Document:

Unassociated Document

    DEBT
      REDUCTION AGREEMENT

    

    

    THIS
      AGREEMENT is dated as of February 13, 2007, between China Precision Steel,
      Inc.,
      a Colorado corporation (the “Company”), Partner Success Holdings Limited, a
      British Virgin Islands Business Company (“PSHL”), and Mr. Wo Hing Li, a Hong
      Kong national (“Li”), on the basis of the terms and conditions set forth herein.

    

    WHEREAS,
      certain
      amounts (the “Debt”) are owed by the Company to Li as a result of (i) advances
      made by Li on behalf of the Company’s subsidiaries and affiliates and (ii)
      certain other obligations and transactions, during each of the fiscal years
      ended June 30, 2003, 2004, 2005, and 2006 and continuing in fiscal year ending
      June 30, 2007 as set forth on Exhibit A hereto; and

     

    WHEREAS,
      Li is a
      director of PSHL, a principal shareholder of the Company and is the Chairman
      of
      the Board of Directors of the Company and its President; and

     

    WHEREAS,
      Shanghai Chengtong Precision Strip Co., Ltd. (“Chengtong”), a wholly foreign
      owned enterprise established under the laws of the People’s Republic of China
      (“PRC”), is an indirect wholly-owned subsidiary of the Company, and Shanghai
      Tuorong Precision Steel Co., Ltd. (“Tuorong”) is a company organized under the
      laws of the People’s Republic of China (“PRC”) and controlled by Li;
      and

     

    WHEREAS,
      Li
      intends to contribute certain assets of Tuorong to the Company, including,
      but
      not limited to land use rights and facility construction costs (the “Tuorong
      Assets”), upon approval from the relevant governmental authorities in the PRC
      (“Approval”) for the transformation of Tuorong into a wholly foreign owned
      enterprise (the “Transformation”), and Approval for the transfer of certain land
      use rights from Tuorong to Chengtong (the “Land Transfer”); and

     

    WHEREAS,
      the
      Company proposes to raise capital through one or more private placements of
      its equity securities on terms and conditions to be agreed as appropriate and
      consistent with market practice and in reliance upon available exemptions from
      the registration requirements of the U.S. Securities Act of 1933, as amended
      (a
“Placement”); and

     

    WHEREAS,
      the
      Company now considers it in the best interests of the Company and its
      shareholders to reduce such Debt as set forth herein; 

     

    NOW,
      THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the
      receipt of which is hereby acknowledged, the Company, PSHL and Li agree as
      follows:

    

    1. Subject
      to the terms and conditions of this Agreement, the parties agree that, as of
      December 31, 2006, the amount of Debt outstanding and payable to Li, subject
      to
      certain adjustments as set forth on Exhibit A hereto, was $1,798,066 (the
“Conversion Amount”). 

     

    
      
        CONFORMED
          COPY

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2. The
      Conversion Amount shall be converted (the “Conversion”) by the Company into such
      number of shares (the “Shares”) of Common Stock, to be issued to Li or his
      designees, as shall be determined pursuant to a price per share equal to that
      of
      the Common Stock sold in a Placement (the “Purchase Price”), such Conversion to
      be effected contemporaneous with the closing of a Placement (the “Closing”);
      provided, however, that no Conversion shall be required to be effected hereunder
      if the aggregate amount of gross proceeds payable at Closing to the Company
      is
      less than $19,000,000.

    

    3. At
      the
      Closing, share certificates representing the Shares shall be delivered to Li
      and
      such Shares shall be validly issued, fully paid and non-assessable.

    

    4.
       The
      parties agree that the fair market value of the Tuorong Assets is $8,840,990
      at
      December 31, 2006, which amount is subject to adjustment based upon existing
      exchange rates between the U.S. Dollar and the Chinese Yuan.

