SENIOR LOAN AGREEMENT
SENIOR LOAN AGREEMENT (this
“Agreement”) dated as of July 3, 2009 by and between SmartHeat Inc., a Nevada
corporation with its principal executive offices located at X-0, 00, Xxxxxx 0
Xxxxxxxx Economic and Technological Development Xxxx Xxxxxxxx, Xxxxx 000000 and
its wholly owned subsidiary Shenyang Taiyu Machinery & Electronic Equipment
Co, Ltd., a company organized under the laws of the Peoples Republic of China
(the “Subsidiary”) (collectively, the “Company”), and Strong Growth Capital,
Ltd, a limited company organized under the laws of the British Virgin Islands
with its principal executive offices located at Bldg, 00 Xx Xxxxxx Xxxxxx,
Xxxxxxxx Cay 1, Road Town, Tortola, British Virgin Islands
("Lender").
WITNESSETH
WHEREAS, Lender has agreed,
subject to the terms and conditions hereof, to loan to the Company the sum of US
$9,000,000 (Nine Million Dollars) (the "Loan"), which shall be senior to any
other debt of the Company.
NOW, THEREFORE, in
consideration of the foregoing premises and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. The
Loan. Simultaneously with the execution of this Agreement by
the parties hereto, the Lender will loan to the Company the sum of US
$9,000,000. The Loan will be evidenced by a note (the "Senior Note"), dated the
date hereof, in the principal amount of the Loan, and will bear simple interest
at the rate of 10% per annum, payable quarterly commencing on September 30, 2009
and thereafter on the last day of the month which is not a banking holiday
recognized by X.X. Xxxxxx Bank in New York City or a Saturday or Sunday, and the
principal with any accrued and unpaid interest thereon, on the earlier of (i)
six months from the date hereof, (ii) on demand of the Lender at any time
commencing three (3) months from the date hereof, or (iii) upon acceleration due
to a Change of Control, Event of Default or Acceleration Event (as defined
herein). Upon completion of any financing by the Company or its Subsidiary, the
entire outstanding amount of principal and interest, or any part thereof, shall
be due upon demand of the Lender (an “Acceleration Event”). The
Senior Note will be in the form attached hereto as Exhibit A.
2. Representations and
Warranties of the Company. The Company represents and warrants
that:
(A) The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada, and the Company and its Subsidiary are
duly qualified to do business and in good standing in such jurisdictions where
the conduct of their business makes such qualification necessary. The Company
has full power and authority, corporate and otherwise, to enter into and perform
this Agreement and the Senior Note. The Company owns One Hundred Percent (100%)
of the equity of its Subsidiary and none of such equity or the assets of its
Subsidiary are subject to any liens or encumbrances. The Company and its
Subsidiary has no debt or any liens or encumbrances on any of its
assets.
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(B) The
execution, delivery and performance by the Company of this Agreement, and the
making, execution and delivery by the Company of the Senior Note (collectively
with the Agreement referred to herein as the "Transaction Documents") have been
duly authorized by all necessary corporate action and will not violate any
provision of law, court order or decree to which the Company or its Subsidiary
are subject to, or the Company's Articles of Incorporation or Bylaws, as
amended, or result in the breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
the Company or its Subsidiary pursuant to any agreement or instrument to which
they are a party. The Transaction Documents are a valid and binding obligation
of the Company, enforceable in accordance with its terms subject to general
principles of equity and bankruptcy and other laws affecting creditors' rights
generally.
(C) Except
for any applicable requirements of state securities laws (as to which no
representations or warranties are made), no governmental permit, consent,
approval or authorization is required in connection with (i) the execution,
delivery and performance of the Transaction Documents, or (ii) the offer, sale,
issuance and delivery of the Note contemplated hereby by the Company; provided, that, all
representations made to the Company by the Lender in this Agreement and in any
other document or instrument delivered in connection herewith are assumed for
purposes of this representation and warranty to be accurate and
complete.
