Document:

ex10_1.htm

EXHIBIT 10.1

SECOND AMENDMENT TO MASTER LOAN AGREEMENT

THIS SECOND AMENDMENT TO MASTER LOAN AGREEMENT (this "Amendment") is made and entered into as of May 18, 2009 ("Amendment
Effective Date"), by and among MATTERHORN FINANCIAL SERVICES LLC, a California limited liability company ("Borrower"), PERFORMANCE CAPITAL MANAGEMENT, LLC, a California corporation ("PCM"),
VARDE INVESTMENT PARTNERS, L.P., a Delaware limited partnership ("Lender").

RECITALS

WHEREAS, Borrower, PCM and Lender are parties to that certain Master Loan Agreement dated as of June 10, 2004, as amended (the "Loan Agreement").

WHEREAS, Borrower, PCM and Lender desire to amend certain terms of the Loan Agreement, in accordance with Section 10.5 thereof, as stated herein.

NOW THEREFORE, in consideration of the foregoing premises and the agreements hereinafter set forth, and for other good and valuable consideration, the receipt of which is hereby acknowledged, PCM, Borrower and Lender agree as follows:

1.      Definitions. Capitalized terms not otherwise defined herein have the respective meaning contained in the Loan Agreement.

2.      Amended Definition. Article I of the Loan Agreement is hereby amended by deleting in its entirety the definition of "Facility Termination Date" and replacing it
with the following definition:

"Facility Termination Date" shall mean June 10, 2010, or any earlier termination of this Loan Agreement in accordance with its terms."

3.      Effective only Upon Full Execution and Delivery. This Amendment shall become effective as of the date first written above upon execution and delivery by all of
the parties hereto, which delivery may be made by delivery of signatures via facsimile,

4.      Ratification; No other Amendments Intended. As amended hereby, the Loan Agreement
and all of the Loan Documents are hereby ratified, approved, and confirmed in every respect, and shall remain in full force and effect. Except as expressly set forth herein, no other amendment to the Loan Agreement or the other Loan Documents is intended.

5.      Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.

6.      Severability of Provisions. Any provision of this Amendment which 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 portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

  

 

  

7.      Amendment as Loan Document. This Amendment is a "Loan Document" as that term is used in the Loan Agreement.

8.      Successors and Assigns. This Amendment shall be binding upon, and shall inure to the benefit of, Borrower,
PCM and Lender, and their respective successors and assigns.

9.      Titles. Titles of the Sections of this Amendment are merely for convenience in reading and shall not be construed to alter, modify or interpret the meaning of
the provisions under said titles.

[The remainder of this page was intentionally left blank.]

  

2

  

SECOND AMENDMENT TO MASTER LOAN AGREEMENT

[Signature Page]

The undersigned have executed this Second Amendment to Loan Agreement as of the date first above written.

 

	
LENDER:
	  	
BORROWER:

	
VARDE   INVESTMENT   PARTNERS, L.P.
	  	
MATTERHORN FINANCIAL SERVICES LLC

	
By Varde Investment Partners G.P., LLC, Its General Partner
	  	
By Performance Capital Management, LLC,

	
By Varde Partners, L.P., Its Managing Member
	  	
Its Sole Member

	
By Varde Partners, Inc., Its General Partner
	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	
By:
	

/s/ David J. Caldwell C.O.O.

	
By:
	
/s/ Christopher N. Giles,
	  	  	
David Caldwell, Chief Operating Officer

	  	
Christopher N. Giles, Vice President
	  	  	  
	 	 	 	 	 
	 	 	 	 	 
	  	  	  	
PCM:
	  
	  	  	  	
PERFORMANCE CAPITAL MANAGEMENT, LLC

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	
By:
	
/s/ David J. Caldwell C.O.O.

	  	  	  	  	
David Caldwell, Chief Operating Officer

 

AGREEMENT OF GUARANTOR

The undersigned Guarantor hereby acknowledges the terms of the within Amendment and agrees to continue to be bound as a Guarantor under the Guaranty described in the Loan Agreement. The Guarantor agrees and acknowledges that Lender is relying on Guarantor's agreement to execute this Agreement and that Lender would not enter into the
Amendment without Guarantor's agreement to be bound hereby.

