-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SiKJeNb/CcgFPwBER8lR0305hts52IHOS52phKz4daG0ta/bSwEv97Zn6UUaTPjr EpwXq8Y65zH2hiyZG4vJ3Q== 0001144204-10-053161.txt : 20101012 0001144204-10-053161.hdr.sgml : 20101011 20101012061947 ACCESSION NUMBER: 0001144204-10-053161 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20101012 DATE AS OF CHANGE: 20101012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Yang Tianfu CENTRAL INDEX KEY: 0001315890 FILING VALUES: FORM TYPE: SC 13D/A MAIL ADDRESS: STREET 1: NO.9 HA PING XI LU HA PING LU JI ZHONG STREET 2: HARBIN KAI FA QU CITY: HARBIN STATE: F4 ZIP: 150001 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: Harbin Electric, Inc CENTRAL INDEX KEY: 0001266719 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 980403396 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-80112 FILM NUMBER: 101117246 BUSINESS ADDRESS: STREET 1: NO. 9, HA PING XI LU STREET 2: HA PING LU JI ZHONG QU HARBIN KAI FA QU CITY: HARBIN STATE: F4 ZIP: 150001 BUSINESS PHONE: 86 45182621768 MAIL ADDRESS: STREET 1: NO. 9, HA PING XI LU STREET 2: HA PING LU JI ZHONG QU HARBIN KAI FA QU CITY: HARBIN STATE: F4 ZIP: 150001 FORMER COMPANY: FORMER CONFORMED NAME: TORCH EXECUTIVE SERVICES LTD DATE OF NAME CHANGE: 20031009 SC 13D/A 1 v198756_sc13da.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D/A

Under the Securities Exchange Act of 1934

(Amendment No. 3)*

Harbin Electric, Inc.

(Name of Company)

Common Stock, par value $.00001

(Title of Class of Securities)

41145W 10 9

(CUSIP Number)

Tianfu Yang

Hero Wave Investments Limited

Xi Yuan 17-5, Wan Cheng Hua Fu,

Wan Liu Xi Lu, Hai Dian Qu,

Beijing, China 100089

(86) 45186116757

With copies to:

Michael V. Gisser

Peter X. Huang

Skadden, Arps, Slate, Meagher & Flom LLP

30th Floor, China World Office 2

No. 1, Jianguomenwai Avenue

Beijing 100004

China

(8610) 6535-5599

(Name, Address and Telephone Number of Person Authorized to

Receive Notices and Communications)

October 10, 2010

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ¨

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

*	The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

NOTE: Mr. Yang, Loeb & Loeb to verify

CUSIP No.

41145W 10 9

1.	NAME OF REPORTING PERSON: Tianfu Yang I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): N/A
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x
3.	SEC USE ONLY
4.	SOURCE OF FUNDS OO
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): ¨
6.	CITIZENSHIP OR PLACE OF ORGANIZATION People's Republic of China
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER 7,030,000
		8.	SHARED VOTING POWER 2,633,354
		9.	SOLE DISPOSITIVE POWER 7,030,000
		10.	SHARED DISPOSITIVE POWER 2,633,354
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 9,663,354
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 31.11%
14.	TYPE OF REPORTING PERSON IN

NOTE: Mr. Yang, Loeb & Loeb to verify

CUSIP No.

41145W 10 9

1.	NAME OF REPORTING PERSON: Hero Wave Investments Limited I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): N/A (1)
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x
3.	SEC USE ONLY
4.	SOURCE OF FUNDS OO
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): ¨
6.	CITIZENSHIP OR PLACE OF ORGANIZATION The People's Republic of China
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER N/A
		8.	SHARED VOTING POWER 2,633,354
		9.	SOLE DISPOSITIVE POWER N/A
		10.	SHARED DISPOSITIVE POWER 2,633,354
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,633,354
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.48%
14.	TYPE OF REPORTING PERSON CO

Footnotes:

(1) Hero Wave Investments Limited is incorporated in the British Virgin Islands and does not have an I.R.S. Identification Number.

