Exhibit10.1 LOANAGREEMENT dated July28, 2010 between HARBINELECTRIC, INC., aNevada corporation asBorrower, and ABAXEMERALD LTD., asLender TABLEOF CONTENTS

 

“Consolidated Fixed Charges” means, for any period, the total interest expense of the Borrower and its consolidated Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent Incurred by the Borrower or its consolidated Subsidiaries,

 

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

 

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

 

(c) capitalized interest,

 

(d) non-cash interest expense,

 

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

 

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

 

(g) Disqualified Stock Dividends,

 

(h) Preferred Stock Dividends,

 

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

 

(j) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Borrower or any of its consolidated Subsidiaries, and

 

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

 

“Consolidated Indebtedness” means the outstanding Indebtedness of the Borrower and its Subsidiaries on a consolidated basis.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(e) any extraordinary gain or loss,

 

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

 

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

 

“Consolidated Net Tangible Assets” means, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of the Borrower and its consolidated Subsidiaries as the total assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) of the Borrower and its Subsidiaries, after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of (without duplication):

 

(a) the excess of cost over fair market value of assets or businesses acquired;

 

(b) any revaluation or other write-up in book value of assets subsequent to the last day of the fiscal quarter of the Borrower immediately preceding the Closing Date as a result of a change in the method of valuation in accordance with GAAP;

 

(c) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items;

 

(d) minority interests in consolidated Subsidiaries held by Persons other than the Borrower or any Wholly Owned Subsidiary;

 

(e) treasury stock; and

 

(f) cash or securities set aside and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities.

 

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

 

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

“Debtor Relief Laws” means the Bankruptcy Code, if applicable, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

 

“Default Interest” has the meaning specified in Section 2.9.

 

“Default Rate” means, at any time, an interest rate equal to 5% per annum, to the fullest extent permitted by applicable Laws.

 

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

 

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

 

(b) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part, or

 

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

 

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

 

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

 

“Dollar” and “$” mean lawful money of the United States.

 

“EBITDA” means, for any period, an amount equal to, for the Borrower and its consolidated Subsidiaries:

 

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

 

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

 

(2) Consolidated Fixed Charges,

 

(3) depreciation,

 

(4) amortization of intangibles, and

 

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

 

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

 

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

 

“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is or has been maintained or contributed to by the Borrower.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto, and any regulations and interpretations promulgated thereunder.

 

“Event of Default” has the meaning specified in Section 7.1.

 

“Exchange Act” means the Securities Exchange Act of 1934 of the United States, and the rules and regulations promulgated thereunder, as in effect from time to time.

 

“Excluded Taxes” has the meaning specified in Section 2.8.

 

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

 

(a) if such Property has a Fair Market Value equal to or less than $10.0 million, by any Officer of the Borrower, or

 

(b) if such Property has a Fair Market Value in excess of $10.0 million, by a majority of the Borrower’s Board of Directors and evidenced by a board resolution dated within 30 days of the relevant transaction, delivered to the Lender.

 

“GAAP” means generally accepted accounting principles as in effect in the United States and set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination.

 

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

 

“Guarantee” means, as to any Person, (i) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness, Contractual Obligations or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (A) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness, Contractual Obligations or other obligation, (B) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness, Contractual Obligations or other obligation of the payment or performance of such Indebtedness, Contractual Obligations or other obligation, (C) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness, Contractual Obligations or other obligation, or (D) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness, Contractual Obligations or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (ii) any Lien on any assets of such Person securing any Indebtedness, Contractual Obligations or other obligation of any other Person, whether or not such Indebtedness, Contractual Obligations or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

 

“Hedging Obligation” of any Person means any obligation of such Person pursuant to any agreement intended to protect or benefit a party thereto from changes in interest rates, foreign currency exchange rates, prices of commodities, stock indices, or any other similar agreement or arrangement.

 

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

 

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (i) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (ii) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and personal mortgages), (iv) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse, (v) capital leases, (vi) all commitments of such Person to make an Investment in another Person, (vii) all obligations of such Person to post margin or collateral (however characterized) under any prime brokerage, securities account, options or similar agreements, and (viii) all Guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.

