Document:

EXHIBIT 4.1

                                   $50,000,000

                              HARBIN ELECTRIC, INC.

                           38,000 Units Consisting of
 Guaranteed Senior Secured Floating Rate Notes due 2012 of Harbin Electric, Inc.
          and Warrants to Purchase 2,718,138 Shares of Common Stock of
                              Harbin Electric, Inc.
                                       and
                           12,000 Units Consisting of
 Guaranteed Senior Secured Floating Rate Notes due 2010 of Harbin Electric, Inc.
           and Warrants to Purchase 769,230 Shares of Common Stock of
                              Harbin Electric, Inc.

                      PURCHASE AGREEMENT (THE "AGREEMENT")

                                                                 August 29, 2006

Citadel Equity Fund Ltd.
c/o Citadel Investment Group (Hong Kong) Limited
Chater House, 18th Floor
8 Connaught Road
Central, Hong Kong

and

Merrill Lynch International
17/F ICBC Tower
3 Garden Road
Central, Hong Kong

Ladies and Gentlemen:

            Harbin Electric, Inc., a Nevada corporation (the "Company") and the
Subsidiary Guarantor (as defined below), hereby agree with each Purchaser (as
defined below) as follows:

            1. Issuance of Units.

            Subject to the terms and conditions of this Agreement, the Company
will (i) issue and sell to Citadel Equity Fund Ltd. ("Citadel") and Citadel will
purchase from the Company, at the Closing provided for in Section 3, an
aggregate of 38,000 units (the "2012 Units"), at a purchase price of $1,000 per
2012 Unit, with each 2012 Unit consisting of (x) $1,000 in principal amount of
the Company's Guaranteed Senior Secured Floating Rate Notes due 2012 (the "2012
Notes"), (y) a proportionate share of the six-year warrants to purchase an
aggregate of 2,192,308 shares of common stock of the Company, par value $.00001
per share (the "Common Stock"), at an exercise price of $7.80 per share (the
"First Tranche Warrants") and (z) a proportionate share of the six-year warrants
to purchase an aggregate of 525,830 shares of Common Stock at an exercise price
of $10.84 per share (the "Second Tranche Warrants", and together with the First
Tranche Warrants, the "Citadel Warrants"), as more specifically set forth on
Schedule A, and (ii) cause the Subsidiary Guarantor to issue the Guarantee (as
hereinafter defined).

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            Subject to the terms and conditions of this Agreement, the Company
will (i) issue and sell to Merrill Lynch International ("Merrill Lynch" and
together with Citadel, the "Purchasers") and Merrill Lynch will purchase from
the Company, at the Closing provided for in Section 3, an aggregate of 12,000
units (the "2010 Units" and together with the 2012 Units, the "Units"), at a
purchase price of $1,000 per 2010 Unit, with each 2010 Unit consisting of (x)
$1,000 in principal amount of the Company's Guaranteed Senior Secured Floating
Rate Notes due 2010 (the "2010 Notes" and together with the 2012 Notes, the
"Notes"), and (y) a proportionate share of the three-year warrants to purchase
an aggregate of 769,230 shares of Common Stock at an exercise price of $7.80 per
share (the "ML Warrants" and together with the Citadel Warrants, the
"Warrants"), as more specifically set forth on Schedule A, and (ii) cause the
Subsidiary Guarantor to issue the Guarantee.

            Each Purchaser's obligation hereunder is several and not a joint
obligation and each Purchaser shall have no obligation and no liability to any
Person for the performance or non-performance by the other Purchaser hereunder.

            The Notes are to be issued pursuant to the provisions of an
indenture (the "Indenture"), to be dated as of the Closing Date (as hereinafter
defined), by and among the Company, the Subsidiary Guarantor and The Bank of New
York, a New York banking corporation, as trustee (the "Trustee"), substantially
in the form attached hereto as Exhibit A. The Warrants are to be issued pursuant
to the provisions of a warrant agreement (the "Warrant Agreement"), to be dated
as of the Closing Date, by and between the Company and The Bank of New York, a
New York banking corporation, as warrant agent (in such capacity, the "Warrant
Agent"), substantially in the form attached hereto as Exhibit B. As used herein,
the term "Warrant Shares" shall mean, collectively, the shares of Common Stock
issuable upon exercise of the Warrants. As used herein, the term "Securities"
shall mean, collectively, the Units, the Notes, the Warrants, the Warrant Shares
and the Guarantee.

            Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Indenture or the Warrant Agreement, as the
case may be.

            The Notes and the Guarantee will be secured by a perfected
first-priority Lien on all of the equity interests of the Subsidiary Guarantors,
each pursuant to the pledge agreement, to be dated as of the Closing Date,
between The Bank of New York, a New York banking corporation, as the collateral
agent (in such capacity, the "Collateral Agent"), the Company, and the
Subsidiary Guarantors (the "Share Pledge Agreement"), substantially in the form
attached hereto as Exhibit C.

            The Units will be offered and sold to the Purchasers pursuant to
Regulation S or other exemption from the registration requirements under the
Securities Act of 1933, as amended (the "Act"). Upon original issuance thereof,
and until such time as the same is no longer required under the applicable
requirements of the Act, the Notes and the Warrants shall bear the legends
relating to the offer and the sale of the Units as required by (i) Regulation S
under the Act or (ii) any other applicable laws or regulations relating to the
issuance of the Units.

                                       2
<PAGE>

            2. Terms of Offering. Pursuant to the Indenture, Advanced Electric
Motors, Inc., a wholly-owned subsidiary of the Company incorporated under the
laws of the State of Delaware, and all of the Company's other existing and
future subsidiaries (other than subsidiaries domiciled in the People's Republic
of China, or "PRC") (each, a "Subsidiary Guarantor") shall irrevocably and
unconditionally guarantee, on a senior secured basis, to the Purchasers and to
the Trustee the payment and performance of the Company's obligations under the
Documents (as defined below) (collectively, the "Guarantee").

            Holders of the Warrants (including subsequent transferees) will have
the registration rights set forth in the equity registration rights agreement
(the "Registration Rights Agreement"), to be dated the Closing Date,
substantially in the form attached hereto as Exhibit D.

            Pursuant to the Registration Rights Agreement, the Company will, as
soon as reasonably practicable after the Closing Date, file a shelf registration
statement (the "Registration Statement") covering the resale of the Warrant
Shares by the holder thereof and will use its reasonable best efforts to cause
such Registration Statement to be declared effective, subject to certain
exceptions, and to remain effective for the period specified in the Registration
Rights Agreement.

            This Agreement, the Indenture, the Registration Rights Agreement,
the Voting Agreement (as defined below), the Notes, the Guarantee, the Share
Pledge Agreement, the Warrant Agreement, the Warrants, the Warrant Shares, the
Units and the Calculation Agency Agreement to be entered into by the Company and
The Bank of New York, a New York banking corporation, in connection with the
Indenture are, collectively, referred to herein as the "Documents."

            3. Purchase, Sale and Delivery. The sale and purchase of the Units
to be purchased by the Purchasers shall occur at the Shanghai office of Weil,
Gotshal & Manges, at 5:00 p.m., Shanghai time, at a closing (the "Closing") on
August 30, 2006 or on such other Business Day thereafter as may be agreed upon
in writing by the Company and the Purchasers. At the Closing, the Company shall
deliver to each Purchaser one or more certificates representing the Notes and
the Warrants in definitive form, registered in such names and denominations as
such Purchaser may request, against payment by such Purchaser of the purchase
price therefor by immediately available Federal funds bank wire transfer to such
bank account or accounts as the Company shall have theretofore designated to the
Purchasers. The Notes and the Warrants to be represented by one or more
definitive global securities in book-entry form will be deposited on the Closing
Date, by or on behalf of the Company, with The Bank of New York, a New York
banking corporation, as common depositary for Clearstream Banking, societe
anonyme (or any successor securities agency) ("Clearstream") and Euroclear Bank,
S.A./N.V., as operator of the Euroclear System (or any successor securities
clearing agency) ("Euroclear", together with Clearstream, the "Trading Market"),
or its designated custodian, and registered in the name of The Bank of New York,
a New York banking corporation.

            4. Representations and Warranties of the Company and the Subsidiary
Guarantor. Each of the Company and the Subsidiary Guarantor, jointly and
severally, represent and warrant to the Purchasers that, except as set forth in
the Disclosure Schedule attached hereto as Exhibit E which exceptions shall be
deemed to part of the representations and warranties made hereunder, the
following representations and warranties. The Disclosure Schedule shall be
arranged in sections corresponding to the numbered and lettered sections
contained in this Section 4.

                                       3
<PAGE>

(a)   SEC Reports; Financial Statements. The Company has filed all reports,
      schedules, forms, statements and other documents required to be filed by
      it under the Securities Act and the Securities and Exchange Act (the
      "Exchange Act"), including pursuant to Section 13(a), 13(c) or 15(d)
      thereof, since January 24, 2005 (the foregoing materials, including the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the "SEC Reports") on a timely basis or
      has received a valid extension of such time of filing and has filed any
      such SEC Reports prior to the expiration of any such extension. As of the
      date of filing, in the case of SEC Reports filed pursuant to the Exchange
      Act (and to the extent such SEC Report was amended, then as of the date of
      filing of such amendment), and as of the date of effectiveness in the case
      of SEC Reports filed pursuant to the Securities Act (and to the extent
      such SEC Report was amended, then as of the date of effectiveness of such
      amendment), the SEC Reports complied in all material respects with the
      requirements of the Securities Act and the Exchange Act and the rules and
      regulations of the Securities and Exchange Commission (the "Commission")
      promulgated thereunder, as applicable, and none of the SEC Reports, as of
      the date of filing, in the case of SEC Reports filed pursuant to the
      Exchange Act (and to the extent such SEC Report was amended, then as to
      the date of filing of such amendment), and as of the date of effectiveness
      in the case of SEC Reports filed pursuant to the Securities Act (and to
      the extent such SEC Report was amended, then as of the date of
      effectiveness of such amendment), contained any untrue statement of a
      material fact or omitted to state a material fact required to be stated
      therein or necessary in order to make the statements therein, in the light
      of the circumstances under which they were made, not misleading. The
      financial statements of the Company included in the SEC Reports have been
      prepared in accordance with the applicable accounting requirements and the
      rules and regulations of the Commission with respect thereto as in effect
      at the time of filing. Such financial statements have been prepared in
      accordance with United States generally accepted accounting principles
      applied on a consistent basis during the periods involved ("GAAP"), except
      as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects
      the financial condition, results of operations and cash flows of the
      Company and its consolidated subsidiaries as of and for the dates thereof
      and the results of operations and cash flows for the periods then ended,
      subject, in the case of unaudited statements, to normal, immaterial,
      year-end audit adjustments.

(b)   Ownership of Shares of Subsidiaries; Affiliates.

      (i)   Schedule 4(b)(i) of the Disclosure Schedule contains (except as
            noted therein) complete and correct lists of each individual
            partnership, limited liability company, joint venture, corporation,
            association trust or any other entity or organization (collectively,
            a "Person") in which the company owns, directly or indirectly, any
            capital stock or similar equity interests (each, a "Subsidiary" and
            collectively, the "Subsidiaries"), showing, as to each Subsidiary,
            the correct name thereof, the jurisdiction of its organization, and
            the percentage of shares of each class of its capital stock or
            similar equity interests outstanding owned by the Company and each
            other Subsidiary.

      (ii)  All of the outstanding shares of capital stock or similar equity
            interests of each Subsidiary shown in Schedule 4(b)(i) of the
            Disclosure Schedule as being owned by the Company and its
            Subsidiaries have been validly issued, are fully paid and
            non-assessable and are owned by the Company or another Subsidiary
            free and clear of any Lien.

      (iii) No Subsidiary is a party to, or otherwise subject to any legal or
            regulatory restriction or any agreement (other than this Agreement,
            the restrictions disclosed in Schedule 4(b)(iii) of the Disclosure
            Schedule, and limitations imposed by corporate law statutes)
            restricting the ability of such Subsidiary to pay dividends out of
            profits or make any other similar distributions of profits to the
            Company or any of its Subsidiaries that owns outstanding shares of
            capital stock or similar equity interests of such Subsidiary.

                                       4
<PAGE>

      (iv)  As of the date hereof, Advanced Electric Motors, Inc. is the sole
            Subsidiary Guarantor.

(c)   Organization. Each of the Company and the Subsidiaries (i) has been duly
      organized, is validly existing and is in good standing under the laws of
      its jurisdiction of organization, (ii) has all requisite power and
      authority to carry on its business and to own, lease and operate its
      properties and assets, and (iii) is duly qualified or licensed to do
      business and is in good standing as a foreign corporation or limited
      liability company, as the case may be, authorized to do business in each
      jurisdiction in which the nature of such business or the ownership or
      leasing of such properties requires such qualification, except where the
      failure to be so qualified would not, individually or in the aggregate,
      have a material adverse effect on (A) the properties, business, prospects,
      operations, earnings, assets, liabilities or condition (financial or
      otherwise) of the Company and the Subsidiaries, taken as a whole, (B) the
      ability of the Company and the Subsidiary Guarantor to perform their
      respective obligations under any Document or (C) the validity of any of
      the Documents or the consummation of any of the transactions contemplated
      therein (each, a "Material Adverse Effect").

(d)   Capitalization and Voting Rights.

                  (i) Capital Stock. The authorized capital of the Company
            consists, immediately prior to the Closing, of (i) One Hundred
            Million (100,000,000) shares of Common Stock, of which Sixteen
            Million Six Hundred Thousand and Four Hundred and Fifty-One
            (16,600,451) shares are issued and outstanding immediately prior to
            the Closing, and (ii) no shares of preferred stock.

                  (ii) Issued Shares. As at the date hereof and immediately
            prior to the Closing, the aggregate number of Common Stock issued
            and which are issuable pursuant to any exercise, conversion,
            exchange, subscription or otherwise in connection with any warrants,
            options (including pursuant to the Company's stock option plan),
            convertible securities or any agreement to sell or issue Common
            Stock or securities which may be exercised, converted or exchanged
            for Common Stock (collectively, "Fully-Diluted") is 17,980,451. The
            Warrant Shares issuable upon exercise of the Warrants have been duly
            reserved for issuance. All of the issued and outstanding shares of
            the Company's Common Stock as of the Closing are duly authorized,
            validly issued, fully paid and non-assessable, were issued in
            accordance with the registration or qualification provisions of the
            Securities Act and any relevant blue sky laws of the United States
            of America or pursuant to valid exemptions therefrom and were issued
            in compliance with other applicable laws (including, without
            limitation, applicable PRC laws, rules and regulations) of and are
            not subject to any rescission right or put right on the part of the
            holder thereof nor does any holder thereof have the right to require
            the Company to repurchase such share capital.

                  (iii) Voting and other Agreements. Except as set forth on
            Schedule 4(d)(iii) of the Disclosure Schedule, there are no
            outstanding (A) options, warrants or other rights to purchase from
            the Company or any of the Subsidiaries, (B) agreements, contracts,
            arrangements or other obligations of the Company or any of its
            Subsidiaries to issue, or (C) other rights to convert any obligation
            into or exchange any securities for, in the case of each of clauses
            (A) through (C), shares of capital stock of, or other ownership or
            equity interests in, the Company or any of its Subsidiaries. Except
            as otherwise contemplated by that certain voting agreement between
            the Company, Mr. Yang Tianfu and Citadel, to be dated the Closing
            Date (the "Voting Agreement"), the Company is not a party or subject
            to any agreement or understanding, and, to the Company's knowledge
            after due inquiry, there is no agreement or understanding with any
            Person that affects or relates to (i) the voting or giving of
            written consents with respect to any security of the Company
            (including, without limitation, any voting agreements, voting trust
            agreements, shareholder agreements or similar agreements) or the
            voting by a director of the Company or (ii) the sale, transfer or
            other disposition with respect to any security of the Company.

                                       5
<PAGE>

                  (iv) The Common Stock is registered pursuant to 12(g) of the
            Exchange Act, and the Company has taken no action designed to, or
            which to its knowledge is likely to have the effect of, terminating
            the registration of the Common Stock under the Exchange Act, nor has
            the Company received any notification that the Commission is
            contemplating terminating such registration. The Company has not, in
            the 12 months preceding the date hereof, received notice from the
            Over-The-Counter ("OTC") Bulletin Board on which the Common Stock
            has been traded to the effect that the Company is not in compliance
            with the OTC requirements. The Company is, and expects to be, in
            compliance with all of the OTC listing requirements in the
            foreseeable future.

(e)   No Registration Rights. Except as set forth on Schedule 4(e), no holder of
      securities of the Company or any of its Subsidiaries is or will be
      entitled to have any registration rights with respect to such securities
      except as set forth in the Registration Rights Agreement.

(f)   Authorization. The Company and the Subsidiary Guarantor have all requisite
      corporate power and authority to execute, deliver and perform their
      obligations under each of the Documents to which they are a party and to
      consummate the transactions contemplated thereby. This Agreement has been
      duly authorized, executed and delivered by the Company and the Subsidiary
      Guarantor. Each of the Documents, when executed and delivered by the
      Company and the Subsidiary Guarantor (to the extent a party thereto),
      shall constitute a legal, valid and binding obligation of the Company and
      the Subsidiary Guarantor, as the case may be, enforceable against each of
      the Company and the Subsidiary Guarantor, as the case may be, in
      accordance with its terms, except (i) as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors' rights generally, (ii) as
      limited by laws relating to the availability of specific performance,
      injunctive relief or other equitable remedies, and (iii) to the extent the
      indemnification provisions contained in Section 8 of this Agreement or the
      Registration Rights Agreement may be limited by applicable federal or
      state securities laws.

(g)   Valid Issuance of Units and Notes. The Units, when issued, sold and
      delivered in accordance with the terms and for the consideration set forth
      herein, will be free of restrictions on transfer, other than restrictions
      on transfer under applicable state and federal securities laws. Assuming
      the accuracy of the Purchasers' representations in Section 6 below, the
      Units will be issued in compliance with applicable state and federal
      securities laws. The Notes, when issued, will be in the form contemplated
      by the Indenture. The Notes have each been duly authorized by the Company
      and, when executed and delivered by the Company, delivered to each
      Purchaser and authenticated by the Trustee, in accordance with the terms
      of this Agreement and the Indenture, the Notes will have been duly
      executed, issued and delivered by the Company and will constitute legal,
      valid and binding obligations of the Company, entitled to the benefits of
      the Indenture, and enforceable against the Company in accordance with
      their terms. The Guarantee has been duly authorized, and, when the Notes
      have been duly executed, authenticated and issued in accordance with the
      provisions of the Indenture and delivered to and paid for by the
      Purchasers with the Guarantee endorsed thereon by the Subsidiary
      Guarantor, will constitute the legal, valid and binding obligations of the
      Subsidiary Guarantor entitled to the benefits of the Indenture.

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(h)   Valid Issuance of Warrants and Warrant Shares. The Warrants, when issued
      on the Closing Date, will provide for the right to purchase approximately
      16.24463% of the Fully-Diluted Common Stock of the Company as of the
      Closing Date (as calculated immediately following the Closing and assuming
      exercise of all such Warrants issued hereunder), determined in accordance
      with GAAP. The Warrants, when issued, will be in the form contemplated by
      the Warrant Agreement. The Warrants have been duly authorized by the
      Company and when executed and delivered by the Company, delivered to and
      paid for by the warrant holder and authenticated by the Warrant Agent, in
      accordance with the terms of this Agreement and the Warrant Agreement, the
      Warrants will have been duly executed, issued and delivered by the Company
      and will constitute legal, valid and binding obligations of the Company,
      entitled to the benefit of the Warrant Agreement and the Registration
      Rights Agreement. The Warrant Shares have been duly and validly authorized
      for issuance by the Company, and when issued pursuant to the terms of the
      Warrants and the Warrant Agreement, will be validly issued, fully paid and
      non-assessable, not subject to any preemptive or similar rights, free from
      all taxes, Liens, charges and security interests with respect to the
      issuance thereof and free of restrictions on transfer other than as
      expressly contemplated by the Documents.

(i)   Compliance with Instruments. Except as set forth in Schedule 4(i) of the
      Disclosure Schedule, neither the Company nor any of the Subsidiaries is in
      violation of its respective certificate of incorporation, by-laws or other
      organizational documents (the "Charter Documents"). Neither the Company
      nor any of the Subsidiaries is, nor does any condition exist (with the
      passage of time or otherwise) that could reasonably be expected to cause
      the Company or any of the Subsidiaries to be, (i) in violation of any
      statute, rule, regulation, law or ordinance, or any judgment, decree or
      order applicable to the Company, any of the Subsidiaries or any of their
      properties (collectively, "Applicable Law") of any federal, state, PRC
      national, provincial, local or other governmental authority, governmental
      or regulatory agency or body, court, arbitrator or self-regulatory
      organization, domestic or foreign (each, a "Governmental Authority"), or
      (ii) in breach of or in default under any bond, debenture, note or other
      evidence of indebtedness, indenture, mortgage, deed of trust, lease or any
      other agreement or instrument to which any of them is a party or by which
      any of them or their respective property is bound (collectively,
      "Applicable Agreements"), other than in each of clause (i) and (ii) such
      violations, breaches or defaults that are (a) disclosed in Schedule 4(i)
      of the Disclosure Schedule or (b) not material. Except as set forth in
      Schedule 4(i) of the Disclosure Schedule, all Applicable Agreements are in
      full force and effect and with respect to the Company or any of the
      Subsidiaries and to the Company's knowledge, with respect to the other
      parties, are the legal, valid and binding obligations of the parties
      thereto.

(j)   No Conflicts. Neither the execution, delivery or performance of any of the
      Documents nor the consummation of any of the transactions contemplated
      therein will conflict with, violate, constitute a breach of or a default
      (with the passage of time or otherwise) under, require the consent of any
      person or a Governmental Authority (other than consents already obtained)
      or result in the imposition of a Lien (other than a Lien arising under the
      Share Pledge Agreement and the transactions contemplated by this
      Agreement) on any assets of the Company or any of the Subsidiaries under
      or pursuant to (i) the Charter Documents, (ii) any Applicable Agreement,
      or (iii) any Applicable Law, other than in each of clause (ii) and (iii)
      such violations, breaches or defaults that are not material. After
      consummation of the transactions contemplated in the Documents, no Default
      or Event of Default will exist under the Indenture.

                                       7
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(k)   Security Interest. When executed and delivered, the Share Pledge Agreement
      will create valid and enforceable first priority, perfected security
      interests in favor of the Collateral Agent in all "Pledged Collateral" (as
      defined in the Share Pledge Agreement) which security interests will
      secure the repayment of the Notes and the other obligations purported to
      be secured thereby.

(l)   Governmental Consents. No filing with, consent, approval, authorization or
      order of, any Governmental Authority is required for the consummation of
      the transactions contemplated by the Documents, except (i) as have been
      obtained or will have been obtained on or before the Closing Date, (ii) as
      may be necessary to perfect security interests granted pursuant to the
      Share Pledge Agreement, and (iii) as may be required under the Act or
      state securities laws or "Blue Sky" laws.

(m)   Proceedings. Except as disclosed in the SEC Reports, there is no action,
      claim, suit, demand, hearing, notice of violation or deficiency, or
      proceeding, domestic or foreign (collectively, "Proceedings"), pending or,
      to the knowledge of the Company, threatened, that seeks to restrain,
      enjoin, prevent the consummation of, or otherwise challenges any of the
      Documents or any of the transactions contemplated therein. Except as
      disclosed in the SEC Reports, neither the Company nor any of the
      Subsidiaries is subject to any judgment, order or decree of which the
      Company has knowledge.

(n)   Permits. Each of the Company and the Subsidiaries possesses all licenses,
      permits, certificates, consents, orders, approvals and other
      authorizations from, and has made all declarations and filings with, all
      Governmental Authorities, presently required or necessary to own or lease,
      as the case may be, and to operate their respective properties and to
      carry on their respective businesses as now conducted ("Permits"), except
      as disclosed in the SEC Reports. All of the Permits are valid and in full
      force and effect. The Company and its Subsidiaries have fulfilled and
      performed all of their respective obligations with respect to such Permits
      and no event has occurred which allows, or after notice or lapse of time
      could allow, revocation or termination thereof or result in any other
      material impairment of the rights of the holder of any such Permit. None
      of the Company or the Subsidiaries has received actual notice of any
      proceeding relating to revocation or modification of any such Permit,
      except as disclosed in the SEC Reports.

(o)   Title to Property. Each of the Company and the Subsidiaries has good and
      marketable title to all real property and personal property owned by it,
      in each case free and clear of any Liens as of the Closing Date, except
      such Liens as would not be reasonably expected to have a Material Adverse
      Effect. For the real property not owned by the Company or its Subsidiaries
      and currently used or planned to be used for the business operations of
      the Company or its Subsidiaries, each of the Company and its Subsidiary
      has good and marketable title to all leasehold estates in real and
      personal property being leased by it and, in each case free and clear of
      all Liens as of the Closing Date.

(p)   Insurance. Each of the Company and the Subsidiaries maintains reasonable
      adequate insurance covering its material properties, operations, personnel
      and business, and is insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are
      prudent and customary in the businesses in which it is engaged. All
      policies of insurance insuring the Company and any of the Subsidiaries and
      their respective businesses, assets, employees, officers and directors are
      in full force and effect. Each of the Company and the Subsidiaries is in
      compliance with the terms of such policies and instruments in all material
      respects, and, except as disclosed in the SEC Reports, there are no claims
      by the Company or any of the Subsidiaries under any such policy or
      instrument as to which any insurance company is denying liability or
      defending under a reservation of rights clause. Neither the Company nor
      any Subsidiary has been refused any insurance coverage sought or applied
      for, and neither the Company nor any Subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and
      when such coverage expires or to obtain similar coverage from similar
      insurers as may be necessary to continue its business at a cost that could
      not, individually or in the aggregate, have a Material Adverse Effect.

                                       8
<PAGE>

(q)   Taxes. All Tax returns required to be filed by the Company or any of the
      Subsidiaries have been filed, and all such returns are true, complete and
      correct in all material respects. All material Taxes that are due from the
      Company or any of the Subsidiaries have been paid other than those (i)
      currently payable without penalty or interest or (ii) being diligently
      contested in good faith and by appropriate proceedings and for which
      adequate reserves have been established in accordance with GAAP. To the
      knowledge of the Company after due inquiry, there are no proposed Tax
      assessments against the Company or any of the Subsidiaries. The accruals
      and reserves on the books and records of the Company and the Subsidiaries
      in respect of any Tax liability for any Taxable period not finally
      determined are adequate to meet any assessments of Tax for any such
      period. For purposes of this Agreement, the term "Tax" and "Taxes" shall
      mean all Federal, state, PRC national, provincial, local and foreign
      taxes, and other assessments of a similar nature (whether imposed directly
      or through withholding), including any interest, additions to tax, or
      penalties applicable thereto.

(r)   Intellectual Property.

      (i)   Each of the Company and the Subsidiaries owns, or is validly
            licensed under, or has the right to use, all patents, patent rights,
            licenses, inventions, copyrights, know-how (including trade secrets
            and other unpatented and/or unpatentable proprietary or confidential
            information, systems or procedures), trademarks, service marks and
            trade names (collectively, "Intellectual Property") necessary for
            the conduct of its businesses and which as of the Closing Date, will
            be free and clear of all Liens, except where the failure to own,
            possess, or have the right to use such Intellectual Property would
            not have a Material Adverse Effect. To the Company's knowledge, no
            claims or notices of any potential claim have been asserted by any
            person challenging the use of any such Intellectual Property by the
            Company or any of the Subsidiaries or questioning the validity or
            effectiveness of the Intellectual Property or any license or
            agreement related thereto, and, to the Company's knowledge, there
            are no facts which would form a valid basis for any such claim. To
            the Company's knowledge, the use of such Intellectual Property by
            the Company or any of the Subsidiaries will not infringe on the
            Intellectual Property rights of any other person.

      (ii)  Schedule 4(r)(ii) of the Disclosure Schedule sets forth a complete
            list of (i) the Registered IP owned by or licensed to the Company or
            any of its Subsidiaries and (ii) all other material Intellectual
            Property licensed to the Company or any of its Subsidiaries.
            "Registered IP" means Intellectual Property that is registered,
            filed, or issued under the authority of any governmental authority,
            including all patents, registered copyrights, registered mask works,
            and registered trademarks and all applications for any of the
            foregoing. All Intellectual Properties owned by the Company and its
            Subsidiaries are valid and enforceable and are in compliance with
            formal legal requirements.

                                       9
<PAGE>

      (iii) Each of the Company and its Subsidiaries has taken reasonable steps
            and measures to establish and preserve ownership of or right to use
            all Intellectual Property material to the operation of its business.
            Each of the Company and its Subsidiaries has taken reasonable steps
            to register, protect, maintain, and safeguard the Intellectual
            Property material to its business, including any Intellectual
            Property that is jointly developed with any third-parties, or any
            Intellectual Property for which improper or unauthorized disclosure
            would impair its value or validity, and has had executed appropriate
            nondisclosure and confidentiality agreements and made all
            appropriate filings, registrations and payments of fees in
            connection with the foregoing. There is no infringement or
            misappropriation by any other Person of any Intellectual Property of
            the Company or its Subsidiaries. No proceedings or claims in which
            the Company or any of its Subsidiaries alleges that any Person is
            infringing upon, or otherwise violating, any Intellectual Property
            of the Company or its Subsidiaries are pending, and none has been
            served, instituted or asserted by the Company or its Subsidiaries.

      (iv)  Each of the Company and its Subsidiaries owns all rights in and to
            any and all Intellectual Property used or planned to be used by the
            Company or its Subsidiaries, or covering or embodied in any past,
            current or planned activity or service of the Company and its
            Subsidiaries, which Intellectual Property was made, developed,
            conceived, created or written by any consultant retained, or any
            employee employed, by the Company and its Subsidiaries. No former or
            current employee, no former or current consultant, and no
            third-party joint developer of the Company or its Subsidiaries has
            any rights in any Intellectual Property made, developed, conceived,
            created or written by the aforesaid employee or consultant during
            the period of his or her retention by the Company and its
            Subsidiaries which can be asserted against the Company and its
            Subsidiaries.

      (v)   Except as set forth on Schedule 4(r)(v) of the Disclosure Schedule
            or an SEC Report, no Intellectual Property owned by the Company or
            its Subsidiaries is the subject of any security interest, Lien,
            license or other contract granting rights therein to any other
            Person. Each of the Company and its Subsidiaries has not (a)
            transferred or assigned, (b) granted an exclusive license to or (c)
            provided or licensed, any Intellectual Property owned by the Company
            or its Subsidiaries to any Person who is the subject of any security
            interest, Lien, license or other contract granting rights therein to
            any other Person. Each of the Company and its Subsidiaries has not
            (a) transferred or assigned, (b) granted an exclusive license to or
            (c) provided or licensed, any Intellectual Property owned by the
            Company or its Subsidiaries to any Person.

(s)   Internal Controls. The Company and each of its Subsidiaries maintains a
      system of internal accounting controls sufficient to provide reasonable
      assurance that (i) transactions are executed in accordance with
      management's general or specific authorization, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with GAAP and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management's general or
      specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate
      action is taken with respect to any material differences.

(t)   Financial Statements.

      (i)   The audited consolidated financial statements and related notes of
            the Company contained in the Form 10-KSB/A for the two years ended
            December 31, 2005 and the unaudited consolidated financial
            statements and related notes in the Form 10-QSB for the six months
            ended June 30, 2006 (collectively, the "Financial Statements")
            present fairly in all material respects the financial position,
            results of operations and cash flows of the Company and its
            consolidated Subsidiaries, as of the respective dates and for the
            respective periods to which they apply and have been prepared in
            accordance with GAAP and comply as to form with the applicable
            requirements of Regulation S-X of the Act. All other financial,
            statistical, and market and industry-related data included in the
            SEC Reports are based on or derived from sources that the Company
            reasonably believes to be reliable and accurate.

                                       10
<PAGE>

      (ii)  Subsequent to the date of the Company's audited financial statements
            filed for the year ended December 31, 2005, except as disclosed
            therein or in any subsequent SEC Report, (i) neither the Company nor
            any of the Subsidiaries has incurred any liabilities, direct or
            contingent, that are material, individually or in the aggregate, to
            the Company, or has entered into any material transactions not in
            the ordinary course of business, (ii) there has not been any
            material decrease in the capital stock or any material increase in
            long-term indebtedness or any material increase in short-term
            indebtedness of the Company or any Subsidiary, or any payment of or
            declaration to pay any dividends or any other distribution with
            respect to the Company or any of the Subsidiaries, and (iii) there
            has not been any material adverse change in the properties,
            business, prospects, operations, earnings, assets, liabilities or
            condition (financial or otherwise) of the Company and the
            Subsidiaries taken as a whole; excluding any changes caused by (x)
            the condition of the industry of the Company that do not
            disproportionately affect the Company, (y) the failure of the
            Company to meet its financial projections or (z) the execution and
            delivery of this Agreement and consummation of the transactions
            contemplated hereby (each of clauses (i), (ii) and (iii), a
            "Material Adverse Change"). To the knowledge of the Company, there
            is no event that is reasonably likely to occur in the foreseeable
            future, which if it were to occur, could, individually or in the
            aggregate, have a Material Adverse Change.

(u)   Indebtedness. All Indebtedness represented by the Notes and the Guarantee
      is being incurred for proper purposes and in good faith. Based on the
      financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the fair saleable value of the Company's and its
      Subsidiaries' assets exceeds the amount that will be required to be paid
      on or in respect of the Company's and its Subsidiaries' existing debts and
      other liabilities (including contingent liabilities) as they mature; (ii)
      the present fair saleable value of the assets of the Company and its
      Subsidiaries is greater than the amount that will be required to pay the
      probable liabilities of the Company and its Subsidiaries on their
      respective debt as they become absolute and mature, and (iii) the Company
      and its Subsidiaries are able to realize upon their assets and pay their
      debt and other liabilities (including contingent obligations) as they
      mature; (iv) the Company's and its Subsidiaries' assets do not constitute
      unreasonably small capital to carry on their respective businesses as now
      conducted and as proposed to be conducted including their respective
      capital needs taking into account the particular capital requirements of
      the business conducted by the Company or its Subsidiaries, and projected
      capital requirements and capital availability thereof; and (v) the current
      cash flow of each of the Company and its Subsidiaries, together with the
      proceeds the Company would receive, were it to liquidate all of its
      assets, after taking into account all anticipated uses of the cash, would
      be sufficient to pay all amounts on or in respect of its liabilities when
      such amounts are required to be paid. Neither the Company nor any of its
      Subsidiaries intends to incur debts beyond its ability to pay such debts
      as they mature (taking into account the timing and amounts of cash to be
      payable on or in respect of its debt). The Company has no knowledge of any
      facts or circumstances which lead it to believe that it or any of its
      Subsidiaries will file for reorganization or liquidation under the
      bankruptcy or reorganization laws of any jurisdiction within one year from
      the Closing Date. For the purposes of this Agreement, "Indebtedness" shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of
      $50,000 (other than trade accounts payable incurred in the ordinary course
      of business), (b) all guaranties, endorsements and other contingent
      obligations in respect of Indebtedness of others, whether or not the same
      are or should be reflected in the Company's balance sheet (or the notes
      thereto), except guaranties by endorsement of negotiable instruments for
      deposit or collection or similar transactions in the ordinary course of
      business; and (c) the present value of any lease payments in excess of
      $50,000 due under leases required to be capitalized in accordance with
      GAAP. Neither the Company nor any Subsidiary is, or is reasonably likely
      to be, in default with respect to any Indebtedness and no waiver of
      default is currently in effect. Neither the Company nor any of its
      Subsidiaries has agreed or consented to cause or permit in the future
      (upon the happening of a contingency or otherwise) any of its property,
      whether now owned or hereafter acquired, to be subject to a Lien. Neither
      the Company nor any of its Subsidiaries is a party to, or otherwise
      subject to any provision contained in, any instrument evidencing
      Indebtedness of the Company or such Subsidiary, any agreement relating
      thereto or any other agreement (including, but not limited to, its charter
      or other organizational document) which limits the amount of, or otherwise
      imposes restrictions on the incurring of, Indebtedness of the Company.

                                       11
<PAGE>

(v)   None of the Company or the Subsidiaries has and, to each of its knowledge
      after due inquiry, no one acting on its behalf has, (i) taken, directly or
      indirectly, any action designed to cause or to result in, or that has
      constituted or which might reasonably be expected to constitute, the
      stabilization or manipulation of the price of any security of either the
      Company or its Subsidiaries to facilitate the sale or resale of any of the
      Securities, (ii) sold, bid for, purchased, or paid anyone any compensation
      for soliciting purchases of, the Units, or (iii) paid or agreed to pay to
      any person any compensation for soliciting another to purchase any other
      securities of the Company or its Subsidiaries (other than Merrill Lynch
      Far East Limited).