    

    5. The
      parties further agree that, upon receipt of the Approvals for the Transformation
      and Land Transfer, they will take all actions necessary to effect the following
      transactions as soon as practicable, subject to applicable law:

    

    (i) Li
      shall
      contribute the Tuorong Assets to the Company for consideration in the amount
      of
      $8,840,990, as may be adjusted in accordance with paragraph 4 above (the
“Tuorong Consideration”);

    

    (ii) That
      certain dividend declared by the Board of Directors of PSHL on June 30, 2004,
      for the fiscal year then ended, in the amount of $3,839,607 and remaining unpaid
      as of the date hereof shall be rescinded (the “Dividend Rescission”) by the
      Board of Directors of PSHL and such amount restored to the Company’s
      shareholders’ equity account; and

    

    (iii) The
      Tuorong Consideration, after deduction therefrom for the amount of the Dividend
      Rescission, shall be converted (the “Second Conversion”) into such number of
      shares of Common Stock, to be issued to Li or his designees, at a price per
      share that is the greater of (i) the Purchase Price, as defined in paragraph
      2
      above, and (ii) the average closing price of the Common Stock as reported on
      The
      NASDAQ Capital Market for the five (5) trading days prior to the transfer of
      the
      Tuorong Assets.

    

    6. Upon
      consummation of each of Conversion and the Second Conversion as contemplated
      hereby, Li waives any further claim or right to, or interest in, the Conversion
      Amount and the amount of the Second Conversion, as the case may be, whether
      in
      equity or at law, and forever releases and discharges the Company, its
      subsidiaries and affiliates from any and all obligations with respect to the
      Conversion Amount and the amount subject to the Second Conversion, respectively.
      In furtherance thereof, Li agrees to enter into a Deed of Release in favor
      of
      the Company, PSHL and Chengtong, substantially in the form of Exhibit B hereto
      simultaneous with the execution of this Agreement.

    

    7. The
      actions to be taken by the parties pursuant to this Agreement as set forth
      in
      paragraphs 2, 3, 5 and 6 are wholly conditional upon and subject to the
      consummation of a Placement in an aggregate amount of gross proceeds to the
      Company of $19,000,000.

     

    
      
        
        

      

      
        -
          2
          -

        
          

        

      

      
        
        

      

    

     

    8. Each
      of
      the parties hereto represents and warrants to each other that this Agreement
      has
      been entered into as an arm’s length transaction. The Company further represents
      and warrants that this Agreement has been duly authorized by the independent
      members of the Board of Directors and when duly executed and delivered by the
      Company will constitute a legal and binding obligation of the Company,
      enforceable against the Company in accordance with its terms, except as such
      enforcement may be affected by bankruptcy, reorganization, insolvency,
      moratorium or similar laws affecting creditor’s rights generally and except for
      general principles of equity.

     

    9. This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York, without regard to conflict of laws principles.

     

    10. This
      Agreement constitutes the entire agreement and understanding between the parties
      relating to the subject matter herein and supersedes all previous written or
      oral negotiations, commitments and writings.

     

    11. This
      Agreement may be signed in counterpart and each counterpart when taken together
      with the others shall evidence the entire Agreement.

     

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -
          3
          -

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS THEREOF, THIS AGREEMENT is
      duly
      executed as of the date set forth above.

     

     

    
      	CHINA PRECISION STEEL,
              INC.	 	WO HING LI
	 	 	 
	By :     
              /s/
              Leada Tak Tai
              Li                      
                	 	
                       
/s/Wo
                Hing
                Li                         
                

            
	Name:       
              Leada Tak Tai
              Li                        
              	 	           Wo
              Hing Li
	Title:      
              Chief Financial
              Officer                  
              	 	 
	 	 	 
	 	 	 
	PARTNER SUCCESS HOLDINGS
              LIMITED	 	 
	 	 	 
	
            	 	 
	By:     
              /s/ Leung Shu
              Keung                      
              	 	 
	Name:       Leung
              Shu Keung      
                             
              	 	 
	Title:        Director                                         
              	 	 

    

     

    
      
        
        

      

      
        -
          4
          -THIS
      DEED is
      made
      the 13th
      day of
      February 2007

    

    

    BY:

    

    
      	
              (1)