	  	
GUARANTOR::

	  	
PERFORMANCE CAPITAL MANAGEMENT, LLC

	  	  	  
	  	  	  
	  	
By:
	
/s/ David J. Caldwell C.O.O.

	  	  	
David Caldwell, Chief Operating Officer

  

3Asset
Acquisition Agreement between Shenyang Taiyu 
Machinery and Electrical
Equipment Co., Ltd and Siping 
Beifang Heat Exchanger Manufacture Co.,
Ltd

    

     

    

     

    

     

    

     

    May
27th , 2009

     

    Shenyang

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Siping
Beifang Heat Exchanger Manufacture Co., Ltd has decided to sell all its tangible
and intangible assets to Shenyang Taiyu-Machinery and Electrical Equipment Co.,
Ltd after friendly consultation by both parties.

     

    The two
parties have reached this agreement on the acquisition of the above-mentioned
assets and both parties agree to implement the assets sale under the agreement
according to the rights and obligations as stipulated in the
agreement.

     

    
      	
              I.

            	
              Parties
      to the agreement

            

    

     

    Party A:
Siping Beifang Heat Exchanger Manufacture Co., Ltd

     

    Legal
Representative: Li Shufeng

     

    Party B:
Shenyang Taiyu-Machinery and Electrical Equipment Co., Ltd

     

    Legal
Representative: Wang Jun

     

    
      	
              II.

            	
              Subject
      assets

            

    

     

    Both
parties agree that Party A undertakes and ensures to transfer to Party B all the
tangible and intangible assets specified on the asset list (except for credit
and debt) determined jointly by both parties as of the date of signing the
agreement when the assets under the agreement satisfying the legal transfer
conditions according to the terms and conditions of this agreement.

     

    
      	
              1.

            	
              The
      land, building and land attachments to which Party A has the property
      right or has not obtained the property right thereof but already acquired
      and possessed legally (including those Party A acquired by contract) and
      other associated properties that Party A has legally possessed but has not
      acquired or used;

            

    

     

    
      	
              2.

            	
              All
      production equipment, auxiliary equipment and spare parts (including the
      drawing, specification and technical data about production equipment),
      office suppliers, vehicles and so
on;

            

    

     

    
      	
              3.

            	
              The
      brand (trade mark, copyright and know-how with commercial value and so
      on), patent, market qualification (including all qualifications and
      certifications that Party A has obtained in its business activities as of
      the date of the contract,) customers and marketing channel and other
      intangible asset;

            

    

     

    
      	
              4.

            	
              Some
      of the raw materials

            

    

     

    The
subject assets include but are not limited to those listed above and shall be
subject to the final check jointly by both parties against the asset list
provided by Party A (see the attached Asset list). With regard to the asset
listed in the Asset list, besides the responsibility of ensuring the assets
under the agreement do not have any defects, Party A shall be responsible
for:

     

    
      	
               
      

            	
              a.

            	
              providing
      Party B the original of ownership certificates of the land and buildings
      or the copies acceptable for Party B, the formalities for construction,
      approval and filing and other relevant documents if the ownership
      certificates are not available, complete technical data related to land
      and building projects including drawings for future maintenance and repair
      after taking over;

            

    

     

    
      	
               
      

            	
              b.

            	
              providing
      Party B the approval documents or valid certificates with regard to
      brands, patents and market qualification and other intangible assets, any
      concealment or refusal to provide by Party A will entitle Party B to the
      intangible assets under the
agreement;

            

    

     

    
      	
               
      

            	
              c.

            	
              withdrawing
      the mortgage or other encumbrances if the subject assets have mortgage or
      other encumbrances;

            

    

     

    
      	
               
      

            	
              d.

            	
              ensuring
      that the board of shareholders and board of directors of the Party A have
      made unanimous resolution on the sale of the subject
    assets;

            

    

     

    
      	
               
      

            	
              e.

            	
              ensuring
      that the creditors of Party A unanimously agree with the sale, and
      undertaking the full liability and compensating Party B for all the losses
      including all the due benefits if the agreement can’t be
      fulfilled due to the object raised by Party A’s
      creditors.

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    Party A
shall ensure the truth of the above terms and documents and that the assets
carried on the asset list shall not have material changes after signing the
agreement.

     

    
      	
              III.

