MaximumAmount Guarantee Contract

 

Mortgagor : Caopu Arts & Crafts Co., Ltd.

No. of Business License: Qi He Lu He Zong Fu An No. 000074

Legal Representative/Principal: Li Jinliang

Domicile: 2888 Qinghe Rd., Qinghe Office, Cao County, Shandong

Post Code: 274400

Banker and Account No.: Bank of China Limited, Cao County Branch 08055022418091001

Tel: 0530 ###-###-####   Fax: 0530 ###-###-####

Mortgagee：Bank of China Limited, Cao County Branch

Legal Representative/Principal: Tian Wenjian

Domicile: 1668 E. Section, Gongye Rd., Cao County

Post Code: 274400

Tel: 0530 ###-###-####   Fax: 0530 ###-###-####

 

In order to fulfill the obligations as prescribed in master contracts mentioned in Article 1 hereof, the mortgagor shall take voluntarily its property with the legal disposition of property shown in the attached List of Mortgaged Property as the mortgagee's claim to establish a mortgage. Both parties enter into this contract upon an equal footing. Unless otherwise stipulated hereof, the interpretation of terms hereof is pursuant to the master contracts.

 

Article 1  Master Contracts

The master contracts of this contract cover:

Contracts in regard to loan, acceptance bill, trade financing, letter of indemnity, capital business and other credit business (generally called as single contract) and their amendments or supplements concluded between the mortgagee and the debtor, Caopu Arts & Crafts Co., Ltd. from Dec. 20, 2006 to May 14, 2009, including master contracts that are agreed to put under this contract.

 

Article 2  Principal Claim and the Time Limit

The financial claims factually occurred during the following period, unless otherwise established or stipulated, under master contracts may become principal claims of this contract:

from December 20, 2006 to May 14, 2009, as prescribed in Article 1 hereof.

 

Article 3  Secured Maximum Amount of Claim

1.	The principal balance of the secured claims hereof is:

Type of Currency: RMB

Amount (in word): Nineteen Million Seventy Thousand

(in figure): 19700000.00.

 

2.

Where the principal claims as stipulated in Article 2 hereof comes to the maturity, the principal claims are identified as secured hereof, and the principal and accrued interest (including statutory interest, conventional interest, compound interest, penalty interest), liquidated damage, damages, expenses for enforcing claims (including but not limited to legal costs, lawyer's fees, notary fees, execution costs), losses aroused by the mortgagor’s breach to the mortgagee and all other payables generated based on principal claims also belong to secured claims and their detailed amounts may be assessed when liquidated.

The total amounts of above-mentioned two types of claims are set as the maximum amount of claim.

 

Article 4  Mortgaged Property

The mortgaged property is subject to the attached List of Mortgaged Property.

Where the mortgaged property is impaired, lost or damaged during the period of mortgage, the mortgagee is entitled to enjoy the priority of having its claim satisfied with insurance money, indemnity or compensatory payment. Where the secured claim is not at maturity, the mortgagee may also draw insurance money, indemnity or compensatory payment.

 

Article 5  Mortgage Registration

Where mortgage registration is required by law, the mortgagor and the mortgagee shall, within ten days following this contract is entered into, register the changes with the relevant registration authority within five days from the date on which the particulars are changed.

Article 6  Possession and Custody of Mortgaged Property

The mortgaged property hereof shall be in the possession and custody of the mortgagor, while the document of title shall be put entirely under the custody of the mortgagee. The mortgagor may agree to accept and positively coordinate with the inspection of the mortgaged property at any time carried out by the mortgagor and the designated institutions and individuals.

The mortgagor shall have the obligation to maintain, keep and preserve the mortgaged property in good condition, and take effective measures to protect the mortgaged property safe and intact. In case the mortgaged property is in need of repair or maintenance, the mortgagor shall do it timely and bear corresponding expenses.

Without the consent in written form of the mortgagee, the mortgagor shall not transfer, lease, lend, contribute in kind, transform, reconstruct, or in any other way dispose of the mortgaged property in part or as a whole; upon the written consent of the mortgagor, the proceeds from disposition of mortgaged property shall be used in discharge of debt or it shall be deposited with a third party designated by the mortgagee.

