Document:

China Recycling Energy Corporation: Exhibit 10.1

  

Exhibit 10.1 

AMENDMENT 

TO 

STOCK AND NOTES PURCHASE AGREEMENT 

This AMENDMENT TO THE
STOCK AND NOTES PURCHASE AGREEMENT is dated as of April 29, 2008 (the "Amendment"),
and is entered into in reference to that certain Stock and Notes Purchase
Agreement, dated as of November 16, 2007 (the "Agreement"), by and among
China Recycling Energy Corporation, a Nevada corporation (the "Company"),
Sifang Holdings Co., Ltd., a company organized under the laws of the Cayman
Islands ("Sifang"),
Shanghai TCH Energy Technology Co., Ltd., a wholly-foreign-owned enterprise
organized under the laws of the People’s Republic of China ("TCH" and
together with the Company and Sifang, the "Company Group"), Carlyle Asia
Growth Partners III, L.P., a limited partnership organized under the laws of the
Cayman Islands ("CAGP"), and CAGP III Co-Investment, L.P., a limited
partnership organized under the laws of the Cayman Islands (together with CAGP,
each, an "Investor" and collectively, the "Investors").

RECITALS 

WHEREAS, pursuant to
the Initial Closing under the Agreement, the Investors purchased and the Company
sold to the Investors a 10% secured convertible promissory note in the principal
amount of $5,000,000 (the "First
Note"); 

WHEREAS, the Agreement
also contemplated the following transactions contingent upon the satisfaction of
certain conditions specified in the Agreement: (i) the proposed subscription by
the Investors of 4,066,706 shares of Common Stock, at the price of $1.23 per
share for an aggregate purchase price of $5,002,048, and (ii) the proposed
issuance and sale by the Company to the Investors of a 5% secured convertible
promissory note in the principal amount of $15,000,000; 

WHEREAS, the Company
and the Investors have decided to restructure said transactions by entering into
this Amendment in order to provide as follows: 

(i) 

at the Second Closing, the Investors will subscribe for, and the Company will
issue to the Investors, 4,066,706 shares of Common Stock at the price of $1.23
per share for an aggregate purchase price of $5,002,048, as originally
contemplated under the Agreement, 

(ii) 

at the Second Closing, the Investors will agree to convert all of the Principal
Amount under the First Note (and waive any accrued interest thereon) into
4,065,040 shares of Common Stock at the conversion price per share of $1.23,
pursuant to the terms and conditions of the First Note, 

(iii) 

at the Second Closing, the Company will agree to issue and sell to the
Investors, and the Investors will purchase from the Company, a 5% secured
convertible promissory note in the principal amount of $5,000,000, substantially
in the form attached hereto as Attachment 1, 

(iv) 

the Company will grant to the Investors an option to purchase a 5% secured
convertible promissory note in the principal amount of $10,000,000,
substantially in the form attached hereto as Attachment 2, exercisable by
the Investors at any time within nine (9) months following the date of the
Second Closing, and 

(v) 

modify, delete or
waive, as applicable, certain terms and conditions of the Agreement in order to
effect the transactions described above. 

WHEREAS, the Company
and the Investors intend for this Amendment to eliminate the obligation of the
Company under the Agreement to issue and sell, and the Investors to purchase, a
5% secured convertible promissory note in the principal amount of $15,000,000 as
originally contemplated in the Agreement, in favor of the transactions described
above; and 

WHEREAS, the parties intend for the
Second Closing to take place simultaneously with the execution and delivery of
this Agreement. 

WITNESSETH 

NOW THEREFORE, in consideration of the
above recitals and promises made in this Amendment, the parties hereby agree as
follows: 

SECTION 1. Incorporation by
Reference; Definitions. The entire Agreement is incorporated herein by
reference, and all terms used but not defined herein shall have the meaning
ascribed to them in the Agreement. Except as amended hereby, or as otherwise
amended, the Agreement is in all respects ratified and confirmed and the
provisions thereof shall remain in full force and effect. 

SECTION 2. Amendment of the
Agreement. Company and Investors hereby agree to amend the Agreement as
follows: 

(a) 

The Recitals of
the Agreement will be deleted in their entirety and replaced with the following:

"The
Company proposes to issue, and the Investors propose to purchase, (i) a senior
secured convertible note in the principal amount of $5,000,000, substantially in
the form attached hereto as Exhibit A (the "First Note"), (ii)
4,066,706 shares (the "Shares") of common stock, US$0.001 par value, of
the Company (the "Common Stock"), and (iii) a senior secured convertible
note in the principal amount of $5,000,000, substantially in the form attached
hereto as Exhibit B (the "Second Note"), pursuant to the terms and
subject to the conditions of this Agreement. The First Note and Second Note are
sometimes referred to as the "Notes." The Company proposes to grant to
the Investors an option to purchase a senior secured convertible note in the
principal amount of $10,000,000, substantially in the form attached hereto as 
Exhibit E (the "Option Note"), which option shall be exercisable at
the sole discretion of the Investors and at anytime within nine (9) months of
the date of the Second Closing (as defined below)." 