(D) The
Company has made available to the Lender through the XXXXX system, true and
complete copies of the Company’s most recent Annual Report on Form 10 for the
fiscal year ended December 31, 2008 (the “10-K”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-K and
prior to the date hereof (collectively, the “SEC Filings”). The SEC Filings are
the only filings required of the Company pursuant to the 1934 Act for such
period. The Company and its Subsidiary are engaged in all material respects only
in the business described in the SEC Filings and the SEC Filings contain a
complete and accurate description in all material respects of the business of
the Company and its Subsidiaries, taken as a whole.
(E) The
SEC Filings complied as to form and content in all material respects with the
requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(F) The
net proceeds of the Senior Note hereunder shall be used by the Company for
working capital.
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(G) Since
March 31, 2009, except as identified and described in the SEC Filings, there has
not been:
(i) any
change in the financial condition of the Company that could reasonably be
expected to have a material adverse effect (“Material Adverse Effect”) on
(i) the assets, liabilities, results of operations, condition (financial or
otherwise), business, or prospects of the Company and its Subsidiary taken as a
whole, or (ii) the ability of the Company to perform its obligations under
the Transaction Documents, individually or in the aggregate; or
(ii) any
other event or condition of any character that has had or could reasonably be
expected to have a Material Adverse Effect.
3. Representations and
Warranties by the Lender. As an inducement to the Company to enter
into this Agreement and issue the Note, Lender represents and warrants, as
follows:
(A)
Lender is a validly existing corporation, limited partnership or limited
liability company and has all requisite corporate, partnership or limited
liability company power and authority to enter into the Transaction
Documents.
(B) The
execution, delivery and performance by Lender of the Transaction Documents to
which Lender is a party have been duly authorized and will each constitute the
valid and legally binding obligation of Lender, enforceable against Lender in
accordance with their respective terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights
generally.
(C) Lender
acknowledges that he has been advised that the Note has not been registered
under the provisions of the Act.
(D) Lender
acknowledges reviewed and received copies of all SEC Filings. Lender
specifically disclaims receipt of any other information and material, whether
oral or in writing, from the Company or anyone acting for or on behalf of the
Company, and reliance upon any such unauthorized oral or written information and
material is specifically disclaimed.
4. Covenants.
(A) The Company shall cause its
Subsidiary to guaranty its obligations under this Agreement and the Senior Note
pursuant to the relevant laws of the Peoples Republic of China.
(B) Upon an Event of Default (as
defined in the Senior Note) or a change of control of the Company, which shall
be solely determined by the Lender (a “Change of Control”), the
entire outstanding principal amount of the Senior Note, and interest due
thereon, shall become immediately due and payable.
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5. Negative
Covenants.
Without
the prior written consent of the Lender, from the date hereof until the date the
Senior Note is repaid in full, the Company and its Subsidiary shall be
prohibited from
(A) Effecting or entering into an
agreement or to affect any subsequent financing which shall be senior to the
Senior Notes, or any other financing;
(B) Selling, leasing, or otherwise
disposing of their respective assets;
(C) Dissolving, liquidating, or
winding up their respective businesses;
(D) Conducting their respective
businesses other than in their ordinary and usual course;
(E) Paying any dividend or make
any other distributions of cash or property;
(F) Merging or consolidating with
another entity;
(G) Issuing any shares of Company
capital stock or Company debt securities.
6. Loan
Delivery.
At the
request of the Company, Lender shall deposit a total of $3,242,606.15, less any
applicable wire or transfer fees, to an account designated by Company located in
the Peoples Republic of China or, if such amount is deposited in RMB, it shall
be deposited at an exchange rate fixed at UD$1 = RMB
6.83. $5,757,393.85, less any applicable wire or transfer expenses
shall be deposited in escrow at the account of The Xxxxxx Law Firm XXXX Account,
in escrow for the benefit of the Company. Upon confirmation in
writing by the Company of receipt of the funds deposited in China and upon
receipt of the funds in the U.S. account, The Xxxxxx Law Firm shall confirm
receipt of the funds to Lender in writing and all funds held in the Xxxxxx Law
Firm XXXX account shall be promptly released to the Company as directed by the
Company in writing.