 

Article 7  Disposition of Loss in the Value of Mortgaged Property

Prior to the complete satisfaction of the principal claim hereof, where the mortgagor's acts are likely to cause the value of the mortgaged property to decline, the mortgagee shall be entitled to demand that the mortgagor cease and deist from such acts. Where the value of the mortgaged property has declined, the mortgagee shall be entitled to demand that the mortgagor restore the original value of the mortgaged property or provide security corresponding to the amount of the lost value or security that is agreed by the mortgagee.

In case of loss, destruction or decline in the value of mortgaged property caused by natural disasters, accidents, torts, and other reasons, the mortgagor shall take immediate measures to prevent losses from expanding further, and immediately notify the mortgagee in writing.

 

Article 8  Fruits

If the mortgaged property is seized by a People's Court because of the mortgagor’s failure to pay his due debts or occurrence of enforcement of the right to mortgage in other means as stipulated hereof, the mortgagee shall, from the date of seizure, be entitled to collect the natural fruits or legal fruits generated from the mortgaged property, except that the mortgagee fails to notify the person who has the obligation to pay legal fruits.

The fruits provided for in the preceding paragraph shall be first used to offset the expenses for collecting the fruits.

 

Article 9  Suretyship Liability

Where the mortgagor fails to perform discharge to the mortgagee on any normal or earlier repayment date specified hereof, the mortgagee shall have the right to enforce the mortgage right in accordance with law or this contractual agreement, enjoying the priority of satisfying the claim in maximum amount as prescribed in Article 3 of hereof.

The normal payment date in the preceding paragraph refers to the date, as stipulated in master contracts, for repayment of principal, of interest, or of any sum that the mortgagor shall repay to the mortgagee pursuant to this contract. Earlier repayment date provided in the preceding paragraph means the date for repayment in advance that is put forward by the mortgagor and accepted by the mortgagee, and that the mortgagor is demanded by the mortgagee pursuant to contracts to repay the debt principal and/or other any sum.

 

Article 10  Mode and Duration of Enforcement of Mortgage

Where the suretyship liability becomes effective, the mortgagee is entitled to the enforcement of mortgage right of the mortgaged property, as a whole, partial, multiple or single sum, that is at the maturity of the obligation in accordance with laws and regulations in regard to general mortgage.

Concerning each main claim, the mortgagee shall exercise the mortgage right during the prescription; where such claim is to be liquidated in installments, the mortgagee shall enforce the mortgage right prior to the prescription starting from the last claim.

Article 11  Enforcement of Mortgage Right

Where the suretyship liability becomes effective, the mortgagee may, through agreement with the mortgagor, enjoy the priority of satisfying the main claim with proceeds from the conversion of the mortgaged property or from the auction or sale of the mortgaged property. If they fail to reach an agreement, the mortgagee may bring a lawsuit in a People's Court, claiming an auction or sale of the mortgaged property. The proceeds from disposition of the mortgaged property shall be used for liquidation of the main claim after paying, in advance, disposition cost of mortgaged property and expenses that the mortgagor shall pay or repay the mortgagor.

Where the main claim co-exists security or guaranty of other objects in addition to this contract, any of mortgagee’s right prescribed hereof or the enforcement shall not be affected and the mortgagor shall not defense the mortgagee as such.

 

Article 12  Relationship Between This Contract and Master Contracts

Where Credit Line Agreement/General Agreement of Credit Business is included in master contracts, extension of use period of credit line/business cooperation period shall receive written consent of the mortgagor. If without consent or with refusal of the mortgagor, the mortgagor may only assume security responsibility for the main claim within secured maximum amount to the mortgaged property occurred during original use period of credit line/business cooperation period pursuant to Article 3 hereof.

There is no need to get consent of the mortgagor in alterations to other contents or matters, and to single agreement under such in Credit Line Agreement/General Agreement of Credit Business, or to single master contract. The mortgagor shall still assume secured liability for the mortgaged property pursuant to Article 3 hereof.

Upon consensus between the mortgagor and the mortgagee, change to the maximum amount of secured claims as prescribed in Article 3 hereof may be made in written form.

Where other mortgagee(s) of the mortgaged property indicated hereof exist(s), if without written consent from it/them, above change shall not exert any adverse effect on it/them.