(b) 

Section 2.1(b) of
the Agreement will be deleted in its entirety and replaced with the following:

 

 

2

"(b)    
at the Second Closing (as defined below), (i) the Company will issue and sell to
the Investors, and the Investors will subscribe for and purchase, the Shares,
for an aggregate purchase price of US$5,002,048.38 (the "Share 
Purchase Price"), (ii) the Investors will convert all of the Principal
Amount under the First Note (and waive any accrued interest thereon) into
4,065,040 shares of Common Stock at the conversion price per share of $1.23, in
accordance with the terms and conditions of the First Note, and (iii) the
Company will issue and sell to the Investors, and the Investors will purchase
from the Company, the Second Note, for an aggregate purchase price of
US$5,000,000 (the "Second Note Purchase Price"). The Second Note will be
secured by a perfected first priority Lien on 50% of all of the equity interests
of the pledgor under the Share Pledge Agreement." 

(c) 

Section 2.1(c) of the Agreement will be deleted in its entirety. 

(d) 

Section 2.2(b) of the Agreement will be deleted in its entirety and replaced
with the following: 

"(b)
    Second Closing. The consummation of the sale and
issuance of the Shares and the sale and purchase of the Second Note pursuant to
Section 2.1(b) (the "Second Closing"; for purposes of this
Agreement, any reference to a "Closing" shall mean either of the Initial
Closing or the Second Closing, as the context requires) shall take place
remotely via the exchange of documents and signatures as soon as practicable
after all closing conditions specified in Section 6 and Section 8
hereof have been waived or satisfied in accordance thereto, or at such time and
place as the Company and the Investors shall mutually agree upon, orally or in
writing. If at the Second Closing any of the closing conditions specified in 
Section 6 and Section 8 of this Agreement shall not have been
fulfilled, the Investors shall, at their election, be relieved of all of their
further obligations under this Agreement without thereby waiving any other right
such Investors may have by reason of such failure or such non-fulfillment. At
the Second Closing, the Company shall deliver to the Investors a certificate or
certificates representing the Shares (or through its share transfer agent as
applicable) and the Second Note, duly executed, and the Investors shall pay the
Share Purchase Price and the Second Note Purchase Price within 10 days of the
Second Closing, by check or wire transfer to a bank account designated in
writing by the Company prior to the Second Closing. The Shares shall be
allocated among each Investor in accordance with Exhibit G hereto. 

(e) 

Section 2.2(c) of the Agreement will be deleted in its entirety. 

(f) 

Section 3.15 of the Agreement will be modified so that reference to the "Third
Closing" in the second sentence of Section 3.15 shall be changed to "Second
Closing." 

(g) 

Section 5.4 of the Agreement will be deleted in its entirety and replaced with
the following: 

"Authorizations.
The Company Group shall have obtained all authorizations, approvals,
waivers, Permits or filings of any Person or any Governmental Authority
necessary for the consummation of all of the transactions contemplated by this
Agreement and each of the other Transaction Documents, including without
limitation any filings, authorizations, approvals, waivers or Permits that are
required in connection with the lawful issuance of the First Note (in the case
of the Initial Closing) and the Shares and the Second Note (in the case of the
Second Closing), as applicable, pursuant to this Agreement and all such filings,
authorizations, approvals, waivers and Permits shall be effective as of
applicable Closing." 

3

(h) 

Section 6.4 of
the Agreement will be deleted in its entirety and replaced with the following:

"Zheng Transaction
Payment. In connection with the issuance of Common Stock to Hanqiao Zheng
pursuant to that Common Stock Purchase Agreement in respect of the Zheng
Transactions, the first, second and third payment installment thereunder shall
have been paid to the Company." 

(i) 

Section 7 of the
Agreement will be deleted in its entirety and replaced with the following:

"7. 

Option. 

7.1 

Grant of Option. The Company hereby, subject to the terms
and conditions of this Agreement, voluntarily, irrevocably and exclusively
grants the Investors and/or their designees an option (the "Option") to
purchase, at the Investors’ sole and absolute discretion, a senior secured
convertible note, issued by the Company, in the principal amount of $10,000,000,
substantially in the form attached hereto as Exhibit E (the "Option
Note"). 

7.2 

Exercise Period. Subject to the conditions set forth
herein, the Option may be exercised by the Investors, in whole and not in part,
at any time after the Second Closing, and, unless previously exercised as herein
provided, will expire at 5:00 p.m., Eastern Standard Time, on the nine (9) month
anniversary of the date of the Second Closing (the "Option Expiration Date").

7.3 

Exercise of Option. In the event that the Investors wish
to exercise the Option, the Investors shall send a written notice to the Company
at the address set forth in Section 11.7, at least five (5) Business Days
prior to the date of the intended exercise, such notice to specify the date and
place for closing for such exercise (the "Option Exercise Date"), which
may in no event be later than the Option Expiration Date. The place of the
closing of the Option exercise shall take place remotely via the exchange of
documents and signatures or at such place as the Company and the Investors shall
mutually agree upon, orally or in writing. 