(w)   None of the Company, its Subsidiaries, their respective Affiliates, or any
      person acting on its or their behalf has, directly or indirectly, made
      offers or sales of any security, or solicited offers to buy, sell or offer
      to sell or otherwise negotiate in respect of, in the United States or to
      any United States citizen or resident, any security which is or would be
      integrated with the sale of the Securities in a manner or under
      circumstances that would require the registration of the Securities under
      the Act.

(x)   None of the Company, its Subsidiaries, their respective Affiliates, or any
      person acting on its or their behalf (other than Citadel, Merrill Lynch
      and Merrill Lynch Far East Limited, their Affiliates or persons acting on
      their behalf, as to whom the Company makes no representation) has engaged
      in any directed selling efforts (within the meaning of Regulation S) with
      respect to the Securities; and each of the Company, its Subsidiaries,
      their respective Affiliates and each person acting on its or their behalf
      has complied with the offering restrictions requirement of Regulation S.

(y)   The Securities satisfy the eligibility requirements of Rule 144A(d)(3)
      under the Act.

                                       12
<PAGE>

(z)   Assuming the accuracy of the Purchasers' representations and warranties
      set forth in Section 6, no registration under the Act of the Securities is
      required for the offer and sale of the Securities to or by the Purchasers
      in the manner contemplated herein or to qualify the Indenture under the
      TIA.

(aa)  Labor Matters. Neither the Company nor any Subsidiary is bound by or
      subject to (and none of its assets or properties is bound by or subject
      to) any written or oral, express or implied, contract, commitment or
      arrangement with any labor union, and no labor union has requested or, to
      the knowledge of the Company, has sought to represent any of the
      employees, representatives or agents of the Company or any Subsidiary.
      There is no strike or other labor dispute involving the Company or any
      Subsidiary pending or threatened, which could have a Material Adverse
      Effect. There is no employment related charge, complaint, grievance,
      investigation, unfair labor practice claim or inquiry of any kind, pending
      against the Company or any Subsidiary that could, individually or in the
      aggregate, have a Material Adverse Effect.

(bb)  Brokers and Finders. The Company has not engaged any broker, finder,
      commission agent or other similar person (other than Merrill Lynch Far
      East Limited) in connection with the transactions contemplated under the
      Documents, and the Company is not under any obligation to pay any broker's
      fee or commission in connection with such transactions (other than
      commissions or fees to Merrill Lynch Far East Limited).

(cc)  Environmental Matters. Each of the Company and the Subsidiaries (i) is in
      compliance with any and all applicable foreign, federal, state, PRC
      national, provincial, and local laws and regulations relating to the
      protection of the environment or hazardous or toxic substances or wastes,
      pollutants or contaminants ("Environmental Laws"), (ii) has received and
      is in compliance with all permits, licenses or other approvals required of
      it under applicable Environmental Laws to conduct its business, (iii) has
      not received actual notice of any actual or potential liability for the
      investigation or remediation of any disposal or release of hazardous or
      toxic substances or wastes, pollutants or contaminants, (iv) neither the
      Company nor any of its Subsidiaries has knowledge of any facts which would
      give rise to any claim, public or private, of violation of Environmental
      Laws emanating from, occurring on or in any way related to real properties
      now or formerly owned, leased or operated by any of them or to other
      assets or their use, except, in each case, such as would not reasonably be
      expected to result in a Material Adverse Effect; and (v) neither the
      Company nor any of its Subsidiaries has stored any hazardous materials on
      real properties now or formerly owned, leased or operated by any of them
      and has not disposed of any hazardous materials in a manner contrary to
      any Environmental Laws; except where such non-compliance with
      Environmental Laws, failure to receive required permits, licenses or other
      approvals, or liability would not, individually or in the aggregate, have
      a Material Adverse Effect.

      In the ordinary course of its business, the Company periodically reviews
      the effect of Environmental Laws on the business, operations and
      properties of the Company and its Subsidiaries, in the course of which it
      identifies and evaluates associated costs and liabilities (including,
      without limitation, any capital or operating expenditures required for
      clean-up, closure of properties or compliance with Environmental Laws, or
      any permit, license or approval, any related constraints on operating
      activities and any potential liabilities to third parties). On the basis
      of such review, the Company has reasonably concluded that such associated
      costs could not have a Material Adverse Effect.

(dd)  Encumbrances. As of the Closing Date, except as set forth in Schedule
      4(dd) of the Disclosure Schedule, there will be no encumbrances or
      contractual restrictions on the ability of the Company or any Subsidiary
      (x) to pay dividends or make other distributions on such parties' capital
      stock or to make loans or advances or pay any indebtedness to, or
      investments in, the Company or any Subsidiary, or (y) to transfer any of
      its property or assets to the Company or any Subsidiary, except for such
      restrictions set forth in the Documents, restrictions imposed by a
      Governmental Authority, or limitations imposed by corporate law statutes.

                                       13
<PAGE>

(ee)  Security Interest/Share Pledge Agreement. As of the Closing Date:

      (i)   The Company will own the Pledged Collateral free and clear of all
            Liens (except for Liens arising under the Share Pledge Agreement).

      (ii)  The representations and warranties contained in the Share Pledge
            Agreement will be true and correct in all material respects.

      (iii) The Liens on the Notes will have been duly perfected as to all
            Pledged Collateral.

(ff)  Certificate. Each certificate signed by any officer of the Company or the
      Subsidiary Guarantor and delivered to the Purchasers shall be deemed a
      representation and warranty by the Company or the Subsidiary Guarantor
      (and not individually by such officer) to the Purchasers with respect to
      the matters covered thereby.

(gg)  Foreign Corrupt Practices Act. Neither the Company or its Subsidiaries,
      nor to the knowledge of the Company, any agent or other person acting on
      behalf of the Company or its Subsidiaries, has (i) directly or indirectly,
      used any funds for unlawful contributions, gifts, entertainment or other
      unlawful expenses related to foreign or domestic political activity, (ii)
      made any unlawful payment to foreign or domestic government officials or
      employees or to any foreign or domestic political parties or campaigns
      from corporate funds, (iii) failed to disclose fully any contribution made
      by the Company or its Subsidiaries (or made by any person acting on its
      behalf of which the Company is aware) which is in violation of law, or
      (iv) violated in any material respect any provision of the Foreign Corrupt
      Practices Act of 1977, as amended.

(hh)  Ranking of Obligations. The payment obligations of the Company and the
      Subsidiary Guarantors under this Agreement will rank at least pari passu,
      without preference or priority, with all other unsecured and
      unsubordinated Indebtedness of the Company and the Subsidiary Guarantor,
      as the case may be. The Notes are secured obligations of the Company and
      are secured in the manner set out in the Indenture. The Guarantee is a
      secured obligation of the Subsidiary Guarantor and is secured in the
      manner set out in the Indenture.

(ii)  Related Party Transactions. Other than as set forth in an SEC Report or in
      Schedule 4(ii) of the Disclosure Schedule, no material relationship,
      direct or indirect, exists between or among any of the Company or its
      Subsidiaries or any Affiliate of the Company or its subsidiaries, on the
      one hand, and any former or current director, officer, stockholder,
      customer or supplier of any of them (including any member of their
      immediate family), on the other hand.

(jj)  Investment Company. The Company and its Subsidiaries are not, and as a
      result of the offer and sale of the Securities contemplated herein will
      not be, required to register as an "investment company" under, and as such
      term is defined in, the U.S. Investment Company Act of 1940, as amended
      (the "Investment Company Act") in connection with or as a result of the
      offer and sale of the Securities.

                                       14
<PAGE>

(kk)  Section 3(a)(9) Compliance. In connection with the conversion of the
      Warrants into Warrant Shares, neither the Company nor any Person acting on
      its behalf will take any action which would result in the Warrant Shares
      being exchanged by the Company other than with the then existing holders
      of the Warrants exclusively where no commission or other remuneration is
      paid or given directly or indirectly for soliciting the exchange.

(ll)  PFIC. Neither the Company nor any of its Subsidiaries is or intends to
      become a "passive foreign investment company" (a "PFIC") within the
      meaning of Section 1297 of the Code. The Company will use commercially
      reasonable efforts not to become, and cause its Subsidiaries not to
      become, a PFIC. If the Company determines that either it or any of its
      Subsidiaries has become a PFIC, it will promptly notify each Purchaser and
      provide all information requested by each Purchaser that is necessary for
      such Purchaser to make a qualified electing fund (QEF) election.

(mm)  OFAC. Neither the Company nor, to the knowledge of the Company, any
      director, officer, agent, employee, Affiliate or Person acting on behalf
      of the Company is currently subject to any U.S. sanctions administered by
      the Office of Foreign Assets Control of the U.S. Treasury Department
      ("OFAC"); and the Company will not directly or indirectly use the proceeds
      of the offering, or lend, contribute or otherwise make available such
      proceeds to any Subsidiary, joint venture partner or other Person or
      entity, for the purpose of financing the activities of any person
      currently subject to any U.S. sanctions administered by OFAC.

(nn)  Money Laundering Laws. The operations of the Company and its Subsidiaries
      are and have been conducted at all times in compliance with the money
      laundering statutes of applicable jurisdictions, the rules and regulations
      thereunder and any related or similar rules, regulations or guidelines,
      issued, administered or enforced by any applicable governmental agency
      (collectively, the "Money Laundering Laws") and no action, suit or
      proceeding by or before any court or governmental agency, authority or
      body or any arbitrator involving the Company or any of its Subsidiaries
      with respect to the Money Laundering Laws is pending or, to the best
      knowledge of the Company, threatened.

(oo)  Other Representations and Warranties Relating to Harbin Tech. Full
      Electric Co., Ltd. ("WFOE").

      (i)   The constitutional documents and certificates and related material
            contracts of WFOE are valid and have been duly approved or
            registered (as applicable) by competent PRC Governmental
            Authorities.

      (ii)  Except as set forth in the Disclosure Schedule, all material
            consents, approvals, authorizations or licenses requisite under PRC
            law for the due and proper establishment and operation of WFOE have
            been duly obtained from the relevant PRC Governmental Authorities
            and are in full force and effect.

      (iii) Except as set forth in the Disclosure Schedule, all filings and
            registrations with the PRC Governmental Authorities required in
            respect of WFOE and its operations including, without limitation,
            the registrations with Ministry of Commerce, State Administration of
            Industry and Commerce, State Administration for Foreign Exchange,
            tax bureau and customs authorities have been duly completed in
            accordance with the relevant PRC rules and regulations.

                                       15
<PAGE>

      (iv)  The WFOE has complied with all relevant PRC laws and regulations
            regarding the contribution and payment of its registered share
            capital, the payment schedule of which has been approved by the
            relevant PRC Government Authorities. There are no outstanding rights
            of, or commitments made by the Company or any Subsidiary to sell any
            equity interest in the WFOE.

      (v)   The WFOE is not in receipt of any letter or notice from any relevant
            PRC Governmental Authority notifying it of revocation of any
            licenses issued to it for non-compliance or the need for compliance
            or remedial actions in respect of the activities carried out by the
            WFOE.

      (vi)  The WFOE has conducted its business activities within the permitted
            scope of business or has otherwise operated its business in material
            compliance with all relevant legal requirements and with all
            requisite licenses and approvals granted by competent PRC
            Governmental Authorities.

      (vii) Except as set forth in the Disclosure Schedule, as to licenses and
            approvals requisite for the conduct of any part of WFOE's business
            which are subject to periodic renewal, the Company has no knowledge
            of any grounds on which such requisite renewals will not be granted
            by the relevant PRC Governmental Authorities.

      (viii) With regard to employment and staff or labor, the WFOE has complied
            with all applicable PRC laws and regulations in all material
            respects, including without limitation, laws and regulations
            pertaining to welfare funds, social benefits, medical benefits,
            insurance, retirement benefits, pensions or the like.

(pp)  Full Disclosure. All disclosure furnished by or on behalf of the Company
      to the Purchasers regarding the Company and its Subsidiaries, their
      respective businesses and the transactions contemplated under the
      Documents, including the Disclosure Schedule to this Agreement, with
      respect to the representations and warranties made herein are true and
      correct with respect to such representations and warranties and do not
      contain any untrue statement of a material fact or omit to state any
      material fact necessary in order to make the statements made therein, in
      light of the circumstances under which they were made, not misleading. The
      Company acknowledges and agrees that the Purchasers do not make any
      representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section 6
      hereof.

            5. Covenants of the Company and the Subsidiary Guarantor. The
Company and the Subsidiary Guarantor, jointly and severally, hereby agree:

(a)   To (i) advise each Purchaser promptly after obtaining knowledge (and, if
      requested by such Purchaser, confirm such advice in writing) of the
      issuance by any state securities commission of any stop order suspending
      the qualification or exemption from qualification of the Securities for
      offer or sale in any jurisdiction, or the initiation of any proceeding for
      such purpose by any state securities commission or other regulatory
      authority, (ii) use its commercially reasonable efforts to prevent the
      issuance of any stop order or order suspending the qualification or
      exemption from qualification of the Securities under any state securities
      or Blue Sky laws, and (iii) if at any time any state securities commission
      or other regulatory authority shall issue an order suspending the
      qualification or exemption from qualification of the Securities under any
      such laws, use its commercially reasonable efforts to obtain the
      withdrawal or lifting of such order at the earliest possible time.

                                       16
<PAGE>

(b)   So long as any of the Securities are "restricted securities" within the
      meaning of Rule 144(a)(3) or Rule 905 under the Act, to, during any period
      in which the Company is not subject to and in compliance with Section 13
      or 15(d) of the Exchange Act, provide to each holder of such restricted
      securities and to each prospective purchaser (as designated by such
      holder) of such restricted securities, upon the request of such holder or
      prospective purchaser, any information required to be provided by Rule
      144A(d)(4) under the Act.

(c)   Whether or not any of the transactions contemplated under the Documents
      are consummated or this Agreement is terminated, to pay (i) all costs,
      expenses, fees and taxes incident to and in connection with: (A) the
      printing, processing and distribution (including, without limitation, word
      processing and duplication costs) and delivery of, each of the Documents,
      and (B) the preparation, issuance and delivery of the Securities, (ii) all
      fees and expenses of the counsel, accountants and any other experts or
      advisors retained by the Company, (iii) all expenses in connection with
      qualifying the Notes and Warrants for trading on the Trading Market, (iv)
      all fees and expenses (including fees and expenses of counsel) of the
      Company in connection with approval of the Securities for "book-entry"
      transfer, and (v) all fees and expenses (including reasonable fees and
      expenses of counsel) of the Trustee, the Warrant Agent, the Calculation
      Agent and the Collateral Agent.

(d)   To do and perform all things required to be done and performed under the
      Documents prior to and after the Closing Date.

(e)   Prior to making any public disclosure or filings as may be required by
      applicable law with respect to this Agreement and the transactions
      contemplated hereby, to provide each Purchaser and its counsel with the
      reasonable opportunity to review and comment on such public disclosure
      documents and consider in good faith any comments received by such
      Purchaser or its counsel.

(f)   To use their commercially reasonable efforts to effect the inclusion of
      the Notes and Warrants in the Trading Market.

(g)   For so long as a Purchaser owns any of the Securities, the Company will
      furnish to such Purchaser copies of all reports and other communications
      (financial or otherwise) furnished by the Company to the Trustee or to the
      holders of its Securities and, as soon as available, copies of any reports
      or financial statements furnished to or filed by the Company with the
      Commission or any national securities exchange on which any class of
      securities of the Company may be listed; provided, however, that any such
      report or financial statements filed on the Commission's EDGAR database
      need not be separately furnished.

(h)   During the two year period after the Closing Date (or such shorter period
      as may be provided for in Rule 144(k) under the Act, as the same may be in
      effect from time to time), not to, and not to permit any current or future
      Subsidiaries of the Company or any other affiliates (as defined in Rule
      144A under the Act) controlled by the Company to, resell any of the
      Securities which constitute "restricted securities" under Rule 144 that
      have been reacquired by the Company, any current or future Subsidiaries of
      the Company or any other affiliates (as defined in Rule 144A under the
      Act) controlled by the Company, except pursuant to an effective
      registration statement under the Act.

(i)   To pay all stamp, documentary and transfer taxes and other duties, if any,
      which may be imposed by any Governmental Authorities or any political
      subdivision thereof or taxing authority thereof or therein with respect to
      the issuance of the Units or the sale thereof to the Purchasers.

                                       17
<PAGE>

(j)   The Company will use commercially reasonable efforts not to become, and
      cause its Subsidiaries not to become, a PFIC. If the Company determines
      that it or any of its Subsidiaries has become a PFIC, the Company will
      promptly notify each Purchaser and provide all information requested by
      such Purchaser that is necessary for such Purchaser to make a qualified
      electing fund (QEF) election.

(k)   The Company agrees that it will not register any transfer of the
      Securities that is not (i) made in accordance with the provisions of
      Regulation S under the Securities Act, (ii) made pursuant to registration
      under the Securities Act, or (iii) made pursuant to an available exemption
      under the Securities Act.

(l)   Prior to the Closing, the Company shall not, without the express prior
      written consent of the Purchasers (which consent shall be at the
      Purchasers' sole discretion), pursue or discuss any capital raising
      transaction or transactions in excess of $2 million ("Outside Financing")
      with any Person other than the Purchasers or their Affiliates.

(m)   If the Closing is not consummated for any reason, then prior to February
      2, 2007, the Company shall not be entitled to consummate any Outside
      Financing without the express prior written consent of the Purchasers
      (which consent shall be at the Purchasers' sole discretion).
      Notwithstanding anything to the contrary contained herein (including
      Section 9 hereof), the Company's obligation pursuant to this Section 5(m)
      shall survive any termination of this Agreement.

(n)   Subject to the prior written consent of Citadel (which consent shall not
      be unreasonably withheld), on or before the 120th day following the
      Closing Date, the Company shall appoint a senior financial officer on a
      full-time basis with the Company, which officer shall be knowledgeable
      with respect to the capital markets in the United States and shall be
      proficient in the English language. Citadel agrees to use its reasonable
      best efforts to facilitate the Company's timely appointment of a senior
      financial officer pursuant to this Section 5(n).

            5A. Right to Future Stock Issuances.

(a)   Right of First Offer. Subject to the terms and conditions of this Section
      5A(a) and applicable securities laws, if, following the Closing, the
      Company proposes to offer or sell any New Securities (as defined below)
      that are not Exempted Securities (as defined below), the Company shall
      first offer such New Securities to the Purchasers. A Purchaser (or its
      assignees) shall be entitled to apportion the right of first offer hereby
      granted to it among itself and its Affiliates in such proportions as it
      deems appropriate.

      (i)   The Company shall give notice (the "Offer Notice") to each
            Purchaser, stating (a) its bona fide intention to offer such New
            Securities, (b) the number or amount of such New Securities to be
            offered, and (c) the price and terms upon which it proposes to offer
            such New Securities.

      (ii)  By notification to the Company within twenty (20) days after the
            Offer Notice is given, each Purchaser may elect to purchase or
            otherwise acquire, at the price and on the terms specified in the
            Offer Notice, up to that portion of such New Securities which equals
            the proportion that the Notes then held by such Purchaser bears to
            the total amount of Notes then outstanding. The closing of any sale
            pursuant to this Section 5A(a)(ii) shall occur within sixty (60)
            days of the date that the Offer Notice is given.

                                       18
<PAGE>

      (iii) If all New Securities referred to in the Offer Notice are not
            elected to be purchased or acquired as provided in Section
            5A(a)(ii), the Company may, during the sixty (60) day period
            following the expiration of the period provided in Section
            5A(a)(ii), offer and sell the remaining unsubscribed portion of such
            New Securities to any Person or Persons at a price not less than,
            and upon terms no more favorable to the offeree than, those
            specified in the Offer Notice. If the Company does not enter into an
            agreement for the sale of the New Securities within such period, or
            if such agreement is not consummated within thirty (30) days of the
            execution thereof, the right provided hereunder shall be deemed to
            be revived and such New Securities shall not be offered unless first
            reoffered to the Purchaser in accordance with this Section 5A(a).

(b)   Termination. The covenants set forth in Section 5A(a) shall terminate and
      be of no further force or effect upon the repayment of all of the
      outstanding Notes.

(c)   Waiver. The right of first offer set forth herein may be waived on behalf
      of all Purchasers (and their assignees) by the affirmative written consent
      or vote of Purchasers (or their assignees) holding at least 80% of the
      Notes then outstanding.

(d)   Certain Definitions. For purposes of this Section 5A:

      (i)   "Exempted Securities" means (a) shares of Common Stock (or option to
            purchase shares of Common Stock) issued to employees, officers or
            directors of the Company or its subsidiaries under bona fide
            employee benefit plans adopted by the Board of Directors and
            approved by the holders of Common Stock when required by law and (b)
            shares of Common Stock (or option to purchase shares of Common
            stock) issued to shareholders of Harbin Taifu Auto Co. Ltd. (GRAPHIC
            OMITTED) ("Taifu") upon its merger into the Company or share
            acquisition, share exchange or any other business combination deemed
            desirable by the Company, or with a subsidiary of the Company, in
            proportion to their stock holdings of Taifu immediately prior to
            such merger, upon such merger.

      (ii)  "New Securities" means, collectively, equity securities of the
            Company, whether or not currently authorized, as well as rights,
            options, or warrants to purchase such equity securities, or
            securities of any type whatsoever (including, without limitation,
            debt securities) that are, or may become, convertible or
            exchangeable into or exercisable for such equity securities.

            6. Purchaser's Representations, Warranties and Agreements.

Each Purchaser, severally and not jointly, represents and warrants to the
Company and the Subsidiary Guarantor that:

(a)   Such Purchaser is not a "U.S. Person" (as defined in Rule 902 of
      Regulation S under the Securities Act) and it understands that no action
      has been or will be taken in any jurisdiction by the Company that would
      permit a public offering of the Securities in any country or jurisdiction
      where action for that purpose is required. Such Purchaser is not acquiring
      the Securities for the account or benefit of any U.S. persons except in
      accordance with exemption from registration requirements of the Act below
      or in a transaction not subject thereto.

                                       19
<PAGE>

(b)   Such Purchaser is not acquiring the Units with a view to any distribution
      thereof that would violate the Securities Act or the securities laws of
      any state of the United States or any other applicable jurisdiction.

(c)   Such Purchaser (A) agrees that it will not offer, sell or otherwise
      transfer any of the Securities prior to (x) the date which is 40 days (in
      the case of the Notes) or one year (in the case of the Warrants) after the
      later of the date of the commencement of the offering and the date of
      original issuance (or of any predecessor of any Security proposed to be
      transferred by such Purchaser) and (y) such later date, if any, as may be
      required by applicable law (the "Resale Restriction Termination Date"),
      except (a) to the Company, (b) pursuant to a registration statement that
      has been declared effective under the Securities Act, (c) for so long as
      any Security is eligible for resale pursuant to Rule 144A under the
      Securities Act, to a person it reasonably believes is a "qualified
      institutional buyer" as defined in Rule 144A that purchases for its own
      account or for the account of another qualified institutional buyer to
      whom notice is given that the transfer is being made in reliance on Rule
      144A, (d) pursuant to offers and sales to Persons who are not "U.S.
      Persons" (within the meaning of Regulation S) that occur outside the
      United States within the meaning of Regulation S or (e) pursuant to any
      other available exemption from the registration requirements of the
      Securities Act, and (B) agrees that it will give to each person to whom
      such Security is transferred a notice substantially to the effect of this
      paragraph; provided that the Company, the Trustee, the registrar and the
      transfer agent with respect to such Security shall have the right prior to
      any such offer, sale or transfer pursuant to clause (d) prior to the end
      of the 40-day distribution compliance period (in the case of the Notes) or
      one-year distribution compliance period (in the case of Warrants), in each
      case within the meaning of Regulation S, or pursuant to clause (e) prior
      to the Resale Restriction Termination Date to require that an opinion of
      counsel, certifications and/or other information reasonably satisfactory
      to the Company, the Trustee, the registrar and the transfer agent with
      respect to such Security is completed and delivered by the transferor.

(d)   No form of "directed selling efforts" (as defined in Rule 902 of
      Regulation S under the Securities Act), general solicitation or general
      advertising in violation of the Securities Act has been or will be used
      nor will any offers by means of any directed selling efforts in the United
      States be made by such Purchaser or any of its representatives in
      connection with the offer and sale of any of the Units.

(e)   The Units to be acquired by such Purchaser will be acquired, in the
      ordinary course of business, for investment for such Purchaser's own
      account, not as a nominee or agent, and not with a view to the resale or
      distribution of any part thereof, and that such Purchaser has no present
      intention of selling, granting any participation in, or otherwise
      distributing the same. Purchaser does not presently have any contract,
      undertaking, agreement or arrangement with any Person, directly or
      indirectly, to sell, transfer, distribute or grant participations to such
      Person or to any third Person, with respect to any of the Units.

            7. Conditions to Purchase Securities at Closing. Each Purchaser's
obligation to purchase the Securities under this Agreement are subject to the
satisfaction or waiver of each of the following conditions:

(a)   All the representations and warranties of the Company and the Subsidiary
      Guarantor contained in this Agreement and in each of the Documents shall
      be true and correct as of the date hereof and at the Closing Date. On or
      prior to the Closing Date, the Company and the Subsidiary Guarantor and
      each other party to the Documents (other than such Purchaser) shall have
      performed or complied with all of the agreements and satisfied all
      conditions on their respective parts to be performed, complied with or
      satisfied pursuant to the Documents.

                                       20
<PAGE>

(b)   No injunction, restraining order or order of any nature by a Governmental
      Authority shall have been issued as of the Closing Date that could prevent
      or materially interfere with the consummation of the transactions
      contemplated under the Documents; and no stop order suspending the
      qualification or exemption from qualification of any of the Securities in
      any jurisdiction shall have been issued and no Proceeding for that purpose
      shall have been commenced or, to the knowledge of the Company after due
      inquiry, be pending or threatened as of the Closing Date.

(c)   No action shall have been taken and no Applicable Law shall have been
      enacted, adopted or issued that could, as of the Closing Date, reasonably
      be expected to prevent the consummation of the transactions contemplated
      under the Documents. No Proceeding shall be pending or, to the knowledge
      of the Company after due inquiry, threatened other than Proceedings that
      (A) are disclosed in the Disclosure Schedule, (B) if adversely determined
      could not, individually or in the aggregate, adversely affect the issuance
      or marketability of the Units, or (C) could not, individually or in the
      aggregate, have a Material Adverse Effect.

(d)   Each Purchaser shall have received on the Closing Date:

      (i)   certificates dated the Closing Date, signed by (1) the Chief
            Executive Officer and (2) the principal financial or accounting
            officer(s) of the Company and the Subsidiary Guarantor, on behalf of
            the Company and the Subsidiary Guarantor, respectively, to the
            effect that (a) the representations and warranties set forth in
            Section 4 hereof are true and correct with the same force and effect
            as though expressly made at and as of the Closing Date, (b) the
            Company and the Subsidiary Guarantor have complied with all
            agreements and satisfied all conditions on its part to be performed
            or satisfied hereunder at or prior to the Closing Date, (c) at the
            Closing Date, since the date hereof or since the date of the most
            recent financial statements in the SEC Reports (exclusive of any
            amendment or supplement thereto after the date thereof), no event or
            events have occurred, no information has become known nor does any
            condition exist that could, individually or in the aggregate, have a
            Material Adverse Effect, (d) since the date of the most recent
            financial statements in the SEC Reports (exclusive of any amendment
            or supplement thereto after the date thereof), neither the Company
            nor any Subsidiary has incurred any liabilities or obligations,
            direct or contingent, not in the ordinary course of business, that
            are material to the Company and the Subsidiaries, taken as a whole,
            or entered into any transactions not in the ordinary course of
            business that are material to the business, condition (financial or
            otherwise) or results of operations of the Company and the
            Subsidiaries, taken as a whole, and there has not been any change in
            the capital stock or long-term indebtedness of the Company or any
            Subsidiary that is material to the business, condition (financial or
            otherwise) or results of operations or prospects of the Company and
            the Subsidiaries, taken as a whole, and (e) the sale of any of the
            Securities has not been enjoined (temporarily or permanently);

      (ii)  certificates dated the Closing Date, executed by the Secretary of
            each of the Company and the Subsidiary Guarantor, certifying such
            matters as the Purchasers may reasonably request;

                                       21
<PAGE>

      (iii) the opinions of Lionel, Sawyer & Collins, Nevada counsel to the
            Company, dated the Closing Date, in the forms attached hereto as
            Exhibit F-1;

      (iv)  the opinions of Reed Smith LLP, U.S. counsel to the Company and the
            Subsidiary Guarantor, dated the Closing Date, in the forms attached
            hereto as Exhibit F-2;

      (v)   the opinions of JingTian and Gongcheng, PRC counsel to the WOFE,
            dated the Closing Date, in the forms attached hereto as Exhibit F-3;

(e)   Each of the Documents shall have been executed and delivered by all
      parties thereto, and Purchasers shall have received a fully executed
      original (or clearly legible facsimile copy) of each Document.

(f)   Purchasers shall have received copies of all opinions, certificates,
      letters and other documents delivered under or in connection with the
      transactions contemplated in the Documents that are required to be
      delivered at or prior to the Closing Date.

(g)   None of the other parties to any of the Documents shall be in breach or
      default under their respective obligations thereunder.

(h)   The Collateral Agent shall have received on the Closing Date:

      (i)   appropriately completed copies, which have been duly authorized for
            filing by the appropriate Person, of Uniform Commercial Code
            financing statements naming the Company and the Subsidiary Guarantor
            as a debtor and the Collateral Agent as the secured party, or other
            similar instruments or documents to be filed under the UCC of all
            jurisdictions as may be necessary or desirable to perfect the
            security interests of the Collateral Agent pursuant to the
            Indenture;

      (ii)  certified copies of Uniform Commercial Code Requests for Information
            or Copies (Form UCC-11), or a similar search report certified by a
            party acceptable to the Collateral Agent, dated a date reasonably
            near to the Closing Date, listing all effective financing statements
            which name the Company or the Subsidiary Guarantor (under its
            present name and any previous names) as the debtor, together with
            copies of such financing statements (none of which shall cover any
            collateral described in the Indenture);

      (iii) such other approvals, opinions, or documents as the Collateral Agent
            may reasonably request in form and substance reasonably satisfactory
            to the Collateral Agent; and

      (iv)  the Collateral Agent and its counsel shall be satisfied that (i) the
            Lien granted to the Collateral Agent, for the benefit of the
            "Secured Parties" (as defined in the Share Pledge Agreement) in the
            collateral described above is a first priority Lien; and (ii) no
            Lien exists on any of the collateral described above other than the
            Lien created in favor of the Collateral Agent, for the benefit of
            the Secured Parties, pursuant to the Indenture and the Security
            Documents.

(i)   All Uniform Commercial Code financing statements or other similar
      financing statements required pursuant to clause (h)(i) and (ii) above
      (collectively, the "Filing Statements") shall have been delivered to CT
      Corporation System or another similar filing service company acceptable to
      the Collateral Agent (the "Filing Agent"). The Filing Agent shall have
      acknowledged in a writing reasonably satisfactory to the Collateral Agent
      and its counsel (i) the Filing Agent's receipt of all Filing Statements,
      (ii) that the Filing Statements have either been submitted for filing in
      the appropriate filing offices or will be submitted for filing in the
      appropriate offices within ten days following the Closing Date and (iii)
      that the Filing Agent will notify the Collateral Agent and its counsel of
      the results of such submissions within 30 days following the Closing Date.

                                       22
<PAGE>

(j)   The respective Boards of Directors of the Company and the Subsidiary
      Guarantor shall have approved and authorized by all necessary corporate
      action (i) the execution and delivery of the Documents, (ii) all actions
      to be performed or satisfied under the Documents, (iii) the consummation
      of the transactions contemplated by the Documents, (iv) the pricing terms
      of the Notes, Warrants and Units, and (v) all other actions necessary in
      connection with the transactions contemplated by the Documents and the
      offering of the Notes, Warrants and Units, and shall have provided
      Purchasers with a copy of such authorizations.

(k)   Contemporaneously with the Closing the Company shall sell to the other
      Purchaser and the other Purchaser shall purchase the securities to be
      purchased by it at the Closing under this Agreement.

(l)   Purchasers shall have completed and be satisfied with the results of all
      business, legal and financial due diligence, and any items requiring
      correction identified by Purchasers shall have been corrected to
      Purchasers' satisfaction.

(m)   Purchasers shall have received all necessary internal approval for the
      transactions contemplated hereunder or under the Documents.

(n)   Mr. Yang Tianfu and Purchasers shall have entered into the Non-competition
      Agreement in the form attached hereto as Exhibit G; and

(o)   The Company, Mr. Yang Tianfu and Citadel shall have entered into the
      Voting Agreement in the form attached hereto as Exhibit H.

            8. Indemnification.

(a)   Each of the Company and the Subsidiary Guarantor, jointly and severally,
      agree to indemnify and hold harmless each Purchaser, each of its
      affiliates (including any person who controls such Purchaser within the
      meaning of Section 15 of the Act or Section 20 of the Exchange Act) and
      their respective officers, directors, partners, shareholders, counsel,
      employees and agents (each Purchaser and each such other person being
      referred to as an "Indemnified Person"), to the fullest extent lawful,
      from and against any losses, claims, damages, liabilities and reasonable
      expenses (or actions in respect thereof), as incurred, related to or
      arising out of or in connection with:

      (i)   actions taken or omitted to be taken by the Company, the Subsidiary
            Guarantor, or their respective affiliates, officers, directors,
            employees or agents (including, without limitation, the failure to
            take any required actions pursuant to Circular No. 75 of the PRC's
            State Administration of Foreign Exchange, by any of the Company's
            executive officers or directors) or by Mr. Yang Tianfu;

                                       23
<PAGE>

      (ii)  any breach by the Company or the Subsidiary Guarantor of their
            respective representations, warranties, covenants and agreements set
            forth in this Agreement or in any of the other Documents;

      (iii) any untrue statement or alleged untrue statement of a material fact
            or the omission or alleged omission to state in any SEC Report or
            any amendment or supplement thereto, or the Disclosure Schedule, a
            material fact required to be stated therein, or necessary to make
            the statements therein in light of the circumstances under which
            they were made, not misleading.

      and, subject to the provisions hereof, will reimburse the Indemnified
      Persons for all reasonable expenses (including, without limitation, fees
      and expenses of counsel) as they are incurred in connection with
      investigating, preparing, defending or settling any such action or claim,
      whether or not in connection with litigation in which any Indemnified
      Person is a named party. If any of the Indemnified Persons' personnel
      appears as witnesses, are deposed or are otherwise involved in the defense
      of any action against an Indemnified Person, the Company, the Subsidiary
      Guarantor or their respective officers or directors, the Company and the
      Subsidiary Guarantor will reimburse each Purchaser for all reasonable
      expenses incurred by such Purchaser by reason of any of the Indemnified
      Persons being involved in any such action; provided, however, the Company
      and the Subsidiary Guarantor shall not be liable for indemnification
      hereunder with regard to any negligent act or omission or willful
      misconduct by such Purchaser or any other Indemnified Person which is the
      primary cause of, and results in, the unavailability to the Company (or
      any of its affiliates) or to the offering of the Units of the exemption
      from the registration requirements of the Securities Act provided by
      Regulation S thereunder. This indemnity will be in addition to any
      liability that the Company and the Subsidiary Guarantor may otherwise have
      to the Indemnified Persons.