Introductory Note

This Amendment No. 3 (this “Amendment No. 3”) is filed with respect to the company, Harbin Electric, Inc. (the “Company”), by Tianfu Yang (“Mr. Yang”) and Hero Wave Investments Limited (“Hero”, and together with Mr. Yang, the “Reporting Persons”). This Amendment No. 3 amends and supplements the schedule, as amended and supplemented to date, with respect to the Company filed by the Reporting Persons with the Securities and Exchange Commission on Schedule 13D (as amended and supplemented, the “Schedule 13D”). Except as provided herein, this Schedule 13D does not modify any of the information previously reported on the Schedule 13D.

The Reporting Persons are participants in the proposal discussed in Item 4 below, and may be deemed to constitute a “group” within the meaning of Section 13(d)−5(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a member of a group, each Reporting Person may be deemed to beneficially own any Common Stock, par value $0.00001 per share, of the Company (“Common Stock”) that may be beneficially owned by the members of the group as a whole. This Schedule 13D may be amended, or one or more additional statements on Schedule 13D may be filed, as necessary and appropriate.

Item 1.

Security and Company

This statement relates to shares of the common stock, par value $.00001 per share, of Harbin Electric, Inc., a Nevada corporation (the "Company"). The Company has its principal executive office at No. 9, Ha Ping Xi Lu, Ha Ping Lu Ji Zhong Qu, Harbin Kai Fa Qu, Harbin, Postal Code: 150060, China.

Item 2.

Identity and Background

(a) This Amendment No. 3 to Schedule 13D is filed by Tianfu Yang (“Mr. Yang”) and Hero Wave Investments Limited (“Hero”).

(b) Each of the Reporting Persons’ residence or business address is as follows:

Mr. Yang’s business address is Xi Yuan 17-5, Wan Cheng Hua Fu, Wan Liu Xi Lu, Hai Dian Qu, Beijing, China 100089.

Hero’s business address is Xi Yuan 17-5, Wan Cheng Hua Fu, Wan Liu Xi Lu, Hai Dian Qu, Beijing, China 100089.

(c) Mr. Yang is a citizen of the People's Republic of China. Mr. Yang is the Chairman and Chief Executive Officer of the Company. Mr. Yang maintains an office at Xi Yuan 17-5, Wan Cheng Hua Fu, Wan Liu Xi Lu, Hai Dian Qu, Beijing, China 100089.

Hero is a holding company organized in the British Virgin Islands. Its sole business is making equity investments in operating companies. Its principal business address is Xi Yuan 17-5, Wan Cheng Hua Fu, Wan Liu Xi Lu, Hai Dian Qu, Beijing, China 100089.

(d) During the past five years, neither Hero nor any officer, director or control person of Hero has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

During the past five years, Mr. Yang has not been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

(e) During the past five years, Mr. Yang has not been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, pursuant to which such person, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

During the past five years, neither Hero nor has any officer, director or control person of Hero been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, pursuant to which such person, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

(f) Mr. Yang is a citizen of the People’s Republic of China. Hero is incorporated under the laws of the British Virgin Islands.

Information with respect to each of the Reporting Persons is given solely by such Reporting Person and no Reporting Person has responsibility for the accuracy or completeness of information supplied by another Reporting Person.

Item 3.

Source and Amount of Funds or Other Consideration

Mr. Yang is the beneficial owner of an aggregate of 9,663,354 shares of Common Stock, representing approximately 31.11% of the total issued and outstanding shares of Common Stock. This number includes the 2,633,354 shares of Common Stock, representing approximately 8.48% of the total issued and outstanding shares of Common Stock, beneficially owned by Hero.

The shares of Common Stock that Mr. Yang and Hero beneficially own were acquired (i) in connection with the reverse merger of Tech Full International, Inc. with and into a subsidiary of Torch Executive Services, Ltd (the predecessor of the Company), (ii) through a grant of stock options pursuant to the Company’s 2005 Stock Option Plan, (iii) pursuant to the transfer of certain shares from a former employee of the Company, and (iv) in connection with the Company's acquisition of Harbin Taifu Auto Electric Co., Ltd.