7.4 

Deliverables on Option Exercise Date. At the Option
Exercise Date, the Company shall issue and deliver to the Investors, and the
Investors shall purchase from the Company, the Option Note, duly executed, for
an aggregate purchase price of US$10,000,000, which consideration shall be paid
by the Investors to the Company within ten (10) days of the Option Exercise
Date, by check or wire transfer to a bank account designated in writing by the
Company. 

7.5 

No Commitment. For the avoidance of doubt, the Option is a
right exercisable by the Investors in their sole and absolute discretion and is
not intended to impose any obligation whatsoever on the Investors or its
affiliates to exercise such right or purchase the Option Note. The Company
agrees to indemnify and hold harmless the Investors and their respective
officers, directors, employees, agents, advisors, controlling persons, members
and successors and assigns from and against any and all losses, claims, damages,
liabilities and expenses, joint or several, to which any such indemnified
persons may become subject arising out of or in connection with the Option or
any claim (including, for example, detrimental reliance), litigation,
investigation or proceeding relating to the foregoing, and to reimburse each
such indemnified person upon demand for any reasonable legal or other expenses
incurred in connection with investigating or defending any of the foregoing."

4

(j) 

Section 8 of the
Agreement will be deleted in its entirety and replaced with the following:

"Conditions
of the Company’s Obligations at each Closing. The
obligations of the Company to consummate each Closing under Section 2 of
this Agreement, unless otherwise waived in writing by the Company, are subject
to the conditions that (i) the representations and warranties of the Investors
contained in Section 4 shall be true, complete and not misleading in all
material respects when made, and shall be true, complete and not misleading in
all material respects on and as of such Closing with the same effect as though
such representations and warranties had been made on and as of the date 
of such Closing and (ii) the Investors shall have paid the First Note Purchase
Price (in the case of the First Closing), the Shares Purchase Price and the
Second Note Purchase Price (in the case of the Second Closing), each as
contemplated in Section 2.2 hereof. For the avoidance doubt, the
obligation of the Company to consummate the transactions under each Closing
shall not be relieved or modified by any waiver by the Investors of the
applicable closing conditions set forth in Section 5 through Section
6." 

(k) 

Section 10.1(c) of the Agreement will be deleted in its entirety. 

(l) 

Section 10.3(b) of the Agreement will be deleted in its entirety. 

(m) 

Section 10.3(c) of the Agreement will be deleted in its entirety. 

(n) 

Exhibit B
to the Agreement will be deleted in its entirety and replaced with Attachment
1. 

(o) 

Attachment 2
shall constitute a new Exhibit E to the Agreement. 

SECTION 3.     
Miscellaneous. 

3.1 

Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby, including, without limitation, amending the other
Transaction Documents, and to carry into effect the intents and purposes of this
Amendment. 

5

3.2 

Rights Cumulative. Each and all of the various rights, powers and
remedies of the parties hereto shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Amendment. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party. 

3.3 

Number and Gender. All words and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require or as otherwise
appropriate in view of their context. 

3.4 

Captions. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Amendment, nor as evidence of the intention of the parties hereto. 

3.5 

Severability. The provisions of this Amendment are severable. The
invalidity, in whole or in part, of any provision of this Amendment shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof. The parties further
agree to replace such void or unenforceable provisions of this Amendment with
valid and enforceable provisions that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.

3.6 

Attorneys’ Fees. In any action at law or in equity to enforce any
of the provisions or rights under this Amendment, the unsuccessful party to such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party all costs, expenses and reasonable attorney’s fees, as set
by the court and not by a jury, incurred by the successful party (including,
without limitation, costs, expenses and fees on any appeal). 

3.7 

Counterparts. This Amendment may be executed in separate
counterparts, each of which shall be deemed as an original; when executed,
separately or together, all of such counterparts shall constitute a single
original instrument, effective in the same manner as if all parties hereto had
executed one and the same instrument. 

3.8 

Entire Agreement. The Agreement, as modified by this Amendment,
(together with the Transaction Documents and other documents referred to
therein) is intended by the parties hereto to be the final expression of their
agreement and constitutes and embodies the entire agreement and understanding
between the parties hereto with regard to the subject matter hereof and is a
complete and exclusive statement of the terms and conditions thereof, and shall
supersede any and all prior oral and written correspondence, conversations,
negotiations, agreements and understandings relating to the same subject matter.

3.9 

Amendment. Any term of this Amendment may be amended and the
observance of any term of this Amendment may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each of the
parties hereto. 

6

3.10 

Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party under this Amendment, upon any breach or
default of any other party under this Amendment, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Amendment, or any waiver on the part of any party
of any provisions or conditions of this Amendment, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Amendment, under the Agreement, or by law or
otherwise afforded to any party, shall be cumulative and not alternative. 