(b)   As promptly as reasonably practical after receipt by an indemnified party
      under this Section 8 of notice of the commencement of any action for which
      such indemnified party is entitled to indemnification under this Section
      8, such indemnified party will, if a claim in respect thereof is to be
      made against the indemnifying party under this Section 8, notify the
      indemnifying party of the commencement thereof in writing; but the
      omission to so notify the indemnifying party (i) will not relieve such
      indemnifying party from any liability under paragraph (a) above unless and
      only to the extent it is materially prejudiced as a result thereof and
      (ii) will not, in any event, relieve the indemnifying party from any
      obligations to any indemnified party other than the indemnification
      obligation provided in paragraph (a) above. In case any such action is
      brought against any indemnified party, and it notifies the indemnifying
      party of the commencement thereof, the indemnifying party will be entitled
      to participate therein and, to the extent that it may determine, jointly
      with any other indemnifying party similarly notified, to assume the
      defense thereof, with counsel reasonably satisfactory to such indemnified
      party; provided, however, that if (i) the use of counsel chosen by the
      indemnifying party to represent the indemnified party would present such
      counsel with a conflict of interest, (ii) the defendants in any such
      action include both the indemnified party and the indemnifying party, and
      the indemnified party shall have been advised by counsel that there may be
      one or more legal defenses available to it and/or other indemnified party
      that are different from or additional to those available to the
      indemnifying party, or (iii) the indemnifying party shall not have
      employed counsel reasonably satisfactory to the indemnified party to
      represent the indemnified party within a reasonable time after receipt by
      the indemnifying party of notice of the institution of such action, then,
      in each such case, the indemnifying party shall not have the right to
      direct the defense of such action on behalf of such indemnified party or
      parties and such indemnified party or parties shall have the right to
      select separate counsel to defend such action on behalf of such
      indemnified party or parties at the expense of the indemnifying party.
      After notice from the indemnifying party to such indemnified party of its
      election so to assume the defense thereof and approval by such indemnified
      party of counsel appointed to defend such action, the indemnifying party
      will not be liable to such indemnified party under this Section 8 for any
      legal or other expenses, other than reasonable costs of investigation,
      subsequently incurred by such indemnified party in connection with the
      defense thereof, unless (i) the indemnified party shall have employed
      separate counsel in accordance with the proviso to the immediately
      preceding sentence (it being understood, however, that in connection with
      such action the indemnifying party shall not be liable for the expenses of
      more than one separate counsel (in addition to local counsel) in any one
      action or separate but substantially similar actions in the same
      jurisdiction arising out of the same general allegations or circumstances,
      representing the indemnified party who are parties to such action or
      actions) or (ii) the indemnifying party has authorized in writing the
      employment of counsel for the indemnified party at the expense of the
      indemnifying party. After such notice from the indemnifying party to such
      indemnified party, the indemnifying party will not be liable for the costs
      and expenses of any settlement of such action effected by such indemnified
      party without the prior written consent of the indemnifying party (which
      consent shall not be unreasonably withheld).

                                       24
<PAGE>

(c)   The Company or the Subsidiary Guarantor shall not, without the prior
      written consent of any Indemnified Person, effect any settlement or
      compromise of any pending or threatened action, claim, suit or proceeding
      in respect of which the Indemnified Person is or could have been a party,
      or indemnity could have been sought hereunder by any Indemnified Person,
      unless such settlement (A) includes an unconditional express written
      release of any Indemnified Person in from and substance reasonably
      satisfactory to any Indemnified Party, from all losses, claims, damages or
      liabilities arising out of such action, claim, suit or proceeding and (B)
      does not include any statement as to an admission of fault, culpability or
      failure to act by or on behalf of any Indemnified Person. If a claim or
      action is settled, or if there be a final judgment for the plaintiff with
      respect to any such claim or action, each indemnifying party jointly and
      severally agrees, subject to the exceptions and limitations set forth
      above, to indemnify and hold harmless each Indemnified Person from and
      against any and all losses, claims, damages or liabilities (and legal and
      other expenses as set forth above) incurred by reason of such settlement
      or judgment.

(d)   The indemnity and expense reimbursement obligations set forth herein (i)
      shall be in addition to any liability the Company or the Subsidiary
      Guarantor may have to any Indemnified Person at common law or otherwise,
      (ii) shall remain operative and in full force and effect regardless of any
      investigation made by or on behalf of any Purchaser or any other
      Indemnified Person and (iii) shall be binding on any successor or assign
      of the Company or the Subsidiary Guarantor and successors or assigns to
      the Company's and the Subsidiary Guarantor's business and assets.

(e)   If the Company or the Subsidiary Guarantor enter into any agreement or
      arrangement with respect to, or effects, any proposed sale, exchange,
      dividend or other distribution or liquidation of all or a significant
      portion of its assets in one or a series of transactions or any
      significant recapitalization or reclassification of its outstanding
      securities, the Company or the Subsidiary Guarantor shall provide for the
      assumption of their obligations under this Agreement by another party
      reasonably satisfactory to the Purchasers.

                                       25
<PAGE>

            9. Termination.

(a)   Purchasers may terminate this Agreement at any time prior to the Closing
      Date by written notice to the Company if any of the following has
      occurred:

      (i)   since the date hereof, any Material Adverse Effect or development
            involving or reasonably expected to result in a prospective Material
            Adverse Effect that could, in the Purchasers' reasonable judgment,
            be expected to (i) make it impracticable or inadvisable to proceed
            with the offering or delivery of the Securities on the terms and in
            the manner contemplated in this Agreement and the Indenture, or (ii)
            materially impair the investment quality of any of the Securities;

      (ii)  the failure of the Company or the Subsidiary Guarantor to satisfy
            the conditions contained in Section 7(a) hereof on or prior to the
            Closing Date;

      (iii) any outbreak or escalation of hostilities or other national or
            international calamity or crisis, including acts of terrorism, or
            material adverse change or disruption in economic conditions in, or
            in the financial markets of, the United States, the European Union,
            or Hong Kong (it being understood that any such change or disruption
            shall be relative to such conditions and markets as in effect on the
            date hereof), if the effect of such outbreak, escalation, calamity,
            crisis, act or material adverse change in the economic conditions
            in, or in the financial markets of, the United States, the European
            Union or Hong Kong could be reasonably expected to make it, in the
            Purchasers' sole judgment, impracticable or inadvisable to proceed
            with the offering or delivery of the Securities on the terms and in
            the manner contemplated in this Agreement or the Indenture;

      (iv)  trading in the Company' Common Stock shall have been suspended by
            the OTC market or the suspension or limitation of trading generally
            in securities on the New York Stock Exchange, the American Stock
            Exchange, the London Stock Exchange, the Hong Kong Stock Exchange,
            the NASDAQ Capital Market or the NASDAQ Global Market or any setting
            of limitations on prices for securities on any such exchange or the
            NASDAQ Capital Market or the NASDAQ Global Market;

      (v)   the enactment, publication, decree or other promulgation after the
            date hereof of any Applicable Law that could be reasonably expected
            to have a Material Adverse Effect; or

      (vi)  the declaration of a banking moratorium by any federal or New York
            state Governmental Authority; or the taking of any action by any
            Governmental Authority after the date hereof in respect of its
            monetary or fiscal affairs that could reasonably be expected to have
            a material adverse effect on the financial markets in the United
            States, European Union, Hong Kong or elsewhere.

(b)   The Company shall pay to each Purchaser a fee equal to 7.5% of the
      aggregate Purchase Price payable by such Purchaser for the Units proposed
      to be purchased hereunder (the "Company Breakup Fee") if (i) this
      Agreement is terminated by the Purchasers pursuant to Section 9(a)(ii)
      above and (ii) such termination is based upon the Company's or the
      Subsidiary Guarantor's intentional breach of its representations,
      warranties, covenants and obligations under this Agreement. The Company
      shall promptly (but in no event later than 7 days following such
      termination by the Purchaser) pay the Company Breakup Fee to the
      Purchasers.

                                       26
<PAGE>

(c)   The Company may terminate this Agreement at any time prior to the Closing
      Date by written notice to the Purchasers based upon the Purchasers'
      intentional breach of its representations, warranties, covenants and
      obligations under this Agreement.

(d)   Each Purchaser shall pay to the Company a fee equal to 7.5% of the
      aggregate Purchase Price payable by such Purchaser for the Units proposed
      to be purchased hereunder (the "Purchaser Breakup Fee") if this Agreement
      is terminated by the Company pursuant to Section 9(c) above; provided,
      however, that notwithstanding the foregoing or anything to the contrary
      contained herein, the Purchasers shall not be required to pay the
      Purchaser Break Fee based upon (i) such Purchaser's discovery during its
      due diligence investigation of any material information of the Company not
      previously disclosed to the Purchasers by the Company prior to the date
      hereof, (ii) any reasonably material discrepancy found during the
      Purchasers' due diligence investigation, or (iii) any material
      misstatement or omission by the Company in its audited financial
      statements or SEC Reports. Subject to the foregoing proviso, the
      Purchasers shall promptly (but in no event later than 7 days following
      such termination by the Company) pay the Purchaser Breakup Fee to the
      Company.

            10. Survival of Representations and Indemnities. The representations
and warranties, covenants, indemnities and contribution and expense
reimbursement provisions and other agreements of the Company, the Subsidiary
Guarantor and Purchasers set forth in this Agreement shall remain operative and
in full force and effect, and will survive, regardless of (i) any investigation,
or statement as to the results thereof, made by or on behalf of any Purchaser,
the Company or the Subsidiary Guarantor, and (ii) acceptance of the Securities,
and payment for them hereunder.

            11. Substitution Of Purchaser. Each Purchaser shall have the right
to substitute any one of its Affiliates as the purchaser of the Units that such
Purchaser has agreed to purchase hereunder, by written notice to the Company,
which notice shall be signed by both such Purchaser and such Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Section 6. Upon receipt of such notice,
wherever the word "Purchaser" is used in this Agreement (other than in this
Section 11), such word shall be deemed to refer to such Affiliate in lieu of the
original Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to the original
Purchaser all of the Securities then held by such Affiliate, upon receipt by the
Company of notice of such transfer, wherever the word "Purchaser" is used in
this Agreement (other than in this Section 11), such word shall no longer be
deemed to refer to such Affiliate, but shall refer to the original Purchaser,
and the original Purchaser shall have all the rights of an original holder of
the Securities under this Agreement.

            12. Miscellaneous.

(a)   Notices given pursuant to any provision of this Agreement shall be
      addressed as follows: (i) if to the Company and/or the Subsidiary
      Guarantor, to: No. 9 Ha Ping Xi Lu, Ha Ping Lu Ji Zhong Qu, Harbin Kai Fa
      Qu, Harbin 150060 China, Fax: +86 451 8611 6769, Attention: Yang Tianfu,
      with a copy to Reed Smith LLP, Two Embarcadero Center, Suite 2000, San
      Francisco, CA 94111, United States of America, Fax: +1 415 391 8269,
      Attention: Robert Smith, Esq., and (ii) if to any of the Purchasers, to
      the addresses as indicated in Schedule A, with a copy to Simpson, Thacher
      and Bartlett LLP, ICBC Tower - 7th Floor, 3 Garden Road, Central Hong
      Kong, China, Fax: +852 2869 7694, Attention: Leiming Chen, Esq. in the
      case of Citadel.

                                       27
<PAGE>

(b)   This Agreement has been and is made solely for the benefit of and shall be
      binding upon the Company, the Subsidiary Guarantor and the Purchasers and,
      to the extent provided in Section 8 hereof, the controlling persons and
      their respective agents, employees, officers, directors, partners,
      counsel, and shareholders referred to in Section 8, and their respective
      heirs, executors, administrators, successors and assigns, all as and to
      the extent provided in this Agreement, and no other person shall acquire
      or have any right under or by virtue of this Agreement.

(c)   THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND
      CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
      MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT REGARD TO PRINCIPLES OF
      CONFLICTS OF LAW.

(d)   The Company and the Subsidiary Guarantor agrees that any suit, action or
      proceeding against the Company or the Subsidiary Guarantor arising out of
      or based upon this Agreement or the transactions contemplated hereby may
      be instituted in any State or U.S. federal court in The City of New York
      and County of New York, and waives any objection which it may now or
      hereafter have to the laying of venue of any such proceeding, and
      irrevocably submits to the non-exclusive jurisdiction of such courts in
      any suit, action or proceeding.

(e)   The parties hereto each hereby waive any right to trial by jury in any
      action, proceeding or counterclaim arising out of or relating to this
      Agreement.

(f)   No failure to exercise, and no course of dealing with respect to, and no
      delay in exercising, any right, power or remedy hereunder shall operate as
      a waiver thereof; nor shall any single or partial exercise of any right,
      power or remedy hereunder preclude any other or further exercise thereof
      or the exercise of any other right, power or remedy.

(g)   This Agreement may be signed in various counterparts which together shall
      constitute one and the same instrument.

(h)   The headings in this Agreement are for convenience of reference only and
      shall not limit or otherwise affect the meaning hereof.

(i)   If any term, provision, covenant or restriction of this Agreement is held
      by a court of competent jurisdiction to be invalid, illegal, void or
      unenforceable, the remainder of the terms, provisions, covenants and
      restrictions set forth herein shall remain in full force and effect and
      shall in no way be affected, impaired or invalidated, and the parties
      hereto shall use their best efforts to find and employ an alternative
      means to achieve the same or substantially the same result as that
      contemplated by such term, provision, covenant or restriction. It is
      hereby stipulated and declared to be the intention of the parties that
      they would have executed the remaining terms, provisions, covenants and
      restrictions without including any of such that may be hereafter declared
      invalid, illegal, void or unenforceable.

(j)   This Agreement may be amended, modified or supplemented, and waivers or
      consents to departures from the provisions hereof may be given; provided
      that the same are in writing and signed by all of the signatories hereto.

                                       28
<PAGE>

                  Please confirm that the foregoing correctly sets forth the
agreement among the Company, or the Subsidiary Guarantor and each of the
Purchasers.

                             Very truly yours,

                             HARBIN ELECTRIC, INC.

                             By:  /s/ Tianfu Yang
                                ------------------------------------------------
                                 Name:  Tianfu Yang
                                 Title:  Chief Executive Officer

                             ADVANCED ELECTRIC MOTORS, INC.

                             By:  /s/ Tianfu Yang
                                ------------------------------------------------
                                 Name:  Tianfu Yang
                                 Title:  President and Chief Executive Officer

Accepted and Agreed to:

CITADEL EQUITY FUND LTD.

By:  Citadel Limited Partnership, Portfolio Manager

By:  Citadel Investment Group, L.L.C., its General Partner

By:  /s/ Christopher L. Ramsay
   --------------------------------------------------
    Name:  Christopher L. Ramsay
    Title:  Authorized Signatory

Merrill Lynch International

By:  /s/ Mark Grimley
   --------------------------------------------------
    Name:  Mark Grimley
    Title:  Director

                     [SIGNATURE PAGE TO PURCHASE AGREEMENT]EXHIBIT 4.2

================================================================================

                              HARBIN ELECTRIC, INC.

                                   $50,000,000

                  GUARANTEED SENIOR SECURED FLOATING RATE NOTES

                         ------------------------------

                                    INDENTURE

                           Dated as of August 30, 2006

                         ------------------------------

                              THE BANK OF NEW YORK,
                         a New York banking corporation
                                   as Trustee

================================================================================

<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
<S>     <C>                 <C>                                                                       <C>

                                                                                                      Page

ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE....................................................1

         Section 1.01.     Definitions..................................................................1

         Section 1.02.     Other Definitions...........................................................23

         Section 1.03.     Rules of Construction.......................................................23

ARTICLE II THE NOTES...................................................................................24

         Section 2.01.     Form and Dating.............................................................24

         Section 2.02.     Execution and Authentication................................................25

         Section 2.03.     Registrar, Paying Agent and Calculation Agent...............................26

         Section 2.04.     Paying Agent to Hold Money in Trust.........................................26

         Section 2.05.     Holder Lists................................................................26

         Section 2.06.     Transfer and Exchange.......................................................26

         Section 2.07.     Replacement Notes...........................................................28

         Section 2.08.     Outstanding Notes...........................................................28

         Section 2.09.     Treasury Notes..............................................................28

         Section 2.10.     Temporary Notes.............................................................28

         Section 2.11.     Cancellation................................................................29

         Section 2.12.     Payment of Interest; Defaulted Interest.....................................29

         Section 2.13.     ISIN Numbers................................................................29

         Section 2.14.     Record Date.................................................................29

ARTICLE III REDEMPTION AND PREPAYMENT..................................................................29

         Section 3.01.     Notices to Trustee..........................................................29

         Section 3.02.     Selection of Notes to Be Redeemed...........................................30

         Section 3.03.     Notice of Redemption........................................................30

         Section 3.04.     Effect of Notice of Redemption..............................................31

         Section 3.05.     Deposit of Redemption Price.................................................31

         Section 3.06.     Notes Redeemed in Part......................................................31

         Section 3.07.     Optional Redemption.........................................................31

         Section 3.08.     Mandatory Redemption........................................................32

         Section 3.09.     Offer To Purchase...........................................................33

         Section 3.10.     Repurchase of Notes by the Company at the Option of the Holder..............35

         Section 3.11.     Effect of Repurchase Notice.................................................36

         Section 3.12.     Deposit of Repurchase Price.................................................36

         Section 3.13.     Notes Repurchased in Part...................................................36

         Section 3.14.     Repayment to the Company....................................................37
</TABLE>

                                       i
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
<S>     <C>                 <C>                                                                       <C>
ARTICLE IV COVENANTS...................................................................................37

         Section 4.01.     Payment of Notes............................................................37

         Section 4.02.     Maintenance of Office or Agency.............................................37

         Section 4.03.     Reports.....................................................................38

         Section 4.04.     Compliance Certificate......................................................38

         Section 4.05.     Taxes.......................................................................39

         Section 4.06.     Stay, Extension and Usury Laws..............................................39

         Section 4.07.     Corporate Existence.........................................................39

         Section 4.08.     Payments for Consent........................................................39

         Section 4.09.     Incurrence of Additional Debt...............................................39

         Section 4.10.     Limitation on Restricted Payments...........................................40

         Section 4.11.     Limitation on Liens.........................................................42

         Section 4.12.     Limitation on Asset Sales...................................................42

         Section 4.13.     Limitation on Restrictions on Distributions from Subsidiaries...............43

         Section 4.14.     Limitations on Transactions with Affiliates.................................44

         Section 4.15.     Limitation on Issuance or Sale of Capital Stock of Subsidiaries.............45

         Section 4.16.     Maintenance of Consolidated Tangible Net Worth..............................46

         Section 4.17.     Repurchase at the Option of Holders Upon a Change of Control................46

         Section 4.18.     Future Subsidiary Guarantors................................................46

         Section 4.19.     Limitation on Company's Business............................................46

         Section 4.20.     Engage Qualified Auditing Firm..............................................46

         Section 4.21.     Impairment of Security Interest.............................................47

         Section 4.22.     Amendments to Security Documents............................................47

         Section 4.23.     Use of Proceeds.............................................................47

         Section 4.24.     Maintenance of Insurance....................................................47

         Section 4.25.     Listing of the Company's Common Stock.......................................47

         Section 4.26.     Government Approvals and Licenses; Compliance with Law......................48

         Section 4.27.     Appointment of Senior Financial Officer.....................................48

         Section 4.28.     Minimum Fixed Charge Coverage Ratio.........................................48

         Section 4.29.     Notes to Rank Senior........................................................48

ARTICLE V SUCCESSORS...................................................................................48

         Section 5.01.     Merger, Consolidation and Sale of Assets....................................48

         Section 5.02.     Successor Corporation Substituted...........................................50
</TABLE>

                                       ii
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
<S>     <C>                 <C>                                                                       <C>
ARTICLE VI DEFAULTS AND REMEDIES.......................................................................50

         Section 6.01.     Events of Default...........................................................50

         Section 6.02.     Acceleration................................................................52

         Section 6.03.     Other Remedies..............................................................52

         Section 6.04.     Waiver of Defaults..........................................................52

         Section 6.05.     Control by Majority.........................................................53

         Section 6.06.     Limitation on Suits.........................................................53

         Section 6.07.     Rights of Holders to Receive Payment........................................53

         Section 6.08.     Collection Suit by Trustee..................................................54

         Section 6.09.     Trustee May File Proofs of Claim............................................54

         Section 6.10.     Priorities..................................................................54

         Section 6.11.     Undertaking for Costs.......................................................55

ARTICLE VII TRUSTEE....................................................................................55

         Section 7.01.     Duties of Trustee...........................................................55

         Section 7.02.     Rights of Trustee...........................................................56

         Section 7.03.     Individual Rights of Trustee................................................57

         Section 7.04.     Trustee's Disclaimer........................................................57

         Section 7.05.     Notice of Defaults..........................................................57

         Section 7.06.     Reports by Trustee to Holders...............................................57

         Section 7.07.     Compensation and Indemnity..................................................58

         Section 7.08.     Replacement of Trustee......................................................58

         Section 7.09.     Successor Trustee by Merger, etc............................................59

         Section 7.10.     Eligibility; Disqualification...............................................59

ARTICLE VIII AMENDMENT, SUPPLEMENT AND WAIVER..........................................................60

         Section 8.01.     Without Consent of Holders of Notes.........................................60

         Section 8.02.     With Consent of Holders of Notes............................................60

         Section 8.03.     Revocation and Effect of Consents...........................................61

         Section 8.04.     Notation on or Exchange of Notes............................................62

         Section 8.05.     Trustee to Sign Amendments, etc.............................................62

ARTICLE IX GUARANTEES..................................................................................62

         Section 9.01.     Guarantee...................................................................62

         Section 9.02.     Limitation on Guarantor Liability...........................................63

         Section 9.03.     Execution and Delivery of Guarantee.........................................64

         Section 9.04.     Guarantors May Consolidate, etc., on Certain Terms..........................64

         Section 9.05.     Releases Following Merger, Consolidation or Sale of Assets, Etc.............65
</TABLE>

                                      iii
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
<S>     <C>                 <C>                                                                       <C>
ARTICLE X COLLATERAL AND SECURITY......................................................................65

         Section 10.01.    Security Documents..........................................................65

         Section 10.02.    Future Subsidiary Guarantor Pledgors........................................66

         Section 10.03.    Recording and Opinions......................................................67

         Section 10.04.    Release of Collateral.......................................................68

         Section 10.05.    Authorization of Actions to Be Taken by the Trustee Under the Security
                           Documents...................................................................69

         Section 10.06.    Authorization of Receipt of Funds by the Trustee Under the Security
                           Documents...................................................................68

         Section 10.07.    Termination of Security Interest............................................69

ARTICLE XI SATISFACTION AND DISCHARGE..................................................................69

         Section 11.01.    Satisfaction and Discharge..................................................69

         Section 11.02.    Deposited Cash and U.S. Government Securities to be Held in Trust; Other
                           Miscellaneous Provisions....................................................69

         Section 11.03.    Repayment to Company........................................................70

ARTICLE XII MISCELLANEOUS..............................................................................70

         Section 12.01.    Notices.....................................................................70

         Section 12.02.    Communication by Holders of Notes with Other Holders of Notes...............71

         Section 12.03.    Certificate and Opinion as to Conditions Precedent..........................71

         Section 12.04.    Statements Required in Certificate or Opinion...............................71

         Section 12.05.    Rules by Trustee and Agents.................................................72

         Section 12.06.    No Personal Liability of Directors, Officers, Employees and Stockholders....72

         Section 12.07.    Governing Law...............................................................72

         Section 12.08.    No Adverse Interpretation of Other Agreements...............................72

         Section 12.09.    Successors..................................................................72

         Section 12.10.    Severability................................................................72

         Section 12.11.    Counterpart Originals.......................................................72

         Section 12.12.    Table of Contents, Headings, etc............................................73
</TABLE>

                                       iv

<PAGE>

            This INDENTURE dated as of August 30, 2006, is by and among Harbin
Electric, Inc., a Nevada corporation (the "Company"), the Subsidiary Guarantor
(as defined below) and The Bank of New York, a New York banking corporation, as
trustee (the "Trustee").

            The Company has duly authorized the creation of an issue of
Guaranteed Senior Secured Floating Rate Notes due 2012 (the "2012 Notes") and
Guaranteed Senior Secured Floating Rate Notes due 2010 (the "2010 Notes"), and,
to provide therefor, the Company has duly authorized the execution and delivery
of this Indenture. All things necessary to make the Notes, when duly issued and
executed by the Company, and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid and binding
agreement of the Company, have been done.

            The Company, the Subsidiary Guarantor and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the Holders of the Notes issued under this Indenture:

                                    ARTICLE I

                   DEFINITIONS AND INCORPORATION BY REFERENCE

            Section 1.01. Definitions.

            For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

            "Additional Assets" means:

                  (a) any Property (other than cash, Cash Equivalent and
securities) to be owned by the Company or any of its Subsidiaries and used in a
Related Business; or

                  (b) Capital Stock of a Person that becomes a Subsidiary of the
Company as a result of the acquisition of such Capital Stock by the Company or
another Subsidiary of the Company from any Person other than the Company or an
Affiliate of the Company; provided, however, that, in the case of clause (b),
such Subsidiary is primarily engaged in a Related Business.

            "Additional Interest" means the additional interest of 2.0% per
annum that holders will be entitled to on the Notes if the Company has not
obtained a listing of its common stock on either the Nasdaq Capital Market or
the Nasdaq Global Market on or before July 1, 2007 and if the Company is not at
that time currently maintaining such listing. For all purposes of this
Indenture, the term "interest" shall include Additional Interest, if any, with
respect to the Notes.

            "Affiliate" of any specified Person means:

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

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

                        (1)   such specified Person,

                        (2)   any Subsidiary of such specified Person, or

                        (3)   any Person described in clause (a) above.

For the purposes of this definition, "control," when used with respect to any
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of Sections 4.12 and 4.14
and the definition of "Additional Assets" only, "Affiliate" shall also mean any
Beneficial Owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such Beneficial Owner pursuant
to the first sentence hereof. Notwithstanding the foregoing, in no event shall
Citadel Equity Fund Ltd. or any of its Affiliates be considered an Affiliate of
the Company.

<PAGE>

            "Agent" means any Registrar, co-registrar, Paying Agent or
additional paying agent or Calculation Agent.

            "Applicable Procedures" means, with respect to any transfer,
redemption or exchange of or for beneficial interests in any Global Note, the
rules and procedures of Euroclear and Clearstream that apply to such transfer,
redemption or exchange.

            "Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of

                  (a) any shares of Capital Stock of a Subsidiary of the Company
      (other than directors' qualifying shares), or

                  (b) any other Property of the Company or any Subsidiary of the
      Company,

                  other than, in the case of clause (a) or (b) above,

                        (1) any disposition by a Subsidiary of the Company to
            the Company or by the Company or a Subsidiary of the Company to a
            Wholly Owned Subsidiary,

                        (2) any disposition that constitutes a Permitted
            Investment or a Restricted Payment permitted by Section 4.10,

                        (3) leases or subleases to third parties of real
            property leased by the Company or its Subsidiaries or a disposition
            or assignment (as lessor) of a lease of real property, in each case,
            in the ordinary course of business,

                        (4) any disposition of inventory of the Company or any
            of its Subsidiaries in the ordinary course of business, or inventory
            or other property that in the reasonable judgment of the Company
            have become uneconomic, obsolete or worn out,

                        (5) issuances of Capital Stock of the Company to
            employees of the Company or any of its Subsidiaries as part of
            employee compensation programs approved by the Company's Board of
            Directors and in the ordinary course of business,

                        (6) the sale or discount of accounts receivable in
            connection with the compromise or collection thereof in the ordinary
            course of business,

                        (7) any disposition effected in compliance with the
            first paragraph of Section 5.01, and

                        (8) any disposition in a single transaction or a series
            of related transactions of assets for aggregate consideration of
            less than $1.0 million.

                                       2
<PAGE>

            "Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at any date of determination,

                  (a) if such Sale and Leaseback Transaction is a Capital Lease
      Obligation, the amount of Debt represented thereby according to the
      definition of "Capital Lease Obligations," and

                  (b) in all other instances, the present value (discounted at
      the weighted average interest rate borne by the Notes, compounded
      annually, in the most recently completed twelve months) of the total
      obligations of the lessee for rental payments during the remaining term of
      the lease included in such Sale and Leaseback Transaction (including any
      period for which such lease has been extended).

            "Average Life" means, as of any date of determination, with respect
to any Debt or Preferred Stock, the quotient obtained by dividing:

                  (a) the sum of the product of the numbers of years (rounded to
      the nearest one-twelfth of one year) from the date of determination to the
      dates of each successive scheduled principal payment of such Debt or
      redemption or similar payment with respect to such Preferred Stock
      multiplied by the amount of such payment by

                  (b) the sum of all such payments.

            "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors, or the law of any other jurisdiction
relating to bankruptcy, insolvency, winding up, liquidation, reorganization or
relief of debtors.

            "Beneficial Owner" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as such term is used in Section
13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent condition
or passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have
a corresponding meaning.

            "Board of Directors" means the board of directors of the Company or
(except if used in the definition of "Change of Control"), any authorized
committee of the Board of Directors of the Company.

            "Board Resolution" of a Person means a copy of a resolution
certified by the secretary or an assistant secretary (or individual performing
comparable duties) of the applicable Person to have been duly adopted by the
Board of Directors of such Person and to be in full force and effect on the date
of such certification, and delivered to the Trustee.

            "Business Day" means any day other than a Legal Holiday.

            "Calculation Agent" means initially The Bank of New York, a New York
banking corporation, until a successor replaces The Bank of New York in
accordance with Section 2.03 hereof and thereafter means the successor serving
hereunder.

            "Capital Expenditures" means, for any period, (a) expenditures by
the Company or any of its Subsidiaries for the acquisition or leasing (pursuant
to Capital Lease Obligations) of fixed or capital assets or additions to
equipment (including replacements, capitalized repairs and improvements during
such period) that should be capitalized under GAAP on a consolidated balance
sheet of the Company and its Subsidiaries, and (b) expenditures made pursuant to
clause (b) or clause (l) of the definition of "Permitted Investments" (other
than amounts expended in respect of the Company's initial Investment in each of
Harbin Taifu and a rotary motor manufacturer, which shall not be counted as
Capital Expenditures); provided that such amounts shall only be counted as
"Capital Expenditures" to the extent they exceed (w) $9.0 million in the case of
Investments relating to a Shanghai, PRC-based manufacturer of electric motors
for automobiles, (x) $6.0 million in the case of further expenditures relating
to a rotary motor manufacturer in which the Company or one or more of its
Subsidiaries makes an Investment after the Issue Date; (y) $5.0 million in the
case of Investments relating to a light rail passenger train system driven by
linear motors; and (z) $5.0 million in the case of Investments relating to
equipment for production related to motors used by magnetic levitation passenger
trains (or the Dollar Equivalent of any of the foregoing amounts).

                                       3
<PAGE>

            "Capital Lease Obligations" means any obligation under a lease that
is required to be capitalized for financial reporting purposes in accordance
with GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.

            "Capital Stock" means, with respect to any Person, any shares or
other equivalents (however designated) of any class of corporate stock or
partnership interests or any other participations, rights, warrants, options or
other interests in the nature of an equity interest in such Person, including
Preferred Stock, but excluding any debt security convertible or exchangeable
into such equity interest.

            "Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees) by the
Company of its Capital Stock (other than Disqualified Stock) after the Issue
Date, net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.

            "Cash Equivalents" means any of the following:

                  (a) Investments in U.S. Government Securities maturing within
      365 days of the date of acquisition thereof;

                  (b) Investments in time deposit accounts, certificates of
      deposit and money market deposits maturing within 90 days of the date of
      acquisition thereof issued by a bank or trust company organized under the
      laws of the United States of America or any state thereof having capital,
      surplus and undivided profits aggregating in excess of $500 million and
      whose long-term debt is rated "A-3" or "A-" or higher according to Moody's
      or S&P (or such similar equivalent rating by at least one "nationally
      recognized statistical rating organization" (as defined in Rule 436 under
      the Securities Act));

                  (c) repurchase obligations with a term of not more than 30
      days for underlying securities of the types described in clause (a)
      entered into with:

                        (1) a bank meeting the qualifications described in
            clause (b) above, or

                        (2) any primary government securities dealer reporting
            to the Market Reports Division of the Federal Reserve Bank of New
            York;

                  (d) Investments in commercial paper, maturing not more than 90
      days after the date of acquisition, issued by a corporation (other than an
      Affiliate of the Company) organized and in existence under the laws of the
      United States of America with a rating at the time as of which any
      Investment therein is made of "P-1" (or higher) according to Moody's or
      "A-1" (or higher) according to S&P (or such similar equivalent rating by
      at least one "nationally recognized statistical rating organization" (as
      defined in Rule 436 under the Securities Act));

                  (e) direct obligations (or certificates representing an
      ownership interest in such obligations) of any state of the United States
      of America (including any agency or instrumentality thereof) for the
      payment of which the full faith and credit of such state is pledged and
      which are not callable or redeemable at the issuer's option, provided
      that:

                                       4
<PAGE>

                        (1) the long-term debt of such state is rated "A-3" or
            "A-" or higher according to Moody's or S&P (or such similar
            equivalent rating by at least one "nationally recognized statistical
            rating organization" (as defined in Rule 436 under the Securities
            Act)), and

                        (2) such obligations mature within 180 days of the date
            of acquisition thereof;

                  (f) any money market fund that has at least 95% of its assets
      continuously invested in Cash Equivalents of the types described in
      clauses (a) through (e) above; and

                  (g) time deposit accounts, certificates of deposit and money
      market deposits with (i) Bank of China, Industrial and Commercial Bank of
      China, China Construction Bank and China Merchants Bank, (ii) any other
      bank or trust company organized under the laws of the PRC whose long-term
      debt is rated as high or higher than any of those banks, or (iii) any
      other bank organized under the laws of the PRC, provided that, in the case
      of clause (iii), such deposits do not exceed US$1.0 million (or the Dollar
      Equivalent thereof) with any single bank or US$2.0 million (or the Dollar
      Equivalent thereof) in the aggregate, at any date of determination
      thereafter.

            "Change of Control" means the occurrence of any of the following
events:

                  (a) the Permitted Holders cease to be the "beneficial owners"
      (as defined in Rule 13d-3 under the Exchange Act, except that a Person
      will be deemed to have "beneficial ownership" of all shares that any such
      Person has the right to acquire, whether such right is exercisable
      immediately or only after the passage of time) directly or indirectly, of
      at least a majority of the total voting power of the Voting Stock of the
      Company, whether as a result of the issuance of securities of the Company,
      any merger, consolidation, liquidation or dissolution of the Company, any
      direct or indirect transfer of securities by the Permitted Holders or
      otherwise (for purposes of this clause (a), the Permitted Holders will be
      deemed to beneficially own any Voting Stock of a specified corporation
      held by a parent corporation so long as the Permitted Holders beneficially
      own, directly or indirectly, in the aggregate a majority of the total
      voting power of the Voting Stock of such parent corporation); or

                  (b) the sale, transfer, assignment, lease, conveyance or other
      disposition, directly or indirectly, of all or substantially all the
      Property of the Company and its Subsidiaries, considered as a whole (other
      than a disposition of such Property as an entirety or virtually as an
      entirety to a Wholly Owned Subsidiary or one or more Permitted Holders),
      shall have occurred, or the Company merges, consolidates or amalgamates
      with or into any other Person (other than one or more Permitted Holders)
      or any other Person (other than one or more Permitted Holders) merges,
      consolidates or amalgamates with or into the Company, in any such event
      pursuant to a transaction in which the outstanding Voting Stock of the
      Company is reclassified into or exchanged for cash, securities or other
      Property, other than any such transaction where:

                        (1) the outstanding Voting Stock of the Company is
            reclassified into or exchanged for other Voting Stock of the Company
            or for Voting Stock of the Surviving Person, and

                        (2) the holders of the Voting Stock of the Company
            immediately prior to such transaction own, directly or indirectly,
            not less than a majority of the Voting Stock of the Company or the
            Surviving Person immediately after such transaction and in
            substantially the same proportion as before the transaction; or

                        (c) individuals who at the Issue Date constituted the
      Board of Directors (together with any new directors whose election or
      appointment by such Board or whose nomination for election by the
      shareholders of the Company was approved by a vote of not less than
      three-fourths of the directors then still in office who were either
      directors at the Issue Date or whose election or nomination for election
      was previously so approved) cease for any reason to constitute at least a
      majority of the Board of Directors then in office; or

                                       5
<PAGE>

                        (d) the shareholders of the Company shall have approved
            any plan of liquidation or dissolution of the Company.

            "Clearstream" means Clearstream Banking, S.A., Luxembourg, and any
successor thereto.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Collateral" means all the collateral described in the Security
Documents.

            "Collateral Agent" means The Bank of New York, a New York banking
corporation and any successor collateral agent appointed pursuant to the terms
of this Indenture.

            "Commission" means the Securities and Exchange Commission.

            "Commodity Price Protection Agreement" means, in respect of a
Person, any forward contract, commodity swap agreement, commodity option
agreement or other similar agreement or arrangement designed to protect such
Person against fluctuations in commodity prices.

            "Common Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section
2.03(b) hereof as the Common Depositary to Euroclear and Clearstream with
respect to the Notes, and any and all successors thereto appointed as depositary
hereunder and having become such pursuant to the applicable provisions of this
Indenture.

            "Company" is defined in the preamble.

