UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K
 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 23, 2013

SMARTHEAT INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
001-34246
 
98-0514768
(State or other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
A-1, 10, Street 7
Shenyang Economic and Technological Development Zone
Shenyang, China
 
110141
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (86) 24-2519-7699

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

 
 
 

Item 1.01 Entry into a Material Definitive Agreement

(a) Amendment to Credit Agreement

On August 23, 2013, SmartHeat Inc., a Nevada corporation (the “Company”), entered into the August 2013 Amendment (the “Amendment”) to the Credit and Security Agreement dated July 27, 2012, as amended on December 21, 2012 (the “Credit Agreement”), between the Company and Northtech Holdings Inc., a British Virgin Islands business corporation (“Northtech”). Northtech is owned by certain members of the Company’s former management, Jun Wang, Xudong Wang, and Wen Sha. Huajun Ai, the Company’s Corporate Secretary is also a part owner of Northtech.

The Amendment decreases the interest rate payable on borrowings under the Credit Agreement effective January 1, 2013, to 10% annually, compounded and payable quarterly, from 1.25% per month, payable monthly.  The Company agreed to pay an amendment fee of 100,000 restricted shares of the Company’s common stock, and to deliver to Northtech share certificates representing 55% of the issued and outstanding shares of Heat HP Inc. (“Heat HP”) and Heat PHE Inc. (“Heat PHE”), discussed further below, to perfect Northtech’s security interest under the Credit Agreement.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, a copy of which is attached as Exhibit 10.14 hereto and is incorporated herein by reference.

(b) Assignment and Assumption Agreement

On August 23, 2013,  the Company entered into an Assignment and Assumption Agreement with Northtech whereby Northtech agreed to assume a $100,000 obligation of the Company in exchange for 200,000 restricted  shares of the Company’s common stock.  The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, a copy of which is attached as Exhibit 10.15 hereto and is incorporated herein by reference.

(c) Reorganization

On August 23, 2013, the Company formed two new wholly-owned subsidiaries in the state of Nevada, Heat HP and Heat PHE, in order to reorganize the Company’s ownership structure over its subsidiaries. On August 23, 2013, the Company entered into an assignment agreement with each of Heat HP and Heat PHE which effected the reorganization (each an “Assignment Agreement”).  The reorganization was performed so the Company’s subsidiaries would be organized along their respective operating segments with Heat HP holding those subsidiaries that operated in the heat pumps and related products segment and Heat PHE holding those subsidiaries that operated in the plate heating equipment, meters and related products segment.  The Company presented its financial results for the quarter ended March 31, 2013, in accordance with these operating segments.

Under the Assignment Agreement with Heat HP, the Company agreed to transfer, and in the case of indirectly owned subsidiaries, cause to be transferred, to Heat HP the following subsidiaries of the Company:

Heat HP
SmartHeat (China) Investment Co., Ltd.
SmartHeat (Shenyang) Heat Pump Technology Co., Ltd.
SmartHeat Deutschland GmbH
SmartHeat (Shanghai) Trading Co., Ltd.
Beijing SmartHeat Jinhui Energy Technology Co., Ltd.


Under the Assignment Agreement with Heat PHE, the Company agreed to transfer, and in the case of indirectly owned subsidiaries, cause to be transferred, to Heat PHE the following subsidiaries of the Company:

Heat PHE
SmartHeat Taiyu (Shenyang) Energy Technology Co., Ltd.
SanDeKe Co., Ltd.
SmartHeat (Shenyang) Energy Equipment Co., Ltd.
SmartHeat Siping Beifang Energy Technology Co., Ltd.
Hohhot Ruicheng Technology Co., Ltd.
 
 
 
 


Under the Assignment Agreements, the Company agreed to cause its directly and indirectly owned subsidiaries to record these transfers with the applicable governmental agency in the People’s Republic of China, and in the case of SmartHeat Deutschland GmbH, in Germany.

The foregoing description of the Assignments Agreements does not purport to be complete and is qualified in its entirety by reference to the Assignment Agreements, copies of which are attached as Exhibit 10.16 and Exhibits 10.17 hereto and are incorporated herein by reference.

Item 8.01 Other Events.

(a) Additional Funding

On June 25, 2013, the Board of Directors of the Company authorized the Company to commence a market canvass for additional sources of financing aside from the Credit Agreement.