            	
              LI
                WO HING (Chinese
                name here),
                holder of Hong Kong Passport No. H9004903, of 8th
                Floor, Teda Bulding, 87 Wing Lok Street, Sheung Wan, Hong Kong
                (“Mr
                Li”),

            

    

    

    IN
      FAVOUR OF:

    

    
      	
              (2)

            	
              CHINA
                PRECISION STEEL, INC.,
                a
                company incorporated in Colorado
                (the “Company”);

            

    

    

    
      	
              (3)

            	
              PARTNER
                SUCCESS HOLDINGS LIMITED,
                a
                company incorporated in the British Virgin Islands (“PSHL”);
                and

            

    

    

    
      	
              (4)

            	
              SHANGHAI
                CHENGTONG PRECISION STRIP CO., LTD.,
                a
                wholly foreign owned enterprise established under the laws of the
                People’s
                Republic of China (“WFOE”).

            

    

    

    

    WHEREAS:

    

    
      	(A)  	
              The
                Company is the ultimate holding company of PSHL and WFOE, and WFOE
                is a
                direct wholly owned subsidiary of PSHL. Mr Li is a director of PSHL,
                a
                principal shareholder of the Company and the chairman of its board
                of
                directors.

            

    

    

    
      	(B)  	
              Prior
                to 28 December 2006, Mr Li was the sole shareholder of PSHL. In or
                around
                2004, PSHL declared the Special Dividend to its then shareholder,
                Mr Li,
                which remains unpaid as of the date hereof. In addition, as a result
                of
                certain cash advances made by Mr Li to or on behalf of the Group
                and
                certain other obligations and transactions, members of the Group
                were
                indebted to Mr Li in a principal amount totalling US$1,798,066 as
                at 31
                December 2006 (as particularised in and subject to certain adjustments
                set
                forth in exhibit A to the Debt Reduction Agreement), all of which
                is
                non-interest bearing and repayable on
                demand.

            

    

    

    
      	(C)  	
              Mr
                Li intends to procure that certain assets of Tuorong, a company controlled
                by him, are transferred to the Group at fair market value as set
                forth in
                the Debt Reduction Agreement upon approval from the relevant governmental
                authorities in the PRC for the transformation of Tuorong into a wholly
                foreign owned enterprise and for the transfer of certain land use
                rights
                from Tuorong to WFOE.

            

    

    

    
      	(D)  	
              The
                Company is considering raising equity capital through the Placement
                and
                the Parties believe it in the best interest of the Group, on a
                consolidated basis, to reduce its liabilities by effecting the Conversion
                and the Dividend Rescission. It is envisaged that the First Conversion
                will take place contemporaneous with the closing of a Placement and
                the Dividend Rescission and the Second Conversion will take place
                upon or
                as soon as practicable following receipt of the approval described
                in
                Recital (C), provided in each case that the aggregate amount of gross
                proceeds payable to the Company at closing of a Placement is not less
                than US$19,000,000.

            

    

     

    
      
        Conformed
          Copy

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	(E)  	
              Accordingly,
                on the date of this Deed, the Company, PSHL and Mr Li have entered
                into
                the Debt Reduction Agreement to effect the Conversion and Dividend
                Rescission, in each case subject to and upon the terms and conditions
                thereof. This Deed is supplemental to the Debt Reduction
                Agreement.

            

    

    

    

    NOW
      THIS DEED WITNESSES AS FOLLOWS:

    

    1. INTERPRETATION

    

    1.01 In
      this
      Deed (including the Recitals), unless the context requires
      otherwise:

    
       

      
        	      
                 “Affiliates”	 	
                with
                  respect to any person means:

              

      

       

    

    
      	 	
              (i)

            	
              any
                other person directly or indirectly controlling, controlled by or
                under
                common control with, such first
                person;

            

    

    

    
      	 	
              (ii)

            	
              any
                shareholder of such first person or of any person described in paragraph
                (i) above, and any of such shareholder’s spouse or immediate family member
                or any trustee of any trust of which such shareholder or his or her
                spouse
                or immediate family member is a beneficiary or discretionary object;
                and

            

    

    

    
      	 	
              (iii)

            	
              any
                other person, or any other person’s directors, who are accustomed or
                obliged to act in accordance with the directions or instructions
                of such
                first person or of any persons described in paragraphs (i) and/or
                (ii)
                above.