            "Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Subsidiaries, plus to the
extent not included in such total interest expense, and to the extent Incurred
by the Company or its Subsidiaries, without duplication,

                  (a) interest expense attributable to leases constituting part
      of a Sale and Leaseback Transaction and to Capital Lease Obligations,

                  (b) amortization of debt discount and debt issuance cost,
      including commitment fees,

                  (c) capitalized interest,

                  (d) non-cash interest expense,

                  (e) commissions, discounts and other fees and charges owed
      with respect to letters of credit and banker's acceptance financing,

                  (f) net costs associated with Hedging Obligations (including
      amortization of fees),

                  (g) Disqualified Stock Dividends (other than dividends payable
      in Capital Stock other than Disqualified Stock),

                  (h) Preferred Stock Dividends (other than dividends payable in
      Capital Stock other than Disqualified Stock),

                  (i) interest Incurred in connection with Investments in
      discontinued operations,

                                       6
<PAGE>

                  (j) interest accruing on any Debt of any other Person to the
      extent such Debt is Guaranteed by the Company or any Subsidiary of the
      Company, and

                  (k) the cash contributions to any employee stock ownership
      plan or similar trust to the extent such contributions are used by such
      plan or trust to pay interest or fees to any Person (other than the
      Company) in connection with Debt Incurred by such plan or trust.

            "Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income:

            (a) any net income (loss) of any Person (other than the Company) if
      such Person is not a Subsidiary, except that:

                        (1) subject to the exclusion contained in clause (d)
            below, equity of the Company and its Consolidated Subsidiaries in
            the net income of any such Person for such period shall be included
            in such Consolidated Net Income up to the aggregate amount of cash
            distributed by such Person during such period to the Company or any
            of its Subsidiaries as a dividend or other distribution (subject, in
            the case of a dividend or other distribution to such a Subsidiary,
            to the limitations contained in clause (c) below), and

                        (2) the equity of the Company and its Consolidated
            Subsidiaries in a net loss of any such Person for such period shall
            be included in determining such Consolidated Net Income to the
            extent such loss is being funded by the Company or one of its
            Subsidiaries,

            (b) for purposes of Section 4.10 only, any net income (loss) of any
      Person acquired by the Company or any of its consolidated Subsidiaries in
      a pooling of interests transaction for any period prior to the date of
      such acquisition,

            (c) any net income (loss) of any Subsidiary of the Company if such
      Subsidiary is subject to restrictions, directly or indirectly, on the
      payment of dividends or the making of distributions, directly or
      indirectly, to the Company, except that:

                        (1) subject to the exclusion contained in clauses (d),
            (e) and (f) below, the equity of the Company and its Consolidated
            Subsidiaries in the net income of any such Subsidiary for such
            period shall be included in such Consolidated Net Income up to the
            aggregate amount of cash distributed by such Subsidiary during such
            period to the Company or another of its Subsidiaries as a dividend
            or other distribution (subject, in the case of a dividend or other
            distribution to another Subsidiary of the Company, to the limitation
            contained in this clause), and

                        (2) the equity of the Company and its Consolidated
            Subsidiaries in a net loss of any such Subsidiary for such period
            shall be included in determining such Consolidated Net Income,

            (d) any gain (but not loss) realized upon the sale or other
      disposition of any Property of the Company or any of its consolidated
      Subsidiaries (including pursuant to any Sale and Leaseback Transaction)
      that is not sold or otherwise disposed of in the ordinary course of
      business,

            (e) any extraordinary gain or loss,

            (f) the cumulative effect of a change in accounting principles, and

            (g) any non-cash compensation expense realized for grants of
      performance shares, stock options or other rights to officers, directors
      and employees of the Company or any of its Subsidiaries, provided that
      such shares, options or other rights can be redeemed at the option of the
      holder only for Capital Stock of the Company (other than Disqualified
      Stock) .

                                       7
<PAGE>

            "Consolidated Net Worth" means the total of the amounts shown on the
consolidated balance sheet of the Company and its Subsidiaries as of (i) the end
of the most recent Fiscal Quarter of the Company in the case of Section 4.16 and
(ii) in all other cases, the end of the most recent Fiscal Quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as:

            (a) the par or stated value of all outstanding Capital Stock of the
      Company, plus

            (b) paid-in capital or capital surplus relating to such Capital
      Stock, plus

            (c) any retained earnings or earned surplus, less:

                        (1) any accumulated deficit, and

                        (2) any amounts attributable to Disqualified Stock or
            any equity security convertible into or exchangeable for Debt, the
            cost of treasury stock and the principal amount of any promissory
            notes receivable from the sale of Capital Stock of the Company or
            any of its Subsidiaries, each item to be determined in conformity
            with GAAP.

            "Consolidated Tangible Net Worth" means, as of any date of
determination, the Consolidated Net Worth less the Intangible Assets.

            "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors who (a) was a member of the Board of Directors
on the date of this Indenture or (b) was nominated for election to the Board of
Directors by, or whose election was ratified with the approval of, a majority of
the Continuing Directors who were members of the Board of Directors at the time
of such nomination or election.

            "Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.01 hereof, or such other address as to which
the Trustee may give notice to the Company.

            "Credit Facilities" means, with respect to the PRC Subsidiary, one
or more debt or commercial paper facilities with banks or other institutional
lenders in the PRC providing for revolving credit loans, term loans, receivables
or inventory financing (including through the sale of receivables or inventory
to such lenders or to special purpose, bankruptcy remote entities formed to
borrow from such lenders against such receivables or inventory) or trade letters
of credit, in each case together with any Refinancings thereof by any lender or
syndicate of lenders.

            "Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.

            "Custodian" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03(c) as
Custodian with respect to the Notes, and any and all successors thereto
appointed as custodian hereunder and having become such pursuant to the
applicable provisions of this Indenture.

            "Debt" means, with respect to any Person on any date of
determination (without duplication):

                  (a) the principal of and premium (if any) in respect of:

                        (1) debt of such Person for money borrowed, and

                        (2) debt evidenced by notes, debentures, bonds or other
            similar instruments for the payment of which such Person is
            responsible or liable;

                                       8
<PAGE>

            (b) all Capital Lease Obligations of such Person and all
      Attributable Debt in respect of Sale and Leaseback Transactions entered
      into by such Person;

            (c) all obligations of such Person representing the deferred
      purchase price of Property, all conditional sale obligations of such
      Person and all obligations of such Person under any title retention
      agreement (but excluding trade accounts payable arising in the ordinary
      course of business);

            (d) all obligations of such Person for the reimbursement of any
      obligor on any letter of credit, banker's acceptance or similar credit
      transaction (other than obligations with respect to letters of credit
      securing obligations (other than obligations described in (a) through (c)
      above) entered into in the ordinary course of business of such Person to
      the extent such letters of credit are not drawn upon or, if and to the
      extent drawn upon, such drawing is reimbursed no later than the third
      Business Day following receipt by such Person of a demand for
      reimbursement following payment on the letter of credit);

            (e) the amount of all obligations of such Person with respect to the
      Repayment of any Disqualified Stock or, with respect to any Subsidiary of
      such Person, any Preferred Stock (but excluding, in each case, any accrued
      dividends);

            (f) all obligations of the type referred to in clauses (a) through
      (e) above of other Persons and all dividends of other Persons for the
      payment of which, in either case, such Person is responsible or liable,
      directly or indirectly, as obligor, guarantor or otherwise, including by
      means of any Guarantee;

            (g) all obligations of the type referred to in clauses (a) through
      (f) above of other Persons secured by any Lien on any Property of such
      Person (whether or not such obligation is assumed by such Person), the
      amount of such obligation being deemed to be the lesser of the Fair Market
      Value of such Property and the amount of the obligation so secured; and

            (h) to the extent not otherwise included in this definition, Hedging
      Obligations of such Person.

The amount of Debt of any Person at any date shall be the outstanding balance,
or the accreted value of such Debt in the case of Debt issued with original
issue discount, at such date of all unconditional obligations as described above
and the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date. The amount of Debt
represented by a Hedging Obligation shall be equal to:

                        (1) zero if such Hedging Obligation has been Incurred
            pursuant to clause (d), (e) or (f) of the second paragraph of
            Section 4.09 or

                        (2) the notional amount of such Hedging Obligation if
            not Incurred pursuant to such clauses.

            "Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.

            "Definitive Note" means a certificated Note registered in the name
of the Holder thereof and issued in accordance with Section 2.06 or 2.10 hereof,
in substantially the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.

            "Determination Date" means, with respect to any Interest Period, the
second London Banking Day preceding the first day of the Interest Period.

                                       9
<PAGE>

            "Disqualified Stock" means any Capital Stock of the Company or any
of its Subsidiaries that by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable, in either case at the
option of the holder thereof) or otherwise:

            (a) matures or is mandatorily redeemable pursuant to a sinking fund
      obligation or otherwise,

            (b) is or may become redeemable or repurchaseable at the option of
      the holder thereof (except that any Capital Stock that would constitute
      Disqualified Stock solely because the holders of such Capital Stock have
      the right to require the Company to repurchase such Capital Stock upon the
      occurrence of a Change of Control or an Asset Sale shall not constitute
      Disqualified Stock if the terms of such Capital Stock provide that the
      Company may not repurchase or redeem any such Capital Stock pursuant to
      such provisions unless such repurchase or redemption complies with Section
      4.10 hereof), in whole or in part, or

            (c) is convertible or exchangeable at the option of the holder
      thereof for Debt or Disqualified Stock,

on or prior to, in the case of clause (a), (b) or (c), the first anniversary of
the Stated Maturity of the Notes.

            "Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Subsidiary. The amount of any such dividend shall be equal to the quotient of
such dividend divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the Company.

            "Dollar Equivalent" means, with respect to any monetary amount in a
currency other than U.S. dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the base rate for the purchase of U.S.
dollars with the applicable foreign currency as quoted by the Federal Reserve
Bank of New York on the date of determination.

            "EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Subsidiaries:

                  (a) the sum of Consolidated Net Income for such period, plus
      the following to the extent reducing Consolidated Net Income for such
      period:

                        (1) the provision for taxes based on income or profits
            or utilized in computing net loss,

                        (2) Consolidated Interest Expense,

                        (3) depreciation,

                        (4) amortization of intangibles (excluding amortization
            expense attributable to a prepaid operating activity item that was
            paid in cash in a prior period), and

                        (5) any other non-cash items (other than any such
            non-cash item to the extent that it represents an accrual of, or
            reserve for, cash expenditures in any future period), minus

                  (b) all non-cash items increasing Consolidated Net Income for
      such period.

Notwithstanding the foregoing clause (a), the provision for taxes and the
depreciation, amortization and non-cash items of a Subsidiary of the Company
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Subsidiary was included
in calculating Consolidated Net Income and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Subsidiary without prior approval (that has not been obtained), pursuant to
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its shareholders.

                                       10
<PAGE>

            "Euroclear" means Euroclear Bank, S.A./N.V., as operator of the
Euroclear system, and any successor thereto.

            "Event of Default" has the meaning set forth under Section 6.01.

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Fair Market Value" means, with respect to any Property at the time
of determination, the price that could be negotiated in an arm's length free
market transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair Market Value shall be determined, except as otherwise
provided,

                  (a) if such Property has a Fair Market Value equal to or less
      than $5.0 million, by any Officer of the Company, or

                  (b) if such Property has a Fair Market Value in excess of $5.0
      million, by an Independent Financial Advisor and evidenced by a written
      opinion from such Independent Financial Advisor, dated within 30 days of
      the relevant transaction, delivered to the Trustee.

            "Financial Covenant Debt" of any Person means Debt of the type
specified in clauses (a), (b), (c) and (e) of the definition of "Debt" and
non-contingent obligations of the type specified in clause (d) of such
definition.

            "Fiscal Quarter" means each of the three month periods ending on
March 31, June 30, September 30 and December 31.

            "Fixed Charge Coverage Ratio" means, with respect to any Person, the
ratio of (a) EBITDA of such Person for the most recent four consecutive Fiscal
Quarters minus cash Capital Expenditures of such Person for such period (other
than cash Capital Expenditures permitted by Section 4.12 to be made with Net
Available Cash) minus the positive amount of any decrease in working capital
during such fiscal year (or plus the amount of any increase in working capital
during such fiscal year, as the case may be) to (b) the Fixed Charges of such
Person.

In addition, if since the beginning of the fourth full Fiscal Quarter so
preceding such determination date, the Company or any of its Subsidiaries shall
have made any Asset Sale or acquired any material assets, EBITDA for such period
shall be calculated on a pro forma basis as if such Asset Sale or acquisition
occurred on the first day of such period.

            "Fixed Charges" means the sum of (a) the Consolidated Interest
Expense of such Person and its Subsidiaries for such period that is anticipated
to accrue during a period consisting of the Fiscal Quarter in which such
determination date occurs and the three Fiscal Quarters immediately subsequent
thereto (based on the pro forma amount and maturity of, and interest payments in
respect of, Debt of the Company and its Subsidiaries expected by the Company to
be outstanding on such determination date), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on such
determination date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
such determination date, provided that, if the Company or any of its
Subsidiaries is a party to any Interest Rate Agreement that would have the
effect of changing the interest rate on any Debt of the Company or any of its
Subsidiaries for such four-quarter period (or a portion thereof), the rate
resulting therefrom shall be used for such four-quarter period or portion
thereof, provided further that any Consolidated Interest Expense with respect to
Debt so Incurred or Repaid by the Company or any of its Subsidiaries during the
Fiscal Quarter in which such determination date occurs shall be calculated on a
pro forma basis as if such Debt was Incurred or Repaid on the first day of such
Fiscal Quarter, (b) the principal amount of consolidated Financial Covenant Debt
of such Person and its Subsidiaries having a scheduled due date during such
period and (c) all cash dividends payable by such Person and its Subsidiaries on
Capital Stock in respect of such period to Persons other than such Person and
its Subsidiaries.

                                       11
<PAGE>

            "GAAP" means United States generally accepted accounting principles
as in effect on the Issue Date, including those set forth in:

                  (a) the opinions and pronouncements of the Accounting
      Principles Board of the American Institute of Certified Public
      Accountants,

                  (b) the statements and pronouncements of the Financial
      Accounting Standards Board,

                  (c) such other statements by such other entity as approved by
      a significant segment of the accounting profession, and

                  (d) the rules and regulations of the Commission governing the
      inclusion of financial statements (including pro forma financial
      statements) in periodic reports required to be filed pursuant to Section
      13 of the Exchange Act, including opinions and pronouncements in staff
      accounting bulletins and similar written statements from the accounting
      staff of the Commission.

            "Global Note Legend" means the legend set forth on all Global Notes
issued under this Indenture.

            "Global Notes" means the global Notes in the form of Exhibit A
hereto issued in accordance with Article 2 hereof.

            "Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:

                  (a) to purchase or pay (or advance or supply funds for the
      purchase or payment of) such Debt of such other Person (whether arising by
      virtue of partnership arrangements, or by agreements to keep-well, to
      purchase assets, goods, securities or services, to take-or-pay or to
      maintain financial statement conditions or otherwise), or

                  (b) entered into for the purpose of assuring in any other
      manner the obligee against loss in respect thereof (in whole or in part);

provided, however, that the term "Guarantee" shall not include:

                        (1) endorsements for collection or deposit in the
            ordinary course of business, or

                        (2) a contractual commitment by one Person to invest in
            another Person for so long as such Investment is reasonably expected
            to constitute a Permitted Investment under clause (a) or (b) of the
            definition of "Permitted Investment."

The term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.

            "Harbin Taifu" means Harbin Taifu Auto Co., Ltd. (GRAPHIC MISSING),
a limited liability company organized and existing under the laws of the PRC.

                                       12
<PAGE>

            "Hedging Obligation" of any Person means any obligation of such
Person pursuant to any Interest Rate Agreement, Currency Exchange Protection
Agreement, Commodity Price Protection Agreement or any other similar agreement
or arrangement.

            "Holder" or "holder" means a Person in whose name a Note is
registered in the Security Register.

            "Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
however, that a change in GAAP that results in an obligation of such Person that
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
any Debt or other obligations of a Person existing at the time such Person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary; and provided further, however, that solely for purposes of
determining compliance with Section 4.09, amortization of debt discount shall
not be deemed to be the Incurrence of Debt, provided that in the case of Debt
sold at a discount, the amount of such Debt Incurred shall at all times be the
aggregate principal amount at Stated Maturity.

            "Indenture" means this instrument, as originally executed or as it
may from time to time be supplemented or amended in accordance with Article 8
hereof.

            "Independent Financial Advisor" means an investment banking firm of
international standing or any third party appraiser of international standing,
provided that such firm or appraiser is not an Affiliate of the Company and
provided further that in any event Sallmanns (Far East) Ltd. shall be an
Independent Financial Advisor.

            "Intangible Assets" shall mean as of the date of any determination
thereof the total amount of all assets of the Company and its Subsidiaries
classified as goodwill, patents, trade names, trademarks, copyrights,
franchises, experimental expense, organization expense, unamortized debt
discount and expense, deferred assets other than prepaid insurance and prepaid
taxes, the excess of cost of shares acquired over book value of related assets
and such other assets as are properly classified as "intangible assets" in
accordance with GAAP.

            "Interest Payment Dates" shall have the meaning set forth in
paragraph 1 of each Note.

            "Interest Period" means the period commencing on and including an
interest payment date and ending on and including the day immediately preceding
the next succeeding interest payment date, with the exception that the first
Interest Period shall commence on and include the Issue Date and end on and
include March 1, 2007.

            "Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.

            "Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.

            "Issue Date" means, with respect to Notes of a particular maturity,
the date on which such Notes are initially issued.

                                       13
<PAGE>

            "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York and the People's Republic of China, the
city in which the Corporate Trust Office of the Trustee is located or any other
place of payment on the Notes are authorized by law, regulation or executive
order to remain closed.

            "LIBOR" means, with respect to an Interest Period, the rate
(expressed as a percentage per annum) for deposits in United States dollars for
a six-month period beginning on the second London Banking Day after the
Determination Date that appears on either Telerate Page 3750 or Bloomberg page
BBAM 1 as of 11:00 a.m., London time, on the Determination Date. If Telerate
Page 3750 and Bloomberg page BBAM 1 do not include such a rate or are
unavailable on a Determination Date, the Calculation Agent will request the
principal London office of each of four major banks in the London interbank
market, as selected by the Calculation Agent (after consultation with the
Company), to provide such bank's offered quotation (expressed as a percentage
per annum), as of approximately 11:00 a.m., London time, on such Determination
Date, to prime banks in the London interbank market for deposits in a
Representative Amount in United States dollars for a six-month period beginning
on the second London Banking Day after the Determination Date. If at least two
such offered quotations are so provided, LIBOR for the Interest Period will be
the arithmetic mean of such quotations. If fewer than two such quotations are so
provided, the Calculation Agent will request each of three major banks in New
York City, as selected by the Calculation Agent (after consultation with the
Company), to provide such bank's rate (expressed as a percentage per annum), as
of approximately 11:00 a.m., New York City time, on such Determination Date, for
loans in a Representative Amount in United States dollars to leading European
banks for a six-month period beginning on the second London Banking Day after
the Determination Date. If at least two such rates are so provided, LIBOR for
the Interest Period will be the arithmetic mean of such rates. If fewer than two
such rates are so provided, then LIBOR for the Interest Period will be LIBOR in
effect with respect to the immediately preceding Interest Period.

            "Lien" means, with respect to any Property of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).

            "Liquidated Damages" means (i) the aggregate amount of $750,000 due
and payable by the Company to the holders on a pro rata basis (proportionate to
their holding of the Notes that are at that time outstanding) on or before April
9, 2007 if the Company has not obtained a listing of its common stock on either
the Nasdaq Capital Market or the Nasdaq Global Market on or before April 1, 2007
and if the Company is not at that time currently maintaining such listing, (ii)
the aggregate amount of $1,500,000 due and payable by the Company to the holders
on a pro rata basis (proportionate to their holding of the Notes that are at
that time outstanding) on or before July 9, 2007 if the Company has not obtained
a listing of its common stock on either the Nasdaq Capital Market or the Nasdaq
Global Market on or before July 1, 2007 and if the Company is not at that time
currently maintaining such listing, (iii) the aggregate amount of $2,500,000 due
and payable by the Company to the holders on a pro rata basis (proportionate to
their holding of the Notes that are at that time outstanding) on or before March
1 of each year, beginning March 1, 2007, if the Company has not complied with
Section 4.20 by the January 1 immediately preceding each such March 1, and if an
independent accounting firm identified in Section 4.20 is not at each such March
1 engaged by the Company and (iv) the aggregate amount of $1,200,000 due and
payable by the Company to the holders on a pro rata basis (proportionate to
their holding of the Notes that are at that time outstanding) on or before the
125th day following the Issue Date, if the Company has not complied with Section
4.27 by the 120th day following the Issue Date, and the same aggregate amount
for each subsequent 120-day period in which the Company fails to comply with
Section 4.27 (the Liquidated Damages for each such subsequent period being
payable on the 5th day following expiration of such subsequent period). For all
purposes of this Indenture, the term "premium" shall include Liquidated Damages,
if any, with respect to the Notes.

            "London Banking Day" means any day in which dealings in United
States dollars are transacted or, with respect to any future date, are expected
to be transacted in the London interbank market.

            "Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.

                                       14
<PAGE>

            "Net Available Cash" from any Asset Sale means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Debt or other obligations
relating to the Property that is the subject of such Asset Sale or received in
any other non-cash form), in each case net of:

                  (a) all legal, title and recording tax expenses, commissions
      and other fees and expenses incurred, and all U.S. federal, state,
      national, provincial, foreign and local taxes required to be accrued as a
      liability under GAAP, as a consequence of such Asset Sale,

                  (b) all payments made on or in respect of any Debt that is
      secured by any Property subject to such Asset Sale, in accordance with the
      terms of any Lien upon such Property, or which must by its terms, or in
      order to obtain a necessary consent to such Asset Sale, or by applicable
      law, be repaid out of the proceeds from such Asset Sale,

                  (c) all distributions and other payments required to be made
      to minority interest holders in Subsidiaries or joint ventures as a result
      of such Asset Sale, and

                  (d) the deduction of appropriate amounts provided by the
      seller as a reserve, in accordance with GAAP, against any liabilities
      associated with the Property disposed of in such Asset Sale and retained
      by the Company or any of its Subsidiaries after such Asset Sale.

            "Note Obligations" means the Notes, the Note Guarantees and all
other obligations of any obligor under this Indenture, the Notes, the Note
Guarantees and the Security Documents.

            "Notes" means the 2012 Notes treated as a single class of
securities, and the 2010 Notes treated as a single class of securities, in each
case as amended or supplemented from time to time in accordance with the terms
hereof, that are issued pursuant to this Indenture.

            "Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Debt.

            "Officer" means the Chief Executive Officer, the President, the
Chief Financial Officer or any Executive Vice President of any Person.

            "Officers' Certificate" means a certificate signed by two Officers
of the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.

            "Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.

            "Permitted Holders" means Mr. YANG Tianfu, a resident of the City of
Harbin in Heilongjiang Provice, PRC, and his estate, spouse, siblings, ancestors
and lineal descendants, the legal representatives of any of the foregoing and
the trustees of any bona fide trusts of which the foregoing are the sole
beneficiaries or the grantors, or any Person of which the foregoing
"beneficially owns" (as defined in Rule 13d-3 under the Exchange Act),
individually or collectively with any of the foregoing, at least 80% of the
total voting power of the Voting Stock of such Person.

            "Permitted Investment" means any Investment by the Company or any of
its Subsidiaries in:

                  (a) the Company or any of its Subsidiaries engaged in a
      Related Business;

                  (b) a Person, if as a result of such Investment:

                                       15
<PAGE>

                        (1) such Person becomes a Subsidiary of the Company; or

                        (2) such Person is merged, consolidated or amalgamated
      with or into, or transfers or conveys substantially all of its assets to,
      or is liquidated into, the Company or one of its Subsidiaries; provided in
      the case of clauses (1) and (2) that (w) the primary business of such
      Person is a Related Business, (x) such Investments are made for Fair
      Market Value, (y) such Investments in the aggregate do not exceed the
      greater of $5.0 million and 15% of the aggregate amount of Consolidated
      Net Income accrued during the period (treated as one accounting period)
      from the Issue Date to the end of the most recent Fiscal Quarter ending at
      least 45 days prior to the date of such Investment and (z) no such
      Investment is made prior to the expiration of the 18th month following the
      Issue Date;

                  (c) cash and Cash Equivalents;

                  (d) receivables owing to the Company or one of its
      Subsidiaries, if created or acquired in the ordinary course of business
      and payable or dischargeable in accordance with customary trade terms;
      provided, however, that such trade terms may include such concessionary
      trade terms as the Company or such Subsidiary deems reasonable under the
      circumstances;

                  (e) payroll, travel and similar advances to cover matters that
      are expected at the time of such advances ultimately to be treated as
      expenses under GAAP and that are made in the ordinary course of business;

                  (f) loans and advances to employees made in the ordinary
      course of business consistent with past practices of the Company or such
      Subsidiary, as the case may be, provided that such loans and advances do
      not exceed $250,000 in the aggregate at any one time outstanding;

                  (g) stock, obligations or other securities received in
      settlement of debts created in the ordinary course of business and owing
      to the Company or one of its Subsidiaries or in satisfaction of judgments;

                  (h) any Person to the extent such Investment represents the
      non-cash portion of the consideration received in connection with any
      disposition of Property not constituting an Asset Sale;

                  (i) Investments (whether or not funded with proceeds of the
      Notes) made for Fair Market Value that are in compliance with Section
      4.23;

                  (j) Hedging Obligations by the Company or any Subsidiary
      Guarantor that are otherwise permitted to be incurred under this
      Indenture, and which were entered into for financial management of
      interest rates, foreign currency exchange rates or commodity prices and
      are directly related to transactions entered into by such Person in the
      ordinary course of its business, and not for speculative purposes;

                  (k) any Person to the extent such Investment represents the
      non-cash portion of the consideration received in connection with an Asset
      Sale consummated in compliance with Section 4.12; and

                  (l) any other Investments made for Fair Market Value; provided
      that the aggregate of all Investments falling within this paragraph (l)
      shall not exceed, in any fiscal year, 10% of the aggregate amount of
      Consolidated Net Income accrued during the immediately preceding fiscal
      year.

            "Permitted Liens" means:

                  (a) Liens in favor of the Company or the Subsidiary
      Guarantors;

                                       16
<PAGE>

                  (b) Liens securing, or created for the benefit of securing,
      the Notes and the Guarantees;

                  (c) Liens to secure Debt permitted to be Incurred under clause
      (b) of the second paragraph of Section 4.09 and other obligations
      thereunder, provided that any such Lien is limited to the accounts
      receivable and inventory of the PRC Subsidiary;

                  (d) Liens for taxes, assessments or governmental charges or
      levies on the Property of the Company or any of its Subsidiaries if the
      same shall not at the time be delinquent or thereafter can be paid without
      penalty, or are being contested in good faith and by appropriate
      proceedings promptly instituted and diligently concluded, provided that
      any reserve or other appropriate provision that shall be required in
      conformity with GAAP shall have been made therefor;

                  (e) Liens imposed by law, such as carriers', warehousemen's
      and mechanics' Liens and other similar Liens, on the Property of the
      Company or any of its Subsidiaries arising in the ordinary course of
      business and securing payment of obligations that are not more than 60
      days past due or are being contested in good faith and by appropriate
      proceedings;

                  (f) Liens on the Property of the Company or any of its
      Subsidiaries Incurred in the ordinary course of business to secure
      performance of obligations with respect to statutory or regulatory
      requirements, performance or return-of-money bonds, surety bonds or other
      obligations of a like nature and Incurred in a manner consistent with
      industry practice, in each case which are not Incurred in connection with
      the borrowing of money, the obtaining of advances or credit or the payment
      of the deferred purchase price of Property and which do not in the
      aggregate impair in any material respect the use of Property in the
      operation of the business of the Company and its Subsidiaries taken as a
      whole;

                  (g) Liens on Property at the time the Company or any of its
      Subsidiaries acquired such Property, including any acquisition by means of
      a merger or consolidation with or into the Company or any of its
      Subsidiaries; provided, however, that any such Lien may not extend to any
      other Property of the Company or any of its Subsidiaries; provided
      further, however, that such Liens shall not have been Incurred in
      anticipation of or in connection with the transaction or series of
      transactions pursuant to which such Property was acquired by the Company
      or any of its Subsidiaries;

                  (h) Liens on the Property of a Person at the time such Person
      becomes a Subsidiary of the Company; provided, however, that any such Lien
      may not extend to any other Property of the Company or any other of its
      Subsidiaries that is not a direct Subsidiary of such Person; provided
      further, however, that any such Lien was not Incurred in anticipation of
      or in connection with the transaction or series of transactions pursuant
      to which such Person became a Subsidiary of the Company;

                  (i) pledges or deposits by the Company or any of its
      Subsidiaries under workers' compensation laws, unemployment insurance laws
      or similar legislation, or good faith deposits in connection with bids,
      tenders, contracts (other than for the payment of Debt) or leases to which
      the Company or any of its Subsidiaries is party, or deposits to secure
      public or statutory obligations of the Company, or deposits for the
      payment of rent, in each case Incurred in the ordinary course of business;

                  (j) utility easements, building restrictions and such other
      encumbrances or charges against real Property as are of a nature generally
      existing with respect to properties of a similar character;

                  (k) Liens existing on the Issue Date not otherwise described
      in clauses (a) through (j) above;

                  (l) Liens on the Property of the Company or any of its
      Subsidiaries to secure any Refinancing, in whole or in part, of any Debt
      secured by Liens referred to in clause (g), (h) or (k) above; provided,
      however, that any such Lien shall be limited to all or part of the same
      Property that secured the original Lien (together with improvements and
      accessions to such Property), and the aggregate principal amount of Debt
      (and other obligations thereunder) that is secured by such Lien shall not
      be increased to an amount greater than the sum of:

                                       17
<PAGE>

                        (1) the outstanding principal amount, or, if greater,
            the committed amount, of the Debt (and other obligations thereunder)
            secured by Liens described under clause (g), (h) or (k) above, as
            the case may be, at the time the original Lien became a Permitted
            Lien under this Indenture, and

                        (2) an amount necessary to pay any fees and expenses,
            including premiums and defeasance costs, incurred by the Company or
            such Subsidiary in connection with such Refinancing;

                  (m) Liens to secure cash collateral in respect of Hedging
      Obligations pursuant to which Merrill Lynch Capital Services, Inc. or any
      of its Affiliates is the counterparty; provided that such Liens in the
      aggregate shall not initially exceed $2.0 million and provided further
      that from March 1, 2008, such Liens in the aggregate may be incurred for a
      further amount of $3.0 million (in addition to the aforesaid $2.0 million)
      only if the exchange rate between the U.S. dollar and the Renminbi is such
      that $1 buys less than RMB 6.50, and from and after September 1, 2009,
      such Liens in the aggregate may be incurred for a further amount not
      exceeding $3.0 million (in addition to the aforesaid $2.0 million and the
      aforesaid $3.0 million) only if the exchange rate between the U.S. dollar
      and Renminbi is less than $1 to RMB 5.50.

                  (n) Liens arising from the rendering of a final judgment,
      order or decree against the Company or any Subsidiary Guarantor that does
      not give rise to an Event of Default.

            "Permitted Refinancing Debt" means any Debt that Refinances any
other Debt, including any successive Refinancings, so long as:

                  (a) such Debt is in an aggregate principal amount (or if
      Incurred with original issue discount, an aggregate issue price) not in
      excess of the sum of:

                        (1) the aggregate principal amount (or if Incurred with
            original issue discount, the aggregate accreted value) then
            outstanding of the Debt being Refinanced, and

                        (2) an amount necessary to pay any fees and expenses,
            including premiums and defeasance costs, related to such
            Refinancing,

                  (b) the Average Life of such Debt is equal to or greater than
      the Average Life of the Debt being Refinanced,

                  (c) the Stated Maturity of such Debt is no earlier than the
      Stated Maturity of the Debt being Refinanced or otherwise extends beyond
      one year following the final repayment of all the Notes,

                  (d) the new Debt shall not be senior in right of payment to
      the Debt that is being Refinanced, and

                  (e) the new Debt, the proceeds of which are used to Refinance
      the Notes or any Debt that is pari passu with or subordinate to the Notes
      or a Subsidiary Guarantee, shall only be permitted if (A) in case the
      Notes are refinanced in part or the Debt to be Refinanced is pari passu
      with the Notes or a Subsidiary Guarantee, such new Debt, by its terms or
      by terms of any agreement or instrument pursuant to which such new Debt is
      outstanding, is expressly made pari passu with, or subordinate in right of
      payment to, the remaining Notes or such Subsidiary Guarantee, or (B) in
      case the Debt to be Refinanced is subordinated in right of payment to the
      Notes or a Subsidiary Guarantee, such new Debt, by its terms or by the
      terms of any agreement or instrument to which such new Debt is issued or
      remains outstanding, is expressly made subordinate in right of payment to
      the Notes or such Subsidiary Guarantee at least to the extent that the
      Debt to be Refinanced is subordinated to the Notes or the Subsidiary
      Guarantee;

                                       18
<PAGE>

provided, however, that Permitted Refinancing Debt shall not include the Debt of
any Subsidiary that is not also a Subsidiary Guarantor, if that Subsidiary's
Debt is used to Refinance Debt of the Company or a Subsidiary Guarantor.

            "Person" means any individual, corporation, company (including any
limited liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

            "PRC" means the People's Republic of China, exclusive of Taiwan,
Macau and Hong Kong.

            "PRC Subsidiary" means Harbin Tech. Full Electric Co., Ltd., a
limited liability company incorporated under the laws of the PRC.

            "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same Debt as that evidenced by such
particular Note; and any Note authenticated and delivered under Section 2.07 in
lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same
Debt as the lost, destroyed or stolen Note.

            "Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.

            "Preferred Stock Dividends" means all dividends with respect to
Preferred Stock of the Company's Subsidiaries held by Persons other than the
Company or one of its Wholly Owned Subsidiaries. The amount of any such dividend
shall be equal to the quotient of such dividend divided by the difference
between one and the maximum statutory federal income rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such Preferred
Stock.

            "pro forma" means, with respect to any calculation made or required
to be made pursuant to the terms hereof, a calculation performed in accordance
with Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.

            "Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including intellectual property rights and Capital Stock
in, and other securities of, any other Person. For purposes of any calculation
required pursuant to this Indenture, the value of any Property shall be its Fair
Market Value.

            "Refinance" means, in respect of any Debt, to refinance, extend,
renew, refund or Repay (in whole or in part), or to issue other Debt, in
exchange or replacement for (in whole or in part), such Debt. "Refinanced" and
"Refinancing" shall have correlative meanings.

            "Regular Record Date" for the interest payable on any Interest
Payment Date means the applicable date specified as a "Record Date" on the face
of the Note.

            "Related Business" means designing, manufacturing, servicing and
marketing linear motors and accessories, linear motor drive systems and
accessories, rotary motor drive systems and accessories, high efficiency motors
and accessories, and special motors and accessories.

                                       19
<PAGE>

            "Replacement Assets" means, with respect to any Asset Sale,
properties and assets (including Capital Stock of a Person) that replace the
properties and assets that were the subject of such Asset Sale or properties and
assets (including Capital Stock of a Person) that will be used in the business
of the Company and its Subsidiaries or in businesses reasonably related or
ancillary thereto.

            "Repay" means, in respect of any Debt, to repay, prepay, repurchase,
redeem, legally defease or otherwise retire such Debt. "Repayment" and "Repaid"
shall have correlative meanings. For purposes of Section 4.12 and the definition
of "Fixed Charges", Debt shall be considered to have been Repaid only to the
extent the related loan commitment, if any, shall have been permanently reduced
in connection therewith.

            "Representative Amount" means a principal amount of not less than
$1,000,000 for a single transaction in the relevant market at the relevant time.

            "Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.

            "Restricted Payment" means:

                  (a) any dividend or distribution (whether made in cash,
      securities or other Property) declared or paid on or with respect to any
      shares of Capital Stock of the Company or any of its Subsidiaries
      (including any payment in connection with any merger or consolidation with
      or into the Company or any of its Subsidiaries), except for any dividend
      or distribution that is made solely to the Company or any of its
      Subsidiaries (and, if such Subsidiary is not a Wholly Owned Subsidiary, to
      the other shareholders of such Subsidiary on a pro rata basis or on a
      basis that results in the receipt by the Company or any of its
      Subsidiaries of dividends or distributions of greater value than it would
      receive on a pro rata basis) or any dividend or distribution payable
      solely in shares of Capital Stock (other than Disqualified Stock) of the
      Company;

                  (b) the purchase, repurchase, redemption, acquisition or
      retirement for value of any Capital Stock of the Company or any of its
      Subsidiaries (other than from the Company or any of its Subsidiaries) or
      any securities exchangeable for or convertible into any such Capital
      Stock, including the exercise of any option to exchange any Capital Stock
      (other than for or into Capital Stock of the Company that is not
      Disqualified Stock);

                  (c) the purchase, repurchase, redemption, acquisition or
      retirement for value, prior to the date for any scheduled maturity,
      sinking fund or amortization or other installment payment, of any
      Subordinated Obligation (other than the purchase, repurchase or other
      acquisition of any Subordinated Obligation purchased in anticipation of
      satisfying a scheduled maturity, sinking fund or amortization or other
      installment obligation, in each case due within one year of the date of
      acquisition); or

                  (d) any Investment (other than Permitted Investments) in any
      Person.