Pursuant to Board authorization, the Company has begun soliciting stalking horse proposals for purchase of all or part of, or joint venture investment in or with, the Company or one or more of its directly or indirectly owned subsidiaries.  All proposals will be evaluated by the Board of Directors in September and a stalking horse proposal, if one is acceptable to the Board, will be chosen. Following selection of a stalking horse proposal and the negotiation of a mutually acceptable agreement with appropriate deal protection terms, the Company will solicit competing bids with the plan of having a definitive restructuring proposal submitted to the Company’s stockholders for approval at the Company’s Annual Meeting scheduled for December 10, 2013.  The Company expects to close on a proposal on or before December 31, 2013. 

The Board also approved an offer to be made to qualified investors who are currently stockholders of the Company to purchase Exchangeable Subordinated Notes in denominations of $100,000 bearing interest at the rate of 10% per annum and exchangeable, at the option of the Company, for restricted common shares at an exchange rate of $0.50 per share.
 
(b) SEC Appeal

The Company is in the process of filing an appeal to the Securities and Exchange Commission of NASDAQ Listing Qualifications determination to delist the Company’s common stock.

Item 9.01.  Financial Statements and Exhibits
 
(d)           Exhibits

Exhibit
Description
10.14
10.15
10.16
10.17

 
 
 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
SMARTHEAT INC.
 
(Registrant)
Date:
August 23, 2013
 
By:
/s/ Oliver Bialowons
 
Name:
Oliver Bialowons
 
Title:
President






Exhibit 10.14
 
AUGUST 2013 AMENDMENT TO THE CREDIT AND SECURITY AGREEMENT

This second amendment (the “August 2013 Amendment” or “Amendment”), dated August 23, 2013 is being entered into between SmartHeat Inc., a Nevada corporation (including any successor or permitted assignee thereof, the “Company”), having an address at 1802 North Carson Street, Suite 212, Carson City, NV 89701, and Northtech Holdings Inc., a British Virgin Islands business company (including any successor, assignee or transferee thereof, “Northtech”), having an address at Mill Mall, Suite 6, Wickhams Cay 1, P.O. Box 3085, Road Town, Tortola, British Virgin Islands, and amends the Credit and Security Agreement, dated July 27, 2012, as amended on December 21, 2012, between the Company and Northtech (the “Credit Agreement”). Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Credit Agreement.

WITNESSETH

WHEREAS, the Company and Northtech entered into the Credit Agreement on July 27, 2012, which was subsequently amended on December 21, 2012;

WHEREAS, Northtech desires to provide the Company with a greater degree of flexibility in seeking additional sources of financing; and

WHEREAS , the Company and Northtech desire to amend certain provisions of the Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:

1.  
Amendments to the Credit Agreement . The Credit Agreement shall hereby be amended as follows:

a. The definition of “Base Rate” under Section 1.1 of the Credit Agreement shall be deleted in its entirety and replaced by the following:

““ Base Rate ” means the rate of interest of 10% annually, compounded quarterly, effective January 1, 2013.”

b. Section 2.4(c) of the Credit Agreement shall be deleted in its entirety and replaced with the following:

“(c) Interest Payment .  Any interest accrued on the Revolving Note shall be due and payable on the last day of each calendar quarter and on the Termination Date.  At the option of the Borrower, interest payment may be made in the form of either (i) cash or (ii) such number of Restricted Shares calculated by dividing the amount of interest due by the Average Share Price as of the due date of such interest payment; provided that the number of Restricted Shares so calculated shall be rounded up to the nearest whole number of shares. If the Borrower fails to pay any interest payment on the date such payment is due, in cash or in Restricted Shares, such payment shall be drawn down from the credit facility and treated as an Advance.”

 
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2.  
Amendment Fee .    Upon the execution of this Amendment, and in consideration therefor, the Company shall deliver to Northtech 100,000 Restricted Shares of the Company’s common stock. The Company hereby expressly reaffirms the grant to Northtech of a 55% security interest in each of its wholly-, directly-owned Subsidiaries under the Credit Agreement and agrees to (i) deliver to Northech share certificates representing 55% of the issued and outstanding shares of Heat HP Inc. and Heat PHE Inc., with effective endorsement, (ii) file in the State of Nevada a financing statement recording the 55% security interest in each of Heat HP Inc. and Heat PHE Inc.; and (iii) complete other procedures necessary to perfect the security interest upon the completion of the reorganization of the Company’s subsidiaries in the manner provided in Appendix A attached hereto.

3.  
Miscellaneous .
 
a.  Full Force and Effect . Except as expressly set forth in this Amendment, no other provision of the Credit Agreement shall be changed, altered or modified and the Credit Agreement, except as amended, shall remain in full force and effect.

b.  Authority . Each party represents and warrants to the other party that this Amendment is being executed by the authorized representatives of each respective party.

c.  Counterparts . This Amendment 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 Amendment may also be executed via facsimile, which shall be deemed an original.

d.  Headings . The titles and subtitles used in this Amendment are used for convenience only and are not to be considered in construing or interpreting this Amendment.
 
e.  Notices . Unless otherwise provided, any notice required or permitted under this Amendment shall be given in accordance with Section 8.3 of the Credit Agreement.

f.   Severability . Any provision of this Amendment 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.
 
