CONSORTIUM AGREEMENT [BARING ASIA LETTERHEAD]
[BARING
ASIA LETTERHEAD]
October
10, 2010
Xx.
Xxxxxx Xxxx
No. 9, Ha
Ping Xi Lu
Ha Ping
Lu Xx Xxxxx Qu
Xxxxxx
Xxx Xx Xx
P.R.
China 150060
Dear Xx.
Xxxx:
As you
are aware, Baring Private Equity Asia Group Limited (“Baring”) has been
reviewing and evaluating various investment opportunities concerning Harbin
Electric, Inc. (the “Company”). We
are interested in pursuing with you a possible acquisition of the Company (the
“Transaction”)
through a special purpose vehicle (“Bidco”) to be owned
by an investment fund advised by Baring and related affiliates, and you and your
nominees (collectively, the “Shareholder”). As
a condition to the delivery of a preliminary non-binding proposal letter to the
Company (the “Proposal
Letter”, the form of which is set forth in Exhibit A hereto) and
to further our discussions relating to the Transaction, the Shareholder and
Xxxxxx agree to the following:
1. Certain
Definitions.
“Competing
Transaction” shall mean (i) any direct or indirect acquisition by
any person or entity of 10% or more of the securities of the Company or any of
its material subsidiaries or all or substantially all of its assets, and
(ii) a recapitalization, restructuring, merger, consolidation or other
business combination involving the Company or any of its material
subsidiaries. For the avoidance of doubt, the Competing Transaction
does not include the senior bank debt financing transaction being contemplated
by the Company (the “Bank Debt
Transaction”).
“Exclusivity Period”
shall mean the period from beginning on the date hereof and ending on the first
to occur of: (i) the date six months after the date hereof, (ii) the date of
execution and delivery of definitive documentation providing for the Transaction
(“Definitive
Agreements”) and (iii) the mutually agreed termination of this letter
agreement; provided that if
Definitive Agreements are not entered into prior to the date three months after
the date hereof, the Exclusivity Period shall be terminated, unless with your
written consent.
“Representatives”
shall mean, with respect to a person, such person’s employees, directors,
officers, partners, members, affiliates, agents, advisors (including but not
limited to legal counsel, accountants, consultants and financial advisors), and
any representatives of the foregoing. The Representatives shall
include the Advisors as defined in Section 3(c).
“Shareholder Shares”
shall mean all capital stock of the Company owned by the Shareholder as of the
date hereof either directly or through a holding vehicle.
2. Commitment to the
Consortium.
(a) Within
the Exclusivity Period, Xx. Xxxx shall recuse himself from any discussions,
negotiations or related activities on behalf of the Company and its Board of
Directors (the “Board”) in connection
with any Competing Transaction; provided that, if Xx.
Xxxx determines, consistent with the advice of legal counsel, that he is
obligated (in his capacity as Chief Executive Officer, Chairman or a member of
the Board) to cooperate with the Company (as requested by the Company)
concerning a Competing Transaction in order for him to comply with his fiduciary
duties under applicable law, Xx. Xxxx may provide such cooperation to the extent
required to comply with such fiduciary duties.
(b) Within
the Exclusivity Period and subject to Section 2(a), the Shareholder and Baring
agree to deal exclusively with each other with respect to the Transaction and
neither the Shareholder nor Baring will, and will cause Bidco and their
respective Representatives not to, without the written consent of the other or
otherwise in the context of pursuing the Transaction: (i) directly or
indirectly initiate, solicit, encourage or otherwise engage in discussions or
negotiations with the Company or any third party with respect to a Competing
Transaction, (ii) provide any information to any third party with a view to the
third party or any other person pursuing or considering to pursue a Competing
Transaction, or (iii) enter into any written or oral agreement, arrangement or
understanding (whether legally binding or not) regarding, or do or omit to do,
anything which is directly inconsistent with the Transaction as contemplated
under this letter agreement.
(c) The
Shareholder agrees that, within the Exclusivity Period, it will not, and will
not permit any of its Representatives to, directly or indirectly: (i) sell,
offer to sell, give, pledge, encumber, assign, grant any option for the sale of
or otherwise transfer or dispose of, or enter into any agreement, arrangement or
understanding to sell, any Shareholder Shares (“Transfer”), or enter
into any contract, option or other arrangement or understanding with respect to
a Transfer or limitation on voting rights of the Shareholder Shares, or any
right, title or interest thereto or therein, (ii) deposit any Shareholder
Shares into a voting trust or grant any proxies or enter into a voting
agreement, power of attorney or voting trust with respect to any Shareholder
Shares, (iii) take any action that would make have the effect of
preventing, disabling or delaying the Shareholder from performing its
obligations under this letter agreement or (iv) agree (whether or not in
writing) to take any of the actions referred to in the foregoing clauses (i),
(ii) or (iii) of this Section 2(c), except in order to comply with the
Shareholder’s contractual obligation relating to the Bank Debt Transaction, if
any.