            "RMB" means the lawful currency of the PRC.

            "S&P" means Standard & Poor's Ratings Services or any successor to
the rating agency business thereof.

            "Sale and Leaseback Transaction" means any direct or indirect
arrangement relating to Property now owned or hereafter acquired whereby the
Company or any of its Subsidiaries transfers such Property to another Person and
the Company or any of its Subsidiaries leases it from such Person.

            "Secured Party" is defined in Section 10.01.

                                       20
<PAGE>

            "Securities Act" means the Securities Act of 1933, as amended.

            "Security Documents" means that certain Share Pledge Agreement dated
the date hereof in favor of the Collateral Agent for the benefit of the holders
of Note Obligations, whenever incurred, and also for the benefit of the present
and future holders of all other Note Obligations and any document perfecting
such security interests, and any one or more security agreements, pledge
agreements, collateral assignments, mortgages, deeds of trust or other grants or
transfers for security executed and delivered by the Company or any other
Obligor creating a Lien upon property owned or to be acquired by the Company or
such other Obligor in favor of the Collateral Agent for the benefit of the
holders of Note Obligations, whenever incurred, and also for the benefit of the
present and future holders of all other Note Obligations and any document
perfecting such security interests pursuant to the terms of Article 10 hereof.

            "Senior Debt" of the Company means:

                  (a) all obligations consisting of the principal, premium, if
      any, and accrued and unpaid interest (including interest accruing on or
      after the filing of any petition in bankruptcy or for reorganization
      relating to the Company whether or not such post-filing interest is
      allowed in such proceeding) in respect of:

                        (1) Debt of the Company for borrowed money, and

                        (2) Debt of the Company evidenced by notes, debentures,
            bonds or other similar instruments permitted under this Indenture
            for the payment of which the Company is responsible or liable;

                  (b) all Capital Lease Obligations of the Company and all
      Attributable Debt in respect of Sale and Leaseback Transactions entered
      into by the Company;

                  (c) all obligations of the Company

                        (1) for the reimbursement of any obligor on any letter
            of credit, banker's acceptance or similar credit transaction,

                        (2) under Hedging Obligations, or

                        (3) issued or assumed as the deferred purchase price of
            Property and all conditional sale obligations of the Company and all
            obligations under any title retention agreement permitted under this
            Indenture; and

                  (d) all obligations of other Persons of the type referred to
      in clauses (a), (b) and (c) for the payment of which the Company is
      responsible or liable as Guarantor;

provided, however, that Senior Debt shall not include:

                  (A) Debt of the Company that is by its terms subordinate in
            right of payment to the Notes, including any Subordinated
            Obligations;

                  (B) any Debt Incurred in violation of the provisions of this
            Indenture;

                  (C) accounts payable or any other obligations of the Company
            to trade creditors created or assumed by the Company in the ordinary
            course of business in connection with the obtaining of materials or
            services (including Guarantees thereof or instruments evidencing
            such liabilities);

                                       21
<PAGE>

                  (D) any liability for U.S. federal, state, national,
            provincial, local or other taxes owed or owing by the Company;

                  (E) any obligation of the Company to any of its Subsidiaries;
            or

                  (F) any obligations with respect to any Capital Stock of the
            Company.

            To the extent that any payment of Senior Debt (whether by or on
behalf of the Company as proceeds of security or enforcement or any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to a trustee, receiver or other similar party under any
bankruptcy, insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other similar party,
the Senior Debt or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
"Senior Debt" of any Subsidiary Guarantor has a correlative meaning.

            "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.

            "Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).

            "Subordinated Obligation" means any Debt of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) that is subordinate or junior in right of payment to the Notes or the
applicable Subsidiary Guarantee pursuant to a written agreement to that effect.

            "Subsidiary" means, in respect of any Person, any corporation,
company (including any limited liability company), association, partnership,
joint venture or other business entity of which at least a majority of the total
voting power of the Voting Stock is at the time owned or controlled, directly or
indirectly, by:

                  (a) such Person,

                  (b) such Person and one or more Subsidiaries of such Person,
      or

                  (c) one or more Subsidiaries of such Person.

            "Subsidiary Guarantee" means the Guarantee of the Notes by the
Subsidiary Guarantor pursuant to Article 9 and in the form of the Guarantee
attached as Exhibit B and any additional Guarantee of the Notes to be executed
by any Subsidiary of the Company pursuant to Section 4.18.

            "Subsidiary Guarantor" means Advanced Electric Motors, Inc. and any
other Subsidiary of the Company that becomes a Guarantor pursuant to Section
4.18 or who otherwise executes and delivers a supplemental indenture to the
Trustee providing for a Subsidiary Guarantee.

            "Surviving Person" means the surviving Person formed by a merger,
consolidation or amalgamation and, for purposes of Section 5.01, a Person to
whom all or substantially all of the Property of the Company or a Subsidiary
Guarantor is sold, transferred, assigned, leased, conveyed or otherwise
disposed.

            "Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.

                                       22
<PAGE>

            "Unrestricted Date" means, with respect to Notes of a particular
maturity, the 41st day after the after the later of (i) the day on which such
Notes were first offered to persons other than distributors (as defined in
Regulation S under the Securities Act and (ii) the Issue Date of such Notes.

            "U.S. Government Securities" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
are pledged and which are not callable or redeemable at the issuer's option.

            "Voting Stock" of any Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.

            "Wholly Owned Subsidiary" means, at any time, a Subsidiary all the
Voting Stock of which (except directors' qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.

            Section 1.02. Other Definitions.

                                                                  Defined in
           Term                                                    Section
           ----                                                    -------
           "Acceleration Notice".......................................6.02
           "Affiliate Transaction".....................................4.14
           "Allocable Excess Proceeds".................................4.12
           "Asset Sale Offer"..........................................4.12
           "Authentication Order"......................................2.02
           "Benefited Party"...........................................9.01
           "Change of Control Offer"...................................4.17
           "Event of Default"..........................................6.01
           "Excess Proceeds"...........................................4.12
           "Exchange Date".............................................2.06
           "Future Subsidiary Guarantor"...............................9.03
           "Future Subsidiary Guarantor Pledgor"......................10.02
           "losses"...................................................7.07
           "Offer Amount"..............................................3.09
           "Offer Period"..............................................3.09
           "Offer to Purchase".........................................3.09
           "Paying Agent"..............................................2.03
           "Purchase Date".............................................3.09
           "Purchase Price"............................................3.09
           "Registrar".................................................2.03
           "Repurchase Date"...........................................3.10
           "Repurchase Notice".........................................3.10
           "Security Register".........................................2.03
           "Subsidiary Guarantor Pledgor".............................10.02

            Section 1.03. Rules of Construction.

            (a) Unless the context otherwise requires:

                  (i) a term has the meaning assigned to it;

                                       23
<PAGE>

                  (ii) an accounting term not otherwise defined herein has the
      meaning assigned to it in accordance with GAAP;

                  (iii) "or" is not exclusive;

                  (iv) words in the singular include the plural, and in the
      plural include the singular;

                  (v) all references in this instrument to "Articles,"
      "Sections" and other subdivisions are to the designated Articles, Sections
      and subdivisions of this instrument as originally executed;

                  (vi) the words "herein," "hereof" and "hereunder" and other
      words of similar import refer to this Indenture as a whole and not to any
      particular Article, Section or other subdivision.

                  (vii) "including" means "including without limitation;"

                  (viii) provisions apply to successive events and transactions;
      and

                  (ix) references to sections of or rules under the Securities
      Act or the Exchange Act shall be deemed to include substitute, replacement
      or successor sections or rules adopted by the Commission from time to time
      thereunder.

                                   ARTICLE II

                                    THE NOTES

            Section 2.01 Form and Dating.

            (a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form included in Exhibit A hereto,
which is hereby incorporated in and expressly made part of this Indenture. The
Notes may have notations, legends or endorsements required by law, exchange rule
or usage in addition to those set forth on Exhibit A. Each Note shall be dated
the date of its authentication. The Notes shall be in denominations of $1,000
and integral multiples thereof. The terms and provisions contained in the Notes
shall constitute a part of this Indenture and the Company, the Subsidiary
Guarantor and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. To the
extent any provision of any Note conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling.

            (b) Form of Notes. Notes shall be issued initially in global form
and shall be substantially in the form of Exhibit A attached hereto (including
the Global Note Legend thereon and the "Schedule of Exchanges of Interests in
the Global Note" attached thereto). Notes issued in definitive form shall be
substantially in the form of Exhibit A attached hereto (but without the Global
Note Legend thereon and without the "Schedule of Exchanges of Interests in the
Global Note" attached thereto). Each Global Note shall represent such aggregate
principal amount of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions
and transfers of interests therein. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Registrar, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.

            (c) Book-Entry Provisions. This Section 2.01(c) shall apply only to
Global Notes deposited with the Trustee, as custodian for the Common Depositary.
Participants shall have no rights under this Indenture or any Global Note with
respect to any Global Note held on their behalf by the Common Depositary or by
the Trustee as custodian for the Common Depositary, and the Common Depositary
shall be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Common
Depositary or impair, as between the Common Depositary and its Participants, the
Applicable Procedures or the operation of customary practices of the Common
Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Note.

                                       24
<PAGE>

            (d) Euroclear and Clearstream Procedures Applicable. The provisions
of the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of
Clearstream" and "Customer Handbook" of Clearstream shall be applicable to
transfers of beneficial interests in Global Notes that are held by Participants
through Euroclear or Clearstream.

            (e) Certificated Securities. The Company shall exchange Global Notes
for Definitive Notes if: (1) at any time either Euroclear or Clearstream or any
alternative clearing agency on behalf of which the Notes evidenced by the Global
Note may be held is closed for business for a continuous period of 14 days
(other than reason of holidays, statutory or otherwise) or announces an
intention permanently to cease business or does in fact do so, and, in either
case, the Company shall not have appointed a successor Common Depositary within
90 days after the Company receives such notice or becomes aware of such
ineligibility, or (2) upon written request of a Holder or the Trustee if a
Default or Event of Default shall have occurred and be continuing.

            Upon the occurrence of any of the events set forth in clauses (1) or
(2) above, the Company shall execute, and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall authenticate and
deliver, Definitive Notes, in authorized denominations, in an aggregate
principal amount equal to the principal amount of the Global Notes in exchange
for such Global Notes.

            Upon the exchange of a Global Note for Definitive Notes, such Global
Note shall be cancelled by the Trustee or an agent of the Company or the
Trustee. Definitive Notes issued in exchange for a Global Note pursuant to this
Section 2.01 shall be registered in such names and in such authorized
denominations as the Common Depositary, pursuant to instructions from its
Participants or its Applicable Procedures, shall instruct the Trustee or an
agent of the Company or the Trustee in writing. The Trustee or such agent shall
deliver such Definitive Notes to or as directed by the Persons in whose names
such Definitive Notes are so registered or to the Common Depositary.

            Section 2.02 Execution and Authentication.

            (a) One Officer shall execute the Notes on behalf of the Company by
manual or facsimile signature.

            (b) If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated by the Trustee, the Note shall
nevertheless be valid.

            (c) A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.

            (d) The Trustee shall, upon a written order of the Company signed by
an Officer (an "Authentication Order"), authenticate (i) one Global Note
evidencing the 2012 Notes for issuance on the Issue Date in the aggregate
principal amount not to exceed $38,000,000, (ii) one Global Note evidencing the
2010 Notes for issuance on the Issue Date in the aggregate principal amount not
to exceed $12,000,000 and (iii) any other Notes that have been executed by the
Company in order to effect any registration of transfer or exchange in
accordance with the provisions of Section 2.06.

            (e) The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. Unless otherwise provided in such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent shall have the
same rights as the Trustee to deal with Holders, the Company or an Affiliate of
the Company.

                                       25
<PAGE>

            Section 2.03 Registrar, Paying Agent and Calculation Agent.

            (a) The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register (the "Security Register") of the Notes and of
their transfer and exchange. The Company shall maintain the services of a
duly-appointed Calculation Agent. The Company may appoint one or more
co-registrars, one or more additional paying agents and one or more calculation
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent, Registrar or Calculation Agent without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar, Paying Agent or Calculation Agent, the Trustee shall act as
such. The Company or any of its Subsidiaries may act as Paying Agent or
Registrar.

            (b) The Company initially appoints The Bank of New York, a New York
banking corporation, to act as Common Depositary with respect to the Global
Notes.

            (c) The Company initially appoints the Trustee to act as Registrar
and Paying Agent and to act as Custodian with respect to the Global Notes, and
the Trustee hereby agrees so to initially act.

            Section 2.04 Paying Agent to Hold Money in Trust.

            The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all funds held
by it relating to the Notes to the Trustee. The Company at any time may require
a Paying Agent to pay all funds held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall
have no further liability for such funds. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all funds held by it as Paying Agent. Upon any Event of
Default under Sections 6.01(h) and (i) hereof relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.

            Section 2.05 Holder Lists.

            The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders. If the Trustee is not the Registrar, the Company shall furnish or
cause to be furnished to the Trustee at least seven Business Days before each
Interest Payment Date and at such other times as the Trustee may request in
writing, a list in such form and as of such date or such shorter time as the
Trustee may allow, as the Trustee may reasonably require of the names and
addresses of the Holders.

            Section 2.06 Transfer and Exchange.

            (a) As provided herein, interests in a Global Note will be
exchanged, upon 45 days' notice by a holder of an interest in such Global Note
for Notes in definitive form ("Definitive Notes"). Each Global Note shall be
deposited with the Common Depositary, which shall hold such Global Note in safe
custody for the account of Euroclear and/or Clearstream and instruct Euroclear
or Clearstream or both of them, as the case may be, to credit the principal
amounts of the Notes represented by such Global Note to the holder's
distribution account with Euroclear or Clearstream. Each relevant Global Note
shall be exchangeable in whole or from time to time in part for an interest,
equal to the principal amount of the part of such Global Note being exchanged,
for Definitive Notes in the same principal amount, upon request of Euroclear or
Clearstream to the Registrar, but only upon delivery by Euroclear or
Clearstream, acting on behalf of the beneficial owners of such interests, to the
Registrar at its principal office in London, of certificates substantially in
the form of Exhibit C hereto. The delivery to the Registrar of any certificate
in the form referred to above may be relied upon by the Company, the Trustee and
the Registrar as conclusive evidence that related certificates have been
delivered to Euroclear or Clearstream as contemplated by the terms of this
Section 2.06.

                                       26
<PAGE>

            (b) In accordance with the terms of a Global Note and this
Indenture, the Registrar shall deliver at the cost of the Company, upon not less
than 45 days' notice to the Registrar by Euroclear or Clearstream, the relevant
Definitive Notes in exchange for interests in such Global Note. For this
purpose, the Registrar is authorized and it shall (A) authenticate each such
Definitive Note and (B) deliver each such Definitive Note to or to the order of
Euroclear or Clearstream, in exchange for interests in such Global Note. The
Registrar shall promptly notify the Company upon receipt of a request for issue
of Definitive Notes the aggregate principal amount of the relevant Global Note
to be exchanged in connection therewith. The Company undertakes to deliver to,
or to the order of, the Registrar sufficient numbers of duly executed Definitive
Notes to enable the Registrar to comply with its obligations under this Section
2.06(b). Such exchange shall be made free of charge to the holder and the
beneficial owners of the relevant Global Note and to the holders of the
Definitive Notes issued in exchange as provided above, except that a Person
receiving Definitive Notes must bear the cost of insurance, postage,
transportation and the like in the event that such Person does not receive such
Definitive Notes in person at the offices of a Registrar. Notwithstanding the
above, interests in a Global Note shall be exchangeable in whole (but not in
part) at the cost of the Company for Definitive Notes under the conditions
described in Section 2.01(e).

            (c) Upon any exchange of an interest in a Global Note for Definitive
Notes, the relevant Global Note shall be endorsed by the Trustee or the
Registrar to reflect the reduction of its principal amount by the aggregate
principal amount so exchanged. Until exchanged in full, the holder of any
interest in any Global Note shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes authenticated and delivered
hereunder. Once exchanged in full, a Global Note shall be canceled and disposed
of by the Trustee in accordance with its customary procedures and a certificate
of disposition will be sent to the Company.

            (d) The Trustee or the Registrar shall cause all Global Notes and
Definitive Notes delivered to it and held by it hereunder to be maintained in
safe custody in accordance with this Section 2.06.

            (e) The Security Register shall be in written form in the English
language and shall include a record of the certificate number of each Note of a
particular maturity that has been issued, and shall show the amount of such
Notes, the date of issue, all subsequent transfers and changes in ownership in
respect thereof and the names, tax identifying numbers (if relevant to a
specific holder), addresses of the holders of the Notes and any payment
instructions with respect thereto (if different from a holder's registered
address).

            (f) The Registrar shall at all reasonable times during office hours
make the Securities Register with respect to Notes of a particular maturity
available to the Trustee, the Paying Agent, the Company and the holders of such
Notes or any person authorized by the Company in writing for inspection and for
taking of copies thereof or extracts therefrom, and at the expense of the
Company, the Registrar shall deliver to such persons all lists of holders of
such Notes, their addresses, amounts of such holdings and other details as they
may request.

            (g) the Registrar shall handle all requests for the registration of
transfer of Notes and receive certificates for the Notes deposited with the
transfer agent for transfer or exchange, and in doing so, shall ensure that
every Note presented or surrendered for registration of transfer or exchange (if
so required by the Company, the Trustee, the Paying Agent or the Registrar) be
duly endorsed by, or be accompanied by a written instrument of transfer (in form
satisfactory to the Company and the Registrar) duly executed by the holder
thereof or by such holder's attorney duly authorized in writing.

            (h) Prior to the Unrestricted Date, no beneficial interest in a
Global Note may be transferred to any U.S. person (as defined in Regulation S
under the Securities Act) or inside the United States as evidenced by a
certification in the form of Exhibit C hereto received by the Registrar. Unless
determined otherwise by the Company in accordance with applicable law, in the
event prior to the Unrestricted Date a Definitive Note is issued in exchange for
a beneficial interest in a Global Note, such Definitive Note shall bear the
Regulation S Legend shown on the form of Note attached hereto as Exhibit A. On
and after the Unrestricted Date, no such certification shall be required with
respect to such transfers and the Trustee is hereby authorized to remove such
Regulation S Legend from the applicable Notes.

                                       27
<PAGE>

            (i) The Trustee and the Registrar shall be entitled to treat a
telephone, telex or facsimile communication from a person purporting to be (and
who the Trustee or the Registrar believe in good faith to be) the authorized
representative of the Company, named in a list furnished to the Trustee and the
Registrar from time to time, as sufficient instructions and authority of the
Company for the Trustee and the Registrar to act in accordance with this Section
2.06.

            (j) Title to the Notes shall pass by delivery. However, title to
Notes issued in the form of Global Notes held through Euroclear and Clearstream
shall be transferable only in accordance with the rules and procedures of
Euroclear and Clearstream, as appropriate.

            Section 2.07 Replacement Notes.

            If any mutilated Note is surrendered to the Trustee or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a replacement Note. If required by the Trustee or the Company, the
Holder of such Note shall provide indemnity that is sufficient, in the judgment
of the Trustee or the Company, to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer in
connection with such replacement. If required by the Company, such Holder shall
reimburse the Company for its reasonable expenses in connection with such
replacement.

            Every replacement Note issued in accordance with this Section 2.07
shall be the valid obligation of the Company, evidencing the same debt as the
destroyed, lost or stolen Note, and shall be entitled to all of the benefits of
this Indenture equally and proportionately with all other Notes duly issued
hereunder.

            Section 2.08 Outstanding Notes.

            (a) The Notes outstanding at any time shall be the entire principal
amount of Notes represented by all of the Global Notes and Definitive Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those subject to reductions in beneficial interests
effected by the Trustee in accordance with Section 2.06 hereof, and those
described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09 hereof, a Note shall not cease to be outstanding because the
Company or an Affiliate of the Company holds the Note.

            (b) If a Note is replaced pursuant to Section 2.07 hereof, it shall
cease to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced note is held by a protected purchaser.

            (c) If the principal amount of any Note is considered paid under
Section 4.01 hereof, it shall cease to be outstanding and interest on it shall
cease to accrue.

            (d) If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date, a Purchase Date,
Repurchase Date or a maturity date, funds sufficient to pay Notes payable on
that date, then on and after that date such Notes shall be deemed to be no
longer outstanding and shall cease to accrue interest.

            Section 2.09 Treasury Notes.

            In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Affiliate of the Company, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Responsible Officer of the Trustee knows are so owned shall be so
disregarded.

            Section 2.10 Temporary Notes.

            Until certificates representing Notes are ready for delivery, the
Company may prepare and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate temporary Notes. Such
temporary Notes shall be substantially in the form of Definitive Notes but may
have variations that the Company considers appropriate for temporary Notes and
as shall be reasonably acceptable to the Trustee. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate Global Notes or
Definitive Notes in exchange for temporary Notes, as applicable. After
preparation of Definitive Notes, the temporary Note will be exchangeable for
Definitive Notes upon surrender of the temporary Notes.

                                       28
<PAGE>

            Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture equally and proportionately with all other Notes duly issued
hereunder.

            Section 2.11 Cancellation.

            The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
Upon sole direction of the Company, the Trustee and no one else shall cancel all
Notes surrendered for registration of transfer, exchange, payment, replacement
or cancellation and shall destroy cancelled Notes (subject to the record
retention requirements of the Exchange Act or other applicable laws) unless by
written order, signed by an Officer of the Company, the Company directs them to
be returned to it. Certification of the destruction of all cancelled Notes shall
be delivered to the Company only upon written request. The Company may not issue
new Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

            Section 2.12. Payment of Interest; Defaulted Interest.

            If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date; provided that no such special
record date shall be less than 10 days prior to the related Interest Payment
Date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related Interest
Payment Date and the amount of such interest to be paid.

            Section 2.13 ISIN Numbers.

            The Company in issuing the Notes may use "ISIN" numbers (if then
generally in use), and, if so, the Trustee shall use "ISIN" numbers in notices
of redemption or Offers to Purchase as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption or notice of an Offer to Purchase and that reliance
may be placed only on the other identification numbers printed on the Notes, and
any such redemption or Offer to Purchase shall not be affected by any defect in
or omission of such numbers. The Company shall promptly notify the Trustee in
writing of any change in the "ISIN" numbers.

            Section 2.14 Record Date.

            The record date for purposes of determining the identity of Holders
of Notes entitled to vote or consent to any action by vote or consent or
permitted under this Indenture shall be 15 days prior to the date of such vote,
consent or action.

                                  ARTICLE III

                           REDEMPTION AND PREPAYMENT

            Section 3.01 Notices to Trustee.

            If the Company elects to redeem Notes of a particular maturity
pursuant to the optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Trustee, at least 45 days but not more than 60 days before a
redemption date (or such shorter period as allowed by the Trustee), an Officers'
Certificate setting forth (a) the applicable section of this Indenture pursuant
to which the redemption shall occur, (b) the redemption date, (c) the principal
amount of such Notes to be redeemed and (d) the redemption price.

                                       29
<PAGE>

            Section 3.02 Selection of Notes to Be Redeemed.

            If less than all of the Notes of a particular maturity are to be
redeemed at any time, the Trustee shall select the Notes to be redeemed among
the Holders of such Notes in compliance with the requirements of the principal
national securities exchange, if any, on which such Notes are listed or, if such
Notes are not so listed, on a pro rata basis, by lot or in accordance with any
other method the Trustee deems fair and appropriate. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes of such maturity not
previously called for redemption.

            The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or integral multiples thereof;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not an integral
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.

            Section 3.03 Notice of Redemption.

            At least 30 days but not more than 60 days prior to a redemption
date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at such
Holder's registered address appearing in the Security Register, except that
redemption notices may be mailed more than 60 days prior to a redemption date if
the notice is issued in connection with a satisfaction and discharge pursuant to
Article 10 hereof.

            The notice shall identify the Notes to be redeemed and shall state:

            (a) the redemption date;

            (b) the redemption price;

            (c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, if applicable, a new Note or Notes in principal
amount equal to the unredeemed portion shall be issued upon cancellation of the
original Note;

            (d) the name and address of the Paying Agent;

            (e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;

            (f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;

            (g) the applicable section of this Indenture pursuant to which the
Notes called for redemption are being redeemed; and

            (h) that no representation is made as to the correctness of the ISIN
number, if any, listed in such notice or printed on the Notes.

            At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days (or such shorter
period allowed by the Trustee), prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice (in the name and at the
expense of the Company) and setting forth the information to be stated in such
notice as provided in this Section 3.03.

                                       30
<PAGE>

            Section 3.04 Effect of Notice of Redemption.

            Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption shall become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.

            Section 3.05 Deposit of Redemption Price.

            On or prior to 11:00 a.m. New York time on the Business Day prior to
any redemption date, the Company shall deposit with the Trustee or with the
Paying Agent money sufficient to pay the redemption price of and, if applicable,
accrued and unpaid interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly, and in any event within two (2)
Business Days after the redemption date, return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued and unpaid
interest, if any, on, all Notes to be redeemed.

            If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for purchase or redemption in
accordance with Section 2.08(d) hereof, whether or not such Notes are presented
for payment. If a Note is redeemed on or after a Regular Record Date but on or
prior to the related Interest Payment Date, then any accrued and unpaid
interest, if any, shall be paid to the Person in whose name such Note was
registered at the close of business on such Regular Record Date. If any Note
called for redemption shall not be so paid upon surrender for redemption because
of the failure of the Company to comply with the preceding paragraph, interest
shall be paid on the unpaid principal from the redemption date until such
principal is paid, and to the extent lawful on any interest not paid on such
unpaid principal, in each case at the rate provided in the Notes and in Section
4.01 hereof.

            Section 3.06 Notes Redeemed in Part.

            Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of an authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.

            Section 3.07 Optional Redemption.

            (a) The 2012 Notes shall not be redeemable at the option of the
Company prior to September 1, 2007. Starting on that date, the Company may
redeem all (but not less than all) of the 2012 Notes, after giving the notice
required pursuant to Section 3.03 hereof. The 2012 Notes may be redeemed at the
redemption prices set forth below (expressed as a percentage of principal
amount), plus accrued and unpaid interest to but excluding the redemption date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the 12-month period commencing on September 1 of the years set forth
below:

         Year                                            Percentage
         ----                                            ----------
         2007............................................106.0%
         2008............................................104.5%
         2009............................................103.0%
         2010............................................101.5%
         2011 and thereafter.............................100.0%

            Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the 2012 Notes or portions thereof called for
redemption on the applicable redemption date.

                                       31
<PAGE>

            (b) The 2010 Notes shall not be redeemable at the option of the
Company prior to September 1, 2007. Starting on that date, the Company may
redeem all (but not less than all) of the 2010 Notes, after giving the notice
required pursuant to Section 3.03 hereof. The 2010 Notes may be redeemed at the
redemption prices set forth below (expressed as a percentage of principal
amount), plus accrued and unpaid interest to but excluding the redemption date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the 12-month period commencing on September 1 of the years set forth
below:

         Year                                            Percentage
         ----                                            ----------
         2007............................................106.0%
         2008............................................103.0%
         2009 and thereafter.............................100.0%

            Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the 2010 Notes or portions thereof called for
redemption on the applicable redemption date.

            (c) Any prepayment pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.

            Section 3.08 Mandatory Redemption.

            (a) The Company agrees that on the dates indicated in the following
table, the Company will prepay and there shall become due and payable the
corresponding principal amount (or such lesser principal amount as shall then be
outstanding) in respect of the aggregate principal Debt evidenced by the 2012
Notes.

         Date                                            Principal Amount
         ----                                            ----------------
         September 1, 2009...............................$2,400,000
         March 1, 2010...................................$3,800,000
         September 1, 2010...............................$9,900,000
         March 1, 2011...................................$9,900,000
         September 1, 2011...............................$4,000,000
         March 1, 2012...................................$4,000,000

The entire remaining principal amount of the 2012 Notes shall become due and
payable on September 1, 2012. Each required prepayment made pursuant to this
Section 3.08 shall be made at 100% of principal amount and without payment of
any premium and allocated among all of the 2012 Notes in proportion, as nearly
as practicable, to the respective unpaid principal amounts thereof. Upon any
partial prepayment of the 2012 Notes pursuant to Section 3.07 or any repurchase
of the 2012 Notes pursuant to Section 4.12 or 4.17, the principal amount of each
required prepayment of the 2012 Notes becoming due under this Section 3.08 on
and after the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the 2012 Notes is reduced
as a result of such prepayment or purchase.

            (b) The Company agrees that on the dates indicated in the following
table, the Company will prepay and there shall become due and payable the
corresponding principal amount (or such lesser principal amount as shall then be
outstanding) in respect of the aggregate principal Debt evidenced by the 2010
Notes.

         Date                                            Principal Amount
         ----                                            ----------------
         March 1, 2008...................................$2,000,000
         September 1, 2008...............................$2,000,000
         March 1, 2009...................................$2,000,000
         September 1, 2009...............................$2,000,000
         March 1, 2010...................................$2,000,000

                                       32
<PAGE>

The entire remaining principal amount of the 2010 Notes shall become due and
payable on September 1, 2010. Each required prepayment made pursuant to this
Section 3.08 shall be made at 100% of principal amount and without payment of
any premium and allocated among all of the 2010 Notes in proportion, as nearly
as practicable, to the respective unpaid principal amounts thereof. Upon any
partial prepayment of the 2010 Notes pursuant to Section 3.07 or any repurchase
of the 2010 Notes pursuant to Section 4.12 or 4.17, the principal amount of each
required prepayment of the 2010 Notes becoming due under this Section 3.08 on
and after the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the 2010 Notes is reduced
as a result of such prepayment or purchase.

            (c) In the case of each prepayment of Notes pursuant to this Section
3.08, the principal amount of each Note to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.

            Section 3.09 Offer To Purchase.

            (a) In the event that, pursuant to Section 4.12 or Section 4.17
hereof, the Company shall be required to commence an Asset Sale Offer or a
Change of Control Offer (each, an "Offer to Purchase"), it shall follow the
procedures specified below.

            (b) The Company shall cause a notice of the Offer to Purchase to be
sent at least once to the Dow Jones News Service or similar business news
service in the United States.

            (c) The Company shall commence the Offer to Purchase by sending, by
first-class mail, with a copy to the Trustee, to each Holder at such Holder's
address appearing in the Security Register, a notice the terms of which shall
govern the Offer to Purchase stating:

                  (i) that the Offer to Purchase is being made pursuant to this
Section 3.09 and Section 4.12 or Section 4.17, as the case may be, and, in the
case of a Change of Control Offer, that a Change of Control has occurred, the
circumstances and relevant facts regarding the Change of Control and that a
Change of Control Offer is being made pursuant to Section 4.17;

                  (ii) the maximum principal amount of Notes required to be
purchased pursuant to Section 4.12 and Section 4.17, as the case may be (the
"Offer Amount"), the purchase price set forth in Section 4.12 and Section 4.17,
as applicable (the "Purchase Price"), the Offer Period and the Purchase Date
(each as defined below);

                  (iii) except as provided in clause (ix), that all Notes timely
tendered and not withdrawn shall be accepted for payment;

                  (iv) that any Note not tendered or accepted for payment shall
continue to accrue interest;

                  (v) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest after the Purchase Date;

                  (vi) that Holders electing to have a Note purchased pursuant
to an Offer to Purchase may elect to have Notes purchased in integral multiples
of $1,000 only;

                  (vii) that Holders electing to have a Note purchased pursuant
to any Offer to Purchase shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, the Common
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice before the close of business on the third Business Day
before the Purchase Date;

                                       33
<PAGE>

                  (viii) that Holders shall be entitled to withdraw their
election if the Company, the Common Depositary or the Paying Agent, as the case
may be, receives, not later than the expiration of the Offer Period, a telegram,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note (or portions thereof) the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Note purchased;

                  (ix) that, in the case of an Asset Sale Offer, if the
aggregate principal amount of Notes surrendered by Holders exceeds the Offer
Amount, the Company shall select the Notes to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000 or integral multiples thereof shall be
purchased);

                  (x) that Holders whose Notes were purchased in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer); and

                  (xi) any other procedures the Holders must follow in order to
tender their Notes (or portions thereof) for payment and the procedures that
Holders must follow in order to withdraw an election to tender Notes (or
portions thereof) for payment.

            (d) The Offer to Purchase shall remain open for a period of at least
30 days but no more than 60 days following its commencement, except to the
extent that a longer period is required by applicable law (the "Offer Period").
No later than five (5) Business Days (and in any event no later than the 60th
day following the Change of Control) after the termination of the Offer Period
(the "Purchase Date"), the Company shall purchase the Offer Amount or, if less
than the Offer Amount has been tendered, all Notes tendered in response to the
Offer to Purchase. Payment for any Notes so purchased shall be made in the same
manner as interest payments are made. The Company shall publicly announce the
results of the Offer to Purchase on the Purchase Date.

            (e) On or prior to the Purchase Date, the Company shall, to the
extent lawful:

                  (i) accept for payment (on a pro rata basis to the extent
necessary in connection with an Asset Sale Offer), the Offer Amount of Notes or
portions of Notes properly tendered and not withdrawn pursuant to the Offer to
Purchase, or if less than the Offer Amount has been tendered, all Notes
tendered;

                  (ii) deposit with the Paying Agent funds in an amount equal to
the Purchase Price in respect of all Notes or portions of Notes properly
tendered; and

                  (iii) deliver or cause to be delivered to the Trustee the
Notes properly accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions of Notes being purchased by the
Company and that such Notes or portions thereof were accepted for payment by the
Company in accordance with the terms of this Section 3.09.

            (f) The Paying Agent (or the Company, if acting as the Paying Agent)
shall promptly (but in the case of a Change of Control, not later than 60 days
from the date of the Change of Control) deliver to each tendering Holder the
Purchase Price. In the event that any portion of the Notes surrendered is not
purchased by the Company, the Company shall promptly execute and issue a new
Note in a principal amount equal to such unpurchased portion of the Note
surrendered, and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate and deliver (or cause to be
transferred by book-entry) such new Note to such Holder, in a principal amount
equal to any unpurchased portion of the Note surrendered; provided, however,
that each such new Note shall be in a principal amount of $1,000 or an integral
multiple thereof. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof.

                                       34
<PAGE>

            (g) If the Purchase Date is on or after a Regular Record Date and on
or before the related Interest Payment Date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such Regular Record Date, and no further interest shall be payable
to Holders who tender Notes pursuant to the Offer to Purchase.

            (h) The Company shall comply, to the extent applicable, with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent those laws and regulations are
applicable in connection with the Offer to Purchase. To the extent that the
provisions of any securities laws or regulations conflict with Section 4.12 or
Section 4.17, as applicable, this Section 3.09 or other provisions of this
Indenture, the Company shall comply with applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
Section 4.12 or Section 4.17, as applicable, this Section 3.09 or such other
provision by virtue of such compliance.

            (i) Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made in accordance with the
provisions of Section 3.01 through 3.06 hereof.

            Section 3.10 Repurchase of Notes by the Company at the Option of the
Holder.

            Unless the Company has elected to redeem all of the 2012 Notes in
accordance with Section 3.07, the 2012 Notes shall be purchased by the Company
at the option of any holder thereof at any time on or after September 1, 2011 at
a date designated by such holder (the "Repurchase Date"), for cash, at a
repurchase price of 100% of the principal amount, plus any accrued and unpaid
Interest to, but excluding, the Repurchase Date; provided that no 2012 Notes may
be repurchased by the Company pursuant to this Section 3.10 if the principal
amount of any 2012 Notes has been accelerated and such acceleration has not been
rescinded on or prior to the Repurchase Date. Repurchases of 2012 Notes under
this Section 3.10 shall be made, at the option of the holder thereof, upon:

            (a) delivery to the Trustee (or other paying agent appointed by the
Company) by a holder of a duly completed notice (the "Repurchase Notice") in the
form set forth on the reverse of the 2012 Note during the period beginning at
any time from the opening of business on the date that is 20 Business Days prior
to the Repurchase Date until the close of business on the date that is 10
Business Days prior to the Repurchase Date; and

            (b) delivery or book entry transfer of such 2012 Notes to the
Trustee (or other paying agent appointed by the Company) at any time after
delivery of the Repurchase Notice (together with all necessary endorsements) at
the Corporate Trust Office of the Trustee or any other office of the Trustee (or
other paying agent appointed by the Company) in the Borough of Manhattan as
provided in Section 4.02, such delivery being a condition to receipt by the
holder of the repurchase price therefor; provided that such repurchase price
shall be so paid pursuant to this Section 3.10 only if the 2012 Note so
delivered to the Trustee (or other paying agent appointed by the Company) shall
conform in all respects to the description thereof in the related Repurchase
Notice.