            

    

    
      
         

        
          	        “control”	 	
                  
                    means,
                      in relation to a company or other entity, the ownership of
                      more than fifty
                      per cent (50%) of the voting share capital or equivalent right
                      of
                      ownership of such company or entity or the possession, direct
                      or indirect,
                      of the power to direct or cause the direction of the management
                      and
                      policies of such company or other entity, whether through the
                      ownership of
                      voting securities, by contract or otherwise;

                  

                

        

        
          
             

            
              	        “Conversion”	 	
                      
                        means
                          the First Conversion and Second
                          Conversion;

                      

                    

            

             

          

          
            	        “Debt
                    Reduction Agreement”	 	
                    
                      
                        means
                          the agreement dated the date of this Deed entered into
                          between the
                          Company, PSHL and Mr Li to effect the Conversion and the
                          Dividend
                          Rescission in accordance with the terms and conditions
                          thereof;

                      

                    

                  

          

        

      

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
      
         

        
          	       “Dividend
                  Rescission”	 	
                  
                    means
                      the rescission of the Special Dividend by PSHL’s board of directors and
                      the restoration of an equivalent amount to the shareholders’ equity
                      account of the Company as provided in the Debt Reduction
                      Agreement;

                  

                

        

        
          
             

            
              	       “Effective
                      Date”	 	
                      
                        means
                          the date on which the Conversion and the Dividend Rescission
                          are effected
                          in full;

                      

                    

            

            
              
                 

                
                  	       “First
                          Conversion”	 	
                          
                            means
                              the proposed conversion of the First Conversion Amount
                              into such number of
                              shares of the Company’s common stock to be issued to Mr Li or his
                              designees as is determined by a Placement
                              Price;

                          

                        

                

                
                  
                     

                    
                      	      “First Conversion
                              Amount”	
                              
                                 

                              

                            	
                              means
                                an amount of US$1,798,066 of the Indebtedness as
                                described in Recital
                                (B);

                            

                    

                    
                      
                         

                        
                          	       “First
                                  Conversion
                                  Date”	 	
                                  
                                    means
                                      the date on which the First Conversion takes
                                      place;

                                  

                                

                        

                        
                          
                             

                            
                              	        “Group”
                                      or “Group Companies”	 	
                                      
                                        
                                          means
                                            the Company and its subsidiaries, including
                                            PSHL and
                                            WFOE;

                                        

                                      

                                    

                            

                            
                              
                                 

                                
                                  	        “Hong
                                          Kong”	 	
                                          
                                            means
                                              the Hong Kong Special Administrative
                                              Region of the
                                              PRC;

                                          

                                        

                                

                                
                                  
                                     

                                    
                                      	       “Indebtedness”	 	
                                              
                                                means
                                                  the Special Dividend, the First
                                                  Conversion Amount, the amount converted
                                                  under the Second Conversion and
                                                  any and all other amounts and liabilities
                                                  (whether principal, interest, accrued
                                                  salaries, costs, fees, expenses
                                                  or
                                                  otherwise, whether present or future,
                                                  actual or contingent, ascertained
                                                  or
                                                  unascertained, and whether or not
                                                  due for payment) owing to Mr Li
                                                  and/or
                                                  any of his Affiliates by one or
                                                  more Group Companies as at the
                                                  Effective
                                                  Date;

                                              

                                            

                                    

                                    
                                      
                                         

                                        
                                          	        “Parties”	 	
                                                  
                                                     means
                                                      those persons named at the
                                                      beginning of this Deed and
                                                      shall, where the
                                                      context permits, include their
                                                      respective successors and permitted
                                                      assigns
                                                      and any persons deriving title
                                                      under
                                                      them;

                                                  

                                                