7. Miscellaneous.
(A) (i)
The Company agrees to indemnify and hold harmless the Lender and its affiliates
and their respective directors, officers, employees and agents (each a “Lender
Indemnitee”) from and against any and all losses, claims, damages, liabilities
and expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which any such
Lender Indemnitee may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Lender Indemnitee for all such amounts as they are incurred by such Lender
Indemnitee.
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(ii) The
Lender agrees to indemnify and hold harmless the Company and its affiliates and
their respective directors, officers, employees and agents (each a “Company
Indemnitee”) from and against any and all Losses to which any such Company
Indemnitee may become subject as a result of any breach of representation,
warranty, covenant or agreement made by or to be performed on the part of the
Lender under the Transaction Documents, and will reimburse any such Company
Indemnitee for all such amounts as they are incurred by such Company
Indemnitee.
(B) This
Agreement may not be assigned by a party hereto without the prior written
consent of the Company or the Lender, as applicable, provided, however,
that Lender may assign its rights and delegate its duties hereunder
in whole or in part to an affiliate. The provisions of this Agreement shall
inure to the benefit of and be binding upon the respective permitted successors
and assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(C) This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may also be executed via facsimile, which shall be
deemed an original.
(D) The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
(E)
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be
deemed given upon such delivery, (ii) if given by mail, then such notice
shall be deemed given upon the receipt of such notice by the recipient and
(iii) if given by an internationally recognized overnight air courier, then
such notice shall be deemed given two Business Days after delivery to such
carrier. All notices shall be addressed to the party to be notified at the
address as follows, or at such other address as such party may designate by ten
days advance written notice to the other party:
If to the
Company:
X-0, 00,
Xxxxxx 0
Xxxxxxxx
Economic and Technological Development Zone
Shenyang,
China 110027
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With a
copy to (which copy shall constitute notice):
The
Xxxxxx Law Firm, PLLC
00 Xxxx
Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxxxx Xxxxxx
If to the
Lender.
Akara
Bldg, 00 Xx Xxxxxx Xxxxxx,
Xxxxxxxx
Cay 1, Road Town,
Tortola,
British Virgin Islands
(F) Amendments and
Waivers. Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Lender.
(G) Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
(H) Entire Agreement.
This Agreement, including the Exhibits and the Disclosure Schedules, and the
other Transaction Documents constitute the entire agreement among the parties
hereof with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof and thereof.
(I) Further Assurances.
The parties shall execute and deliver all such further instruments and documents
and take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
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(J) Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by,
and construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts of the
State of New York located in New York County and the United States District
Court for the Southern District of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such
suit, action or proceeding may be served on each party hereto anywhere in the
world by the same methods as are specified for the giving of notices under this
Agreement. Each of the parties hereto irrevocably consents to the jurisdiction
of any such court in any such suit, action or proceeding and to the laying of
venue in such court. Each party hereto irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES
HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.
[Signature
Page Follows]
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IN WITNESS WHEREOF, the
parties hereto have executed this agreement as of the date first above
written
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By:
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/s/Xxxxx Xxxx
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Name:
Xxxxx Xxxx
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Title:
President & Chief Executive Officer
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SHENYANG
TAIYU MACHINERY &
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ELECTRONIC
EQUIPMENT CO, LTD.
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By:
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/s/Xxxxx Xxxx
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Name:
Xxxxx Xxxx
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Title:
President and Chief Executive Officer
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STRONG
GROWTH CAPITAL, LTD
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By:
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/s/ Venlaw Consultants Co.
Inc.
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Authorized
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Signatory: Corporate
Directors
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