            The Company shall purchase from the holder thereof, pursuant to this
Section 3.10, a portion of a 2012 Note, only if the principal amount of such
portion is $1,000 or a whole multiple of $1,000. Provisions of this Indenture
that apply to the purchase of all of a 2012 Note also apply to the purchase of
such portion of such 2012 Note.

            Any purchase by the Company contemplated pursuant to the provisions
of this Section 3.10 shall be consummated by the delivery of the consideration
to be received by the holder promptly following the later of the Repurchase Date
and the time of the book entry transfer or delivery of the 2012 Note.

            Notwithstanding anything herein to the contrary, any holder
delivering to the Trustee (or other paying agent appointed by the Company) a
Repurchase Notice contemplated by this Section 3.10 shall have the right to
withdraw such Repurchase Notice at any time prior to the close of business on
the Business Day immediately preceding the Repurchase Date by delivery of a
written notice of withdrawal to the Trustee (or other paying agent appointed by
the Company) in accordance with Section 3.11. The Company is not obligated under
this Section 3.10 to repurchase Notes listed in such written notice of
withdrawal.

                                       35
<PAGE>

            The Trustee (or other paying agent appointed by the Company) shall
promptly notify the Company of the receipt by it of any Repurchase Notice or
written notice of withdrawal thereof.

            Section 3.11 Effect of Repurchase Notice.

            Upon receipt by the Trustee (or other paying agent appointed by the
Company) of the Repurchase Notice specified in Section 3.10, the holder of the
2012 Note in respect of which such Repurchase Notice was given shall (unless
such Repurchase Notice is validly withdrawn) thereafter be entitled to receive
solely the repurchase price with respect to such 2012 Note. Such repurchase
price shall be paid to such holder, subject to receipt of funds or 2012 Notes by
the Trustee (or other paying agent appointed by the Company), promptly following
the later of (x) the Repurchase Date with respect to such 2012 Note (provided
the holder has satisfied the conditions in Section 3.10) and (y) the time of
delivery of such 2012 Note to the Trustee (or other paying agent appointed by
the Company) by the holder thereof in the manner required by Section 3.10.

            A Repurchase Notice may be withdrawn by means of a written notice of
withdrawal delivered to the Corporate Trust Office of the Trustee (or other
paying agent appointed by the Company) in accordance with the Repurchase Notice
at any time prior to the close of business on the Business Day immediately
preceding the Repurchase Date, specifying:

            (a) the certificate number, if any, of the 2012 Note in respect of
which such notice of withdrawal is being submitted, or the appropriate Common
Depositary information if the 2012 Note in respect of which such notice of
withdrawal is being submitted is represented by a Global Note,

            (b) the principal amount of the 2012 Note with respect to which such
notice of withdrawal is being submitted, and

            (c) the principal amount, if any, of such 2012 Note which remains
subject to the original Repurchase Notice and which has been or will be
delivered for repurchase by the Company.

            Section 3.12 Deposit of Repurchase Price.

            (a) Prior to 11:00 a.m. (New York City Time) on the Business Day
prior to the Repurchase Date, the Company shall deposit with the Trustee (or
other paying agent appointed by the Company) or, if the Company or a Subsidiary
or an Affiliate of either of them is acting as the paying agent, shall segregate
and hold in trust as provided in Section 4.01, an amount of cash (in immediately
available funds if deposited on such Business Day), sufficient to pay the
aggregate repurchase price of all the 2012 Notes or portions thereof that are to
be purchased as of the Repurchase Date.

            (b) If the Trustee or other paying agent appointed by the Company,
or the Company or a Subsidiary or Affiliate of either of them, if such entity is
acting as the paying agent, holds cash sufficient to pay the aggregate
repurchase price of all such 2012 Notes, or portions thereof that are to be
repurchased as of the Repurchase Date, on or after the Repurchase Date (i) such
2012 Notes will cease to be outstanding, (ii) interest on such 2012 Notes will
cease to accrue, and (iii) all other rights of the holders of such 2012 Notes
will terminate, whether or not book entry transfer of such 2012 Notes has been
made or such 2012 Notes have been delivered to the Trustee or paying agent,
other than the right to receive the repurchase price upon delivery of such 2012
Notes.

            Section 3.13 Notes Repurchased in Part.

            Upon presentation of any 2012 Note repurchased pursuant to Section
3.10 only in part, the Company shall execute and the Trustee shall authenticate
and make available for delivery to the holder thereof, at the expense of the
Company, a new 2012 Note or 2012 Notes, of any authorized denomination, in
aggregate principal amount equal to the unrepurchased portion of the 2012 Notes
presented.

                                       36
<PAGE>

            Section 3.14 Repayment to the Company.

            The Trustee (or other paying agent appointed by the Company) shall
return to the Company any cash or money that remains unclaimed as provided in
Section 11.03, together with interest, if any, thereon, held by them for the
payment of the repurchase price pursuant to Section 3.10; provided that to the
extent that the aggregate amount of cash or money deposited by the Company
pursuant to Section 3.12 exceeds the aggregate repurchase price of the 2012
Notes or portions thereof which the Company is obligated to purchase as of the
Repurchase Date, then, unless otherwise agreed in writing with the Company,
promptly after the Business Day following the Repurchase Date, the Trustee shall
return any such excess to the Company together with interest, if any, thereon.

                                   ARTICLE IV

                                    COVENANTS

            Section 4.01 Payment of Notes.

            The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on, the Notes on the dates and in the manner provided in
this Indenture and the Notes. If the Company has not obtained a listing of its
common stock on either the Nasdaq Capital Market or the Nasdaq Global Market on
or before July 1, 2007 or if the Company is not at that time currently
maintaining such listing, the Company shall pay Additional Interest in the same
manner and on the dates set forth in the Notes and this Indenture. The Company
shall pay Liquidated Damages upon the occurrence of any events, in the amounts
and at the times specified in the definition of "Liquidated Damages" in Section
1.01 hereof. Principal, premium, if any, and interest shall be considered paid
on the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 11:00 a.m. New York Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due. Such Paying Agent
shall return to the Company promptly, and in any event, no later than five (5)
Business Days following the date of payment, any money (including accrued
interest) that exceeds such amount of principal, premium, if any, and interest
paid on the Notes. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on such payment for the intervening
period.

            The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 4% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods), from time to time on demand at
the same rate to the extent lawful.

            Interest shall be computed on the basis of a 360-day year of twelve
30-day months for the actual number of days elapsed.

            Section 4.02 Maintenance of Office or Agency.

            (a) The Company shall maintain in the Borough of Manhattan, The City
of New York, an office or agency (which may be an office or drop facility of the
Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes
may be presented or surrendered for registration of transfer or for exchange and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.

            (b) The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.

                                       37
<PAGE>

            (c) The Company hereby designates the Corporate Trust Office of the
Trustee, as one such office, drop facility or agency of the Company in
accordance with Section 2.03 hereof.

            Section 4.03 Reports.

            (a) Whether or not required by the Commission's rules and
regulations, so long as any of the Notes remain outstanding, the Company shall
file with the Trustee and furnish to the holders (or promptly provide notice
thereof to the Trustee in case of documents described below that are publicly
available) within the time periods specified in the Commission's rules and
regulations:

                  (i) all quarterly and annual reports that would be required to
be filed with the Commission on Forms 10-QSB and 10-KSB if the Company were
required to file such reports (or Forms 10-Q and 10-K if the Company is not
eligible to file Forms 10-QSB or 10-KSB, as the case may be); and

                  (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.

            All such reports shall be prepared in all material respects in
accordance with all of the rules and regulations of the Commission applicable to
such reports. Each annual report on Form 10-KSB (or 10-K, as the case may be)
shall include a report on the Company's consolidated financial statements by a
firm of independent certified accountants identified in Section 4.20. Delivery
of such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee shall be entitled to rely exclusively on Officers' Certificates).

            (b) So long as any of the Notes remains outstanding, the Company
will provide to the Trustee (i) within 90 days after the close of each fiscal
year, an Officers' Certificate stating the Fixed Charge Coverage Ratio with
respect to the four most recent quarterly periods and showing in reasonable
detail the calculation of the Fixed Charge Coverage Ratio, including the
arithmetic computations of each component of the Fixed Charge Coverage Ratio;
and (ii) as soon as possible and in any event within 14 days after the Company
becomes aware of the occurrence of a Default, an Officers' Certificate setting
forth the details of the Default, and the action that the Company proposes to
take with respect thereto.

            (c) For as long as any Notes are "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act, during any period in which
the Company is neither subject to Section 13 or 15(d) of the Exchange Act, nor
exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Company shall
supply (i) to any holder or beneficial owner of a Note or (ii) upon their
request to a prospective purchaser of a Note or beneficial interest therein
designated by such holder or owner, the information specified in, and meeting
the requirements of Rule 144A(d)(4) under the Securities Act.

            Section 4.04 Compliance Certificate.

            The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year or 20 days after the reasonable request therefor from
the Trustee, an Officers' Certificate stating that a review of the activities of
the Company, the Subsidiary Guarantor and their respective Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company, the Subsidiary
Guarantor and their respective Subsidiaries have kept, observed, performed and
fulfilled their obligations under this Indenture, and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge the Company, the Subsidiary Guarantor and their respective
Subsidiaries have kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and are not in default in the performance
or observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium,
if any, or interest on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.

                                       38
<PAGE>

            Section 4.05 Taxes.

            The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments and governmental
levies, except such as are being contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the holders.

            Section 4.06 Stay, Extension and Usury Laws.

            The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.

            Section 4.07 Corporate Existence.

            Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any Subsidiary, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the Notes,
or that such preservation is not necessary in connection with any transaction
not prohibited by this Indenture.

            Section 4.08 Payments for Consent.

            The Company shall not, and will not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all holders that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.

            Section 4.09 Incurrence of Additional Debt.

            The Company shall not, and shall not permit any Subsidiary to,
Incur, directly or indirectly, any Debt unless such Debt is Permitted Debt.

            The term "Permitted Debt" is defined to include the following:

            (a) (i) Debt of the Company evidenced by the Notes and (ii) Debt of
the Subsidiary Guarantors evidenced by Subsidiary Guarantees relating to the
Notes;

            (b) Debt of the PRC Subsidiary under Credit Facilities, provided
that the aggregate principal amount of all such Debt under Credit Facilities at
any one time outstanding shall not exceed $3.0 million (or its equivalent in
another currency; provided that the amount of Debt so Incurred shall not be
deemed to exceed such amount as a result of changes in foreign currency exchange
rates) prior to the third anniversary of the Issue Date, nor exceed $6.0 million
(or its equivalent in another currency; provided that the amount of Debt so
Incurred shall not be deemed to exceed such amount as a result of changes in
foreign currency exchange rates) after the third anniversary of the Issue Date,
which amount shall be permanently reduced by the amount of Net Available Cash
used to Repay Debt under Credit Facilities and not subsequently reinvested in
Additional Assets or used to purchase Notes or Repay other Debt, pursuant to
Section 4.12;

                                       39
<PAGE>

            (c) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Subsidiary owing to and held by the Company or any
Wholly Owned Subsidiary; provided, however, that any subsequent issue or
transfer of Capital Stock or other event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
any such Debt (except to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Debt by the issuer
thereof;

            (d) Debt under Interest Rate Agreements entered into by the Company
or a Subsidiary Guarantor for the purpose of limiting interest rate risk in the
ordinary course of the financial management of the Company or such Subsidiary
Guarantor and not for speculative purposes, provided that the obligations under
such agreements are directly related to payment obligations on Debt otherwise
permitted by the terms of this Section 4.09;

            (e) Debt under Currency Exchange Protection Agreements entered into
by the Company or a Subsidiary for the purpose of limiting currency exchange
rate risks directly related to transactions entered into by the Company or such
Subsidiary in the ordinary course of business and not for speculative purposes;

            (f) Debt under Commodity Price Protection Agreements entered into by
the Company or a Subsidiary in the ordinary course of the financial management
of the Company or such Subsidiary and not for speculative purposes;

            (g) Debt in connection with one or more standby letters of credit or
performance bonds issued by the Company or a Subsidiary Guarantor in the
ordinary course of business or pursuant to self-insurance obligations and not in
connection with the borrowing of money or the obtaining of advances or credit;

            (h) Debt of the Company or a Subsidiary outstanding on the Issue
Date not otherwise described in clauses (a) through (g) above; and

            (i) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause clause (a) and (h) above.

            Notwithstanding anything to the contrary contained in this Section
4.09, any Debt that is Incurred pursuant to clause clause (c) above shall be
Incurred only if such Debt is a Subordinated Obligation, and accrual of
interest, accretion or amortization of original issue discount and the payment
of interest or dividends in the form of additional Debt, will be deemed not to
be an Incurrence of Debt for purposes of this Section 4.09.

            For purposes of determining compliance with this Section, in the
event that an item of Debt meets the criteria of more than one of the categories
of Permitted Debt described in clauses (a) through (i) above, the Company shall,
in its sole discretion, classify (in whole or in part, in its sole discretion)
such item of Debt in any manner that complies with this Section.

            Section 4.10 Limitation on Restricted Payments.

            The Company shall not make, and shall not permit any Subsidiary to
make, directly or indirectly, any Restricted Payment. Notwithstanding the
foregoing, the Company or any Subsidiary may make a Restricted Payment solely of
the type listed under clause (d) of the definition of "Restricted Payments," if
at the time of, and after giving effect to, such proposed Restricted Payment,

            (a) no Default or Event of Default shall have occurred and be
      continuing, and

                                       40
<PAGE>

            (b) the aggregate amount of such Restricted Payment and all other
      Restricted Payments declared or made since the Issue Date (the amount of
      any Restricted Payment, if made other than in cash, to be based upon Fair
      Market Value at the time of such Restricted Payment) would not exceed an
      amount equal to the sum of:

                  (1) 100% of the Capital Stock Sale Proceeds, plus

                  (2) the sum of:

                        (A) the aggregate net cash proceeds received by the
                  Company or any Subsidiary Guarantor from the issuance or sale
                  after the Issue Date of convertible or exchangeable Debt that
                  has been converted into or exchanged for Capital Stock (other
                  than Disqualified Stock) of the Company, and

                        (B) the aggregate amount by which Debt (other than
                  Subordinated Obligations) of the Company or any Subsidiary
                  Guarantor is reduced on the Company's consolidated balance
                  sheet on or after the Issue Date upon the conversion or
                  exchange of any Debt issued or sold on or prior to the Issue
                  Date that is convertible or exchangeable for Capital Stock
                  (other than Disqualified Stock) of the Company,

            excluding, in the case of clause (A) or (B):

                        (x) any such Debt issued or sold to the Company or a
                  Subsidiary of the Company or an employee stock ownership plan
                  or trust established by the Company or any such Subsidiary for
                  the benefit of their employees, and

                        (y) the aggregate amount of any cash or other Property
                  distributed by the Company or any Subsidiary upon any such
                  conversion or exchange, plus

                  (3) an amount equal to the sum of the net reduction in
            Investments in any Person other than the Company or a Subsidiary
            resulting from dividends, repayments of loans or advances or other t
            12 6 transfers of Property, in each case to the Company or any
            Subsidiary from such Person, minus

                  (4) if the aggregate amount of Consolidated Net Income accrued
            during the period (treated as one accounting period) from the Issue
            Date to the end of the most recent fiscal quarter ending at least 45
            days prior to the date of such Restricted Payment shall be a
            deficit, 100% of such deficit.

            Notwithstanding the foregoing limitation, the Company may:

                  (a) purchase, repurchase, redeem, legally defease, acquire or
            retire for value Capital Stock of the Company or Subordinated
            Obligations in exchange for, or out of the proceeds of the
            substantially concurrent sale of, Capital Stock of the Company
            (other than Disqualified Stock and other than Capital Stock issued
            or sold to a Subsidiary of the Company or an employee stock
            ownership plan or trust established by the Company or any such
            Subsidiary for the benefit of their employees); provided, however,
            that

                        (1) such purchase, repurchase, redemption, legal
                  defeasance, acquisition or retirement shall be excluded in the
                  calculation of the amount of Restricted Payments and

                        (2) the Capital Stock Sale Proceeds from such exchange
                  or sale shall be excluded from the calculation pursuant to
                  clause (b)(2) above;

                                       41
<PAGE>

                  (b) purchase, repurchase, redeem, legally defease, acquire or
            retire for value any Subordinated Obligations in exchange for, or
            out of the proceeds of the substantially concurrent sale of,
            Permitted Refinancing Debt; provided, however, that such purchase,
            repurchase, redemption, legal defeasance, acquisition or retirement
            shall be excluded in the calculation of the amount of Restricted
            Payments; and

                  (c) make repurchases of Capital Stock deemed to occur upon the
            exercise of stock options if such Capital Stock represents a portion
            of the exercise price thereof; provided, however, that such
            repurchases will be excluded from subsequent calculations of the
            amount of Restricted Payments.

            Section 4.11 Limitation on Liens.

            (a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, Incur or suffer to exist, any Lien (other than Liens
described in clause (b) of the definition of "Permitted Liens") on any
Collateral.

            (b) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted
Liens) upon any of its Property (including Capital Stock of a Subsidiary),
whether owned at the Issue Date or thereafter acquired, or any interest therein
or any income or profits therefrom, unless it has made or will make effective
provision whereby the Notes or the applicable Subsidiary Guarantee will be
secured by such Lien equally and ratably with (or, if such other Debt
constitutes Subordinated Debt, prior to) all other Debt of the Company or any of
its Subsidiaries secured by such Lien for so long as such other Debt is secured
by such Lien.

            Section 4.12 Limitation on Asset Sales.

            The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, consummate any Asset Sale if the Fair Market Value of
all Asset Sales in the calendar year of such proposed Asset Sale would exceed
$4.5 million, and unless:

            (a) the Company or such Subsidiary receives consideration at the
      time of such Asset Sale at least equal to the Fair Market Value of the
      Property subject to such Asset Sale;

            (b) at least 75% of the consideration paid to the Company or such
      Subsidiary in connection with such Asset Sale is in the form of cash or
      Cash Equivalents, or securities, notes or other obligations received by
      the Company or any Subsidiary from the transferee and such securities,
      notes or other obligations are promptly (but in no event later than 30
      days following receipt thereof by the Company or its Subsidiary) converted
      by the Company or its Subsidiary into cash, or the assumption by the
      purchaser of liabilities of the Company or any of its Subsidiaries (other
      than contingent liabilities or liabilities that are by their terms
      subordinated to the Notes or the applicable Subsidiary Guarantee) as a
      result of which the Company and its Subsidiaries are no longer obligated
      with respect to such liabilities; and

            (c) the Company delivers an Officers' Certificate to the Trustee
      certifying that such Asset Sale complies with the foregoing clauses (a)
      and (b).

      The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Subsidiary, to the extent the Company or such
Subsidiary elects (or is required by the terms of any Debt):

            (a) to Repay Senior Debt of the Company or any Subsidiary Guarantor
      or Debt of any Subsidiary that is not a Subsidiary Guarantor (excluding,
      in any such case, any Debt owed to the Company or an Affiliate of the
      Company); or

                                       42
<PAGE>

            (b) to reinvest in Additional Assets (including by means of an
      Investment in Additional Assets by a Subsidiary with Net Available Cash
      received by the Company or another Subsidiary).

      Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragrat 12 ph within 120 days from the date of the receipt of
such Net Available Cash shall constitute "Excess Proceeds."

            When the aggregate amount of Excess Proceeds exceeds $2.0 million
(taking into account income earned on such Excess Proceeds, if any), the Company
will be required to make an offer to repurchase (the "Asset Sale Offer") the
Notes, which offer shall be in the amount of the Allocable Excess Proceeds
(rounded to the nearest $1,000), on a pro rata basis according to principal
amount, at a purchase price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
3.09. To the extent that any portion of the amount of Net Available Cash remains
after compliance with the preceding sentence and provided that all holders of
Notes have been given the opportunity to tender their Notes for repurchase in
accordance with this Indenture, the Company or such Subsidiary may use such
remaining amount for any purpose permitted by this Indenture, and the amount of
Excess Proceeds will be reset to zero.

            The term "Allocable Excess Proceeds" shall mean the product of:

            (a) the Excess Proceeds and

            (b) a fraction,

                  (1) the numerator of which is the aggregate principal amount
            of the Notes outstanding on the date of the Asset Sale Offer, and

                  (2) the denominator of which is the sum of the aggregate
            principal amount of the Notes outstanding on the date of the Asset
            Sale Offer and the aggregate principal amount of other Debt of the
            Company outstanding on the date of the Asset Sale Offer that is pari
            passu in right of payment with the Notes and subject to terms and
            conditions in respect of Asset Sales similar in all material
            respects to this Section 4.12 and requiring the Company to make an
            offer to repurchase such Debt at substantially the same time as the
            Asset Sale Offer.

      Section 4.13 Limitation on Restrictions on Distributions from
Subsidiaries.

      The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist any consensual
restriction on the right of any Subsidiary to:

            (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock owned by, or pay any Debt or
other obligation owed to, the Company or any other Subsidiary,

            (b) make any loans or advances to the Company or any other
Subsidiary, or

            (c) transfer any of its Property to the Company or any other
Subsidiary.

The foregoing limitations will not apply:

            (1) with respect to clauses (a), (b) and (c), to restrictions:

                  (A) in effect on the Issue Date (including, without
limitation, restrictions pursuant to the Notes and this Indenture),

                                       43
<PAGE>

                  (B) relating to Debt of a Subsidiary and existing at the time
it became a Subsidiary if such restriction (x) was not created in connection
with or in anticipation of the transaction or series of transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by the Company and (y)
t 18 0 does not materially adversely affect the ability of the Company to make
payments on the Notes, or

                  (C) that result from the Refinancing of Debt Incurred pursuant
to an agreement referred to in clause (1)(A) or (B) above or in clause (2)(A) or
(B) below, provided such restrictions are not less favorable to the holders of
Notes than those under the agreement evidencing the Debt so Refinanced, and

            (2) with respect to clause (c) only, to restrictions:

                  (A) relating to Debt that is permitted to be Incurred and
secured without also securing the Notes or the applicable Subsidiary Guarantee
pursuant to Section 4.09 and Section 4.11 that limit the right of the debtor to
dispose of the Property securing such Debt,

                  (B) encumbering Property at the time such Property was
acquired by the Company or any Subsidiary, so long as such restrictions relate
solely to the Property so acquired and were not created in connection with or in
anticipation of such acquisition,

                  (C) resulting from customary provisions restricting subletting
or assignment of leases or customary provisions in other agreements that
restrict assignment of such agreements or rights thereunder, or

                  (D) customary restrictions contained in asset sale agreements
limiting the transfer of such Property pending the closing of such sale.

            Section 4.14 Limitations on Transactions with Affiliates.

            The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, conduct any business or enter into any transaction or
series of transactions (including the purchase, sale, transfer, assignment,
lease, conveyance or exchange of any Property or the rendering of any service)
with, or for the benefit of, any Affiliate of the Company (an "Affiliate
Transaction"), unless:

            (a) the terms of such Affiliate Transaction are:

                  (i) set forth in writing,

                  (ii) fair to the Company or such Subsidiary, as the case may
be, and

                  (iii) no less favorable to the Company or such Subsidiary, as
the case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Company,

            (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $1.0 million, the Board of Directors (including a majority
of the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clauses (a)(ii) and (iii) of this paragraph as
evidenced by a Board Resolution promptly delivered to the Trustee, and

            (c) if such Affiliate Transaction involves aggregate payments or
value in excess of $5.0 million, the Company obtains a written opinion from an
Independent Financial Advisor to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a financial
point of view, to the Company and its Subsidiaries.

                                       44
<PAGE>

            Notwithstanding the foregoing limitation, the Company or any of its
Subsidiaries may enter into or suffer to exist the following:

            (a) any transaction or series of transactions between the Company
and one or more of its Subsidiaries or between two or more of its Subsidiaries
in the ordinary course of business, provided that no more than 5% of the total
voting power of the Voting Stock (on a fully diluted basis) of any such
Subsidiary is owned by an Affiliate of the Company (other than a Subsidiary);

            (b) any Restricted Payment permitted to be made pursuant to Section
4.10 or any Permitted Investment;

            (c) the payment of compensation (including amounts paid pursuant to
employee benefit plans), incentive plans, employment agreements and option
grants for the personal services of officers, directors and employees of the
Company or any of its Subsidiaries, so long as the Board of Directors in good
faith shall have approved the terms thereof and deemed the services theretofore
or thereafter to be performed for such compensation to be fair consideration
therefor;

            (d) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Subsidiary, as the case may be, provided that such loans and advances do not
exceed $250,000 in the aggregate at any one time outstanding;

            (e) transactions otherwise in compliance with clause (a) of this
Section 4.14 and expressly contemplated by Section 4.23;

            (f) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; and

            (g) the following agreements in effect on the Issue Date and any
modifications, extensions or renewals thereto that are no less favorable to the
Company or any of its Subsidiaries thereof than such agreements as in effect on
the Issue Date, namely:

            (1)   that certain Agreement of Trademark Use dated August 18, 2004,
                  between Harbin Tech Full Electric Co. Ltd. and Harbin Tech
                  Full Industry Co. Ltd. for two registered trademarks owned by
                  the latter entity;

            (2)   that certain Lease Agreement dated March 20, 2005, between
                  Harbin Tech Full Electric Co. Ltd. and Harbin Tech Full
                  Industry Co., Ltd. for leasing premises on the former entity's
                  main campus in Harbin, PRC; and

            (3)   that certain Patent Transfer Agreement dated August 19, 2004
                  between Harbin Tech Full Electric Co. Ltd. and Harbin Tech
                  Full Industry Co. Ltd. for three patents owned by the latter
                  entity.

            Section 4.15 Limitation on Issuance or Sale of Capital Stock of
Subsidiaries.

            The Company shall not:

            (a) sell, pledge, hypothecate or otherwise dispose of any shares of
Capital Stock of a Subsidiary, or

            (b) permit any Subsidiary to, directly or indirectly, issue or sell
or otherwise dispose of any shares of its Capital Stock,

other than, in the case of either (a) or (b):

                                       45
<PAGE>

                  (1) directors' qualifying shares,

                  (2) to the Company or a Wholly Owned Subsidiary, or

                  (3) a disposition of 100% of the shares of Capital Stock of
                  such Subsidiary; provided, however, that, in the case of this
                  clause (3),

                        (i) such disposition is effected in compliance with
Section 4.12, and

                        (ii) upon consummation of such disposition and execution
and delivery of a supplemental indenture in form satisfactory to the Trustee,
such Subsidiary shall be released from any Subsidiary Guarantee previously made
by such Subsidiary.

            Section 4.16 Maintenance of Consolidated Tangible Net Worth.

            The Company shall not, on the Issue Date (after giving effect to the
issuance of the Notes) or at the end of any fiscal quarter thereafter, permit
its Consolidated Tangible Net Worth to be less than the Consolidated Tangible
Net Worth Threshold. The "Consolidated Tangible Net Worth Threshold" shall be
equal to $25.0 million from the Issue Date until the first annual anniversary
thereof, and at each annual anniversary of the Issue Date shall increase by an
amount equal to $10.0 million.

            Section 4.17 Repurchase at the Option of Holders Upon a Change of
Control.

            (a) Upon the occurrence of a Change of Control, the Company shall,
within 7 days thereafter notify the Trustee and the Holders of such Change of
Control, and within 30 days of a Change of Control, make an offer (the "Change
of Control Offer") pursuant to the procedures set forth in Section 3.10. Each
Holder shall have the right to accept such offer and require the Company to
repurchase all or any part of such Holder's Notes pursuant to the Change of
Control Offer at a purchase price, in cash, equal to 102.5% of the principal
amount of Notes repurchased, plus accrued and unpaid interest and Additional
Interest, if any, on the Notes repurchased, to the Purchase Date.

            (b) The Company shall not be required to make a Change of Control
Offer following a Change of Control if (i) a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer or (ii) notice of redemption has been given
for all outstanding Notes pursuant to Section 3.07 unless and until there is a
default in payment of the applicable redemption price.

            Section 4.18 Future Subsidiary Guarantors.

            The Company shall cause each Person that becomes a Subsidiary
following the Issue Date to execute and deliver to the Trustee a Subsidiary
Guarantee at the time such Person becomes a Subsidiary, provided that any such
Subsidiary that is domiciled in the PRC shall not be required to execute a
Subsidiary Guarantee unless after the Issue Date a change in law or
interpretation of law in the PRC allows a company domiciled in the PRC to
provide a guarantee of Debt without approval by any governmental body in the
PRC.

            Section 4.19 Limitation on Company's Business.

            The Company shall not, and the Company shall not permit any
Subsidiary to, directly or indirectly, engage in any business other than a
Related Business.

            Section 4.20 Engage Qualified Auditing Firm.

            The Company shall, no later than March 1, 2007, appoint any one of
the following accounting firms as auditor of the Company and its Subsidiaries,
and shall cause this auditor to audit the Company's annual financial statements
starting from the fiscal year beginning January 1, 2007 and perform an interim
review of the Company's consolidated quarterly financial statements, all in
accordance with Regulation S-X under the Securities Act: PricewaterhouseCoopers;
Deloitte Touche Tohmatsu; Ernst & Young; KPMG; BDO International; Grant Thornton
International; RSM International; Baker Tilly International; Horwath
International; Moores Rowland International; Nexia International; PKF
International; Moore Stephens International; HLB International or Kreston
International.

                                       46
<PAGE>

            Section 4.21 Impairment of Security Interest.

            Neither the Company nor any Subsidiary Guarantor shall, and neither
the Company nor any Subsidiary Guarantor shall permit any Subsidiary to, take or
omit to take any action that would have the result of materially impairing the
security interest with respect to the Collateral for the benefit of the Trustee
and the holders of the Notes, and neither the Company nor any Subsidiary
Guarantor shall, and neither the Company nor any Subsidiary Guarantor shall
permit any Subsidiary to, grant to any Person other than the Collateral Agent,
for the benefit of the Trustee and the holders of the Notes and the other
beneficiaries described in the Security Documents, any interest whatsoever in
any of the Collateral.

            Section 4.22 Amendments to Security Documents.

            Neither the Company nor any Subsidiary Guarantor shall, and neither
the Company nor any Subsidiary Guarantor shall permit any Subsidiary to, amend,
waive or otherwise modify, or permit or consent to any amendment, waiver or
other modification, of the Security Documents in any way that would be adverse
to the holders of the Notes.

            Section 4.23 Use of Proceeds.

            The Company will not use the net proceeds from the sale of the
Notes, in any amount, for any purpose other than to acquire 100% ownership of
Harbin Taifu (for which the Company shall not, directly or indirectly, pay
consideration that, in the aggregate exceeds $10.5 million in value, nor
includes more than $4.0 million in cash or more than $6.5 million in shares of
the Company's Common Stock (valued on the basis of the volume weighted average
price of such shares for the 15 trading days immediately prior to execution of a
commitment to make such acquisition)); establish a new facility and set up an
auto motor manufacturing company; acquire a majority of the Capital Stock or
assets of a rotary motor manufacturer and expand plant size and purchase new
equipment and set up standard manufacturing facilities; purchase equipment for
manufacturing and testing, as well as updated technology, for a light rail
passenger train system driven by linear motors; purchase equipment to
manufacture small linear motors for food processing machinery and cabinets; and
purchase equipment for production related to motors used by magnetic levitation
passenger trains; and pending the application of all of such net proceeds in
such manner, to invest the portion of such net proceeds not yet so applied in
Cash Equivalents. Following the application of net proceeds in such manner, any
remaining net proceeds may be applied for general corporate purposes not
otherwise prohibited by the terms of this Indenture..

            Section 4.24 Maintenance of Insurance.

            The Company shall, and shall cause its Subsidiaries to, maintain
insurance policies covering such risks, in such amounts and with such terms as
are normally carried by similar companies engaged in a similar business to the
Related Business in the PRC.

            Section 4.25 Listing of the Company's Common Stock.

            The Company shall make such filings, registrations or qualifications
and take all other necessary action and will use its best efforts to obtain such
consents, approvals and authorizations, if any, and satisfy all conditions that
the Nasdaq Capital Market or Nasdaq Global Market may impose on listing the
Company's common stock and shall use its best efforts to obtain such listing by
no later than April 1, 2007 and maintain such listing continuously thereafter.

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            Section 4.26 Government Approvals and Licenses; Compliance with Law.

            The Company shall, and shall cause its Subsidiaries to, (a) obtain
and maintain in full force and effect all governmental approvals,
authorizations, consents, permits, concessions and licenses as are necessary to
engage in a Related Business, (b) preserve and maintain good and valid title to
its properties and assets (including land-use rights) free and clear of any
Liens other than Permitted Liens and (c) comply with all laws, regulations,
orders, judgments and decrees of any governmental body, except to the extent
that failure so to obtain, maintain, preserve and comply would reasonably be
expected to have a material adverse effect on (1) the business, results of
operations or prospects of the Company and its Subsidiaries taken as a whole or
(2) the ability of the Company or any Subsidiary Guarantor to perform its
obligations under the Notes, the relevant Guarantee of the Notes or this
Indenture.

            Section 4.27 Appointment of Senior Financial Officer.

            On or before the 120th day following the Issue Date, the Company
shall appoint a senior financial officer on a full-time basis with the Company,
which officer shall be knowledgeable with respect to the capital markets in the
United States and shall be proficient in the English language.

            Section 4.28 Minimum Fixed Charge Coverage Ratio.

            The Company shall maintain a Fixed Charge Coverage Ratio, as
determined as of the last day of each Fiscal Quarter, for the four Fiscal
Quarters ending on such day, of at least 1.25 to 1.

            Section 4.29 Notes to Rank Senior.

            The Notes and all other obligations of the Company and the
Subsidiary Guarantors under this Indenture are and at all times shall remain
direct and first-priority secured obligations of the Company and each Subsidiary
Guarantor ranking pari passu as against the assets of the Company and each
Subsidiary Guarantor with all other Notes from time to time issued and
outstanding hereunder without any preference among themselves and senior in
right and priority of payment to all other present and future unsecured
Indebtedness (actual or contingent) of the Company and each Subsidiary Guarantor
(except as otherwise required by law).

                                   ARTICLE V

                                   SUCCESSORS

            Section 5.01 Merger, Consolidation and Sale of Assets.

            (a) The Company shall not merge, consolidate or amalgamate with or
into any other Person (other than a merger of a Wholly Owned Subsidiary into the
Company) or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all of its Property in any one transaction or series of
transactions unless:

                  (i) the Company shall be the Surviving Person in such merger,
consolidation or amalgamation, or the Surviving Person (if other than the
Company) formed by such merger, consolidation or amalgamation or to which such
sale, transfer, assignment, lease, conveyance or disposition is made shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia;

                  (ii) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, in its reasonable judgment, executed and delivered to the Trustee by
such Surviving Person, the due and punctual payment of the principal of, and
premium, if any, and interest on, all the Notes, according to their tenor, and
the due and punctual performance and observance of all the covenants and
conditions of this Indenture to be performed by the Company;

                  (iii) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Property of the
Company, such Property shall have been transferred as an entirety or virtually
as an entirety to one Person or a group of related persons;

                                       48
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                  (iv) immediately after giving effect to such transaction on a
pro forma basis, the Company or Surviving Person, as the case may be, shall have
a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction;

                  (v) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (v), any Debt that becomes, or is anticipated to become,
an obligation of the Surviving Person or any Subsidiary of the Company as a
result of such transaction or series of transactions as having been Incurred by
the Surviving Person or such Subsidiary at the time of such transaction or
series of transactions), no Default or Event of Default shall have occurred and
be continuing; and

                  (vi) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance satisfactory to the Trustee, in its
reasonable judgment, an Officers' Certificate and an Opinion of Counsel, each
stating that such transaction or series of transactions and the supplemental
indenture, if any, in respect thereto comply with this covenant and that all
conditions precedent herein provided for relating to such transaction or series
of transactions have been satisfied.

            The foregoing provisions shall not apply to any transaction or
series of transactions which constitute an Asset Sale if the Company has
complied with Section 4.12.