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
       

      
        	        “person”	 	
                
                  includes
                    any individual, company, body corporate or unincorporated or
                    other
                    juridical person, partnership, firm, joint venture or trust or
                    any
                    federation, state or subdivision thereof or any government or
                    agency of
                    any thereof;

                

              

      

      
        
          
             

            
              	        “Placement”	 	
                      
                        means
                          a proposed private placement of the equity securities of
                          the Company to
                          certain institutional accredited and other investors in
                          the United States
                          and elsewhere in reliance upon exemptions from the U.S.
                          Securities Act of
                          1933, as amended, and on terms and conditions to be
                          agreed;

                      

                    

            

            
              
                
                   

                  
                    
                      
                      

                    

                    
                      3

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                  
                    	        “Placement
                            Price”	 	
                            
                              means
                                a price per share equal to that of the Company’s common stock sold
                                in a Placement;

                            

                          

                  

                  
                    
                      
                         

                        
                          	        “PRC”	 	
                                  
                                    means
                                      the People’s Republic of China, excluding Hong Kong, Taiwan
                                      and the Macau
                                      Special Administrative Region for the purposes
                                      of this
                                      Deed;

                                  

                                

                        

                        
                          
                            
                               

                              
                                	        “Second
                                        Conversion”	 	
                                        
                                          means
                                            the proposed conversion of the consideration
                                            payable for the asset
                                            transfer mentioned in Recital (C) (or
                                            such part thereof as determined
                                            pursuant to the Debt Reduction Agreement)
                                            into such number of shares of
                                            the Company’s common stock to be issued to Mr Li
                                            or his designees at a
                                            price per share that is the greater of
                                            (a) the Placement Price, and (b)
                                            the average closing price of the Company’s common stock as reported on The
                                            NASDAQ Capital Market for the five (5)
                                            trading days prior to such asset
                                            transfer (or otherwise on such other
                                            terms and conditions as Mr Li and the
                                            Company may agree to);

                                        

                                      

                              

                              
                                
                                  
                                     

                                    
                                      	        “Special
                                              Dividend”	 	
                                              
                                                means
                                                  a special dividend that was or
                                                  may have been declared by PSHL
                                                  on June 30,
                                                  2004 to its then sole shareholder,
                                                  Mr Li, in an amount of US$3,839,607
                                                  which remains unpaid as at the
                                                  date of this
                                                  Deed;

                                              

                                            

                                    

                                    
                                      
                                        
                                          
                                             

                                            
                                              	        “subsidiary”	 	
                                                      
                                                        in
                                                          relation to any company
                                                          means any other company
                                                          or other entity directly
                                                          or indirectly under the
                                                          control of the first-mentioned
                                                          company; and
                                                          “holding company” in relation to any company
                                                          means the company of which
                                                          such last-mentioned company
                                                          is a direct or indirect
                                                          subsidiary;

                                                      

                                                    

                                            

                                            
                                              
                                                
                                                  
                                                     

                                                    
                                                      	        “Tuorong”	 	
                                                              
                                                                means
                                                                  Shanghai Tuorong
                                                                  Precision Steel
                                                                  Co., Ltd., a company
                                                                  established under
                                                                  the laws of the
                                                                  PRC and controlled
                                                                  by Mr Li as of
                                                                  the date of this
                                                                  Deed;

                                                              

                                                            

                                                    

                                                    
                                                      
                                                        
                                                          
                                                             

                                                            
                                                              	        “US$”	 	
                                                                      
                                                                        means
                                                                          United
                                                                          States
                                                                          dollars,
                                                                          the lawful
                                                                          currency
                                                                          of the
                                                                          United
                                                                          States
                                                                          of
                                                                          America;

                                                                      

                                                                    

                                                            

                                                            
                                                              
                                                                
                                                                  
                                                                     

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      	
              1.02

            	
              In
                this Deed (including the Recitals), unless the context requires otherwise,
                words importing the singular include the plural and vice
                versa
                and words importing a gender include every gender; references to
                this
                Deed, the Debt Reduction Agreement or any other document shall be
                construed as references to such document as the same may be amended
                or
                supplemented or novated from time to time; unless otherwise stated,
                references to Clauses and Recitals are to the clauses and recitals
                in this
                Deed. Clause headings are inserted for reference only and shall be
                ignored
                in construing this Deed.