3.11 

Waiver and Extension of Time. Any party hereto may by a writing
signed by an authorized representative of such party: (i) extend the time for
the performance of any of the obligations of another party; (ii) waive any
inaccuracies in representations and warranties made by another party contained
in this Amendment or in any documents delivered pursuant hereto; (iii) waive
compliance by another party with any of the covenants contained in this
Amendment or the performance of any obligations of such other party; or (iv)
waive the fulfillment of any condition that is precedent to the performance by
such party of any of its obligations under this Amendment. No waiver of any
term, provision or condition of this Amendment, in any one or more instances,
shall be deemed to be, or be construed as, a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Amendment. 

3.12 

GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF. 

3.13 

Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Amendment shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto whose
rights or obligations hereunder are affected by such terms and conditions. This
Amendment, and the rights and obligations hereunder, shall not be assigned
without the mutual written consent of the parties hereto, provided that each
Investor may assign its rights and obligations to an Affiliate of such Investor
without consent of the other parties under this Amendment. Nothing in this
Amendment, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Amendment,
except as expressly provided in this Amendment. 

[The remainder of this page has been left
intentionally blank] 

7

IN WITNESS WHEREOF, the parties
hereto have executed this Amendment with the intent and agreement that the same
shall be effective as of the day and year first above written. 

THE COMPANY: 

  	CHINA RECYCLING ENERGY CORPORATION
	 
	 
	By:                                                                                                                
      
	
      Name:

	
      Title:

Signature page continued on next page 

S-1

	THE INVESTORS:	For and on behalf of:
	 	CARLYLE ASIA GROWTH PARTNERS III, L.P.
	 	 
	 	 
	 	By:                                                                                                                
    
	 	
    Name:

	 	
    Title:

	 	 
	 	 
	 	For and on behalf of:
	 	 
	 	CAGP III CO-INVESTMENT, L.P.
	 	 
	 	 
	 	By:                                                                                                                   
    
	 	
    Name:

	 	
    Title:

S-2

Attachment 1 

FORM OF SECOND NOTE

Attachment 2 

FORM OF OPTION NOTEChina Recycling Energy Corporation: Exhibit 10.2

  

Exhibit 10.2 

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

5% SECURED CONVERTIBLE PROMISSORY NOTE

	US$5,000,000	
    April 29, 2008

FOR VALUE RECEIVED,
CHINA RECYCLING ENERGY CORPORATION, a Nevada corporation (hereinafter called "Borrower"),
hereby promises to pay to CARLYLE ASIA GROWTH PARTNERS III, L.P., a limited
partnership organized under the Laws of the Cayman Islands ("CAGP"), and
CAGP III CO-INVESTMENT, L.P., a limited partnership organized under the Laws of
the Cayman Islands (together with CAGP, each, a "Holder") or its
registered assigns or successors in interest or order, without demand, the sum
of Five Million U.S. Dollars (US$5,000,000) ("Principal Amount"), plus
accrued interest thereon, on April 29, 2011 (the "Maturity
Date"). The percentage ownership interest of each Holder in this Note is set
forth in Schedule A attached hereto. 

This 5% Secured
Convertible Promissory Note ("Note")
has been entered into pursuant to, and is subject to, a Stock and Notes Purchase
Agreement dated as of November 16, 2007, as amended April 29, 2008, by and among
Borrower and the Holder, among others (as it may be amended, restated,
supplemented or otherwise modified from time to time, the "Purchase
Agreement"), and shall be governed by the terms of such Purchase Agreement.
Unless otherwise separately defined herein, all capitalized terms used in this
Note shall have the same meaning as is set forth in the Purchase Agreement.

This securities
represented by this Note is also subject to a (i) Registration Rights Agreement,
and a (ii) Shareholders Agreement. This Note is secured by a security interest
granted to the Holder pursuant to a Share Pledge Agreement. 

The following terms
shall apply to this Note: 

ARTICLE I 

INTEREST

1

ARTICLE II 

2.1 

Interest Rate. Interest on the outstanding Principal Amount shall accrue
from the date of this Note and shall be payable in arrears together with, at the
same time and in the same manner as payment of Principal Amount and on the
Maturity Date, whether by acceleration or otherwise. Interest on the outstanding
principal balance of this Note shall accrue at 5.0% per annum (the "Interest
Rate"). Interest on the outstanding principal balance of the Note shall be
computed on the basis of the actual number of days elapsed and a year of three
hundred and sixty (360) days. 

ARTICLE III 

CONVERSION RIGHTS

3.1

Conversion
Right and Conversion Price. 

(a) 