 
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g.  All Amendments in Writing . No supplement, modification, or amendment to this Amendment shall be binding, unless executed in writing by a duly authorized representative of each party to this Amendment.

h. Entire Agreement . This Amendment and the Credit Agreement, including the Exhibits and the Schedules, 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.   Governing Law . This Amendment shall be governed by, and construed in accordance with the substantive laws (other than conflict laws) of the State of New York.

j.   Mandatory Mediation . This Amendment shall be governed by procedures other than litigation for settling all claims and dispute as set forth in Section 8.23 of the Credit Agreement.


IN WITNESS WHEREOF , the parties hereto have executed this agreement as of the date first above written.

SMARTHEAT, INC.

             

By: /s/ Oliver Bialowons
       Name: Oliver Bialowons
       Title: President
             

NORTHTECH HOLDINGS, INC.

             

By: /s/ Xudong Wang
 
 
 
 
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Appendix A

SmartHeat Inc., a Nevada corporation, shall transfer 100% of its equity interests in the following subsidiaries to a newly incorporated Nevada corporation, Heat PHE Inc. (“Heat PHE”), which corporation shall be 100% owned by SmartHeat Inc.

SmartHeat Taiyu (Shenyang) Energy Technology Co., Ltd. (“Taiyu”)
SanDeKe Co., Ltd.
SmartHeat Siping Beifang Energy Technology Co., Ltd.
Hohhot Ruicheng Technology Co., Ltd.

SmartHeat shall cause SmartHeat (China) Investment Co., Ltd. (“SmartHeat Investment”), incorporated in the People’s Republic of China and wholly owned by SmartHeat, to transfer 100% of SmartHeat Investment’s equity interest in SmartHeat (Shenyang Energy Equipment) Co. Ltd. to Heat PHE.

SmartHeat shall transfer 100% of its equity interests in the following subsidiaries to a newly incorporated Nevada corporation, Heat HP Inc., which corporation shall be 100% owned by SmartHeat Inc.

SmartHeat (China) Investment Co., Ltd.
SmartHeat (Shanghai) Trading Co., Ltd.
Beijing SmartHeat Jinhui Energy Technology Co., Ltd.

SmartHeat shall cause Taiyu, incorporated in the People’s Republic of China and wholly owned by SmartHeat, to transfer 100% of Taiyu’s equity interest in SmartHeat (Shenyang) Heat Pump Technology Co., Ltd. and SmartHeat Deutschland GmbH to Heat HP Inc.




 
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Exhibit 10.15

ASSIGNMENT AND ASSUMPTION AGREEMENT
 
ASSIGNMENT AND ASSUMPTION AGREEMENT (this “ Agreement ”), dated as of August 23, 2013, among SmartHeat Inc. (the “Company”), a Nevada corporation having an address at 1802 North Carson Street, Suite 212, Carson City, NV 89701, and Northtech Holdings Inc., a British Virgin Islands business company (“Northtech”), having an address at Mill Mall, Suite 6, Wickhams Cay 1, P.O. Box 3085, Road Town Tortola, British Virgin Islands.

R E C I T A L S
 
A.     WHEREAS, a shareholder of the Company (the “Shareholder”) made a $100,000 payment on behalf of the Company to Nimbus Restructuring Manager (“NRM”), when the Company engaged NRM on April 23, 2012;
 
B.     WHEREAS, on May 24, 2013, the Company undertook to repay the Shareholder the $100,000 that the Shareholder paid to NRM (the “Obligation”); and

C.  WHEREAS, the Company desires to assign, and Northtech desires to assume, the Obligation in exchange for 200,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).
 
Now, therefore, in consideration of the promises and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
 
1.      Assignment . The Company hereby transfers and assigns to Northtech, effective as of the date hereof, the Obligation.
 
2.      Assumption . Northtech hereby accepts the Obligation, effective as of the date hereof
 
3.      Consideration . In consideration of Northtech’s assumption of the Obligation and upon execution of this Agreement, the Company shall issue to Northtech 200,000 restricted shares of the Company’s Common Stock, which shares shall not be eligible for resale unless registered or an exemption from registration is provided for in the Securities Act in accordance with Rule 144.
 