            

    

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    2. DISCHARGE
      AND RELEASE

    

    
      	
              2.1

            	
              Mr
                Li hereby unconditionally and
                irrevocably:

            

    

    

    
      	 	
              (a)

            	
              releases
                and discharges, with effect from the First Conversion Date, each
                Group
                Company from all its past, present and future liabilities arising
                from or
                with respect to the First Conversion Amount and discharges, with
                effect
                from the First Conversion Date, each Group Company from any and all
                indemnities, covenants, undertakings and other obligations given
                or
                assumed by any of them with respect to all or any part of the First
                Conversion Amount, to hold the same unto each Group Company absolutely
                freed and absolutely discharged of and from all claims and demands
                for or
                in respect of the same or in anywise relating thereto;
                and

            

    

    

    
      	 	
              (b)

            	
              releases
                and discharges, with effect from the Effective Date, each Group Company
                from all its past, present and future liabilities arising from or
                with
                respect to the Indebtedness and discharges, with effect from the
                Effective
                Date, each Group Company from any and all indemnities, covenants,
                undertakings and other obligations given or assumed by any of them
                with
                respect to all or any part of the Indebtedness, to hold the same
                unto each
                Group Company absolutely freed and absolutely discharged of and from
                all
                claims and demands for or in respect of the same or in anywise relating
                thereto.

            

    

    

    
      	
              2.2

            	
              Without
                limiting Clause 5, Clause 2.1 shall operate such
                that:

            

    

    

    
      	 	
              (a)

            	
              if
                and when the First Conversion Date
                occurs:

            

    

    

    
      	 	
              (i)

            	
              the
                First Conversion Amount will automatically be deemed to have been
                waived,
                discharged and released fully and absolutely without further notice
                or
                other legal formality of any kind;
                and

            

    

    

    
      	 	
              (ii)

            	
              the
                Group Companies will automatically be released, without payment by
                or
                other cost to any of them, from all debts and obligations to, and
                from any
                and all guarantees, indemnities, mortgages and surety or security
                arrangements of any kind given by any of them in favour of Mr Li
                and/or
                any of his Affiliates, to the extent that any of the same arises
                from or
                for or on account of the First Conversion Amount or by reason of
                any act,
                matter or thing relating thereto, whether accrued or arisen from
                a time
                before the First Conversion Date or otherwise;
                and

            

    

    

    
      	 	
              (b)

            	
              if
                and when the Effective Date occurs:

            

    

    

    
      	 	
              (i)

            	
              the
                Indebtedness will automatically be deemed to have been waived, discharged
                and released fully and absolutely without further notice or other
                legal
                formality of any kind; and

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              the
                Group Companies will automatically be released, without payment by
                or
                other cost to any of them, from all debts and obligations to, and
                from any
                and all guarantees, indemnities, mortgages and surety or security
                arrangements of any kind given by any of them in favour of Mr Li
                and/or
                any of his Affiliates, to the extent that any of the same arises
                from or
                for or on account of the Indebtedness or by reason of any act, matter
                or
                thing relating thereto, whether accrued or arisen from a time before
                the
                Effective Date or otherwise.

            

    

    
      

      
        	
                2.3

              	
                Mr
                  Li hereby unconditionally and irrevocably acknowledges, confirms
                  to and
                  agrees with each other Party, on behalf of himself and his
                  Affiliates:

              

      

    

    

    
      	 	
              (a)

            	
              that
                with effect from the First Conversion
                Date:

            

    

    

    
      	 	
              (i)

            	
              he
                and his Affiliates will not have any rights, remedies or claims,
                whether
                present or future, actual or contingent, against any Group Company
                in
                respect of the First Conversion Amount and any such rights, remedies
                and
                claims will be unconditionally and irrevocably waived and released
                for the
                benefit of all Group Companies; and