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(d) Subject
to Section 2(a), the Shareholder will, and will cause its Representatives to,
immediately cease and terminate any existing activities, discussions and
negotiations in connection with any Competing Transaction other than with Baring
or its affiliates. During the Exclusivity Period, the Shareholder
shall provide Baring notice of any unsolicited offer or proposal received in
relation to any Competing Transaction, including the terms of any such offer or
proposal, and any written communications with respect thereto.
(e) Xx.
Xxxx shall, and shall cause the Shareholder to, vote all of the Shareholder
Shares against any Competing Transaction not involving Baring or its affiliates
within 6 months after the date hereof, unless (i) Xx. Xxxx is advised by Nevada
counsel reasonably acceptable to Baring (details of which advice are provided to
Baring), advising him that he is prohibited by Nevada law from voting against
the Competing Transaction, or (ii) the Board or the independent Directors has
notified Xx. Xxxx in writing prohibiting him from voting in relation to the
Competing Transaction.
3. Process.
(a) Upon
signing of this letter agreement, Xxxxxx and Xx. Xxxx will promptly deliver the
Proposal Letter to the Board of Directors of the Company. The
Shareholder intend to prepare and submit a joint filing with the U.S. Securities
and Exchange Commission to amend its existing Schedule 13D and to disclose the
execution of this letter agreement and the delivery of the Proposal
Letter.
(b) Within
the Exclusivity Period and as permitted by the Board of Directors of the
Company, Baring and the Shareholder shall as promptly as reasonably practicable
conduct a joint assessment of the Company and shall in good faith and with
mutual cooperation use their reasonable best efforts to work together to
structure, negotiate and do all things necessary or desirable, subject to
Company approval, to enter into the Definitive Agreements within three months
after the date hereof. This letter does not constitute any binding commitment
with respect to a Transaction. Such a commitment will result only
from the execution of Definitive Agreements, and then will be on the terms
provided in such documentation. Xxxxxx shall coordinate with the
Shareholder in performing due diligence, securing senior and mezzanine debt (as
applicable) and equity financing, and structuring and negotiating the
Transaction; provided, however, that in no
event will either party hereto be obligated without such party’s consent to
enter into or otherwise be a party to any Definitive Agreements. This
letter constitutes only a preliminary arrangement relating to a Transaction, and
does not constitute any binding commitment with respect to a
Transaction.
(c) Xxxxxxx
Xxxxx (Asia) LLC (“GS”) is acting as
financial and placement advisor to the consortium in connection with the
Transaction. All other advisors to the consortium (collectively with
GS, the “Advisors”) shall be
jointly selected by Xxxxxx and the Shareholder.
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4. Confidentiality. Each
of the Shareholder and Baring shall, and shall direct its Representatives to,
keep this letter agreement and the Transaction confidential and shall not make
any public statement or announcement concerning or disclose to any third party
the fact that discussions or negotiations are taking place concerning the
Transaction or any of the terms, conditions or other facts with respect thereto,
including the status thereof, other than as mutually agreed in writing by the
Shareholder and Baring or as required by applicable laws, rules or
regulations. Each of Baring and the Shareholder will coordinate in
good faith all press releases and other public relation matters relating to the
Transaction.
5. Shareholders
Agreement. The Shareholder and a special purpose subsidiary of
an investment fund advised by Baring shall, and shall cause Bidco to, enter into
a shareholders agreement (the “Shareholders
Agreement”) at or prior to the completion of the Transaction, on terms
and conditions mutually agreed by Xxxxxx and the Shareholder.
6. Certain Fees and
Expenses.
(a) If
the Transaction is not eventually consummated without any breach by either
Baring or the Shareholder of this letter agreement, the parties agree to share
(in proportion to their respective equity participation in the Transaction) fees
and out-of-pocket expenses payable by them in connection with the Transaction
incurred prior to the termination of this letter agreement, including any fees
and expenses (i) payable to the Advisors, (ii) payable to any lenders and
other financing sources, and (iii) incurred in the defense, pursuit or
settlement of any disputes or litigation relating to the Transaction (whether
incurred prior to the termination of this letter agreement or not); provided that, Baring
shall be solely responsible for the fees and expenses of Bain, Deloitte and
Weil, Gotshal & Xxxxxx, LLP and the Shareholder shall be solely responsible
for the fees and expenses of Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP; provided further that each
party shall bear its own fees and expenses incurred prior to October 10,
2010.
