement may be amended only by written agreement between the
      Recipient and the Company, without the consent of any other person. 

     

    
      
        
        

      

      
        8KAI Form 10-Q 2Q 2007 Exhibit 10.2

                                                                                                                                                                                                                                     
      Exhibit 10.2

     

    JPMorgan

    Exhibit
      10.2

    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 Jining Light Machinery Co.,
      Ltd.(凯登炅工机械ø济宁÷有榰公司),
      a
      company incorporated in P.R. China having its principal office at No.99 Jidian
      Road 1, High and New Technologies Industry Development Zone, Jining, Shandong,
      272023, 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 Forty-five million
      Only (RMB45,000,000) (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 

            

    

    

    
      
        
          
          

        

        
          3

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

    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;

    

    

    
      	(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,
                except the claims of Bank of China Limited, Jining Branch under the
                Existing Facility Agreement.;

            

    

    

    
      	 	
              (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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          JPMorgan

        

      

    

    
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 and the Borrower’s obligations to Bank of China
      Limited, Jining Branch under the
      Existing
      Facility Agreement;

    

    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 document which is 

    

    
      
        
          
          

        

        
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    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 preceding Interest Period for that
      Advance and extend up to and excluding the immediately 

    

    
      
        
          
          

        

        
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          JPMorgan

        

      

    

    

    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.

    

    
      
        
          
          

        

        
          7

          
            

          

        

        
          
          

          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. 

    

    
      
        
          
          

        

        
          8

          
            

          

        

        
          
          

          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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          JPMorgan

        

      

    

     

    
      	
              20.2

            	
              Contact
                details 

            

    

     

    The
      contact details of the Borrower are: 

    

    Address:  No.
      99
      Jidian Road 1

    High
      and
      New Technologies Industry Development Zone

    Jining,
      Shandong 272023 

    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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          JPMorgan

        

      

    

     

    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 Forty-five million Only (RMB45,000,000);

    

    
      
        
          
          

        

        
          11

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

    “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;

    

    “Existing
      Facility Agreement” means the RMB loan
      agreement dated 6 June 2006, entered into between Bank of China Limited, Jining
      Branch as lender and the Borrower as borrower, under which Bank of China
      Limited, Jining Branch agrees to make available a term loan facility up to
      RMB40,000,000;

    

    “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; 

            

    

    

    
      
        
          
          

        

        
          12

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

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

    

    
      	 	
              (iv)

            	
              any
                Security Interest created in favour of Bank of China Limited, Jining
                Branch for the performance of the Borrower’s obligations under the
                Existing Facility Agreement;

            

    

    

    
      	 	
              (v)

            	
              any
                Security Interest created over real property (whether by mortgage
                or lien)
                owned by the Borrower and aggregate principal amount secured by all
                such
                Security Interest does not, at any time, exceed RMB30,000,000 (or
                its
                equivalent in any other
                currencies);

            

    

    

    
      	 	
              (vi)

            	
              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 RMB42,000,000 (or its equivalent in any other
                currencies); 

            

    

    

    
      	 	
              (vii)

            	
              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 RMB15,000,000 (or its equivalent in any other currencies);
                and

            

    

    

    (viii)     
      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.

            

    

    

    
      
        
          
          

        

        
          13

          
            

          

        

        
          
          

          JPMorgan

        

      

    

     

    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
      Jining Light Machinery Co., Ltd. 

    Name:
      Peter J. Flynn

    Title:
      Legal Representative

    Date:
      July 30, 2007

    

    

    
      
        
          
          

        

        
          14

          
            

          

        

        
          
          

          JPMorgan

        

      

    

    

    SCHEDULE

    

    FORM
      OF REQUEST

    

    

    To:      
      J
      PMorgan Chase Bank,N.A.

    Shanghai
      Branch

    

    From:    
      Kadant
      Jining Light Machinery 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

    (b) 
Amount:
      [       ]

    (c) 
Payment
      instructions / Beneficiary: [       
]

    (d) 
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

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