            

    

    

    
      	 	
              (ii)

            	
              all
                guarantees, indemnities, undertakings and other forms of security
                given by
                any person and held by Mr Li or any of his Affiliates in respect
                of all or
                any part of the First Conversion Amount, if any, will be automatically,
                unconditionally and irrevocably waived and released and, pending
                such
                release, any such guarantees, indemnities, undertakings and security
                will
                not be enforced; and

            

    

    

    
      	 	
              (b)

            	
              that
                with effect from the Effective
                Date:

            

    

    

    
      	 	
              (i)

            	
              he
                and his Affiliates will not have any rights, remedies or claims,
                whether
                present or future, actual or contingent, against any Group Company
                in
                respect of the Indebtedness and any such rights, remedies and claims
                will
                be unconditionally and irrevocably waived and released for the benefit
                of
                all Group Companies; and

            

    

    

    
      	 	
              (ii)

            	
              all
                guarantees, indemnities, undertakings and other forms of security
                given by
                any person and held by Mr Li or any of his Affiliates in respect
                of all or
                any part of the Indebtedness, if any, will be automatically,
                unconditionally and irrevocably waived and released and, pending
                such
                release, any such guarantees, indemnities, undertakings and security
                will
                not be enforced.

            

    

    

    
      	
              2.4

            	
              Mr
                Li agrees that, from and after the date of this Deed and unless with
                the
                written consent of the Company, he will not, and will procure that
                none of
                his Affiliates will, take any legal or other action to recover or
                set off
                any part of the Indebtedness against any Group Company (and
                will forthwith cease any such action previously commenced) or
                take any step to obtain, enforce or realise any security therefor
                or
                assign or transfer the benefit of any part of the
                Indebtedness.

            

    

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3. INDEMNITY

    

    
      	
              3.1

            	
              Independent
                of any other terms, conditions and stipulations herein, Mr Li hereby
                unconditionally and irrevocably covenants and agrees with each other
                Party
                that:

            

    

    

    
      	 	
              (a)

            	
              if,
                for any reason whatsoever, his obligations under any of the provisions
                hereof are or become or prove to be unenforceable or any such provision
                is
                declared or adjudged to be illegal, invalid or unenforceable under
                any
                applicable law, he shall grant to each Group Company a complete indemnity
                and will pay to the Group Companies all sums necessary to make good
                and to
                compensate them for all losses, damages, costs, disbursements and
                liabilities suffered or incurred by any of them as a direct or indirect
                result of such illegality, invalidity or unenforceability;
                and

            

    

    

    
      	 	
              (b)

            	
              he
                will indemnify and keep indemnified each Group Company (i) against
                any
                demand, claim, legal or other action or proceedings brought by any
                of his
                Affiliates or any other person arising from or as a result of the
                consummation of the arrangement contemplated under this Deed or the
                Debt
                Reduction Agreement; and (ii) for all losses, liabilities, damages,
                costs,
                fees and expenses (including legal fees and expenses on a full indemnity
                basis) incurred or suffered by any Group Company arising from or
                in
                connection with a breach of any of his representations, warranties,
                covenants or other obligations contained or referred to in this Deed,
                the
                Debt Reduction Agreement or the documents ancillary
                thereto.

            

    

    
 

    4. REPRESENTATIONS
      AND WARRANTIES

    

    Mr
      Li
      represents and warrants to each other Party that:

    

    
      	 	
              (a)

            	
              he
                has full power, authority and legal right to enter into and engage
                in the
                transactions contemplated by this Deed and the Debt Reduction Agreement
                and has taken and obtained all necessary actions and consents (including
                the consents of his Affiliates) to authorise his execution, delivery
                and
                performance of this Deed and the Debt Reduction Agreement and to
                enable
                the provisions of this Deed and the Debt Reduction Agreement to operate
                and take effect in accordance with the terms expressed herein and
                therein;
                

            

    

    

    
      	 	
              (b)

            	
              this
                Deed and the Debt Reduction Agreement constitute his legal, valid
                and
                binding obligations enforceable in accordance with their respective
                terms;
                and

            

    

    

    
      	 	
              (c)

            	
              the
                information in Recital (B) and in exhibit A to the Debt Reduction
                Agreement is true and accurate and, other than the amounts stated
                therein
                as owing to Mr Li, no Group Company is indebted to him or any of
                his
                Affiliates as at the date hereof.