 

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (i) the purchase or other acquisition of capital stock or other securities of, or beneficial interest in, another Person, (ii) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person, or (iii) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit.

 

“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

 

“Lender” shall have the meaning ascribed to such term in the introductory paragraph hereof.

 

“Leverage Ratio” means the ratio of:

 

(a) the outstanding Consolidated Indebtedness of the Borrower and its Subsidiaries, to

 

(b) the LTM Pro Forma EBITDA.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, debenture or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any holdback or flawed asset arrangement, conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

 

“Loan” has the meaning specified in Section 2.1.

 

“LTM Pro Forma EBITDA” means Pro Forma EBITDA for the four most recent consecutive fiscal quarters ending at least 45 days prior to the date of determination for which financial statements are available, where “Pro Forma EBITDA” means, for any period, the EBITDA of the Borrower and its consolidated Subsidiaries, after giving effect to the following:

 

if:

 

(a) since the beginning of such period, the Borrower or any of its Subsidiaries shall have made any Asset Sale or an Investment (by merger or otherwise) in any Subsidiary (or any Person that becomes a Subsidiary of the Borrower) or an acquisition of Property, or

 

(b) since the beginning of such period any Person (that subsequently became a Subsidiary of the Borrower or was merged with or into the Borrower or any of its Subsidiaries since the beginning of such period) shall have made such an Asset Sale, Investment or acquisition,

 

EBITDA for such period shall be calculated after giving pro forma effect to such Asset Sale, Investment or acquisition as if such Asset Sale, Investment or acquisition occurred on the first day of such period.

 

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the business, properties, assets, liabilities (actual or contingent), or financial condition of the Borrower and its Subsidiaries on a consolidated basis; or (b) a material impairment of the ability of the Borrower to perform the Borrower’s obligations under any Transaction Document to which the Borrower is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Transaction Document to which the Borrower is a party.

 

“Maturity Date” means January 28, 2011, or if such day is not a Business Day, the next preceding Business Day.

 

“Maximum Rate” shall have the meaning set forth in Section 2.12.

 

“Note” has the meaning specified in Section 2.5.

 

“Obligations” means all debts, liabilities, obligations, covenants and duties of the Borrower arising under any Transaction Document, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including the Post-Petition Interest and Accreted Value of all Advances not theretofore paid.

 

“Organizational Documents” means, (i) with respect to any corporation or company, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (ii) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (iii) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

“Other Currency” shall have the meaning set forth in Section 8.17.

 

“Payee” shall have the meaning set forth in Section 8.17.

 

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

 

“Permitted Liens” means the following types of Liens:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(viii)      Liens existing on the Closing Date not otherwise described in clauses (i) through (vii) above;

 

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

 

(1) the outstanding principal amount, or, if greater, the committed amount, of the Indebtedness (and other obligations thereunder) secured by Liens described under clause (iv), (v) or (viii) above, as the case may be, at the time the original Lien became a Permitted Lien under this Agreement, and

 

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

 

 

(x)          any attachment or judgment Lien not constituting an Event of Default under Section 7.1(i); and

 

(xi)         Liens not otherwise permitted by clauses (i) through (x) above encumbering Property having an aggregate Fair Market Value not in excess of 20.0% of Consolidated Net Tangible Assets, as determined based on the consolidated balance sheet of the Borrower as of the end of the most recent fiscal quarter ending at least 45 days prior to the date any such Lien shall be Incurred.

 

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

“Post-Petition Interest” means any interest that accrues after the commencement of any case, proceeding or other action under a Debtor Relief Law, whether or not such interest is allowed or allowable as a claim in any such proceeding.

 

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

 

“Preferred Stock Dividends” means all dividends with respect to Preferred Stock of the Borrower’s Subsidiaries held by Persons other than the Borrower or a Wholly Owned Subsidiary.

 

“Principal Amount at Maturity” has the meaning specified in Section 2.4.

 

“Process Agent” means Christy Shue, located at 20 Ramblewood Road, Shoreham, New York 11786.

 

“Property” means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any other Person.

 

“Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund or Repay, or to issue other Indebtedness, in exchange or replacement for, such Indebtedness.  “Refinanced” and “Refinancing” shall have correlative meanings.