            (b) The Company shall not permit any Subsidiary Guarantor to merge,
consolidate or amalgamate with or into any other Person (other than a merger of
a Wholly Owned Subsidiary into the Company or such Subsidiary Guarantor) or
sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless:

                  (i) the Surviving Person (if not such Subsidiary Guarantor)
formed by such merger, consolidation or amalgamation or to which such sale,
transfer, assignment, lease, conveyance or disposition is made shall be a
corporation, company (including a limited liability company) or partnership
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia;

                  (ii) the Surviving Person (if other than such Subsidiary
Guarantor) expressly assumes, by supplemental indenture in form satisfactory to
the Trustee, in its reasonable judgment, executed and delivered to the Trustee
by such Surviving Person, the due and punctual performance and observance of all
the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee;

                  (iii) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Property of such
Subsidiary Guarantor, such Property shall have been transferred as an entirety
or virtually as an entirety to one Person;

                  (iv) immediately after giving effect to such transaction on a
pro forma basis, the Company or Surviving Person, as the case may be, shall have
a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction;

                  (v) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (v), any Debt that becomes, or is anticipated to become,
an obligation of the Surviving Person, the Company or any Subsidiary Guarantor
as a result of such transaction or series of transactions as having been
Incurred by the Surviving Person, the Company or such Subsidiary Guarantor at
the time of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; and

                                       49
<PAGE>

                  (vi) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance satisfactory to the Trustee, in its
reasonable judgment, an Officers' Certificate and an Opinion of Counsel, each
stating that such transaction or series of transactions and the supplemental
indenture, if any, in respect thereto comply with this covenant and that all
conditions precedent herein provided for relating to such transaction or series
of transactions have been satisfied.

The foregoing provisions shall not apply to any transaction or series of
transactions which constitute an Asset Sale if the Company has complied with
Section 4.12.

            Section 5.02 Successor Corporation Substituted.

            The Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of the Company or a Subsidiary Guarantor, as
applicable, under this Indenture; provided, however, that the predecessor entity
shall not be released from any of the obligations or covenants under this
Indenture, including with respect to the payment of the Notes and obligations
under the Subsidiary Guarantee, as the case may be, in the case of:

            (a) a sale, transfer, assignment, conveyance or other disposition
(unless such sale, transfer, assignment, conveyance or other disposition is of
all or substantially all of the assets of the Company, taken as a whole or, in
the case of a Subsidiary Guarantor, such sale, transfer, assignment, conveyance
or other disposition is of all or substantially all of the assets of such
Subsidiary Guarantor to a Person that is not (either before or after giving
effect to such transaction) a Subsidiary of the Company, or such portion of the
Capital Stock of such Subsidiary Guarantor ceases to be a Subsidiary of the
Company), or

            (b) a lease.

                                   ARTICLE VI
                              DEFAULTS AND REMEDIES

            Section 6.01 Events of Default.

Each of the following constitutes an "Event of Default" with respect to the
Notes of a particular maturity:

            (a) failure to make the payment of any interest on such Notes when
the same becomes due and payable, and such failure continues for a period of 5
days;

            (b) failure to make the payment of any principal of, or premium, if
any, on, any of such Notes when the same becomes due and payable at its Stated
Maturity, upon acceleration, redemption, optional redemption, required
repurchase or otherwise, including payment of Liquidated Damages pursuant to
Section 4.01;

            (c) failure to comply with Section 5.01;

            (d) failure to comply with any other covenant or agreement in such
Notes or in this Indenture (other than a failure that is the subject of the
foregoing clause (a), (b) or (c), and other than the failure to comply with
Section 4.20, 4.25 or 4.27, for which payment of liquidated damages is provided
for hereunder and is governed by Section 4.01), and such failure continues for
21 days after written notice is given to the Company by the Trustee or the
holders of not less than 25% in aggregate principal amount of such Notes then
outstanding specifying the default, demanding that it be remedied and stating
that such notice is a "Notice of Default;"

            (e) a default under any Debt by the Company or any Subsidiary that
results in acceleration of the maturity of such Debt, or failure to pay any such
Debt when due, in an aggregate amount greater than $3.0 million or its foreign
currency equivalent at the time;

                                       50
<PAGE>

            (f) any judgment or judgments for the payment of money in an
aggregate amount in excess of $3.0 million (or its foreign currency equivalent
at the time) that shall be rendered against the Company or any Subsidiary and
that shall not be waived, satisfied or discharged for any period of 20
consecutive days during which a stay of enforcement shall not be in effect;

            (g) any Subsidiary Guarantee ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guarantee) or any
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guarantee;

            (h) the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, when taken together, would constitute a Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

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

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

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

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

                        (5) admits in writing its inability to pay its debts as
            they become due or otherwise admits its insolvency; and

            (i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

                        (1) is for relief against the Company or any of its
            Significant Subsidiaries or any group of Subsidiaries that, when
            taken together, would constitute a Significant Subsidiary, in an
            involuntary case; or

                        (2) appoints a receiver, interim receiver, receiver and
            manager, liquidator, trustee or custodian of the Company or any of
            its Significant Subsidiaries or any group of Subsidiaries that, when
            taken together, would constitute a Significant Subsidiary, or for
            all or substantially all of the property of the Company or any of
            its Significant Subsidiaries that, when taken together, would
            constitute a Significant Subsidiary; or

                        (3) orders the liquidation of the Company or any of its
            Significant Subsidiaries or any group of Subsidiaries that, when
            taken together, would constitute a Significant Subsidiary;

                  and such order or decree remains unstayed and in effect for 60
consecutive days.

            (j) any default by the Company or Future Subsidiary Guarantor
Pledgor in the default of any of its obligations under the Security Documents,
which adversely affects the enforceability, validity, perfection or priority of
the applicable Lien on the Collateral or which adversely affects the condition
or value of the Collateral, taken as a whole, in any material respect; or

            (k) the Company or any Future Subsidiary Guarantor Pledgor denies or
disaffirms its obligations under any Security Document or, other than in
accordance with this Indenture and the Security Documents, any Security Document
ceases to be or is not in full force and effect or the Trustee ceases to have a
first priority interest in the Collateral.

                                       51
<PAGE>

            Section 6.02. Acceleration.

            If any Event of Default (other than those of the type described in
Section 6.01(h) or (i), or resulting from a breach of Section 4.20, 4.25 or
4.27) occurs and is continuing, the Trustee may, and the Trustee upon the
request of Holders of 25% in principal amount of the outstanding Notes of a
particular maturity shall, or the Holders of at least 25% in principal amount of
outstanding Notes of a particular maturity may, declare the principal of all
such Notes, together with all accrued and unpaid interest, premium, if any, to
be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that such notice is a notice of
acceleration (the "Acceleration Notice"), and the same shall become immediately
due and payable.

            The Holders of a majority in principal amount of the then
outstanding Notes by notice to the Trustee may rescind such acceleration and its
consequences if (i) the rescission would not conflict with any judgment or
decree, (ii) all Events of Default, other than the nonpayment of accelerated
principal of, premium, if any, and interest on Notes, have been cured or waived
as provided in this Indenture and (iii) all sums paid or advanced by the Trustee
and the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel have been paid in full. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.

            In the case of an Event of Default specified in Section (h) or (i)
of Section 6.01 hereof, all outstanding Notes shall become due and payable
immediately without any further declaration or other act on the part of the
Trustee or the Holders. Holders may not enforce this Indenture or the Notes
except as provided in this Indenture.

            In the case of an Event of Default with respect to the Notes of a
particular maturity occurring by reason of any willful action or inaction taken
or not taken by the Company or on the Company's behalf with the intention or
effect of avoiding payment of the premium that the Company would have been
required to pay if the Company had then elected to redeem such Notes pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon the acceleration of such
Notes. If an Event of Default occurs prior to September 1, 2007, by reason of
any willful action or inaction taken or not taken by the Company or on the
Company's behalf with the intention of avoiding the premium required upon a
redemption of the Notes of a particular maturity under Section 3.07(a) or
Section 3.07(b), then the premium specified in Section 3.07(a) or Section
3.07(b), as applicable, shall also become immediately due and payable to the
extent permitted by law upon acceleration of such Notes.

            Section 6.03. Other Remedies.

            If an Event of Default occurs and is continuing with respect to
Notes of a particular maturity, the Trustee may pursue any available remedy to
collect the payment of principal, premium, if any, and interest on such Notes or
to enforce the performance of any provision of such Notes or this Indenture.

            The Trustee may maintain a proceeding even if it does not possess
any of such Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies shall be
cumulative to the extent permitted by law.

            Section 6.04. Waiver of Defaults.

            The Holders of a majority in aggregate principal amount of the Notes
of a particular maturity then outstanding by notice to the Trustee may on behalf
of the Holders of all of such Notes, waive any existing Default or Event of
Default, and its consequences, except a continuing Default or Event of Default
(i) in the payment of the principal of, premium, if any, or interest, on such
Notes and (ii) in respect of a covenant or provision which under this Indenture
cannot be modified or amended without the consent of the Holder of each Note
affected by such modification or amendment. In the event of any Event of Default
specified in clause (e) of Section 6.01, such Event of Default and all
consequences of that Event of Default, including without limitation any
acceleration or resulting payment default, shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the Holders of
the Notes, if within 60 days after the Event of Default arose:

                                       52
<PAGE>

            (a) the Debt that is the basis for the Event of Default has been
discharged;

            (b) the holders of such Debt have rescinded or waived the
acceleration, notice or action, as the case may be, giving rise to the Event of
Default; or

            (c) if the default that is the basis for such Event of Default has
been cured.

Upon any waiver of a Default or Event of Default, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed cured for
every purpose of this Indenture but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.

            Section 6.05. Control by Majority.

            Subject to Section 7.01, Section 7.02(f) (including the Trustee's
receipt of the security or indemnification described therein) and Section 7.07
hereof, in case an Event of Default shall occur and be continuing, the Holders
of a majority in aggregate principal amount of the Notes then outstanding of a
particular maturity shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to such Notes.
Notwithstanding any provision to the contrary in this Indenture, the Trustee
shall not be obligated to take any action with respect to the provisions of the
last paragraph of Section 6.02 unless directed to do so pursuant to this Section
6.05.

            Section 6.06. Limitation on Suits.

            No Holder shall have any right to institute any proceeding with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless:

            (a) such Holder has previously given to the Trustee written notice
of a continuing Event of Default with respect to Notes of the maturity held by
such Holder or the Trustee receives the notice from the Company,

            (b) Holders of at least 25% in aggregate principal amount of the
Notes then outstanding of that maturity have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as trustee, and

            (c) the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of such Notes then outstanding a
direction inconsistent with such request and shall have failed to institute such
proceeding within 10 days.

            The preceding limitations shall not apply to a suit instituted by a
Holder for enforcement of payment of principal of, and premium, if any, or
interest on, a Note on or after the respective due dates for such payments set
forth in such Note.

            A Holder may not use this Indenture to affect, disturb or prejudice
the rights of another Holder of the same maturity of Notes or to obtain a
preference or priority over another Holder of the same maturity of Notes.

            Section 6.07. Rights of Holders to Receive Payment.

            Notwithstanding any other provision of this Indenture (including
Section 6.06), the right of any Holder to receive payment of principal, premium,
if any, and interest on the Notes held by such Holder, on or after the
respective due dates expressed in the Notes (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.

                                       53
<PAGE>

            Section 6.08. Collection Suit by Trustee.

            If an Event of Default specified in Section 6.01 (h) or (i) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest then due and owing (together with
interest on overdue principal and, to the extent lawful, interest) and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

            Section 6.09. Trustee May File Proofs of Claim.

            The Trustee shall be authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee and its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, moneys, securities and any other properties that the Holders may
be entitled to receive in such proceeding whether in liquidation or under any
plan of reorganization or arrangement or otherwise. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

            Section 6.10. Priorities.

            If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:

            First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;

            Second: to Holders of the Notes with respect to which such money has
been collected, for amounts due and unpaid on such Notes for principal, premium,
if any, and interest ratably, without preference or priority of any kind as to
Notes of that maturity, according to the amounts due and payable on such Notes
for principal, premium, if any, and interest, respectively; and

            Third: to the Company or to such party as a court of competent
jurisdiction shall direct.

            The Trustee may fix a record date and payment date for any payment
to Holders pursuant to this Section 6.10.

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<PAGE>

            Section 6.11. Undertaking for Costs.

            In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 shall not apply to a suit by the Trustee, a suit by the
Company, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by
Holders of more than 10% in principal amount of the then outstanding Notes of a
particular maturity.

                                   ARTICLE VII

                                     TRUSTEE

            Section 7.01. Duties of Trustee.

            (a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.

            (b) Except during the continuance of an Event of Default:

                        (A) the duties of the Trustee shall be determined solely
            by the express provisions of this Indenture and the Trustee need
            perform only those duties that are specifically set forth in this
            Indenture and no others, and no implied covenants or obligations
            shall be read into this Indenture against the Trustee; and

                        (B) in the absence of bad faith on its part, the Trustee
            may conclusively rely, as to the truth of the statements and the
            correctness of the opinions expressed therein, upon certificates or
            opinions furnished to the Trustee and conforming to the requirements
            of this Indenture. However, the Trustee shall examine the
            certificates and opinions to determine whether or not they conform
            to the requirements of this Indenture (but need not confirm or
            investigate the accuracy of mathematical calculations or other facts
            stated therein).

            (c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                        (A) this paragraph does not limit the effect of
            paragraph (b) of this Section;

                        (B) the Trustee shall not be liable for any error of
            judgment made in good faith by a Responsible Officer, unless it is
            proved that the Trustee was negligent in ascertaining the pertinent
            facts; and

                        (C) the Trustee shall not be liable with respect to any
            action it takes or omits to take in good faith in accordance with a
            direction received by it pursuant to Section 6.05 hereof.

            (d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.

            (e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, including, without limitation, the provisions of
Section 6.05, unless such Holder shall have offered to the Trustee security and
indemnity reasonably satisfactory to it against any loss, liability or expense.

                                       55
<PAGE>

            (f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

            Section 7.02. Rights of Trustee.

            (a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in any such document.

            (b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.

            (c) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

            (d) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

            (e) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
Default or Event of Default is received by a Responsible Officer of the Trustee
at the Corporate Trust Office of the Trustee from the Company or the Holders of
25% in aggregate principal amount of the outstanding Notes, and such notice
references the specific Default or Event of Default, the Notes and this
Indenture.

            (f) The Trustee shall not be required to give any bond or surety in
respect of the performance of its power and duties hereunder.

            (g) The Trustee shall have no duty to inquire as to the performance
of the Company's covenants herein.

            (h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.

            (i) The Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity or enforceability of any
Collateral or any arrangement or agreement between the Company and any Person
with respect thereto, or the perfection or priority of any security interest
created in any of the Collateral or maintenance of any such perfection and
priority, or for or with respect to the sufficiency of the Collateral following
an Event of Default.

            (j) The permissive rights of the Trustee enumerated herein shall not
be construed as duties.

            (k) Notwithstanding any provision herein to the contrary, the
Trustee shall not be obligated to take any action with respect to an Event of
Default pursuant to Section 6.01(j), unless it has been first notified to do so
in writing by the Holders of at least 25% in aggregate principal amount of the
outstanding Notes.

            (l) The rights, privileges, protections, immunities and benefits
given to the Trustee, including without limitation, its right to be indemnified,
are extended to, and shall be enforceable by, the Trustee in each of its
capacities hereunder, and to each agent, custodian and other Person employed to
act hereunder.

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            (m) The Trustee may request that the Company deliver an Officers'
Certificate setting forth the names of individuals and/or titles of officers
authorized at such time to take specified actions pursuant to this Indenture,
which Officers' Certificate may be signed by any person authorized to sign an
Officers' Certificate, including any Person specified as so authorized in any
such certificate previously delivered and not superseded.

            Section 7.03. Individual Rights of Trustee.

            The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as Trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee shall also be subject to Section 7.10
hereof.

            Section 7.04. Trustee's Disclaimer.

            The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

            Section 7.05. Notice of Defaults.

            If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders.

            Section 7.06. Reports by Trustee to Holders.

            Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders a brief report dated as of such reporting date
with respect to any of the following events which may have occurred within the
previous 12 months (but if no such event has occurred such date, no report need
be transmitted).

            (a) the character and amount of any disbursements made by it, as the
Trustee under this Indenture, which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or charge,
prior to that of Notes, on property or funds held or collected by it as the
Trustee under this Indenture, if such disbursements so remaining unpaid
aggregate more than one-half of 1 per centum of the principal amount of the
Notes outstanding on such date;

            (b) any release, or release and substitution, of property subject to
the Lien under the Security Documents (and the consideration therefor, if any)
which it has not previously reported;

            (c) any additional issue of Notes under this Indenture which it has
not previously reported; and

            (d) any action taken by it in the performance of its duties under
this Indenture which it has not previously reported and which in its opinion
materially affects the Notes, except action in respect of a default, notice of
which has been or is to be withheld by it in accordance with this Indenture.

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            A copy of each report at the time of its mailing to the Holders
shall be mailed to the Company. The Company shall promptly notify the Trustee
when the Notes are listed on any stock exchange and any delisting thereof.

            Section 7.07. Compensation and Indemnity.

            The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.

            The Company shall indemnify the Trustee (in its capacity as Trustee)
or any predecessor Trustee (in its capacity as Trustee) against any and all
losses, claims, damages, penalties, fines, liabilities or expenses, including
incidental and out-of-pocket expenses and reasonable attorneys fees (for
purposes of this Article, "losses") incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other Person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent such losses may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations under this Section
7.07, to the extent the Company has been prejudiced thereby. The Company shall
defend the claim, and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel if the Trustee has been reasonably advised by counsel
that there may be one or more legal defenses available to it that are different
from or additional to those available to the Company and in the reasonable
judgment of such counsel it is advisable for the Trustee to engage separate
counsel, and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld. The Company need not reimburse
any expense or indemnify against any loss incurred by the Trustee through the
Trustee's own willful misconduct, gross negligence or bad faith.

            The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture, the resignation or removal of
the Trustee and payment in full of the Notes through the expiration of the
applicable statute of limitations.

            To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, premium,
if any, and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.

            When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

            Section 7.08. Replacement of Trustee.

            A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.

            The Trustee may resign in writing at any time upon 30 days' prior
notice to the Company and be discharged from the trust hereby created by so
notifying the Company. The Holders of a majority in aggregate principal amount
of the then outstanding Notes of a particular maturity may remove the Trustee
with respect to such Notes by so notifying the Trustee and the Company in
writing. The Company may remove the Trustee if:

            (a) the Trustee fails to comply with Section 7.10 hereof;

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            (b) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;

            (c) a custodian or public officer takes charge of the Trustee or its
property; or

            (d) the Trustee becomes incapable of acting.

            If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes of a particular
maturity may appoint a successor Trustee with respect to such Notes to replace
the successor Trustee appointed by the Company.

            If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in aggregate principal amount of the then
outstanding Notes of a particular maturity may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to such
Notes.

            If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10 hereof, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee with respect to the Notes of the maturity held by such Holder and the
appointment of a successor Trustee with respect to such Notes.

            A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. Subject to the Lien provided for in Section 7.07 hereof,
the retiring Trustee shall promptly transfer all property held by it as Trustee
to the successor Trustee; provided, however, that all sums owing to the Trustee
hereunder shall have been paid. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.

            In the case of an appointment hereunder of a separate or successor
Trustee with respect to the Notes, the Company, the Subsidiary Guarantors, any
retiring Trustee and each successor or separate Trustee with respect to the
Notes shall execute and deliver an Indenture supplemental hereto (1) which shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of any retiring Trustee with
respect to the Notes as to which any such retiring Trustee is not retiring shall
continue to be vested in such retiring Trustee and (2) that shall add to or
change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by more than one
Trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such Trustee co-trustees of the same trust and that
each such separate, retiring or successor Trustee shall be Trustee of a trust or
trusts hereunder separate and apart from any trust or trusts hereunder
administered by any such other Trustee.

            Section 7.09. Successor Trustee by Merger, etc.

            If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another corporation
or banking association, the successor corporation or banking association without
any further act shall, if such successor corporation or banking association is
otherwise eligible hereunder, be the successor Trustee.

            Section 7.10. Eligibility; Disqualification.

            There shall at all times be a Trustee hereunder that is a Person
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50.0
million (or a wholly owned subsidiary of a bank or trust company, or of a bank
holding company, the principal subsidiary of which is a bank or trust company
having a combined capital and surplus of at least $50.0 million) as set forth in
its most recent published annual report of condition.

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                                  ARTICLE VIII

                        AMENDMENT, SUPPLEMENT AND WAIVER

            Section 8.01. Without Consent of Holders of Notes.

            Notwithstanding Section 8.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture, the Security Documents or the
Notes, as to a single maturity or as to all of the Notes, without the consent of
any Holder to:

            (a) cure any ambiguity, omission, defect or inconsistency;

            (b) provide for the assumption by a Surviving Person of the
obligations of the Company under this Indenture;

            (c) provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code);

            (d) add additional Guarantees or additional obligors with respect to
such Notes or release Subsidiary Guarantor from guarantees as permitted by the
terms of this Indenture;

            (e) provide additional collateral security for such Notes;

            (f) add to the covenants of the Company for the benefit of the
Holders of such Notes or to surrender any right or power conferred upon the
Company; or

            (g) make any other change that does not adversely affect the legal
rights hereunder of any such Holder.

            Section 8.02. With Consent of Holders of Notes.

            Except as provided below in this Section 8.02, the Company and the
Trustee may amend or supplement this Indenture, the Security Documents and the
Notes, as to a single maturity or as to all of the Notes, with the consent of
the Holders of a majority in aggregate principal amount of the Notes then
outstanding to be affected thereby voting as a single class (including consents
obtained in connection with a purchase of or tender offer or exchange offer for
the Notes), and, subject to Sections 6.04 and 6.07, any existing Default or
Event of Default (except a continuing Default or Event of Default in (i) the
payment of principal, premium, if any, or interest on such Notes and (ii) in
respect of a covenant or provision which under this Indenture cannot be modified
or amended without the consent of the Holder of each Note affected by such
modification or amendment) or compliance with any provision of this Indenture or
such Notes may be waived with the consent of the Holders of at least a majority
in aggregate principal amount of the Notes then outstanding to be affected
thereby voting as a single class (including consents obtained in connection with
a purchase of or tender offer or exchange offer for the Notes).

            Without the consent of each Holder, an amendment or waiver under
this Section 8.02 may not (with respect to any Notes held by a non-consenting
Holder):

            (a) reduce the amount of such Notes whose Holders must consent to an
amendment or waiver;

            (b) reduce the rate of, or extend the time for payment of, interest,
if any, on, any Note;

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            (c) reduce the principal of, or extend the Stated Maturity of, any
Note;

            (d) make any Note payable in money other than that stated in the
Note;

            (e) impair the right of any Holder to receive payment of principal
of, premium, if any, and interest, if any, on, such Holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes or any Guarantee;

            (f) subordinate such Notes or any Guarantee to any other obligation
of the Company or the applicable Guarantor;

            (g) release any security interest that may have been granted in
favor of the Holders other than pursuant to the terms of such security interest;

            (h) reduce the premium payable as Liquidated Damages or upon the
redemption of any Note or change the time at which any Note may be redeemed, as
described under Section 3.07;

            (i) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control has occurred, change the time at which the Change
of Control Offer relating thereto must be made or at which the Notes must be
repurchased pursuant to such Change of Control Offer;

            (j) at any time after the Company is obligated to make an Asset Sale
Offer with the Excess Proceeds from Asset Sales, change the time at which such
Asset Sale Offer must be made or at which the Notes must be repurchased pursuant
thereto; or

            (k) make any change in any Guarantee that would adversely affect the
Holders.

            The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to consent to any
supplemental indenture. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 120 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
cancelled and of no further effect.

            It shall not be necessary for the consent of the Holders under this
Section 8.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.

            After an amendment, supplement or waiver under this Section 8.02
becomes effective, the Company shall mail to the Holder of each Note affected
thereby to such Holder's address appearing in the Security Register a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental indenture
or waiver.

            Section 8.03. Revocation and Effect of Consents.

            Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion thereof that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder or subsequent Holder may revoke the
consent as to its Note or portion thereof if the Trustee receives written notice
of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver shall become effective in
accordance with its terms and thereafter shall bind every Holder.

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            Section 8.04. Notation on or Exchange of Notes.

            The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.

            Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.

            Section 8.05. Trustee to Sign Amendments, etc.

            The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 8 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
None of the Company nor the Subsidiary Guarantor may sign an amendment or
supplemental indenture until its board of directors approves it. In executing
any amended or supplemental indenture or any amendment or supplement to the
Security Documents or Notes, the Trustee shall be entitled to receive, in
addition to the documents required by Section 12.03, and (subject to Section
7.01 hereof) shall be fully protected in relying upon an Officers' Certificate
and an Opinion of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture and that
such amended or supplemental indenture is the legal, valid and binding
obligations of the Company enforceable against it in accordance with its terms,
subject to customary exceptions and that such amended or supplemental indenture
complies with the provisions hereof.

                                   ARTICLE IX

                                   GUARANTEES

            Section 9.01. Guarantee.

            Subject to this Article 9, each Subsidiary Guarantor hereby
unconditionally guarantees to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns: (a) the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes, subject to any applicable grace period, whether at Stated Maturity, by
acceleration, redemption or otherwise, the due and punctual payment of interest
on the overdue principal of and premium, if any, and, to the extent permitted by
law, interest, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee under this Indenture or any other
agreement with or for the benefit of the Holders or the Trustee, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that same shall be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at Stated Maturity, by
acceleration pursuant to Section 6.02, redemption or otherwise. Failing payment
when due of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Subsidiary Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Subsidiary Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.

            Each Subsidiary Guarantor hereby agrees that its obligations with
regard to its Guarantee shall be joint and several, unconditional, irrespective
of the validity or enforceability of the Notes or the obligations of the Company
under this Indenture, the absence of any action to enforce the same, the
recovery of any judgment against the Company or any other obligor with respect
to this Indenture, the Notes or the Obligations of the Company under this
Indenture or the Notes, any action to enforce the same or any other
circumstances (other than complete performance) which might otherwise constitute
a legal or equitable discharge or defense of a Subsidiary Guarantor. Each
Subsidiary Guarantor further, to the extent permitted by law, waives and
relinquishes all claims, rights and remedies accorded by applicable law to
guarantors and agrees not to assert or take advantage of any such claims, rights
or remedies, including but not limited to: (a) any right to require any of the
Trustee, the Holders or the Company (each a "Benefited Party"), as a condition
of payment or performance by such Subsidiary Guarantor, to (1) proceed against
the Company, any other guarantor (including any other Guarantor) of the
Obligations under the Guarantees or any other Person, (2) proceed against or
exhaust any security held from the Company, any such other guarantor or any
other Person, (3) proceed against or have resort to any balance of any deposit
account or credit on the books of any Benefited Party in favor of the Company or
any other Person, or (4) pursue any other remedy in the power of any Benefited
Party whatsoever; (b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of the Company including any
defense based on or arising out of the lack of validity or the unenforceability
of the Obligations under the Guarantees or any agreement or instrument relating
thereto or by reason of the cessation of the liability of the Company from any
cause other than payment in full of the Obligations under the Guarantees; (c)
any defense based upon any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in other respects
more burdensome than that of the principal; (d) any defense based upon any
Benefited Party's errors or omissions in the administration of the Obligations
under the Guarantees, except behavior which amounts to bad faith; (e)(1) any
principles or provisions of law, statutory or otherwise, which are or might be
in conflict with the terms of the Guarantees and any legal or equitable
discharge of such Subsidiary Guarantor's obligations hereunder, (2) the benefit
of any statute of limitations affecting such Subsidiary Guarantor's liability
hereunder or the enforcement hereof, (3) any rights to set-offs, recoupments and
counterclaims and (4) promptness, diligence and any requirement that any
Benefited Party protect, secure, perfect or insure any security interest or lien
or any property subject thereto; (f) notices, demands, presentations, protests,
notices of protest, notices of dishonor and notices of any action or inaction,
including acceptance of the Guarantees, notices of Default under the Notes or
any agreement or instrument related thereto, notices of any renewal, extension
or modification of the Obligations under the Guarantees or any agreement related
thereto, and notices of any extension of credit to the Company and any right to
consent to any thereof; (g) to the extent permitted under applicable law, the
benefits of any "One Action" rule and (h) any defenses or benefits that may be
derived from or afforded by law which limit the liability of or exonerate
guarantors or sureties, or which may conflict with the terms of the Guarantees.
Except to the extent expressly provided herein, including Section 9.05, each
Subsidiary Guarantor hereby covenants that its Guarantee shall not be discharged
except by complete performance of the obligations contained in its Guarantee and
this Indenture.

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<PAGE>

            If any Holder or the Trustee is required by any court or otherwise
to return to the Company, the Subsidiary Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Subsidiary Guarantors, any amount paid by either to the Trustee or such
Holder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.

            Each Subsidiary Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 6.02 hereof for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby and (y) in the
event of any declaration of acceleration of such obligations as provided in
Section 6.02 hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
this Guarantee. The Subsidiary Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.

            Section 9.02. Limitation on Guarantor Liability.

            (a) Each Subsidiary Guarantor, and by its acceptance of Notes, each
Holder, hereby confirms that it is the intention of all such parties that the
guarantee of such Subsidiary Guarantor not constitute a fraudulent transfer or
conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any guarantee. To effectuate the foregoing intention,
the Trustee, the Holders and the Subsidiary Guarantors hereby irrevocably agree
that each Subsidiary Guarantor's liability shall be that amount from time to
time equal to the aggregate liability of such Subsidiary Guarantor under the
guarantee, but shall be limited to the lesser of (a) the aggregate amount of the
Company's obligations under the Notes and this Indenture or (b) the amount, if
any, which would not have (1) rendered the Subsidiary Guarantor "insolvent" (as
such term is defined in Bankruptcy Law and in the Debtor and Creditor Law of the
State of New York) or (2) left it with unreasonably small capital at the time
its guarantee with respect to the Notes was entered into, after giving effect to
the incurrence of existing Debt immediately before such time; provided, however,
it shall be a presumption in any lawsuit or proceeding in which a Subsidiary
Guarantor is a party that the amount guaranteed pursuant to the guarantee with
respect to the Notes is the amount described in clause (a) above unless any
creditor, or representative of creditors of the Subsidiary Guarantor, or debtor
in possession or trustee in bankruptcy of the Subsidiary Guarantor, otherwise
proves in a lawsuit that the aggregate liability of the Subsidiary Guarantor is
limited to the amount described in clause (b).

                                       63
<PAGE>

            (b) In making any determination as to the solvency or sufficiency of
capital of a Subsidiary Guarantor in accordance with the proviso of Section
9.02(a), the right of each Guarantor to contribution from other Guarantors and
any other rights such Guarantor may have, contractual or otherwise, shall be
taken into account.

            Section 9.03. Execution and Delivery of Guarantee.

            To evidence its Guarantee set forth in Section 9.01, each Subsidiary
Guarantor hereby agrees that a notation of such Guarantee in substantially the
form included in Exhibit B attached hereto shall be endorsed by an Officer of
such Subsidiary Guarantor on each Note authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Subsidiary
Guarantor by its President or one of its Vice Presidents.

            Each Subsidiary Guarantor hereby agrees that its Guarantee set forth
in Section 9.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.

            If an Officer whose signature is on this Indenture or on the
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Guarantee is endorsed, the Guarantee shall be valid
nevertheless.

            The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of the Subsidiary Guarantors.

            The Company hereby agrees that it shall cause each Person that
becomes obligated to provide a Guarantee pursuant to Section 4.18 (each, a
"Future Subsidiary Guarantor") to execute a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, pursuant to which such Person
provides the guarantee set forth in this Article 9 and otherwise assumes the
obligations and accepts the rights of a Subsidiary Guarantor under this
Indenture, in each case with the same effect and to the same extent as if such
Person had been named herein as a Guarantor. The Company also hereby agrees to
cause each such new Guarantor to evidence its guarantee by endorsing a notation
of such guarantee on each Note as provided in this Section 9.03.

            Section 9.04. Guarantors May Consolidate, etc., on Certain Terms.

            Except as otherwise provided in Section 9.05, no Guarantor may
consolidate with or merge with or into (whether or not such Guarantor is the
Surviving Person) another Person whether or not affiliated with such Guarantor
unless:

            (a) subject to Section 9.05, the Person formed by or surviving any
such consolidation or merger (if other than a Guarantor or the Company)
unconditionally assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under this Indenture, the Guarantee on the terms set forth herein or
therein; and

            (b) the Guarantor complies with the requirements of Article 5
hereof.

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<PAGE>

            In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and satisfactory in form to the Trustee, of the
Guarantee endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Guarantor,
such successor Person shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor. Such successor
Person thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the Guarantees
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Guarantees theretofore and thereafter issued in accordance with
the terms of this Indenture as though all of such Guarantees had been issued at
the date of the execution hereof.

            Except as set forth in Articles 4 and 5, and notwithstanding clauses
(a) and (b) above, nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor.

            Section 9.05. Releases Following Merger, Consolidation or Sale of
Assets, Etc.

            In the event of a sale or other disposition of all or substantially
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor, in each case to a Person that is not (either before or after giving
effect to such transactions) a Subsidiary of the Company, then such Guarantor
(in the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the Capital Stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) shall be released and
relieved of any obligations under its Guarantee; provided that the net proceeds
of such sale or other disposition shall be applied in accordance with the
applicable provisions of this Indenture, including without limitation Section
4.12. Upon delivery by the Company to the Trustee of an Officers' Certificate
and an Opinion of Counsel to the effect that such sale or other disposition was
made by the Company in accordance with the provisions of this Indenture,
including without limitation Section 4.12, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Guarantee.

            Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of and interest on the
Notes and for the other obligations of any Guarantor under this Indenture as
provided in this Article 9.

                                   ARTICLE X

                             COLLATERAL AND SECURITY

            Section 10.01. Security Documents.

            (a) The due and punctual payment of the principal of and interest on
the Notes when and as the same shall be due and payable, whether on an Interest
Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise,
and interest on the overdue principal of and interest on the Notes and
performance of all other obligations of the Company to the Holders or the
Trustee under this Indenture and the Notes, according to the terms hereunder or
thereunder, are secured as provided in the Security Documents which the Company
has entered into simultaneously with the execution of this Indenture and which
is attached as Exhibit F hereto. Each Holder, by its acceptance thereof,
consents and agrees to the terms of the Security Documents (including, without
limitation, the provisions providing for foreclosure and release of Collateral)
as the same may be in effect or may be amended from time to time in accordance
with its terms and authorizes and directs the Trustee to enter into the Security
Documents and to perform its obligations and exercise its rights thereunder as a
Secured Party in accordance therewith. The Company will do or cause to be done
all such acts and things as may be required by applicable law or may be
necessary or proper, or as may be required by the provisions of the Security
Documents, to assure and confirm to the Trustee the security interest in the
Collateral contemplated hereby, by the Security Documents or any part thereof,
as from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Notes secured hereby,
according to the intent and purposes herein expressed. The Company will take,
and will cause its Subsidiaries to take, any and all actions required to cause
the Security Documents to create and maintain, as security for the Obligations
of the Company hereunder, a valid and enforceable perfected first priority Lien
in and on all the Collateral, in favor of the Trustee, as Secured Party, for the
benefit of the Holders, superior to and prior to the rights of all third Persons
and subject to no other Liens than Permitted Liens.

            (b) If at any time after the Issue Date there is a change in PRC law
or interpretation in PRC law that permits the encumbrance of the PRC
Subsidiary's assets or Property by a Lien without the approval of any
governmental body of the PRC, then the Company shall cause the PRC Subsidiary
to, concurrently:

                                       65
<PAGE>

                  (i) execute and deliver to the Trustee a Security Document
            upon substantially the same terms granting a Lien upon such property
            to the Trustee for the benefit of the holders of Notes, which Lien
            shall be first priority if such assets or Property is not then
            encumbered by any other Lien (other than Liens required by law) or a
            second priority Lien if such assets or Property is at that time so
            encumbered;

                  (ii) cause the Lien to be granted in such Security Document to
            be duly perfected in any manner permitted by law; and

                  (iii) deliver to the Trustee an Opinion of Counsel reasonably
            satisfactory to the Trustee confirming as to such Security Document
            the matters set forth as to the Security Documents and Liens
            thereunder in the Opinions of Counsel delivered to holders on the
            Issue Date and, if the property subject to such Security Document is
            an interest in real estate, such local counsel opinions, insurance
            policies, surveys and other supporting documents as the Trustee may
            reasonably request.

