Document:

SUPPLEMENTAL AGREEMENT

This Supplemental Agreement, dated as of December 9, 2011 (this "Supplemental Agreement"), is made by and among China Recycling Energy Corporation ("The Company"), China Cinda (HK) Asset Management Co., Limited ("The Investor") and Ku Guohua.

WITNESSETH:

 

WHEREAS, the Company, its wholly-owned subsidiaries Sifang Holdings Co., Ltd., Shanghai TCH Energy Technology Co., Ltd. and Xi'an TCH Energy Technology Co., Ltd. (together with the Company, the "Company Group") entered into a Notes Purchase Agreement with the Investor on August 18, 2010 (the "Note Purchase Agreement");

 

WHEREAS, the Company sold, and the Investor purchased Secured Convertible Promissory Notes under the Notes Purchase Agreement with a principal amount of USD equivalence of  RMB50,000,000 on December 29, 2010 (the "Convertible Notes");

 

WHEREAS, Section 10.10 of the Notes Purchase Agreement provides that the Notes Purchase Agreement may be amended with the consent of the Company and the Investor;

 

WHEREAS, each of the Company and the Investor is duly authorized to execute and deliver this Supplemental Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each party hereto mutually covenants and agrees for the equal and ratable benefit of the Company and the Investor as follows:

 

ARTICLE I

 

SECTION 1.1         Defined Terms.  Unless otherwise defined, terms capitalized herein shall have the meanings as defined in the Notes Purchase Agreement. The words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Agreement refer to this Supplemental Agreement as a whole and not to any particular section hereof.

 

ARTICLE II

 

SECTION 2.1         No further obligation. Notwithstanding anything to the contrary in the Notes Purchase Agreement, the Company and the Investor hereby agree to terminate their respective obligations to purchase and sell the Second Tranche of Convertible Notes under Section 2 of the Notes Purchase Agreement.

SECTION 2.2         Redemption of the Convertible Notes. Notwithstanding anything to the contrary in this Supplemental Agreement, the Convertible Notes and any of the Transaction Documents, the Company and the Investor hereby agree that on each of December 30, 2011 and November 30, 2012  (each a "Redemption Date" and together the "Redemption Dates"), the Company shall respectively redeem half of the outstanding Convertible Notes at a price for an amount equivalent to RMB25,000,000 (the "Redemption Principal Amount"), plus accrued interest at a rate of eighteen percent (18%) per annum (the "Redemption Interest Rate") on the Redemption Principal Amount up to the applicable Redemption Date, minus any Interim Interest Rate already accrued and paid on the Redemption Principal Amount up to the applicable Redemption Date (together with the Redemption Principal Amount, the "Redemption Price"). If a default in payment of the Redemption Price occurs and is continuing, the interest rate applicable on the Redemption Principal Amount shall be the Redemption Interest Rate, plus an additional five percent (5%) per annum, and be due on demand. If the Company redeems half of the Convertible Notes on or before December 20, 2011, the Redemption Principal Amount, plus the Redemption Interest Rate accrued on the Redemption Principal Amount up to December 20, 2011, minus any Interim Interest Rate on the Redemption Principal Amount up to December 20, 2011, shall be paid on December 20, 2011. If the Company redeems half of the Convertible Notes after December 20, 2011 and on or before December 30, 2011, the Redemption Interest Rate accrued on the Redemption Principal Amount up to December 20, 2011, minus any Interim Interest Rate on the Redemption Principal Amount up to December 20, 2011, shall be paid on December 20, 2011 and the Redemption Principal Amount, plus the Redemption Interest Rate accrued on the Redemption Principal Amount from and excluding December 20, 2011 up to but including December 30, 2011, minus any Interim Interest Rate on the Redemption Principal Amount from and excluding December 20, 2011 up to but including December 30, 2011, shall be paid on December 30, 2011.

 

  

  

  

SECTION 2.3         Payment of Interest on the Second Redemption Principal Amount.  Interest on the Redemption Principal Amount due and payable on November 30, 2012 (the "Second Redemption Principal Amount"), will accrue at a rate of eighteen percent (18%) per annum from and including the date hereof to but excluding November 30, 2012 (the "Second Redemption Interest Amount"). The Second Redemption Interest Amount will be payable by the Company on June 20, 2012.