4.      Governing Law . This Agreement and the rights and obligations of the parties hereto shall be interpreted, enforced in accordance with, and governed by, the laws of the State of New York applicable to agreements made and to be performed wholly within that jurisdiction, without regard to the conflicts of law principles thereof.
 
5.      Mandatory Mediation .  This Agreement shall be governed by procedures other than litigation for settling all claims and disputes under the method set forth below:
 
 
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(a)   The parties hereto agree to attempt in good faith to settle any dispute arising under or relating to this agreement by mediation before the Hong Kong International Arbitration Centre (HKIAC) under the then-current version of HKIAC's Commercial Mediation Rules.
 
(b)   In any mediation pursuant to Section 5(a):
 
(i)           the place of mediation shall be Hong Kong;
 
(ii)          three mediators shall be appointed, one each by the Company and Northtech, and one who shall be a New York-licensed attorney (the “chairperson”) by both parties’ mutual agreement;
 
(iii)         the mediators shall be proficient in the English language, and the chairperson shall be an attorney licensed to practice law in the State of New York.
 
(c)   If the mediation is abandoned by the mediator or is otherwise concluded without the dispute being resolved, the parties may, at their option refer the dispute to arbitration at HKIAC in accordance with its then-current International Arbitration Rules.
 
6.      Amendment, Waiver, etc . No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding on the parties hereto unless the same shall be in writing and duly executed by such parties, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the parties entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.
 
7.      No Third Party Beneficiaries . The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives, successors and assigns.  Nothing in this Agreement, whether express or implied, shall be construed to give any person (other than the parties hereto and their respective legal representatives, successors and assigns) any legal or equitable right, remedy or claim under or in respect of this Agreement.
 
8.      Further Assurances . On and after the date hereof, the Company and Northtech shall take all reasonable action and execute any additional documents, instruments or conveyances of any kind which may be reasonably necessary to carry out any of the provisions of this Agreement or consummate any of the transactions contemplated by this Agreement.
 
9.      Headings . Section headings contained herein are for convenience of reference only and shall in no way affect the meaning or interpretation of the terms and provisions hereof.
 
10.    Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be considered an original and all of which shall together constitute one and the same instrument.
 
[ signature page follows ]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
 
             
   
SMARTHEAT INC.
     
   
 
By:
 
 
/s/ Oliver Bialowons
       
Name: Oliver Bialowons
   
       
Title: President
         

   
 
NORTHTECH HOLDINGS, INC.
     
   
 
By:
 
 
/s/ Xudong Wang
             
         
         
     
 
 
[ Signature Page to Assignment and Assumption Agreement ]



 
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Exhibit 10.16
 
ASSIGMENT AGREEMENT

This Assignment Agreement  (the “Agreement”) is made this 23rd day of August, 2013, by and between SmartHeat Inc., a Nevada corporation, having an address as 1802 North Carson Street, Suite 212, Carson City, NV 89701 (“Smartheat”), and Heat HP Inc., a Nevada corporation, having an address at 1802 North Carson Street, Suite 212, Carson City, NV 89701 (“Heat HP”), which is 100% owned by SmartHeat.

WHEREAS , SmartHeat desires to transfer the ownership of certain  subsidiaries to its wholly owned subsidiary, Heat HP, in order to restructure the ownership structure of its subsidiaries to better reflect the operations of its business.

NOW, THEREFORE , for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1.            Assignment of Directly Owned Subsidiaries. SmartHeat hereby sells, assigns and transfers to Heat HP one hundred percent (100%) of SmartHeat’s right, title and interest in and to the equity interests it holds in the following companies:

SmartHeat (China) Investment Co., Ltd. (“SmartHeat Investment”);

SmartHeat (Shanghai) Trading Co., Ltd (“SmartHeat Trading”).; and

Beijing SmartHeat Jinhui Energy Technology Co. (“SmartHeat Jinhui”), Ltd..

2.            Assignment of Indirectly Owned Subsidiaries.   SmartHeat hereby agrees to cause SmartHeat Taiyu (Shenyang) Energy Technology Co., Ltd., incorporated in the People’s Republic of China (“Taiyu”), and wholly owned by SmartHeat, to transfer 100% of Taiyu’s equity interest in SmartHeat (Shenyang) Heat Pump Technology Co., Ltd. (“SmartHeat Shenyang”) and SmartHeat Deutschland GmbH (“SmartHeat Germany”).

3.            Recordation of Transfer.   SmartHeat hereby agrees to cause SmartHeat Investment, SmartHeat Trading, SmartHeat Jinhui, Hohot Ruicheng and SmartHeat Shenyang to record the transfer of the equity interests in each of these companies to Heat HP with the Ministry of Commerce of the People’s Republic of China.  SmartHeat hereby agrees to cause SmartHeat Germany to record the transfer of its equity interest to Heat HP.