The mortgagee may not get consent of the mortgagor if the mortgagee would like to entrust to enforce whole or partial rights and obligations under master contracts to Bank of China Limited’s institution or transfer claims of master contracts to a third party. The secured liabilities shall not be reduced or exempted from such. The mortgagor shall assist the mortgagee and its third party to go through necessary legal procedures for mortgage change or registration.

Article 13  Declaration and Commitment

Declaration and commitment are made by the mortgagor as follows:

1.	The mortgagor has been legally registered and exists and has full capacity for civil rights and for civil conduct required for entering into and perform this contract, and enjoy lawful ownership or disposition of the mortgaged property.

2.	The mortgagor guarantees no other joint owner for this mortgaged property exists, or there are still other co-owner(s) who has/have already issued written permission. The mortgagor has made a commitment to have the mortgagee keep this written permission prior to concluding this contract.

3.

The mortgagor fully understands the contents of the master contracts, and conclusion and enforcement of this contract are based on the true intention of the mortgagor, and the mortgagor has acquired legal and effective authorization as per requirements prescribed in its Articles of Association or other internal management documentation.

Where the mortgagor is a third party and enterprise, the mortgagor has adopted the resolution of providing this guarantee by the board of directors or board of shareholders, shareholder assembly in compliance with in the Articles of Association; where the limitation of total amount of surety and amount of each single surety are set, the secured amount under this contract does not exceed the prescribed limitation.

Conclusion and enforcement of this contract may not violate any contract, agreement or other legal documentation that has the binding force to the mortgagor. The mortgagor has acquired or is to acquire every related approval, permit, filing or registration for setting of this mortgage.

4.	All documentation and information provided by the mortgagor are accurate, authentic, complete and valid.

5.	The mortgagor has not concealed any security interest concerning the mortgaged property by the date when this contract is concluded.

6.	The mortgagor shall inform of the mortgagee in time, where the mortgaged property is set a new security interest, the mortgaged property is sequestrated or involved in severe lawsuit or arbitration case.

7.

Where the mortgaged property is under construction, the mortgagor shall make a commitment that no third party enjoys the priority right to be repaid; where the third party enjoying the priority right to be repaid does exist, the mortgagor shall promise to have the third party issue an announcement in written form stating to abdicate the priority right to be repaid, and to have the written announcement under the custody of the mortgagee.

Article 14  Contractual Negligence

 

In case the mortgagor refuses to go through or delay mortgage registration, or this contract could not take effect and mortgage right could not become effective due to the mortgagor’s other causes following this contract is concluded, the contractual negligence is thus constituted. The mortgagor shall be liable for any losses thereof caused to the mortgagee.

 

Article 15  Exposure of Mortgagor’s Affiliated Enterprises and Related Trading

Both parties agrees that the mortgagor does not belong to the group-type customer according as Guidelines for the Risk Management by Commercial Banks for Granting Credit to Customer Groups (shortened as the Guideline).

 

Article 16  Default Incident and Disposition

Any of the following shall constitute or be deemed as the mortgagor’s breach of agreement hereof:

1.	The mortgagor breaks the contract to transfer, lease, lend, contribute in kind, transform, reconstruct, or in any other way dispose of, without authorization, the mortgaged property in part or as a whole.

2.	The mortgagor impede the mortgagee to dispose of, in accordance with law and/or this contract, the mortgaged property;

3.	Where the value of the mortgaged property is reduced as stated in Article 7 hereof, the mortgagor does not recover the value of the mortgaged property nor provide guarantee as demanded.

4.	The mortgagor makes his statement inauthentic or acts against commitment hereof.

5.	The mortgagor breaks other promises in regard to rights and obligations of related parties hereof.

6.	The mortgagor terminates business operation or involves such occurrences as dissolution, revocation or bankruptcy happens.

7.	The mortgagor is involved in default with the mortgagee or other institution of Bank of China Limited.

Where defaults as mentioned in the preceding paragraph occur, the mortgagee is entitled to take, either separately or simultaneously, the following measures depending on actual situations:

1.	Demanding the mortgagor to rectify its default within a specified time limit.

2.	Reducing, suspending or terminating the credit line to the mortgagor on entire or partial basis;

3.	Suspending or terminating the mortgagor’s applications in hand for services under other contracts on entire or partial basis; suspending or terminating trade financing service on entire or partial basis for those have not been granted or have not applied for;

4.	Announcing the mortgagor’s outstanding loan/principal and other payables of trade financing under other contracts as a whole or in part fall due immediately;

5.	Demanding the mortgagor compensate for losses caused by its default to the mortgagee;

6.	Enforcing the mortgage right;

7.	Other measures that the mortgagee believe necessary;

 

Article 17  Reservation of Right

Although one party fails to exercise partial or entire rights hereof, or to demand the other party to perform and bear partial duties and responsibilities, it does not mean this party may renounce the claim or release from the duties and responsibilities.