 

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

 

“Repay” means, in respect of any Indebtedness, to repay, prepay, repurchase, redeem, legally defease or otherwise retire such Indebtedness.  “Repayment” and “Repaid” shall have correlative meanings.  For purposes of the definition of “Consolidated Fixed Charge Coverage Ratio,” Indebtedness shall be considered to have been Repaid only to the extent the related loan commitment, if any, shall have been permanently reduced in connection therewith.

 

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

 

“SEC Reports” has the meaning specified in Section 4.5.

 

“Securities Act” means the Securities Act of 1933 of the United States, and the rules and regulations promulgated thereunder, as in effect from time to time.

 

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

 

“Subsidiaries” means, with respect to any Person, any other Person with respect to which the first Person, directly or indirectly, owns or controls 50% or more of the securities of the second Person having the power to elect members of the Board of Directors or similar body governing the affairs of such entity.

 

“Surviving Person” means the surviving Person formed by a merger, consolidation or amalgamation or a Person to whom all or substantially all of the Property of the Borrower is sold, transferred, assigned, leased, conveyed or otherwise disposed.

 

“Taxes” has the meaning specified in Section 2.8.

 

“Trading Day” means any day when the Trading Market on which the Common Stock is then listed is open for trading.

 

“Trading Market” means any of the Nasdaq Capital Market, the Nasdaq Global Market and the Nasdaq Global Select Market.

 

“Transaction Documents” means this Agreement, the Exhibits hereto and each other agreement, if any, executed pursuant to or in connection with the foregoing (as the same may be varied, extended, supplemented, consolidated, amended, replaced, renewed, modified, increased or restated).

 

“UCC” means the Uniform Commercial Code as in effect in the State of Nevada, United States of America.

 

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

 

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

 

[Remainder of page left intentionally blank]

 

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

 

 

 

 

 

 

 

Wire instructions are as follows:

 

 

___________________________

___________________________

___________________________

___________________________

[SIGNATURE PAGE TO LOAN AGREEMENT]

 

 

 

From:   HARBIN ELECTRIC, INC.

 

To:       ABAX EMERALD LTD.

 

Dated: July 28, 2010

 

Dear Sirs

 

 

1.	We refer to the Loan Agreement. This is a Borrowing Notice. Terms defined in the Loan Agreement have the same meaning in this Borrowing Notice unless given a different meaning in this Borrowing Notice.

 

2.	We wish to borrow an Advance on the following terms:

 

Proposed Borrowing Date:

[                   ] (or, if that is not a Business Day, the next Business Day)

 

Amount:

$[                   ] or, if less, the Available Commitment

 

3.	The Borrower hereby represents and warrants that the conditions specified in Section 3 of the Loan Agreement shall be satisfied on and as of the date hereof.

 

4.	The proceeds of this Advance should be credited to:-

 

Account Name:

 

Account Number:

 

Account Type:

 

Bank Name:

 

ABA Number:

 

Routing Number:

 

SWIFT Code:

 

5.	This Borrowing Notice is irrevocable.

 

Yours faithfully

 

 

 

 

 

From:   HARBIN ELECTRIC, INC.

 

To:       ABAX EMERALD LTD.

 

Dated:  [                   ]

 

Dear Sirs

 

 

6.	We refer to the Loan Agreement. This is an Optional Prepayment Notice. Terms defined in the Loan Agreement have the same meaning in this Optional Prepayment Notice unless given a different meaning in this Optional Prepayment Notice.

 

7.	We wish to optionally prepay one or more Advances on the following terms, each being separately identified below:

 

 

 

 

c. Amount of Advance to be Optionally Prepaid: $[                   ]

 

d. Amount of Advance to Remain Outstanding: $[                   ]

 

8.	This Optional Prepayment Notice is irrevocable.

 

Yours faithfully

 

 

 

 

 

 

 