4.            Assignment Subject to Liens.   The foregoing assignments are subject to any lien incurred by the Company pursuant to the Credit and Security Agreement between the Company and Northtech Holdings, Inc. dated July 27, 2012, as amended, and is subject to the terms thereof.
 
5.            Further Actions.   Each of the parties hereto covenants and agrees, to execute and deliver, at the request of the other party hereto, such further instruments of transfer and assignment and to take such other action as such other party may reasonably request to more effectively consummate the assignments contemplated by this Agreement.
 
 
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6.            Assignments, Successors and No-Third Party Rights. This Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 5.

7.            Entire Agreement; Modification.   This Agreement supersedes all prior agreements, whether written or oral, between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the party to be charged with the amendment.

8.            Headings; Severability. 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. 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.

9 .             Execution of Agreement .   This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

[Signature Page Follows]




 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date herein above first written.

 
SMARTHEAT INC.
 

By: /s/ Oliver Bialowons
Name: Oliver Bialowons
Title:  President

 
HEAT HP INC .
 

By: /s/ Oliver Bialowons
Name: Oliver Bialowons
Title:  President

 

 
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Exhibit 10.17
 
ASSIGMENT AGREEMENT

This Assignment Agreement  (the “Agreement”) is made this 23rd day of August, 2013, by and between SmartHeat Inc., a Nevada corporation, having an address as 1802 North Carson Street, Suite 212, Carson City, NV 89701 (“Smartheat”), and Heat PHE Inc., a Nevada corporation, having an address at 1802 North Carson Street, Suite 212, Carson City, NV 89701 (“Heat PHE”), which is 100% owned by SmartHeat.

WHEREAS , SmartHeat desires to transfer the ownership of certain  subsidiaries to its wholly owned subsidiary, Heat PHE, in order to restructure the ownership structure of its subsidiaries to better reflect the operations of its business.

NOW, THEREFORE , for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1.            Assignment of Directly Owned Subsidiaries. SmartHeat hereby sells, assigns and transfers to Heat PHE one hundred percent (100%) of SmartHeat’s right, title and interest in and to the equity interests it holds in the following companies:

SmartHeat Taiyu (Shenyang) Energy, incorporated in the People’s Republic of China (“Taiyu”);

SanDeKe Co., Ltd., incorporated in the People’s Republic of China (“SanDeKe”);

SmartHeat Siping Beifang Energy Technology Co., Ltd., incorporated in the People’s Republic of China (“Siping Beifang”);  and

Hohot Ruicheng Technology Co., Ltd. (“Hohot Ruicheng”).

2.            Assignment of Indirectly Owned Subsidiaries.   SmartHeat hereby agrees to cause SmartHeat (China) Investment Co., Ltd., incorporated in the People’s Republic of China (“SmartHeat Investment”), and wholly owned by SmartHeat, to transfer 100% of SmartHeat Investment’s equity interest in SmartHeat (Shenyang Energy Equipment) Co. Ltd. (“Shenyang”) to Heat PHE.

3.            Recordation of Transfer.   SmartHeat hereby agrees to cause Taiyu, SanDeKe, Siping Beifang, Hohot Ruicheng and Shenyang to record the transfer of the equity interests in each of these companies to Heat PHE with the Ministry of Commerce of the People’s Republic of China.

4.            Assignment Subject to Liens.   The foregoing assignments are subject to any lien incurred by the Company pursuant to the Credit and Security Agreement between the Company and Northtech Holdings, Inc. dated July 27, 2012, as amended, and is subject to the terms thereof.
 
 
1
 
 
5.            Further Actions.   Each of the parties hereto covenants and agrees, to execute and deliver, at the request of the other party hereto, such further instruments of transfer and assignment and to take such other action as such other party may reasonably request to more effectively consummate the assignments contemplated by this Agreement.

6.            Assignments, Successors and No-Third Party Rights. This Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 5.

7.            Entire Agreement; Modification.   This Agreement supersedes all prior agreements, whether written or oral, between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the party to be charged with the amendment.

8.            Headings; Severability. 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. 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.

9 .             Execution of Agreement .   This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

[Signature Page Follows]



 
2
 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date herein above first written.

 
SMARTHEAT INC.
 
 
By: /s/ Oliver Bialowons
Name: Oliver Bialowons
Title:  President

 
HEAT PHE INC .
 

By: /s/Oliver Bialowons
Name: Oliver Bialowons
Title:  President

 
 
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