The Acquirer (as defined below) intends to finance the proposed acquisition described in Item 4 of this Schedule through equity from the Reporting Persons and Baring as well as debt financing in amounts sufficient to finance the proposed consideration in the Acquisition (as defined below).

Item 4.

Purpose of Transaction

Mr. Yang acquired all of the shares of Common Stock owned by him for investment purposes, and to ensure that his interests are aligned with the Company’s. He intends to remain the largest holder of the Common Stock over the long term, whether or not the possible acquisition discussed below in this Item 4 is successful.

On October 10, 2010, Mr. Yang and Baring Private Equity Asia Group Limited (“Baring”) signed a consortium agreement (the "Consortium Agreement") providing that they would work with each other on an exclusive basis to negotiate and consummate the acquisition of all of the outstanding Common Stock in a going-private transaction (the "Acquisition"). The period of exclusivity under the Consortium Agreement currently in effect will end on the first to occur of: (i) April 10, 2011, (ii) the date of the definitive documentation providing for an Acquisition (“Definitive Documentation”) and (iii) the consensual termination of the Consortium Agreement, provided that if Definitive Documentation is not signed before January 10, the exclusivity will terminate unless Mr. Yang consents. Pursuant to the Consortium Agreement, for a period of 6 months from the execution of such agreement, Mr. Yang agrees to vote his beneficially owned shares against a Competing Transaction (as defined in the Commission Agreement attached as Exhibit 7.03) not involving Baring, unless advised by Nevada counsel that such action would be contrary to law or Mr. Yang is prohibited from voting in the Competing Transaction by the independent directors of the Board. The Consortium Agreement also provides that upon consummation of an Acquisition all fees and expenses incurred by Mr. Yang and Baring will be reimbursed by the Acquirer. If there is no successful Acquisition, as a general matter Mr. Yang and Baring will each bear their own costs and fees associated with pursuing the Acquisition. The references to the Consortium Agreement in this Schedule 13D are qualified in its entirety by reference to the Consortium Agreement itself, which is attached hereto as an Exhibit and incorporated by reference as if set forth in its entirety.

Later on October 10, 2010, Mr. Yang and Baring submitted to the Company’s Board of Directors (the “Board”) a preliminary, non-binding letter (the "Proposal Letter") proposing an Acquisition at a purchase price of $24 per share of Common Stock. The Proposal Letter contemplates that the Reporting Persons and an investment fund advised by Baring will form an acquisition vehicle (the “Acquirer”) for the purpose of pursuing the Acquisition through a merger, and that the Acquirer intends to finance the acquisition with a combination of debt and equity capital. The Proposal Letter contemplates that the equity portion of the financing will be provided by Mr. Yang, the Baring investment fund and related sources. The references to the Proposal Letter in this Schedule 13D are qualified in their entirety by reference to the Proposal Letter itself, which is attached hereto as an Exhibit and incorporated by reference as if set forth in its entirety. If the Acquisition is consummated, the Common Stock will no longer be traded on the Nasdaq Global Select Market and the registration of the Common Stock under Section 12 of the Exchange Act will be terminated.

Goldman Sachs (Asia) LLC ("Goldman Sachs") is acting as the Acquirer's financial advisor, and commitments for the debt financing for the Acquisition are expected to be in place when the Definitive Documentation is signed. Goldman Sachs has issued a letter dated October 10, 2010 (the “Goldman Sachs Letter”) stating its preliminary indication of interest to potentially provide debt financing as specified in the Letter to finance the Acquisition, to refinance the Company’s existing debt and to fund capital expenditure requirements of the Company. In the Goldman Sachs Letter, Goldman Sachs states that it is highly confident that the debt financing for the Acquisition can be arranged and underwritten in the market. This statement has significant assumptions and conditions set forth in the Goldman Sachs Letter. The references to the Goldman Sachs Letter in this Schedule 13D are qualified in their entirety by reference to the Goldman Sachs Letter itself, which is attached hereto as an Exhibit and incorporated by reference as if set forth in its entirety.

No assurances can be given that any agreement with the Company relating to the proposed Acquisition will be entered into or be consummated. The Proposal Letter provides that no binding obligation on the part of the Company or the Acquirer shall arise with respect to the proposed Acquisition unless and until Definitive Documentation has been executed and delivered.