            (c) Notwithstanding (i) anything to the contrary contained in this
Indenture, the Security Documents, the Notes or any other instrument governing,
evidencing or relating to any Debt, (ii) the time, order or method of attachment
of any Liens, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect any Lien upon any
Collateral, (iv) the time of taking possession or control over any Collateral or
(v) the rules for determining priority under the Uniform Commercial Code as in
effect in the State of Nevada or any other law of any relevant jurisdiction
governing relative priorities of secured creditors:

                  (A) the Liens will rank at least equally and ratably with all
            valid, enforceable and perfected Liens, whenever granted upon any
            present or future Collateral, but only to the extent such Liens are
            permitted under this Indenture to exist and to rank equally and
            ratably with the Notes and the Subsidiary Guarantees; and

                  (B) all proceeds of the Collateral applied under the Security
            Documents shall be allocated and distributed as set forth in Section
            6.10.

            Section 10.02. Future Subsidiary Guarantor Pledgors.

            (a) The Company will use its reasonable best efforts promptly to
obtain any necessary consents and waivers and to take all other actions
necessary to pledge and to cause each Future Subsidiary Guarantor to pledge the
Capital Stock of any future Subsidiary (other than any Subsidiary organized
under the laws of the PRC) in each case owned by the Company or such Future
Subsidiary Guarantor, on a first priority basis (subject to Permitted Liens) in
order to secure the obligations of the Company under the Notes and this
Indenture and of such Future Subsidiary Guarantor under its Subsidiary
Guarantee; provided that in exercising such reasonable best efforts the Company
shall not be required to take any action that is commercially unreasonable.

            (b) The Company will, for the benefit of the Holders of the Notes,
pledge, or cause each Subsidiary Guarantor to pledge, the Capital Stock owned by
the Company or such Subsidiary Guarantor of any Person that becomes a Subsidiary
(other than Persons organized under the laws of the PRC) after the Issue Date,
immediately upon such Person becoming a Subsidiary, to secure the obligations of
the Company under the Notes and this Indenture, and of such Subsidiary Guarantor
under its Subsidiary Guarantee, in the manner described above.

            (c) Each Subsidiary Guarantor that pledges Capital Stock of a
Subsidiary after the Issue Date is referred to as a "Future Subsidiary Guarantor
Pledgor" and, upon giving such pledge, will be a "Subsidiary Guarantor Pledgor."

            (d) Upon each pledge by a Future Subsidiary Guarantor of the Capital
Stock of any Other Non-Guarantor Subsidiary or any future Subsidiary in
accordance with Section 10.02(a) or Section 10.02(b), the Company will deliver
to the Trustee an Officers' Certificate stating that entry into the applicable
pledge agreement has been duly and validly authorized and an Opinion of Counsel
to the effect that (i) in the opinion of such counsel, such action has been
taken with respect to the recording, registering and filing of or with respect
to this Indenture and the applicable pledge agreement and all other instruments
of further assurance as are necessary to make effective the first priority lien
(subject to Permitted Liens) created by such pledge agreement in the Capital
Stock referenced in Section 10.02(a) or Section 10.02(b), and referencing the
details of such action; or (ii) in the opinion of such counsel, no such action
is necessary to make such first priority lien (subject to Permitted Liens)
effective; provided that any such Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials with respect to matters of fact.

                                       66
<PAGE>

            (e) All Opinions of Counsel delivered pursuant to Section 10.02(d)
may contain assumptions, qualifications, exceptions and limitations as are
appropriate and customary for similar opinions relating to the nature of the
Capital Stock pledged.

            (f) Upon each pledge by any Future Subsidiary Guarantor of the
Capital Stock of any Other Non-Guarantor Subsidiary or any future Subsidiary in
accordance with Section 10.02(a) or Section 10.02(b), the Company will give
notice, file, register or record any supplemental indentures, financing
statements, continuation statements, pledge agreements or other instruments or
cause each such Future Subsidiary Guarantor Pledgor to give notice, file,
register or record any supplemental indentures, financing statements,
continuation statements, pledge agreements or other instruments and take any
other actions necessary in order to perfect and protect the first priority lien
(subject to Permitted Liens) thereby created.

            Section 10.03. Recording and Opinions.

            (a) The Company will furnish to the Trustee within three months
after each anniversary of the Issue Date, an Opinion of Counsel, dated as of
such date, stating either that (i) in the opinion of such counsel, action has
been taken with respect to the recording, registering, filing, re-recording,
re-registering and re-filing of all supplemental indentures, financing
statements, continuation statements or other instruments of further assurance as
is necessary to maintain the Lien of the Security Documents and reciting with
respect to the security interest in the Collateral the details of such action or
referring to prior Opinions of Counsel in which such details are given, and
stating that, in the opinion of such counsel, based on relevant laws as in
effect on the date of such Opinion of Counsel, all financing statements and
continuation statements have been executed and filed that are necessary as of
such date and during the succeeding 12 months fully to preserve and protect, to
the extent such protection and preservation are possible by filing, the rights
of the Holders and the Trustee hereunder and under the Security Documents with
respect to the security interest in the Collateral or (ii) in the opinion of
such counsel, no such action is necessary to maintain such Lien and assignment.

            (b) So long as no Default or Event of Default has occurred and is
continuing, and subject to certain terms and conditions, the Company and the
Subsidiary Guarantors will be entitled to receive all cash dividends, interest
and other payments made upon or with respect to the Collateral pledged by them.

            (c) So long as there has occurred no Event of Default, then the
Company and the Subsidiary Guarantors shall have the right to exercise any
voting and other consensual rights pertaining to the Collateral pledged by them.

            (d) Upon the occurrence and during the continuance of a Default or
Event of Default:

                  (i) all rights of the Company and the Subsidiary Guarantors to
receive all cash dividends, interest and other payments made upon or with
respect to the Collateral will cease and such cash dividends, interest and other
payments will be paid to the Collateral Agent;

            (e) Upon the occurrence and during the continuance of an Event of
Default:

                  (i) all rights of the Company and the Subsidiary Guarantors to
exercise such voting or other consensual rights will cease, and all such rights
will become vested in the Collateral Agent, which, to the extent permitted by
law, will have the sole right to exercise such voting and other consensual
rights;

                  (ii) the Collateral Agent may sell the Collateral or any part
of the Collateral in accordance with the terms of the Security Documents. The
Collateral Agent, in accordance with the provisions of this Indenture, will
distribute all funds distributed under the Security Documents and received by
the Collateral Agent to the Trustee for the benefit of the holders of the Notes.

                                       67
<PAGE>

            Section 10.04. Release of Collateral.

            (a) Subject to subsections (b), (c) and (d) of this Section 10.04,
Collateral may be released from the Lien and security interest created by the
Security Documents at any time or from time to time in accordance with the
provisions of the Security Documents or as provided hereby. In addition, upon
the written request of the Company pursuant to an Officers' Certificate, upon
which the Trustee may conclusively rely, certifying that all conditions
precedent hereunder have been met and stating whether or not such release is in
connection with an Asset Sale and (at the sole cost and expense of the Company),
the Trustee will release Collateral that is sold, conveyed or disposed of in
compliance with the provisions of this Indenture; provided, that if such sale,
conveyance or disposition constitutes an Asset Sale, the Company will apply the
Net Available Cash in accordance with Section 4.12 hereof. Upon receipt of such
Officers' Certificate the Trustee shall execute, deliver or acknowledge any
necessary or proper instruments of termination, satisfaction or release to
evidence the release of any Collateral permitted to be released pursuant to this
Indenture or the Security Documents.

            (b) No Collateral may be released from the Lien and security
interest created by the Security Documents pursuant to the provisions of the
Security Documents unless the certificate required by this Section 10.04 has
been delivered to the Trustee.

            (c) At any time when a Default or Event of Default has occurred and
is continuing and the maturity of the Notes has been accelerated (whether by
declaration or otherwise), no release of Collateral pursuant to the provisions
of the Security Documents will be effective as against the Holders.

            (d) The release of any Collateral from the terms of this Indenture
and the Security Documents will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to the terms of the Security Documents and
hereof.

            Section 10.05. Authorization of Actions to Be Taken by the Trustee
Under the Security Documents.

            Subject to the provisions of Section 7.01 and 7.02 hereof, the
Trustee may, in its sole discretion and without the consent of the Holders,
take, on behalf of the Holders, all actions it deems necessary or appropriate in
order to:

            (a) enforce any of the terms of the Security Documents; and

            (b) collect and receive any and all amounts payable in respect of
the Obligations of the Company hereunder.

            The Trustee will have power to institute and maintain such suits and
proceedings as it may deem expedient to prevent any impairment of the Collateral
by any acts that may be unlawful or in violation of the Security Documents or
this Indenture, and such suits and proceedings as the Trustee may deem expedient
to preserve or protect its interests and the interests of the Holders in the
Collateral (including power to institute and maintain suits or proceedings to
restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest hereunder or be prejudicial to the interests
of the Holders or of the Trustee).

                                       68
<PAGE>

            Section 10.06. Authorization of Receipt of Funds by the Trustee
Under the Security Documents.

            The Trustee is authorized to receive any funds for the benefit of
the Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture.

            Section 10.07. Termination of Security Interest.

            Upon the payment in full of all Obligations of the Company under
this Indenture and the Notes, the Trustee will, at the written request of the
Company, release the Liens pursuant to this Indenture and the Security
Documents.

                                   ARTICLE XI

                           SATISFACTION AND DISCHARGE

            Section 11.01. Satisfaction and Discharge.

            This Indenture shall be discharged and shall cease to be of further
effect, except as to surviving rights of registration of transfer or exchange of
the Notes, as to all Notes issued hereunder, when:

            (a) either:

                  (i) all Notes that have been previously authenticated and
delivered (except lost, stolen or destroyed Notes that have been replaced or
paid and Notes for whose payment money has previously been deposited in trust or
segregated and held in trust by the Company and is thereafter repaid to the
Company or discharged from the trust) have been delivered to the Trustee for
cancellation; or

                  (ii) (x) all Notes that have not been previously delivered to
the Trustee for cancellation, have become due and payable by their terms or have
been called for redemption, and the Company has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust solely for the benefit
of the Holders, cash in U.S. dollars, non-callable U.S. Government Securities,
or a combination thereof, in such amounts as shall be sufficient without
consideration of any reinvestment of interest, to pay and discharge the entire
Debt on the Notes not previously delivered to the Trustee for cancellation or
redemption for principal, premium, if any, and interest on the Notes to the date
of deposit, in the case of Notes that have become due and payable, or to the
Stated Maturity or redemption date, as the case may be; (y) the Company has paid
all other sums payable by the Company with respect to the Notes under this
Indenture; and (z) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at Stated
Maturity or on the redemption date, as the case may be.

                           In the case of either clause (i) or (ii):

                                    (x) no Default or Event of Default shall
                           have occurred and be continuing on the date of such
                           deposit or shall occur as a result of such deposit
                           and such deposit will not result in a breach or
                           violation of, or constitute a default under, any
                           other instrument to which the Company is a party or
                           by which the Company is bound; and

                                    (y) the Company shall have delivered to the
                           Trustee an Officers' Certificate and Opinion of
                           Counsel stating that all conditions precedent
                           relating to the satisfaction and discharge of this
                           Indenture have been satisfied.

            Section 11.02. Deposited Cash and U.S. Government Securities to be
Held in Trust; Other Miscellaneous Provisions.

            Subject to Section 11.03, all cash and non-callable U.S. Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 11.02, the
"Trustee") pursuant to Section 11.01 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest but
such cash and securities need not be segregated from other funds except to the
extent required by law.

                                       69
<PAGE>

            Section 11.03. Repayment to Company.

            Any cash or non-callable U.S. Government Securities deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium, if any, or interest on, any Note and
remaining unclaimed for two years after such principal, and premium, if any, or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company) shall be discharged from such trust; and the
Holder shall thereafter, as an unsecured creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such cash and securities, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such cash and securities
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such cash and securities then remaining shall be repaid to
the Company.

                                  ARTICLE XII

                                  MISCELLANEOUS

            Section 12.01. Notices.

            Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in person or mailed by first
class mail (registered or certified, return receipt requested), facsimile
transmission or overnight air courier guaranteeing next-day delivery, to the
other's address:

                           If to the Company:

                  Harbin Electric, Inc.
                  No. 9 Ha Ping Xi Lu, Ha Ping Lu Ji Zhong Qu
                  Harbin Kai Fa Qu
                  Harbin 150060
                  P.R.C.
                  Telecopier No.:  +86 451 8611 6769
                  Attention:  Chief Executive Officer

                           With a copy to:

                  Reed Smith LLP
                  Two Embarcadero Center, Suite 2000
                  San Francisco, CA 94111
                  U.S.A.
                  Telecopier No.:  +1 415 391 8269
                  Attention:  Robert Smith, Esq.

                           If to the Trustee:

                  The Bank of New York
                  101 Barclay Street  Floor 21W
                  New York , NY 10286
                  U.S.A.
                  Attn: Global Finance Unit
                  Telecopier No.: +1 212 815 5802/5803

                                       70
<PAGE>

            The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.

            All notices and communications (other than those sent to the Trustee
or Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when receipt acknowledged, if sent by
facsimile transmission; and the second Business Day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next-day delivery. All
notices and communications to the Trustee or Holders shall be deemed duly given
and effective only upon receipt.

            Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next-day delivery to its address shown on the Security
Register. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.

            If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

            If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

            Section 12.02. Communication by Holders of Notes with Other Holders
of Notes.

            Holders may communicate with other Holders with respect to their
rights under this Indenture or the Notes.

            Section 12.03. Certificate and Opinion as to Conditions Precedent.

            Upon any request or application by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee:

            (a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.04 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and

            (b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.04 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.

            Section 12.04. Statements Required in Certificate or Opinion.

            Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

            (a) a statement that the Person making such certificate or opinion
has read such covenant or condition;

            (b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;

                                       71
<PAGE>

            (c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable such Person to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and

            (d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.

            With respect to matters of fact, an Opinion of Counsel may rely on
an Officers' Certificate, certificates of public officials or reports or
opinions of experts.

            Section 12.05. Rules by Trustee and Agents.

            The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

            Section 12.06. No Personal Liability of Directors, Officers,
Employees and Stockholders.

            No past, present or future director, officer, employee, incorporator
or stockholder of the Company or any Guarantor, as such, shall have any
liability for any obligations of the Company or of the Guarantors under the
Notes, this Indenture, the Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. The waiver and release
may not be effective to waive or release liabilities under the federal
securities laws.

            Section 12.07. Governing Law.

            THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

            Section 12.08. No Adverse Interpretation of Other Agreements.

            This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.

            Section 12.09. Successors.

            All covenants and agreements of the Company in this Indenture and
the Notes shall bind its successors. All covenants and agreements of the Trustee
in this Indenture shall bind its successors.

            Section 12.10. Severability.

            In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

            Section 12.11. Counterpart Originals.

            The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

                                       72
<PAGE>

Section 12.12.    Table of Contents, Headings, etc.

            The Table of Contents and Headings in this Indenture have been
inserted for convenience of reference only, are not to be considered a part of
this Indenture and shall in no way modify or restrict any of the terms or
provisions hereof.

                         [Signatures on following page]

                                       73
<PAGE>

                                   SIGNATURES
Dated as of August 30, 2006

                            COMPANY:

                            HARBIN ELECTRIC, INC.

                            By: /s/ Tianfu Yang
                                ----------------------------------------
                                 Name:  Tianfu Yang
                                 Title:  Chief Executive Officer

                            GUARANTORS:

                            ADVANCED ELECTRIC MOTORS INC.

                            By: /s/ Tianfu Yang
                                ----------------------------------------
                                 Name:  Tianfu Yang
                                 Title:  President and Chief Executive Officer

                                       74
<PAGE>

                            TRUSTEE:
                            THE BANK OF NEW YORK,
                            a New York banking corporation,
                            as Trustee

                            By: /s/ Lici Zhu
                                ----------------------------------------
                                 Name:  Lici Zhu
                                 Title:  Assistant Treasurer

                                       75
<PAGE>

                                    EXHIBIT A
================================================================================
                                 (Face of Note)

                  GUARANTEED SENIOR SECURED FLOATING RATE NOTES

                                  ISIN: [XS0265652940](2012)[XS0265653831](2010)

                                 Common Code: [026565294](2012)[026565383](2010)

No. ___                                                           $_____________

                              HARBIN ELECTRIC INC.

promises to pay to The Bank of New York Depository (Nominees) Limited, or
registered assigns, as common depository for Clearstream Banking, societe
anonyme ("Clearstream") and/or Euroclear Bank S.A./N.V. as operator of the
Euroclear System, ("Euroclear"), or registered assigns, the principal sum of
_________________ Dollars ($______________) on September 1, [2012][2010].

Interest Payment Dates:  March 1 and September 1, commencing March 1, 2007.

Record Dates:  February 15 and August 15.

Dated: August 30, 2006.

                                       A-1
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officer.

                             HARBIN ELECTRIC, INC.

                             By:
                                ------------------------------------------------
                                Name:
                                Title:

This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:

THE BANK OF NEW YORK,
a New York banking corporation
as Trustee

By:
   ---------------------------------
    Authorized Signatory

Dated _____________, 20__

                                      A-2
<PAGE>

                                 (Back of Note)

                  GUARANTEED SENIOR SECURED FLOATING RATE NOTES

                              [GLOBAL NOTE LEGEND]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR BANK S.A./N.V., AS OPERATOR OF THE EUROCLEAR SYSTEM ("EUROCLEAR"), OR
CLEARSTREAM BANKING, SOCIETE ANONYME ("CLEARSTREAM"), TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF ITS AUTHORIZED NOMINEE OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR OR CLEARSTREAM (AND ANY
PAYMENT IS MADE TO ITS AUTHORIZED NOMINEE, OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR OR CLEARSTREAM), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, ITS AUTHORIZED NOMINEE, HAS
AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF EUROCLEAR OR CLEARSTREAM OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.

                              [REGULATION S LEGEND]

UNTIL 40 DAYS AFTER THE LATER OF THE DAY ON WHICH THE NOTES ARE FIRST OFFERED TO
PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S, AS DEFINED BELOW)
AND THE DATE OF THE CLOSING OF THE OFFERING OF THE NOTES, AN OFFER OR SALE OF
THE NOTES WITHIN THE UNITED STATES (AS DEFINED IN THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "U.S. SECURITIES ACT") MAY VIOLATE THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT IF SUCH OFFER OR SALE IS MADE OTHERWISE
THAN IN ACCORDANCE WITH RULE 144A THEREUNDER.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OR OTHER
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT.

                                      A-3
<PAGE>

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE U.S.
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S
UNDER THE U.S. SECURITIES ACT ("REGULATION S"), (2) AGREES ON ITS OWN BEHALF AND
ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS 40 DAYS AFTER THE LATER OF THE DATE OF
THE COMMENCEMENT OF THE OFFERING AND THE DATE OF ORIGINAL ISSUANCE (OR OF ANY
PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE U.S.
SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE U.S. SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S OR (E) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY,
THE TRUSTEE, THE REGISTRAR AND THE TRANSFER AGENT SHALL HAVE THE RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE
40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S OR
PURSUANT TO CLAUSE (E) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO
REQUIRE THAT AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO THE COMPANY, THE TRUSTEE, THE REGISTRAR AND THE TRANSFER AGENT
IS COMPLETED AND DELIVERED BY THE TRANSFEROR. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION, UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATIONS.

THIS NOTE MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS (I) AS PART OF THEIR DISTRIBUTION AT ANY
TIME OR (II) OTHERWISE UNTIL 40 DAYS AFTER THE LATER OF THE DATE OF THE
COMMENCEMENT OF THE OFFERING AND THE DATE OF ORIGINAL ISSUANCE, EXCEPT IN EITHER
CASE IN ACCORDANCE WITH REGULATION S (OR RULE 144A, IF AVAILABLE) UNDER THE
SECURITIES ACT.

[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.](1)

------------
(1) To be added to Definitive Notes only.

            Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.

                                      A-4
<PAGE>

      1. Interest. Harbin Electric, Inc., a Nevada corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum, reset semi-annually, equal to LIBOR plus [3.350%]2012 Notes [4.750%]2010
Notes as determined by the Calculation Agent from the Issue Date until maturity.
The interest rate on the Notes is subject to increase pursuant to the provisions
of the Indenture. The Company shall pay interest semi-annually in arrears on
March 1 and September 1 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date"). Interest
shall accrue from the most recent date to which interest has been paid on the
Notes (or one or more Predecessor Notes) or, if no interest has been paid, from
the date of issuance; provided, however, that if there is no existing Default in
the payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be March 1, 2007. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time at a rate that is 4% per annum in excess of the interest rate then in
effect under the Indenture and this Note; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods), from
time to time at the same rate to the extent lawful. Interest shall be computed
on the basis of a 360-day year of twelve 30-day months for the actual number of
days elapsed. The amount of interest for each day that the Notes are outstanding
(the "Daily Interest Amount") will be calculated by dividing the interest rate
in effect for such day by 360 and multiplying the result by the principal amount
of the Notes. The amount of interest to be paid on the Notes for each Interest
Period will be calculated by adding the Daily Interest Amounts for each day in
the Interest Period. All percentages resulting from any of the above
calculations will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point being rounded upwards and all dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with
one-half cent being rounded upwards). The interest rate on the Notes will in no
event be higher than the maximum rate permitted by New York law as such rate may
be modified by United States law of general application.

      2. Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes shall be payable as to principal, premium, if any, and
interest at the office or agency of the Company maintained for such purpose, or,
at the option of the Company, payment of interest may be made by check mailed to
the Holders at their addresses set forth in the Security Register; provided,
however, that payment by wire transfer of immediately available funds shall be
required with respect to principal of and interest and premium, if any, on, all
Global Notes and all other Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent. Such payment shall be
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.

      3. Paying Agent, Registrar and Calculation Agent. Initially, The Bank of
New York, a New York banking corporation that is the Trustee under the
Indenture, shall act as Paying Agent, Registrar and Calculation Agent. The
Company may change any Paying Agent, Registrar or Calculation Agent without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

      4. Indenture. The Company issued the Notes under an Indenture dated as of
August 30, 2006 ("Indenture") among the Company, the guarantors party thereto
(the "Guarantors") and the Trustee. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling.

      5. Optional Redemption.

            (a) [The 2012 Notes shall not be redeemable at the option of the
Company prior to September 1, 2007. Starting on that date, the Company may
redeem all (but not less than all) of the 2012 Notes, after giving the notice
required pursuant to Section 3.03 of the Indenture. The 2012 Notes may be
redeemed at the redemption prices set forth below (expressed as a percentage of
principal amount), plus accrued and unpaid interest to but excluding the
redemption date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on the relevant Interest Payment
Date), if redeemed during the 12-month period commencing on September 1 of the
years set forth below

         Year                                                   Percentage
                                                                ----------
         2007...................................................106.0%
         2008...................................................104.5%
         2009...................................................103.0%
         2010...................................................101.5%
         2011 and thereafter....................................100.0%

                                      A-5
<PAGE>

            Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the 2012 Notes or portions thereof called for
redemption on the applicable redemption date.]

            [The 2010 Notes shall not be redeemable at the option of the Company
prior to September 1, 2007. Starting on that date, the Company may redeem all
(but not less than all) of the 2010 Notes, after giving the notice required
pursuant to Section 3.03 of the Indenture. The 2010 Notes may be redeemed at the
redemption prices set forth below (expressed as a percentage of principal
amount), plus accrued and unpaid interest to but excluding the redemption date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the 12-month period commencing on September 1 of the years set forth
below:

         Year                                                   Percentage
         ----                                                   ----------
         2007...................................................106.0%
         2008...................................................103.0%
         2009 and thereafter....................................100.0%

            Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the 2010 Notes or portions thereof called for
redemption on the applicable redemption date.]

            (b) Any prepayment pursuant to this paragraph shall be made pursuant
to the provisions of Sections 3.01 through 3.06 of the Indenture.

      6. Mandatory Redemption.

            (a) [The Company agrees that on the dates indicated in the following
table, the Company will prepay and there shall become due and payable the
corresponding principal amount (or such lesser principal amount as shall then be
outstanding) in respect of the aggregate principal Debt evidenced by the 2012
Notes.

         Date                                                   Principal Amount
         ----                                                   ----------------
         September 1, 2009......................................$2,400,000
         March 1, 2010..........................................$3,800,000
         September 1, 2010......................................$9,900,000
         March 1, 2011..........................................$9,900,000
         September 1, 2011......................................$4,000,000
         March 1, 2012..........................................$4,000,000

The entire remaining principal amount of the 2012 Notes shall become due and
payable on September 1, 2012. Each required prepayment made pursuant to this
paragraph 6 shall be made at 100% of principal amount and without payment of any
premium and allocated among all of the 2012 Notes in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof. Upon any
partial prepayment of the 2012 Notes pursuant to paragraph 5 or any repurchase
of the 2012 Notes pursuant to paragraph 7, the principal amount of each required
prepayment of the 2012 Notes becoming due under this paragraph 6 on and after
the date of such prepayment or purchase shall be reduced in the same proportion
as the aggregate unpaid principal amount of the 2012 Notes is reduced as a
result of such prepayment or purchase.]

            [The Company agrees that on the dates indicated in the following
table, the Company will prepay and there shall become due and payable the
corresponding principal amount (or such lesser principal amount as shall then be
outstanding) in respect of the aggregate principal Debt evidenced by the 2010
Notes.

         Date                                                   Principal Amount
         ----                                                   ----------------
         March 1, 2008..........................................$2,000,000
         September 1, 2008......................................$2,000,000
         March 1, 2009..........................................$2,000,000
         September 1, 2009......................................$2,000,000
         March 1, 2010..........................................$2,000,000

                                      A-6
<PAGE>

The entire remaining principal amount of the 2010 Notes shall become due and
payable on September 1, 2010. Each required prepayment made pursuant to this
paragraph 6 shall be made at 100% of principal amount and without payment of any
premium and allocated among all of the 2010 Notes in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof. Upon any
partial prepayment of the 2010 Notes pursuant to paragraph 5 or any repurchase
of the 2010 Notes pursuant to paragraph 7, the principal amount of each required
prepayment of the 2010 Notes becoming due under this paragraph 6 on and after
the date of such prepayment or purchase shall be reduced in the same proportion
as the aggregate unpaid principal amount of the 2010 Notes is reduced as a
result of such prepayment or purchase.

            (b) In the case of each prepayment of Notes pursuant to this
paragraph 6, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date. From and after such
date, unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.

      7. Repurchase at Option of Holder.

            (a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple of $1,000) of such Holder's Notes (a "Change of
Control Offer") at a purchase price in cash equal to 102.5% of the aggregate
principal amount of the Notes repurchased, plus accrued and unpaid interest on
the Notes repurchased to the purchase date (subject to the right of Holders of
record on the relevant record date to receive interest to, but excluding, the
Change of Control Payment Date).

            (b) If the Company or one of its Subsidiaries consummates any Asset
Sales, they shall not be required to apply any Net Available Cash in accordance
with the Indenture until the aggregate Net Available Cash from all Asset Sales
following the date the Notes are first issued exceeds $2.0 million. Thereafter,
the Company shall, after application of the additional aggregate $2.0 million of
Net Available Cash as provided in the second paragraph of Section 4.12 of the
Indenture, commence an offer for Notes pursuant to the Indenture by applying the
Net Available Cash (an "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Net Available Cash at an offer price in cash equal to 100%
of the principal amount thereof plus accrued and unpaid interest to the date
fixed for the closing of such offer in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Net Available Cash, the Company
(or such Subsidiary) may use such deficiency for any purpose not prohibited by
the Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Net Available Cash, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the subject
of an offer to purchase will receive an Asset Sale Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase [or
Repurchase](2012 Notes)" on the reverse of the Notes.

            (c) [Holders of 2012 Notes have the right from and after September
1, 2011 to require the Company to repurchase such holder's 2012 Notes at a price
of 100% of the principal amount thereof on the terms and conditions stated in
the Indenture.]

      8. Notice of Redemption. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.

                                      A-7
<PAGE>

      9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
[This Note shall represent the aggregate principal amount of outstanding Notes
from time to time endorsed hereon and the aggregate principal amount of Notes
represented hereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions.](1) The transfer of Notes may
be registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or portion of
a Note selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, the Company need not exchange or register the
transfer of any Notes for a period of 15 days before a selection of Notes to be
redeemed or during the period between a record date and the corresponding
Interest Payment Date.

      10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.

      11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Company and the Trustee may amend or supplement the Indenture or the Notes with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes voting as a single class (including consents obtained in
connection with a purchase of or tender offer or exchange offer for the Notes),
and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or
Event of Default (except a continuing Default or Event of Default in the payment
of principal, premium, if any, interest on the Notes) or compliance with any
provision of the Indenture or the Notes (except for certain covenants and
provisions of the Indenture which cannot be amended without the consent of each
Holder) may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes, then outstanding voting as a single class
(including consents obtained in connection with a purchase of or tender offer or
exchange offer for the Notes). Without the consent of any Holder, the Company
and the Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation, partnership or limited liability company of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to add additional
Guarantees or additional obligors with respect to the Notes, to secure the
Notes, to add to the covenants of the Company for the benefit of the Holders of
the Notes or to surrender any right or power conferred upon the Company, or to
make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder.

      12. Defaults and Remedies. Each of the following is an Event of Default
under the Indenture: (a) failure to make the payment of any interest on such
Notes when the same becomes due and payable, and such failure continues for a
period of 5 days; (b) failure to make the payment of any principal of, or
premium, if any, on, any of such Notes when the same becomes due and payable at
its Stated Maturity, upon acceleration, redemption, optional redemption,
required repurchase or otherwise, including payment of Liquidated Damages; (c)
failure to comply with Section 5.01; (d) failure to comply with any other
covenant or agreement in such Notes or in this Indenture (other than a failure
that is the subject of the foregoing clause (a), (b) or (c) and other than the
failure to comply with Section 4.20, 4.25 or 4.27, for which payment of
liquidated damages is provided for hereunder and is governed by Section 4.01),
and such failure continues for 21 days after written notice is given to the
Company by the Trustee or the holders of not less than 25% in aggregate
principal amount of such Notes then outstanding specifying the default,
demanding that it be remedied and stating that such notice is a "Notice of
Default;" (e) a default under any Debt by the Company or any Subsidiary that
results in acceleration of the maturity of such Debt, or failure to pay any such
Debt at maturity, in an aggregate amount greater than $3.0 million or its
foreign currency equivalent at the time; (f) any judgment or judgments for the
payment of money in an aggregate amount in excess of $3.0 million (or its
foreign currency equivalent at the time) that shall be rendered against the
Company or any Subsidiary and that shall not be waived, satisfied or discharged
for any period of 30 consecutive days during which a stay of enforcement shall
not be in effect; (g) any Subsidiary Guarantee ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary Guarantee) or
any Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guarantee; certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Significant Subsidiaries.

------------
(1) Include only if a global note.

                                      A-8
<PAGE>

            If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency described in the Indenture, all outstanding Notes shall become due
and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest, or the principal of, the Notes. The Company is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.

      13. Trustee Dealings with Company. Subject to certain limitations, the
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Company or any Affiliate of the Company
with the same rights it would have if it were not Trustee.

      14. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or of any
Guarantor, as such, shall have any liability for any obligations of the Company
or any Guarantor under the Indenture, the Notes, the Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability.

      15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.

      16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

      17. Governing Law. The internal law of the State of New York shall govern
and be used to construe this Note without giving effect to applicable principals
of conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.

                                      A-9
<PAGE>

          Option of Holder to Elect [Repurchase or](2012 Notes) Purchase

If you want to elect to have this Note [repurchased or](2012 Notes) purchased by
the Company pursuant to Section [3.10 or](2012 Notes) 4.12 or 4.17 of the
Indenture, check the box below:

            o     [Section 3.10](2012 Notes)     Repurchase Date:_______________

            o     Section 4.12

            o     Section 4.17

If you want to elect to have only part of the Note [repurchased or](2012 Notes)
purchased by the Company pursuant to Section [3.10 or](2012 Notes) 4.12 or
Section 4.17 of the Indenture, state the amount you elect to have purchased:
$_____________________

Date:_______________________     Your Signature:________________________________
                                 (Sign exactly as your name appears on the Note)

                                 Tax Identification No.:
                                 --------------------------------------------

                                 SIGNATURE GUARANTEE:

                                 ----------------------------------------

                                 Signatures must be guaranteed by an
                                 "eligible guarantor institution" meeting
                                 the requirements of the Registrar, which
                                 requirements include membership or
                                 participation in the Security Transfer
                                 Agent Medallion Program ("STAMP") or such
                                 other "signature guarantee program" as may
                                 be determined by the Registrar in addition
                                 to, or in substitution for, STAMP.

                                      A-10
<PAGE>

                       Assignment Form

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to

--------------------------------------------------------------------------------
            (Insert assignee's social security or other tax I.D. no.)

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
              (Print or type assignee's name, address and zip code)

and irrevocably appoint
                       ---------------------------------------------------------
as agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.

--------------------------------------------------------------------------------

Date: ______________
                                 Your Signature:
                                                --------------------------------
                                 (Sign exactly as your name appears on the face
                                 of this Note)

                                 Signature Guarantee:
                                                      --------------------------

                                      A-11
<PAGE>

              SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

              The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:

<TABLE>
<CAPTION>
                                                                       Principal Amount
                            Amount of                                 of this Global Note       Signature of
                           decrease in         Amount of increase       following such      authorized signatory
                        Principal Amount      in Principal Amount        decrease (or           of Trustee or
Date of Exchange       of this Global Note    of this Global Note          increase)           Note Custodian
----------------       -------------------    -------------------          ---------           --------------
<S>                    <C>                    <C>                     <C>                   <C>

</TABLE>

                                      A-12
<PAGE>

                                    EXHIBIT B

                          FORM OF NOTATION OF GUARANTEE

              For value received, each Guarantor (which term includes any
successor Person under the Indenture), jointly and severally, unconditionally
guarantees, to the extent set forth in the Indenture and subject to the
provisions in the Indenture, dated as of August 30, 2006 (the "Indenture"),
among HARBIN ELECTRIC, INC., as issuer (the "Company"), the Guarantors listed on
the signature pages thereto and THE BANK OF NEW YORK, a New York banking
corporation, as trustee (the "Trustee"), (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, whether at maturity,
by acceleration, redemption or otherwise, the due and punctual payment of
interest on overdue principal and premium, if any, and, to the extent permitted
by law, interest and the due and punctual performance of all other obligations
of the Company to the Holders or the Trustee all in accordance with the terms of
the Indenture and (b) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. The
obligations of the Guarantors to the Holders of Notes and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth in Article 9
of the Indenture and reference is hereby made to the Indenture for the precise
terms of the Guarantee. This Guarantee is subject to release as and to the
extent set forth in Section 9.05 of the Indenture. Each Holder of a Note, by
accepting the same agrees to and shall be bound by such provisions. Capitalized
terms used herein and not defined are used herein as so defined in the
Indenture.

                                       ADVANCED ELECTRIC MOTORS,  INC.

                                       By:__________________________
                                            Name:
                                            Title:

                                       1
<PAGE>

                                    EXHIBIT C

                         FORM OF CERTIFICATE OF TRANSFER

Harbin Electric, Inc.
No. 9 Ha Ping Xi Lu, Ha Ping Lu Ji Zhong Qu
Harbin Kai Fa Qu
Harbin 150060
P.R. China

The Bank of New York
101 Barclay Street  Floor 21W
New York , NY 10286
U.S.A.
Attn: Global Finance Unit

            Re: GUARANTEED SENIOR SECURED FLOATING RATE NOTES DUE [2012][2010]

            Reference is hereby made to the Indenture, dated as of August 30,
2006 (the "Indenture"), among HARBIN ELECTRIC, INC., as issuer (the "Company"),
the Guarantors party thereto and THE BANK OF NEW YORK, a New York banking
corporation, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.

                  ___________________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] in the principal amount of
$___________ (the "Transfer"), to ___________________________ (the
"Transferee"). In connection with the Transfer, the Transferor hereby certifies
that:

                             [CHECK ALL THAT APPLY]

            |_| 1. Check if Transferee will take delivery of a beneficial
interest in the Global Note or a Definitive Note pursuant to Regulation S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a Person in the United
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(a) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Distribution
Compliance Period (as defined in Regulation S under the Securities Act), the
transfer is not being made to a U.S. Person or for the account or benefit of a
U.S. Person. Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the legend printed
on the Global Note and/or the Definitive Note and in the Securities Act.

            |_| 2. Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 903 or Rule
904 and in compliance with the transfer provisions contained in the Indenture
and any applicable blue sky securities laws of any State of the United States.

              This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.

                                       -----------------------------------------
                                          [Insert Name of Transferor]

                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                       Dated:  ______________________

                                       2
<PAGE>

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