FOR VALUE RECEIVED, the undersigned Harbin Electric, Inc., a Nevada corporation, hereby promises to pay to Abax Emerald Ltd. (the “Lender”) or order, in accordance with the terms of that certain Loan Agreement dated as of July 28, 2010 (the “Loan Agreement”), as from time to time in effect, between the undersigned and the Lender, to the extent not sooner paid, on or before the Maturity Date, the original principal sum of [SPELL OUT NUMBER] UNITED STATES DOLLARS ($[●],000,000), or such amount as may be advanced by the payee hereof under the Loan Agreement with daily Accreted Value from the date hereof, computed as provided in the Loan Agreement, on the principal amount of the Loan from time to time unpaid, at a rate per annum on each portion of the principal amount which shall at all times be equal to the rate of accretion applicable to such portion in accordance with the Loan Agreement, and with Default Interest on overdue principal and, to the extent permitted by applicable law, on overdue installments of Accreted Value and late charges at the rates provided in the Loan Agreement. Accreted Value shall be payable on the dates specified in the Loan Agreement, except that Accreted Value of all of the Advances up to the Maturity Date shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof pursuant to certain events constituting a Change of Control. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement.

 

Payments hereunder shall be made to the Lender pursuant to Section 2.7 of the Loan Agreement.

 

This Note is one of one or more Notes evidencing borrowings under and is entitled to the benefits and subject to the provisions of the Loan Agreement. The Accreted Value of this Note may be due and payable in whole or in part prior to the maturity date stated above and is subject to mandatory prepayment in the amounts and under the circumstances set forth in the Loan Agreement, and may be prepaid in whole or from time to time in part, all as set forth in the Loan Agreement.

 

Notwithstanding anything in this Note to the contrary, all agreements between the Borrower and the Lender, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of acceleration of the maturity of any of the Obligations or otherwise, shall any interest deemed to have been contracted for, charged or received by the Lender exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, Default Interest or Accreted Value would otherwise be payable to the Lender in excess of the maximum lawful amount, the Default Interest or Accreted Value payable to the Lender shall be reduced to the maximum amount permitted under applicable law; and if from any circumstance the Lender shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal balance of the Obligations and if such excessive interest exceeds the unpaid balance of principal of the Obligations, such excess shall be refunded to the Borrower. All interest paid or agreed (or deemed to have been paid or agreed) to be paid to the Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal of the Obligations (including the period of any renewal or extension thereof) so that the interest deemed to have been paid thereon for such full period shall not exceed the maximum amount permitted by applicable law. This paragraph shall control all agreements between the Borrower and the Lender in respect to the Loan.

 

In case an Event of Default shall occur, the entire Accreted Value of this Note up to the Maturity Date may become or be declared due and payable in the manner and with the effect provided in said Loan Agreement. In addition to and not in limitation of the foregoing and the provisions of the Loan Agreement hereinabove defined, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including reasonable attorneys’ fees and legal expenses, incurred by the holder of this Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise.

 

This Note shall be governed by and construed in accordance with the laws of the State of New York pursuant to Section 5-1401 of the New York General Obligations Law (without giving effect to the conflict of laws rules of any jurisdiction).

 

The undersigned maker and all guarantors and endorsers, hereby waive presentment, demand, notice, protest, notice of intention to accelerate the indebtedness evidenced hereby, notice of acceleration of the indebtedness evidenced hereby and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Loan Agreement, and assent to extensions of time of payment or forbearance or other indulgence without notice.

 

[SIGNATURE ON NEXT PAGE]

 

IN WITNESS WHEREOF the undersigned has caused this Note to be duly executed and delivered as of the day and year first above written.

 

 

 

 

 

From:   HARBIN ELECTRIC, INC.

 

To:       ABAX EMERALD LTD.

 

Dated: July 28, 2010

 

Dear Sirs

 

 

1.	We refer to the Loan Agreement. This is an Officers’ Certificate required by Section 3(i) of the Loan Agreement. Terms defined in the Loan Agreement have the same meaning in this Officers’ Certificate unless given a different meaning in this Officers’ Certificate.

 

2.

We hereby certify that the representations and warranties in Section 4 of the Loan Agreement are true, correct and complete in all material respects on and as of the relevant Borrowing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Borrower has performed in all material respects all agreements and satisfied all conditions which the Loan Agreement provides shall be performed or satisfied by it on or before the Borrowing Date specified herein except as otherwise disclosed to and agreed to in writing by Lender.

 

Yours faithfully,