            

    

    

    

    5. FURTHER
      ASSURANCE

    

    
      	 	
              Each
                Party shall do and execute or procure to be done and executed all
                such
                further acts, deeds, things and documents as may be necessary or
                as may
                reasonably be required by one or more of the other Parties to give
                effect
                to, perfect or further record or document this Deed, the Debt Reduction
                Agreement and/or the arrangements and transactions contemplated hereby
                or
                thereby or incidental thereto (including such written confirmations
                from
                Mr Li to any third party of the releases and discharges effected
                hereby as
                may be reasonably required by any Group
                Company).

            

    

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    6. MISCELLANEOUS

    

    
      	
              6.1

            	
              Each
                Party shall bear its own costs, charges and expenses incurred in
                connection with the preparation, negotiation and execution of this
                Deed
                and the implementation of the arrangements and transactions contemplated
                hereby.

            

    

    

    
      	
              6.2

            	
              This
                Deed may be executed in counterparts and by different Parties on
                separate
                counterparts which when taken together shall be deemed to constitute
                one
                instrument. This Deed shall not be effective until it has been executed
                by
                all Parties.

            

    

    

    
      	
              6.3

            	
              This
                Deed, and the documents referred to herein, constitute the entire
                agreement among the Parties relating to the subject matter hereof
                and
                supersedes all previous written or oral negotiations, commitments,
                agreements and understanding. No variations hereof shall be effective
                unless made in writing.

            

    

    

    
      	
              6.4

            	
              If
                at any time any provision of this Deed is or becomes illegal, invalid
                or
                unenforceable in any respect under the law of any jurisdiction, the
                legality, validity and enforceability of such provision under the
                law of
                any other jurisdiction, and of the remaining provisions of this Deed,
                shall not be affected or impaired
                thereby.

            

    

    

    
      	
              6.5

            	
              This
                Deed shall be binding upon and enure for the benefit of the estates,
                personal representatives or successors of the Parties but shall not
                be
                assignable.

            

    

    

    
      	
              6.6

            	
              The
                Parties acknowledge and confirm that they have had opportunities
                to seek
                independent legal advice on this Deed and the arrangements and
                transactions contemplated hereunder and have entered into this Deed
                of
                their own accord.

            

    

    

    

    7. GOVERNING
      LAW AND JURISDICTION

    

    
      	
              7.1

            	
              This
                Deed shall be governed by and construed in accordance with the laws
                of
                Hong Kong and each party irrevocably submits to the non-exclusive
                jurisdiction of the courts of Hong
                Kong.

            

    

    

    
      	
              7.2

            	
              Mr
                Li hereby irrevocably agrees that service on him of any writ, summons,
                order, judgment or other notice of legal process in Hong Kong shall
                be
                deemed completed on delivery to his address stated at the beginning
                of
                this Deed (or such other address of which the Company has notice
                pursuant
                to any written notification from Mr Li to the Company), whether or
                not it
                is received by Mr Li.

            

    

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF
      this
      Deed has been executed by the party named below and is intended to be and is
      hereby delivered on the date first above written.

     

     

     

    
      	
              SIGNED,
                SEALED AND DELIVERED

              by
                LI
                WO HING (Chinese
                name here)

              in
                the presence of:

            	
              )

              )

              )

            	 
	 	)	 
	
              /s/
                Leung Shu Keung

            	)	 
	Signature of witness	)	 
	 	)	 
	
              LEUNG
                SHU KEUNG

            	)	
              /s/
                Li Wo Hing

            
	Name of witness (block letters)	)	Signature of Li Wo Hing (Chinese
              Name)

    

     

    
      
        
        

      

      
        9

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