The Holder shall have the right, but not the obligation, to convert all or any
part of the aggregate outstanding Principal Amount of this Note, together with
interest, if any, into shares of Common Stock, at any time on or after March 30,
2010 (or such earlier date if the audited consolidated financial statements of
the Borrower for the fiscal year ending December 31, 2009 are available on a
date prior to March 30, 2010) and prior to the later of the Maturity Date or the
date on which this Note is paid in full, subject to the terms and conditions set
forth in this Article II, at a conversion price per share of Common Stock
calculated as follows: (a) an amount equal to (i) the Actual Borrower Net
Profit, multiplied by (ii) 5.5, and less (iii) the Principal Amount of this
Note, together with accrued interest, divided by (b) the then total
shares of Common Stock outstanding on a fully-diluted basis (for the avoidance
of doubt, including securities which may be exercised, converted or exchanged
for Common Stock issued under the Management Incentive Plan, but excluding the
shares of the Common Stock to be issued upon conversion of this Note) (such
result, the "Conversion Price", as the same may be adjusted from time to
time in accordance with this Note). For purposes of this Note, "Actual
Borrower Net Profit" shall mean an amount equal to the consolidated
after-tax net profit of the Borrower and its Subsidiaries for the fiscal year
ending December 31, 2009 (in U.S. Dollars), but excluding for purposes of this
calculation any non-cash redemption amortization charges in respect of this
Note, as shall be determined based on the audited consolidated financial
statements of the Borrower for the fiscal year ending December 31, 2009, which
shall be prepared by a Qualified Accounting Firm no later than three months
following the end of December 31, 2009. Such Actual Borrower Net Profit shall be
calculated using the foreign exchange rate in effect as of the date of this
Note. 

(b) 

The number of shares of Common Stock to be issued upon each conversion of this
Note pursuant to this Article II shall be determined by dividing the then
applicable Conversion Price by the Principal Amount and accrued interest to be
converted. 

(c) 

The Holder may exercise such right by delivery to the Borrower of a written
Notice of Conversion pursuant to Section 2.2. 

2

(d) 

Upon any conversion of this Note, the number of shares of Common Stock allocable
among each Holder shall be in accordance with their percentage interest set
forth in Schedule A attached to this Note. As between the Holders, any
partial interest in one whole share of Common Stock held by the Holders should
be allocated to the Holder with the greater partial interest such that only one
Holder will be entitled to receive such whole share of Common Stock. After
giving effect to the foregoing, in lieu of the Borrower issuing any fractional
shares to the Holders upon conversion of this Note, the Borrower shall make an
adjustment and payment in cash to the Holders. 

3.2 

Mechanics of
Holder’s Conversion. 

(a) 

In the event that the Holder elects to convert this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed and
completed notice of conversion (a "Notice of Conversion") to the
Borrower, which Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and amounts being converted.
The date specified in the Notice of Conversion, or if no date is specified, then
the date of the delivery of the Notice of Conversion, shall be referred to as
the "Conversion Date." A form of Notice of Conversion to be employed by
the Holder is annexed hereto as Exhibit A. 

(b) 

Pursuant to the terms of the Notice of Conversion, the Borrower shall deliver,
or cause to be delivered, such number of Conversion Shares as determined
pursuant to this Note via, at the Holder’s election, (i) physical certificates,
or (ii) electronically through the Depository Trust Borrower or other
established clearing corporation performing similar functions. In the case of
the exercise of the conversion rights set forth herein, the conversion privilege
shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the Conversion Date.
The Holder shall be treated for all purposes as the beneficial holder of such
shares of Common Stock, unless the Holder provides the Borrower written
instructions to the contrary. 

3.3 

Adjustment
Events. 

(a) 

The Conversion Price and number and kind of shares or other securities to be
issued upon conversion shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows: 

(i) 

Merger, Sale of Assets, etc. If (A) the Borrower effects any merger or
consolidation of the Borrower with or into another entity, (B) the Borrower
effects any sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether by the
Borrower or another entity) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, (D) the Borrower consummates a stock purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more persons or
entities whereby such other persons or entities acquire more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by such other persons or entities making or party to, or associated or
affiliated with the other persons or entities making or party to, such stock
purchase agreement or other business combination), or (E) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
1934 Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of 50% of the aggregate Common
Stock of the Borrower (in any such case, a "Fundamental Transaction"),
this Note, as to the Principal Amount hereof and accrued interest hereon, shall
thereafter be deemed to evidence the right to convert into such number and kind
of shares or other securities and property as would have been issuable or
distributable on account of such Fundamental Transaction, upon or with respect
to the securities subject to the conversion right immediately prior to such
Fundamental Transaction. The foregoing provision shall similarly apply to
successive Fundamental Transactions of a similar nature by any such successor or
purchaser. Without limiting the generality of the foregoing, the anti-dilution
provisions of this Section shall apply to such securities of such successor or
purchaser after any such Fundamental Transaction. 

3

(ii) 

Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
Principal Amount hereof and accrued interest hereon, shall thereafter be deemed
to evidence the right to convert into an adjusted number of such securities and
kind of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change. 

(iii) 

Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event. 

(iv) 

Share Issuance. So long as this Note is outstanding, if the Borrower
shall issue any Common Stock except for shares of Common Stock issued pursuant
to its Management Incentive Plan, prior to the conversion or payment of this
Note, for a consideration less than the Conversion Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issuance, the Conversion Price shall be reduced to such other lower issue price.
For purposes of this adjustment, the issuance of any security or debt instrument
of the Borrower carrying the right to convert such security or debt instrument
into Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights if such issuance is at a price lower than the then applicable
Conversion Price. 

(b) 

If the Borrower at any time or from time to time, prior to the full conversion
of this Note, shall take any action affecting its Common Stock or share capital
similar to or having an effect similar to any of the actions described in 
Section 2.3(a), then, and in each such case, the Conversion Price shall be
adjusted in such manner as would be equitable under such circumstances. 