One party’s any tolerance, extension, or delay of exercising rights hereof against the other party may not affect any right in accordance with this contract, laws, rules and regulations, nor be deemed as renouncement of the right.

 

Article 18  Alteration, Amendment and Termination

Upon agreement reached by both parties, any alteration or amendment in written form shall be permitted, and any alteration or amendment shall compose an integral part of this contract.

Unless otherwise specified by law or regulation or otherwise stipulated by parties concerned, this contract shall not be terminated until obligations hereof have been completely enforced.

Unless otherwise specified by law or regulation or otherwise stipulated by parties concerned, The invalidity of any clause under this contract shall not affect the legal effect of any other clause.

 

Article 19  Legal Applicability and Dispute Settlement

This contract is applicable to any law of People's Republic of China.

Any controversy or dispute aroused from enforcing this contract may be settled through negotiations. In case any negotiation fails, both sides shall reach an agreement to adopt the same solution as stipulated in master contracts.

Where the dispute that is now being solved does not affect the enforcement of other clauses hereof, other clauses shall continue to be exercised.

 

Article 20  Expenditure

Unless otherwise established or stipulated by parties concerned, the expenses generated from conclusion, enforcement of this contract and dispute settlement (including legal fees) shall be borne by the mortgagor.

 

Article 21  Appendix

The following appendix or other appendices acknowledged by both parties constitute an integral part of this contract and have the same force of law as this contract.

1.	List of Mortgaged Property

 

Article 22  Other Stipulation

1.	Unless with the written consent of the mortgagee, the mortgagor shall not transfer any right or obligation hereof to a third party.

2.	Where the mortgagee, due to business needs, has to entrust other institution of Bank of China Limited to enforce rights and obligations hereof, the mortgagor may acknowledge such act and the authorized institution of Bank of China Limited shall be entitled to execute all rights hereof.

3.	On the condition of not affecting other stipulation hereof, this contract shall be legally binding to both sides, respective heirs and grantees generated according to the law.

4.	Unless otherwise stipulated, both parties may take the domiciles mentioned hereof for mailing and contact and shall inform of the other party in written form where the changes to mailing and contact addresses happen.

5.	The headlines and names of services indicated hereof are only for convenient use and may not be used as explanation of clauses or obligations of parties concerned.

 

Article 23  Effectiveness and Establishment of Mortgage Right

This contract takes effect as of the date on which legal representatives, persons-in-charge or their authorized signatories autographed and the official seals affixed. Where mortgage registration is required according to law, it shall come into force until registration formalities have been undergone.

 

The mortgage right is set once this contract becomes effective.

 

This contract has three original copies that are respectively under the custody of both parties and the registration authority and have the same legal effect.

 

Mortgagor:                                                      Mortgagee: Bank of China Limited

 

Authorized Signer: _______________     Authorized Signer:

 

 May 15, 2008                                                  May 15, 2008

 

 

 

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Mortgaged Property	Area	Valuation	Ownership/ Use Right (No. of Document of Title)	Location	Registration Authority
Land	68329.32 sq.m.		Cao Guo Yong 2006 No. 0176	Zhongkou Village, Pulianji Town	Cao County Bureau of Land and Resources
Land	41752.46 sq.m.		Cao Guo Yong 2003 No. 080	Zhongkou Village, Pulianji Town	Cao County Bureau of Land and Resources
Land	98435.32 sq.m.		Cao Guo Yong 2006 No. 189	Zhongkou Village, Pulianji Town	Cao County Bureau of Land and Resources
Land	13150 sq.m.		Cao Guo Yong 2001 No. 0106	Zhongkou Village, Pulianji Town	Cao County Bureau of Land and Resources
Land	39637.04 sq.m.		Cao Guo Yong 2001 No. 0105	Zhongkou Village, Pulianji Town	Cao County Bureau of Land and Resources