Except as described above and elsewhere herein, the Reporting Persons do not have any present plan or proposal which relates to, or could result in the occurrence of, any of the events referred to in subparagraphs (a) through (j) of Item 4 of Schedule 13D (although they reserve the right to develop such plans).

The information set forth in this Item 4 shall be deemed to amend and restate Item 4 of the Schedule 13D filed by Mr. Yang and Hero, as previously amended, in its entirety.

Item 5.

Interest in Securities of the Company

Item 5 is hereby amended and restated in its entirety as follows:

(a)-(b) The third and fourth pages of this Schedule 13D are incorporated herein by reference as if set forth in their entirety.

By virtue of the relationships among the Reporting Persons described herein, the Reporting Persons may be deemed to constitute a “group” within the meaning of Rule 13d−5(b) under the Exchange Act. As a member of a group, each Reporting Person may be deemed to beneficially own the Common Stock beneficially owned by the members of the group as a whole. The Reporting Persons beneficially own in the aggregate 9,663,354 shares of Common Stock, which represents approximately 31.11% of the outstanding Common Stock.

(c) To the best knowledge of each of the Reporting Persons, none of the Reporting Persons and no other person described in Item 2 hereof has effected any transactions relating to the Common Stock of the Company during the past 60 days.

(d) Other than Mr. Yang, no person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of the shares owned by Hero.

Other than Hero, with respect to the 2,633,354 shares of Common Stock owned by Hero, no person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of the shares owned by Mr. Yang.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Company.

Tianfu Yang is the holder of record of 100% of the equity interests of Hero, which holds approximately 8.48% of the issued and outstanding shares of the Common Stock of the Company. Mr. Yang has voting and dispositive control over the shares of the Company held by Hero. Mr. Yang is thereby deemed to have beneficial ownership of such shares.

Items 3 and 4 of this Schedule 13D are incorporated herein by reference.

Item 7.

Material to Be Filed as Exhibits

The following is filed herewith as Exhibits to this Statement:

Exhibit 7.01

Joint Filing Agreement by and among the Reporting Persons, dated October 12, 2010

Exhibit 7.02

Proposal Letter to the Board of Directors of Harbin Electric, Inc., dated October 10, 2010.

Exhibit 7.03

Consortium Agreement by and among Mr. Yang and Baring, dated October 10, 2010.

Exhibit 7.04

Goldman Sachs Letter dated October 10, 2010.

SIGNATURE

After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct.

Dated:

October 12, 2010

	Tianfu Yang
		/s/ Tianfu Yang
		Name: Tianfu Yang

	Hero Wave Investments Limited
	By:	/s/ Tinfu Yang
		Name: Tianfu Yang
		Title: Director

EX-7.01 2 v198756_ex7-01.htm

EXHIBIT 7.01

AGREEMENT OF JOINT FILING

The parties listed below agree that the Amendment No. 3 to Schedule 13D to which this agreement is attached as an exhibit, and all further amendments thereto, shall be filed on behalf of each of them. This Agreement is intended to satisfy Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Dated:

October 12, 2010

	Tianfu Yang
		/s/ Tianfu Yang
		Name: Tianfu Yang

	Hero Wave Investments Limited
	By:	/s/ Tinfu Yang
		Name: Tianfu Yang
		Title: Director

EX-7.02 3 v198756_ex7-02.htm

EXHIBIT 7.02

PROPOSAL LETTER

YANG TIANFU

BARING PRIVATE EQUITY ASIA GROUP

October 10, 2010

The Board of Directors

Harbin Electric, Inc.

No. 9 Ha Ping Xi Lu,

Ha Ping Lu Ji Zhong Qu

Harbin Kai Fa Qu, Harbin

P.R. China 150060

Dear Sirs:

Mr. Yang Tianfu (“Mr. Yang”) and Baring Private Equity Asia Group Limited (“Baring”) are pleased to submit this preliminary non-binding proposal to acquire Harbin Electric, Inc. (the “Company”) in a going-private transaction (the “Acquisition”).