4

(c) 

Whenever the Conversion Price is adjusted pursuant to this Article II,
the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment. 

3.4 

Mandatory Conversion upon Exchange Listing. If the Borrower shall have
successfully completed an Exchange Listing on or prior to the Maturity Date, the
Holder shall be required to effect a conversion of this Note for the Conversion
Price as soon as reasonably practicable upon such Exchange Listing, provided
that the Borrower shall have effected the registrations required under the
Registration Rights Agreement prior to such date. For purposes of this Note, an
"Exchange Listing" means the listing of the common stock of the Borrower
on the National Association of Securities Dealers Automated Quotations (NASDAQ)
mainboard, the New York Stock Exchange or the American Stock Exchange. 

3.5 

Reservation. Borrower covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common Stock for the
sole purpose of issuance upon conversion of this Note, free from all Liens,
preemptive rights or any other actual contingent purchase rights of Persons
other than the Holder, not less than one hundred and seventy-five percent (175%)
of the aggregate number of shares of the Common Stock as shall be issuable
(taking into account the adjustments and restrictions of this Article II)
upon the conversion of this Note. The Borrower covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable and, pursuant to the Registration
Rights Agreement, shall be registered for public sale in accordance therewith.
The Borrower agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are charged with the
duty of executing and issuing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note. 

ARTICLE IV 

EVENTS OF DEFAULT

The occurrence of any
of the following constitutes an event of default under this Note (" Event of
Default"): 

4.1 

Failure to Pay Principal or Interest. The Borrower fails to pay the
Principal Amount, interest or other sum due under this Note or any Transaction
Document when due and such failure continues for a period of five (5) business
days after the due date. 

4.2 

Breach of Covenant. The Borrower breaches any covenant or other term or
condition of the this Note or any other Transaction Document in any material
respect and such breach, if subject to cure, continues for a period of five (5)
business days after written notice to the Borrower from the Holder. 

4.3 

Breach of Representations and Warranties. Any representation or warranty
of the Borrower made herein or in any other Transaction Document shall be false
or misleading in any material respect as of the date made and the Closing Date.

5

4.4 

Failure to Prepare Audited Financial Statements. Failure of the Borrower
to deliver audited consolidated financial statements of the Borrower for the
fiscal years ending December 31, 2008 and December 31, 2009, prepared by a
Qualified Accounting Firm, no later than three months following the end of
December 31, 2008 and December 31, 2009, respectively. 

4.5 

Receiver or Trustee. The Borrower or any Subsidiary of Borrower shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for them or for a substantial part of their
property or business; or such a receiver or trustee shall otherwise be
appointed. 

4.6 

Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any Subsidiary of Borrower or any of their
property or other assets for more than $100,000, and shall remain unvacated,
unbonded, unappealed, unsatisfied, or unstayed for a period of forty-five (45)
days. 

4.7 

Non-Payment. A default by the Borrower or any Subsidiary under any one or
more obligations in an aggregate monetary amount in excess of $100,000 for more
than thirty (30) days after the due date, unless the Borrower or such Subsidiary
is contesting the validity of such obligation in good faith and has segregated
cash funds equal to the contested amount. 

4.8 

Bankruptcy. Bankruptcy, insolvency, reorganization, or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, shall be instituted by
or against the Borrower or any Subsidiary of Borrower. 

4.9 

Delisting. Delisting of the Common Stock from the OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading;
failure to comply with the requirements for continued listing on the OTC
Bulletin Board or applicable exchange; or notification from OTC Bulletin Board
or applicable exchange that the Borrower is not in compliance with the
conditions for such continued listing. 

4.10 

Stop Trade. An SEC or judicial stop trade order or OTC Bulletin Board or
other exchange trading suspension with respect to Borrower’s Common Stock.

4.11 

Failure to Deliver Common Stock. Borrower’s failure to timely deliver
shares of Common Stock to the Holder pursuant to and in the form required by
this Note. 

4.12 

Non-Registration. The failure to timely register this Note and the
Conversion Shares in accordance with the Registration Rights Agreement. 

4.13 

Cross Default. A default by the Borrower of a material term, covenant,
warranty or undertaking of any Transaction Document or other agreement to which
the Borrower is a party, or the occurrence of a material event of default under
any such other agreement which is not cured after any required notice and/or
cure period. 

4.14 

Moratorium and Nationalization. (a) the confiscation, expropriation or
nationalization by any Governmental Authority of any property or assets of the
Borrower or any of its Subsidiaries; or (b) if such revocation or repudiation
could reasonably be expected to have a Material Adverse Effect, the revocation
or repudiation by any Governmental Authority of any previously granted
governmental permits or licenses to the Borrower or its Subsidiaries or that
affect the operations of their business; or (c) the imposition or introduction
of material and discriminatory taxes, tariffs, royalties, customs or excise
duties imposed on Borrower or its Subsidiaries, or the material and
discriminatory withdrawal or suspension of material privileges or specifically
granted material rights of a fiscal nature. 