SECTION 2.4        Additional Share Pledge. Notwithstanding anything to the contrary in the share pledge agreement dated August 18, 2010 between Ku Guohua and the Investor (the "Share Pledge Agreement"), this Supplemental Agreement and any of the Transaction Documents, on December 9, 2011, Ku Guohua agrees to provide as Additional Collateral of 1.5 million shares he owns in the Company by delivering a certificate for Additional Collateral in the form of Exhibit B of the Share Pledge Agreement.

SECTION 2.5         Expenses. The parties hereto agree that each party shall bear its own out-of-pocket expenses arising from the preparation and negotiation of this Supplemental Agreement. Notwithstanding anything to the contrary herein, the Company agrees to reimburse the investor for its out-of-pocket expenses for the preparation and negotiation of this Supplemental Agreement up to RMB50,000.

SECTION 2.6         Survival. Except as otherwise provided herein, all the rights and remedies of the Investor pursuant to the Notes Purchase Agreement shall remain in full force and effect from the date hereof.

 

ARTICLE III

 

Miscellaneous

 

SECTION 3.1         Governing Law.  This Supplemental Agreement shall be governed by the laws of the State of New York of the United States of America.

 

SECTION 3.2         Counterparts.  The parties hereto may sign one or more copies of this Supplemental Agreement in counterparts, all of which together shall constitute one and the same agreement.

 

SECTION 3.3         Headings.  The headings of the Articles and the sections in this Supplemental Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.

 

SECTION 3.4         Successors.  All covenants and agreements in this Supplemental Agreement by the parties hereto shall bind their successors and assigns, whether so expressed or not.

 

SECTION 3.5         Entire Agreement.  This Supplemental Agreement constitutes the entire agreement of the parties hereto with respect to the Transaction Documents, In the event that any conflict arises between the terms of this Supplemental Agreement and that of any Transaction Documents, this Supplemental Agreement prevails.

 

SECTION 3.6         Capacity. The Company and the Investor warrant with each other that each of them is duly authorized to execute and deliver this Supplemental Agreement;

 

  

  

  

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Agreement to be duly executed as of the date first above written.

 

	
COMPANY:

	
CHINA RECYCLING ENERGY CORPORATION

	  	  
	  	
By:

	  
	  	
Name:

	  
	  	
Title:

	  

 

  

  

  

 

	
INVESTOR:

	
For and on behalf of:

	  	  
	  	
CHINA CINDA (HK) ASSET MANAGEMENT CO.,

LIMITED

	  	  
	  	
By:

	  
	  	
Name:

	  
	  	
Title:

	  

 

  

  

  

 

	  	
KU GUOHUA

	  	  
	  	
By:

	  
	  	
Name: Ku GuohuaSupplemental Agreement

 

Whereas, Xi’an TCH Energy Technology Co., Ltd. (hereinafter as “Xi’an TCH”), the borrower, entered into a Jingu Trust (2010) No.2-1 Capital Trust Loan Agreement under Jingu·CREG No.1 Recycling Economic Collective Trust Plan (hereinafter as “Trust Loan Agreement”) with China Jingu International Trust Co., Ltd (hereinafter as “Jingu”), the Lender, on August 18, 2010. Pursuant to the Trust Loan Contract, Xi’an TCH drew down the loan in the principal amount of RMB50 million on January 30, 2011;

 

Whereas, based upon the negotiation among Xi’an TCH, Jingu and another beneficiary of the Trust Plan—Kent International Industrial (Shenzhen) Limited (hereinafter as “Kent”), parties agree to amend Trust Loan Agreement and terminate Trust Loan Agreement prior to its expiration date.

 

All parties have reached the following agreements on the changes and amendments to the Trust Loan Agreement:

 

Article I  Early Repayment

 

All parties agree Xi’an TCH shall repay the entire loan principal of RMB50 million under Trust Loan Agreement together with accrued interests due and other payables in one lump sum into the following account designated by Jingu before December 16, 2011:

 

Account name: China Jingu International Trust Co., Ltd

 

Account number: xxxxxxxxxxxxxxxxxxxxxxxxx

 

Bank of deposit: Xi’an City Commercial Bank, South City Branch

 

Xi’an TCH agrees to pay interest to Jingu Trust at 18% per annum.