We believe that our proposal of $24.00 in cash per share will provide a very attractive alternative to the Company’s shareholders. Our proposal represents a premium of 20.2% to the Company’s closing price on October 8, 2010 and a premium of 35.1% to the volume-weighted average closing price during the last 60 trading days.

As you are aware, Baring has been evaluating a possible investment in the Company over the past several months, and have come away tremendously impressed with the high quality of the Company’s business and its management team.

The terms and conditions upon which we are prepared to pursue the Acquisition are set forth below. We are confident in our ability to consummate an Acquisition as outlined in this letter.

1. Buyer. Mr. Yang and Baring have entered into a letter agreement dated October 10, 2010, pursuant to which Mr. Yang and an investment fund advised by Baring (the “Baring Fund”) would form an acquisition vehicle (“Buyer”) for the Acquisition for the purpose of pursuing the Acquisition on an exclusive basis over the next six months.

2. Purchase Price. The consideration payable for each publicly held share of outstanding common stock of the Company (other than those held by Mr. Yang and his affiliates ) will be $24.00 per share in cash.

3. Financing. We intend to finance the Acquisition with a combination of debt and equity capital. Goldman Sachs (Asia) LLC (“Goldman”) is acting as Buyer’s financial advisor and we expect commitments for the debt financing to be in place when the Definitive Agreements (as defined below) are signed. Goldman has indicated that it is highly confident that the underwriting and arranging of this financing in the market can be done subject to satisfaction with the terms specified in the Highly Confident Letter issued on October 10, 2010. Equity financing would be provided from Mr. Yang and the Baring Fund and related sources.

4. Due Diligence. We believe that we will be in a position to complete our due diligence for the Acquisition within thirty days after receiving access to the relevant materials.

5. Definitive Agreements. We are prepared to negotiate and finalize definitive agreements (the “Definitive Agreements”) concurrently with our due diligence review. This proposal is subject to execution of Definitive Agreements. These documents will provide for covenants and conditions typical and appropriate for transactions of this type.

6. Confidentiality. Mr. Yang will, as required by law, promptly file an amendment to his Schedule 13D to disclose this letter and his agreement with Baring. However, we are sure you will agree with us that it is in all of our interests to ensure that we proceed in a confidential manner, unless otherwise required by law, until we have executed Definitive Agreements or terminated our discussions.

7. About Baring. Baring Private Equity Asia is the largest regional growth equity firm in Asia with US$2.5 billion under management. The firm specializes in growth equity investments and mid-market buyouts targeting growing businesses with enterprise values between US$100 million and US$1 billion that require capital for expansion, recapitalization or for M&A. Primary investment markets include China, India, Japan, Singapore, Hong Kong, and Taiwan. The firm has invested in Asia since 1997, and today has 31 active portfolio companies.

8. Process. We believe that the Acquisition will provide superior value to the Company’s shareholders. We recognize of course that the Board will evaluate the proposed Acquisition independently before it can make its own determination whether to endorse it. Given Mr. Yang’s involvement in the proposed Acquisition, we appreciate that the independent members of the Board will proceed to consider the proposed Acquisition and that Mr. Yang will recuse himself from participating in any Board deliberations and decisions related to the Acquisition.

9. No Binding Commitment. This letter constitutes only a preliminary indication of our interest, and does not constitute any binding commitment with respect to an Acquisition. Such a commitment will result only from the execution of Definitive Agreements, and then will be on the terms provided in such documentation.

In closing, each of us would like to personally express our commitment to working together in bringing this Acquisition to a successful and timely conclusion. Should you have any questions regarding this proposal, please do not hesitate to contact Jean Salata of Baring at +852 2843 9318 and Richard Campbell-Breeden of Goldman at +852 2978 1887. We look forward to hearing from you.

	Sincerely,


	Mr. Yang Tianfu

	Baring Private Equity Asia Group Limited

	By:
	Name: Jean Eric Salata
	Title: Founder and CEO

EX-7.03 4 v198756_ex7-03.htm

EXHIBIT 7.03

CONSORTIUM AGREEMENT

[BARING ASIA LETTERHEAD]

October 10, 2010

Mr. Tianfu Yang

No. 9, Ha Ping Xi Lu

Ha Ping Lu Ji Zhong Qu

Harbin Kai Fa Qu

P.R. China 150060

Dear Mr. Yang:

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 Baring 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, Mr. Yang 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 Mr. Yang 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, Mr. Yang 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.