6

4.15 

Security Interest. The Share Pledge Agreement or any of the security
provided for therein shall, at any time, cease to be in full force and effect
for any reason other than the satisfaction in full of all obligations under the
Note and discharge of the Note or any security interest created thereunder shall
be declared invalid or unenforceable or the Borrower or any of the Persons
granting security under the Share Pledge Agreement shall assert, in any pleading
in any court of competent jurisdiction, that any such security interest is
invalid or unenforceable. 

4.16 

Reservation Default. Failure by the Borrower to have reserved for
issuance upon conversion of the Note the amount of Common Stock as set forth in
this Note and the Transaction Documents. 

4.17 

Material Adverse Effect. The occurrence of a Material Adverse Effect in
respect of the Borrower or any of its Subsidiaries. 

Upon the occurrence
and during the continuance of an Event of Default, the Holders may by written
notice to the Borrower, declare the Principal Amount together with all accrued
and unpaid interest and all other amounts payable hereunder to be immediately
due and payable, and the Principal Amount together with all accrued and unpaid
interest and all other amounts payable hereunder shall thereupon immediately
become due and payable, without presentment, further notice, protest, grace
period or other requirements of any kind, all of which hereby are expressly
waived by the Borrower. Following the occurrence and during the continuance of
an Event of Default, which, if susceptible to cure is not cured within the cure
periods (if any) set forth in this Article III, otherwise, then from the first
date of such occurrence, the interest rate on this Note shall be the Interest
Rate set forth in Section 1.1, plus an additional five percent (5%), and be due
on demand. Upon the occurrence and during the continuance of an Event of
Default, the Holders may exercise all rights and remedies under the Note and any
other Transaction Documents. 

ARTICLE V 

SENIOR STATUS OF NOTE

5.1 

Senior Status of Note. The obligations of the Borrower under this Note
shall rank senior to all other Indebtedness of the Borrower, whether now or
hereinafter existing (except it shall rank pari passu with the First Note
(as such term is defined in the Purchase Agreement), if such First Note is still
outstanding). Upon any Liquidation Event, the Holder will be entitled to
receive, before any distribution or payment is made upon, or set apart with
respect to, any other Indebtedness of the Borrower or any class of capital stock
or the Borrower, an amount equal to the Principal Amount plus all accrued
interest thereon. For purposes of this Note, "Liquidation Event" means a
liquidation pursuant to a filing of a petition for bankruptcy under applicable
law or any other insolvency or debtor’s relief, an assignment for the benefit of
creditors, or a voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Borrower. 

7

ARTICLE VI 

MISCELLANEOUS 

6.1

Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available. 

6.2 

Notices. Any notice required or permitted pursuant to this Note shall be
given in writing and shall be given either personally or by sending it by
next-day or second-day courier service, fax, electronic mail or similar means to
the address as shown below (or at such other address as such party may designate
by fifteen (15) days’ advance written notice to the other parties to this Note
given in accordance with this section): 

	
    If to the Borrower, to:

	
    Room 909, Tower B

	
    Chang’an Metropolis Center

	
    No. 88 Nanguanzheng Street

	
    Xi’an 710068, China

	
    Attention: Guangyu Wu, Chief
    Executive Officer

	
    Tel: +86 (29) 8765-1096

	
    Fax: +86 (29) 8765-1099

	 
	
    with a copy to:

	
    Bernard & Yam, LLP

	
    401 Broadway, Suite 1501

	
    New York, NY 10013

	
    Attention: Bin Zhou

	
    Tel: 1 (212) 219-7783

	
    Fax: 1 (212) 219-3604

	 
	
    If to the Holders, to:

	
    Carlyle Asia Investment Advisors
    Limited

	
    2202-2207A, Plaza 66

	
    1266 Nanjing Xi Road

	
    Shanghai 200040, P.R.C.

	
    Attention: Nicholas Shao

	
    Phone +86 (21) 6103-3266

	
    Fax: +86 (21) 6103-3220 

8

	
    with a copy to:

	
    O’Melveny & Myers LLP

	
    Plaza 66, 37th Floor

	
    1266 Nanjing Road West

	
    Shanghai 200040, P.R.C.

	
    Attention: Portia Ku

	
    Tel: + 86 (21) 2307-7000

	
    Fax: + 86 (21) 2307-7300

Where a notice is sent
by next-day or second-day courier service, service of the notice shall be deemed
to be effected by properly addressing, pre-paying and sending by next-day or
second-day service through an internationally-recognized courier a letter
containing the notice, with a confirmation of delivery, and to have been
effected at the expiration of two (2) days after the letter containing the same
is sent as aforesaid. Where a notice is sent by fax or electronic mail, service
of the notice shall be deemed to be effected by properly addressing, and sending
such notice through a transmitting organization, with a written confirmation of
delivery, and to have been effected on the day the same is sent as aforesaid.

6.3 

Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented. Any
provision of this Note may be amended, supplemented or waived, if such
amendment, supplement or waiver is in writing and signed by the Borrower and the
Holders. 