(b) Upon
consummation of the Transaction, Bidco shall reimburse each party hereto for all
fees and out-of-pocket expenses incurred by them in connection with the
Transaction. Notwithstanding the foregoing, in the event this letter
agreement is terminated and one of the parties consummates the Transaction
within twelve months of such termination, such party shall reimburse the other
party for the fees and out-of-pocket expenses incurred by such other party in
connection with the Transaction within two business days of the consummation of
the Transaction.
(c) Each
of the Shareholder and Baring shall share, ratably based on such party’s planned
equity participation in the Transaction, any termination, topping, break-up or
other fees or amounts (including amounts paid in settlement of any dispute or
litigation relating to the Transaction) payable by the Company or Bidco (or one
or more of its affiliates or designees), net of the expenses required to be
borne by them pursuant to Section 6(a).
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7. Remedies. It
is understood and agreed that money damages may not be a sufficient remedy for a
breach of this letter agreement by any party hereto and that each party hereto
shall be entitled to seek equitable relief, including injunction and specific
performance, as a remedy for any such breach by the other party. Such
remedies shall not be deemed to be the exclusive remedies for a breach by a
party of this letter agreement but shall be in addition to all other remedies
available at law or equity to the other party hereto. Each of the
parties hereto further agrees not to raise as a defense or objection to the
request or granting of such relief that any breach of this letter agreement is
or would be compensable by an award of money damages, and each party hereto
agrees to waive any requirements for the securing or posting of any bond in
connection with such remedy.
8. Governing Law;
Arbitration. This letter agreement and all matters arising out
of or relating to this letter agreement shall be governed by and construed in
accordance with the laws of Hong Kong, without reference to conflict of laws
principles. Any dispute, controversy or claim arising out of or
relating to this letter agreement, including the validity, invalidity, breach or
termination thereof, shall be settled by arbitration in Hong Kong under the Hong
Kong International Arbitration Centre Administered Arbitration Rules (the “Rules”) in force when
the notice of arbitration is submitted in accordance with these
Rules. There shall be three arbitrators. The arbitration proceedings
shall be conducted in English.
9. No
Modification. No provision in this letter agreement can be
waived, modified or amended except by written consent of the parties, which
consent shall specifically refer to the provision to be waived, modified or
amended and shall explicitly make such waiver, modification or
amendment.
10. No Waiver of
Rights. It is understood and agreed that no failure or delay
by any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
11. Counterparts; Entire
Agreement. This letter agreement may be signed and delivered
by facsimile or portable document format via electronic mail and in one or more
counterparts, each of which shall be deemed an original but all of which shall
be deemed to constitute a single instrument. This Agreement sets
forth the entire agreement and understanding among the parties and supersedes
all prior agreements, discussions and documents relating thereto. No
party hereto will be entitled to punitive, exemplary, special, unforeseen,
incidental, indirect or other consequential damages.
12. Severability. If
any provision of this letter agreement is found to violate any statute,
regulation, rule, order or decree of any governmental authority, court, agency
or exchange, such invalidity shall not be deemed to affect any other provision
hereof or the validity of the remainder of this letter agreement, and such
invalid provision shall be deemed deleted herefrom to the minimum extent
necessary to cure such violation.
14. Successors. This
letter agreement shall inure to the benefit of, and be binding upon, the parties
and their respective successors and assigns. Neither party may assign
or transfer, directly or indirectly, its rights or obligations under this letter
agreement without the prior written consent of the other except as provided
herein. No assignment will receive the assignor of its obligations
hereunder.
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15. No Third Party
Beneficiaries. Unless otherwise specifically provided herein,
the parties hereto each agree and acknowledge that nothing herein expressed or
implied is intended to confer upon or give any rights or remedies to person not
party to this agreement under or by reason of this letter
agreement.
16. Term. This
letter agreement shall terminate on the earlier of (i) the first anniversary of
the date hereof and (ii) the execution and delivery of the Definitive
Agreements; provided that
Sections 2(e) and 6 through 15 shall survive any termination of this letter
agreement.
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Please
confirm your agreement with the foregoing by having a duly authorized officer of
your organization sign and return one copy of this letter to the undersigned,
whereupon this letter agreement shall become a binding agreement among Xx. Xxxx
and Xxxxxx.
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Very
truly yours,
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BARING
PRIVATE EQUITY ASIA GROUP LIMITED
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By:
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Name:
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Title:
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CONFIRMED
AND AGREED
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as
of the date written above:
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By:
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Xxxxxx
Xxxx
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Signature
Page to Consortium Agreement
Exhibit
A
Proposal
Letter
8