(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) Mr. Yang 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) Mr. Yang 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 Mr. Yang in writing prohibiting him from voting in relation to the Competing Transaction.

3. Process.

(a) Upon signing of this letter agreement, Baring and Mr. Yang 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. Baring 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) Goldman Sachs (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 Baring and the Shareholder.

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 Baring 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 & Manges, LLP and the Shareholder shall be solely responsible for the fees and expenses of Skadden, Arps, Slate, Meagher & Flom 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).

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.

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.

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 Mr. Yang and Baring.

Very truly yours,

BARING PRIVATE EQUITY ASIA GROUP LIMITED

By:
	Name:
	Title:

CONFIRMED AND AGREED
as of the date written above:

By:
	Tianfu Yang

Signature Page to Consortium Agreement

Exhibit A

Proposal Letter

EX-7.04 5 v198756_ex7-04.htm

EXHIBIT 7.04

GOLDMAN SACHS LETTER

PRIVATE AND CONFIDENTIAL

Mr. Dar Chen

Baring Private Equity Asia

Suite 2801, Two International Finance Centre

Central, Hong Kong

10 October, 2010

Dear Mr. Chen,

Goldman Sachs (Asia) L.L.C. is pleased to present its preliminary indication of interest to Baring Private Equity Asia and Mr. Tianfu Yang, Chairman and CEO of Harbin Electric Incorporated (the “Sponsors”) to potentially provide debt financing (the “Debt Financing”) in the form of US$425mm senior secured credit facilities and US$45mm junior secured mezzanine facility, as part of the financing you may require to acquire all of the shares in Harbin Electric Incorporated (the “Target”), to refinance the Target’s existing debt (the “Acquisition”) and to fund capital expenditure requirements of the Target.

We expect that the Debt Financing should attract positive interest in both the senior and mezzanine debt markets. Goldman Sachs (Asia) L.L.C. and or its affiliates (“Goldman Sachs”) is therefore highly confident that the Debt Financing can be arranged and underwritten in the market subject to the terms of this letter and we believe that we should be able to work expeditiously with you towards completing the Acquisition based on our understanding of the capital markets and industry sector, together with our substantial US, European and Asian financing experience in the senior bank loan, mezzanine and high yield capital markets in recent comparable transactions

This letter of interest is subject to customary conditions, including, amongst others: (i) satisfactory determination of the structure of the Acquisition and the terms and conditions of the Debt Financing, (ii) satisfactory completion of due diligence, including but not limited to Deloitte’s review of the Target’s historical financials as well as other third-party due diligence (iii) receipt of all internal credit committee and other required external approvals, (iv) no material adverse change in the capital and/or broader financing markets or in the business, financial condition, assets or prospect of the Sponsors and the Target, and (v) execution of documentation relating to the Acquisition and the Debt Financing in a form satisfactory to Goldman Sachs.

The terms of this letter and its existence are confidential. This letter of interest is issued for your benefit only and no other person or entity may rely on it, except that you may disclose a copy to Harbin Electric Incorporated (the “Vendor”) and its advisers for the purpose only of substantiating our interest in the Debt Financing, subject always to the terms of this letter and on the basis that the Vendor and its advisers may place no reliance on it and may not disclose it to any other party. Goldman Sachs shall not be responsible or liable to you or to any other person or entity for any damages or loss that may be alleged as a result of this letter.

Save for your obligation of confidentiality described above, this letter is not intended to create legal relations between us and is not an offer of financing or a commitment with respect to the Debt

Financing or any other financing and creates no obligation or liability on Goldman Sachs to provide, arrange, underwrite or participate in any financing.

We look forward to working with you to complete the Acquisition and Debt Financing.

For and on behalf of

Goldman Sachs (Asia) L.L.C.

Eric Greenberg

Managing Director

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