6.4 

Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns. Subject to applicable laws and regulations, this Note
and all rights hereunder may be transferred or assigned in whole or in part by
the Holder, and the Borrower shall assist the Holder in consummating any such
transfer or assigned. Borrower may not assign this Note without the consent of
all Holders. A transfer of this Note may be effected only by a surrender hereof
to the Borrower and the issuance by the Borrower of a new note or notes in
replacement thereof, which shall be registered by the Borrower in accordance
with Section 5.5 hereof once an executed copy of the replacement note has
been executed by the transferee. 

6.5 

Transfer Register. In the event of a transfer, the Borrower shall
maintain a register (the "Register") for the registration or transfer of
the Note, and shall enter the names and addresses of the registered holders of
the Note, the transfers of the Note and the names and addresses of the
transferees of the Note. the Holder and each assignee shall be provided
reasonable opportunities to inspect the Register from time to time. The Borrower
shall treat any registered holder as the absolute owner of the Note held by such
holder, as indicated in the Register, for the purpose of receiving payment of
all amounts payable with respect to such Note and for all other purposes. The
Note is registered obligations and the right, title, and interest of any Person
in and to such Note shall be transferable only upon notation of such transfer in
the Register. Solely for purposes of this Section 5.5 and for tax
purposes only, the keeper of the Register, if it is not the Borrower, shall be
the Borrowers' agent for purposes of maintaining the Register. This Section
5.5 shall be construed so that the Note is at all times maintained in
"registered form" within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2)
of the Code and any related regulations (and any other relevant or successor
provisions of the Code or such regulations). 

9

6.6 

Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
attorneys’ fees. 

6.7 

Removal of Legend. The Borrower agrees to reissue the Note and the
Conversion Shares issuable upon conversion or exercise of the Note, without the
legend set forth above, at such time as (a) the holder thereof is permitted to
dispose of such Notes or the Conversion Shares pursuant to Rule 144(k) under the
Securities Act, or (b) such securities are sold to a purchaser or purchasers who
are able to dispose of such shares publicly without registration under the
Securities Act, or (iii) such securities have been registered under the
Securities Act. 

6.8 

Transfer Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
hereof for any documentary, stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates 

6.9 

Governing Law; Rules of Construction. THIS NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

6.10 

Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS
BROUGHT AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS NOTE, OR ANY
OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. 

6.11 

Waiver of Jury Trial. BORROWER HEREBY AGREES TO WAIVE ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE.
THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF
THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. 

6.12 

Maximum Payments. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

 

 

 

 

10

6.13 

Construction. Each party acknowledges that its legal counsel participated in the
preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other. 

6.14 

No Redemption. Except as provided in Section 2.4 hereof, this Note may not be
redeemed or called by the Borrower or any other Person (other than the Holder)
without the consent of the Holder. 

6.15 

Non-Business Days. Whenever any payment or any action to be made shall be due on
a Saturday, Sunday or a public holiday under the laws of the State of New York,
such payment may be due or action shall be required on the next succeeding
business day and, for such payment, such next succeeding day shall be included
in the calculation of the amount of accrued interest payable on such date.

[Remainder of page intentionally left blank.]

11

IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
an authorized officer as of the date first set forth above. 

	 	CHINA RECYCLING ENERGY CORPORATION
	 	 
	 	 
	 	By:                                                                                                            
    
	 	
    Name:

	 	
    Title:

	 	 
	 	 
	 	 
	 	 
	ACCEPTED AND AGREED:	 
	HOLDER:	For and on behalf of:
	 	 
	 	CARLYLE ASIA GROWTH PARTNERS III, L.P.
	 	 
	 	 
	 	By:                                                                                                            
    
	 	
    Name:

	 	
    Title:

	 	 
	 	 
	 	For and on behalf of:
	 	 
	 	CAGP III CO-INVESTMENT, L.P.
	 	 
	 	 
	 	By:                                                                                                                   
    
	 	
    Name:

	 	
    Title:

S-1

Exhibit A 

NOTICE OF CONVERSION

The undersigned hereby
elects to convert principal under the Secured Convertible Promissory Note due
____________ of CHINA RECYCLING ENERGY CORPORATION, a Nevada corporation (the
"Borrower"), into shares of Common Stock according to the conditions hereof, as
of the date written below. No fee will be charged to the holder for any
conversion. 

Conversion
calculation: 

Date to Effect
Conversion: 

Number of shares of
Common Stock to be issued: 

  	 	 
	HOLDER:	                                                                             
      
	 	(Print Name of Holder)
	 	 
	 	 
	 	By:                                                                                       
      
	 	
      Name:

	 	
      Title:

Schedule A 

Ownership Interest of the Holders

	Holder	Percentage Allocation
	Carlyle Asia Growth Partners III, L.P.	95.741%
	 	 
	CAGP III Co-Investment, L.P.	4.259%

Upon any conversion of this Note, as between the Holders, any
fractional interest in a share of Common Stock should be rounded to the nearest
whole share of Common Stock such that only one Holder will be entitled to
receive such whole share of Common Stock.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}]]