 

The repayment obligation by Xi’an TCH is subject to such principal, interests and other payables arrive to above bank account of Jingu before the end of working day of December 16, 2011.

 

Article II  Effect of termination

 

In consideration of Trust Loan Agreement and Note Purchase Agreement (the “Note Purchase Agreement”) by China Recycling Energy Corporation (“CREG”) and China Cinda (Hong Kong) Asset Management Co., Ltd (“Cinda”) and other parties on August 18, 2010 constitute as one transaction, Xi’an TCH’s obligations under Trust Loan Agreement shall be terminated if the following conditions have been satisfied:

 

1. This Agreement becomes effect upon execution by authorized representatives of all parties;

 

2. Xi’an TCH has paid back principal and interests under Trust Loan Agreement in full and on time according to Article I of this Agreement; and

  

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3. CREG has signed supplemental agreement with Cinda to amend Note Purchase Agreement and relevant agreements and has signed relevant agreement on financial arrangement for the implementation of the supplemental agreement. To avoid ambiguity, agreements and financial arrangement mentioned herein are limited to Supplemental Agreement, Certificate For Additional Collateral, Financial Arrangements for Certain Overseas Payment, Personal Guarantee by Ku Guohua and Guarantee by Shanghai TCH entered by relevant parties on December 9, 2011.

 

Article III  Default Event and the Remedy

 

If Xi’an TCH fails to repay the principal, interests and other payables in full and on time according to the Article I of this Supplemental Agreement, it shall be charged a penalty for the unpaid amount at a rate of 23% per annum for each day of the amount is overdue.

 

The rights and remedies of Jingu and Kent under Trust Loan Agreement remain valid and effective before Xi’an TCH repays the principal, interest and other payables on time and in full according to Article I of this Supplemental Agreement.

 

Article IV Miscellaneous

 

The expenses and costs arising out of execution this Supplemental Agreement shall be undertaken as follows:

 

1. The expenses and costs (including but not limited to attorney fees, travel expense and processing fees for changing of the registration) arising out the execution of this Supplemental Agreement by Cinda, Kent and Jingu shall be borne by themselves, respectively;

 

2. The expenses (including but not limited to all expenses for termination of all guarantee agreement under Trust Loan Agreement) arising out of the execution of this Supplemental Agreement by Xi’an TCH shall be borne by Xi’an TCH itself;

 

3. If there is any litigation, enforcement costs or related attorney fees and travel expenses of Cinda, Jingu and Kent caused by Xi’an TCH’s not paying the amount due according to this Supplemental Agreement, Xi’an TCH shall pay such expenses upon its receiving the notice from such party, unless the court decides otherwise. If Xi’an TCH fails to pay such expenses on time and in full according to the notice, it shall also pay a delay fee at a rate of 18% per annum.

 

Article V Cited Terms

 

Unless otherwise stipulated in this Supplemental Agreement, Article 12 and Article 13 of Trust Loan Agreement apply to this Supplemental Agreement, as integral part of this Supplemental Agreement.

 

The Mortgage Guarantee Contract, Share Pledge Agreement, Accounts Receivable Pledge Agreement and its Registration Agreement, Ku Guohua Personal Guarantee Contract,    Shanghai TCH Guarantee Contract and Account Supervision Contract under the Jingu·CREG No.1 Recycling Economic Collective Trust Plan, which were executed on the same day of the Trust Loan Agreement, shall be automatically terminated and canceled on the date when all the outstanding amount under this Supplemental Agreement are paid.

  

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For the purpose of releasing the above guarantees, per request of Xi’an TCH,  Jingu shall issue letters of authorization and/or notary documents that are required to release/cancel above agreements or contracts to Xi’an TCH or its assigned entity or person immediately.

 

In Witness Whereof, all parties have agreed and executed this agreement.

  

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Signing page of Supplemental Agreement of Trust Loan Agreement

 

Borrower (Official seal): Xi’an TCH Energy Technology Co., Ltd

 

Legal representative or authorized representative (Signature)

 

Lender (Official seal): China Jingu International Trust Co., Ltd

 

Legal representative or authorized representative (Signature)

 

December 9, 2011

  

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