            	
              Continual
      assistance by Party A after the acquisition of the
  assets

            

    

     

    To ensure
the operation by the management of Party B and the successful takeover of
management after the acquisition of Party A’s assets, Party A
undertakes that its board of shareholders and board of directors will give Party
B the assistance regarding to the management of Siping Beifang Heat Exchanger
Manufacture Co., Ltd as follows:

     

    
      	
              1.

            	
              Party
      B has the right to decide on the use, transfer or disposal of Party A’s assets
      (excluding original credit and debt, all credits and debts of the
      predecessor company shall be disposed and cleared off by Party A prior to
      the signing of the agreement);

            

    

     

    
      	
              2.

            	
              Party
      B has the right to decide on the use, transfer and disposal of the brands,
      patents and market qualification of Party
A;

            

    

     

    
      	
              3.

            	
              Party
      B shall be responsible for the continuation and management of original
      social resources and government
relations;

            

    

     

    
      	
              4.

            	
              Party
      B shall have the right to appoint and use the personnel of Party A and
      decide on the employment, evaluation and dismissal of such
      personnel;

            

    

     

    
      	
              5.

            	
              Party
      B shall have the right to decide on the operation of Party A including
      R&D, production and marketing, and be responsible for the development
      of business, as well as conclusion and performance of
      contracts;

            

    

     

    
      	
              6.

            	
              Party
      B shall be responsible for the suppliers management, customer relationship
      management and scientific and technological project initiation
      management;

            

    

     

    
      	
              7.

            	
              Party
      B shall be responsible for the major issues such as financial accounting,
      annual inspection by industrial and commercial administration, tax payment
      and profit distribution and so on;

            

    

     

    
      	
              8.

            	
              Party
      B shall have the right to decide on any other matters within the scope of
      authority in the business management of Party
A.

            

    

     

    To ensure
the smooth implementation of the above work, Party A shall undertake the
following responsibilities:

     

    
      	
              1.

            	
              Divestiture,
      disposal and liquidation of all credits and debts prior to the signing of
      the agreement within a half year after the commencement of the
      acquisition. Any disputes arising from the credit and debt during the
      acquisition shall be dealt with by Party A and if the acquisition is
      hindered due to the disputes Party A shall be held
      responsible;

            

    

     

    
      	
              2.

            	
              Party
      A shall be responsible for all affairs that need the legal representative
      to solve in person;

            

    

     

    
      	
              3.

            	
              Party
      A shall be responsible for the connection of relationships with customers,
      government, shareholders and
suppliers;

            

    

     

    
      	
              4.

            	
              Party
      A shall be responsible for providing Party B all information, materials
      and reports needed for operation and ensure the truth, completeness and
      timeliness thereof;

            

    

     

    
      	
              5.

            	
              Party
      A shall be responsible for handling the formalities for the transfer of
      all tangible and intangible assets;

            

    

     

    
      	
              6.

            	
              Party
      A shall have the obligation to explain to all staff the acquisition
      process and reason and help Party B stabilize the existing
      staff.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	
              IV.

            	
              Acquisition
      price

            

    

     

    After
friendly consultation by both parties, as for the above listed assets Party B
shall pay RMB 54 million yuan (RMB fifty-four million yuan) to Party A in cash,
and Party B’s
holding company SmartHeat Inc. will issue 300,000 restricted common shares to
the management of Part A.  The specific description of the
consideration for the acquisition is as follows:

     

    
      	
              1.

            	
              The
      acquisition price does not include all the credits and debts of Party A
      prior to the signing of the agreement, Party A shall be responsible for
      the original credits and debts and cooperate with Party B in collecting
      the receivables. Party B shall bear any losses caused to Party A owing to
      the reason of Party B;

            

    

     

    
      	
              2.

            	
              Before
      Party B entering Party A for management the business in trust, the raw
      material costs and relevant sales expense that have been put in for the
      contracts that have not been completed shall be disposed after the
      confirmation by both parties. For the contracts that have been completed,
      Party A shall be responsible for the settlement of the payment for goods
      and tax refunds and the specific time and method shall be separately
      discussed by both parties;

            

    

     

    
      	
              3.

            	
              Party
      B shall bear all the taxes and fees caused by the
    acquisition;

            

    

     

    
      	
              4.

            	
              In
      case any part of the asset listed in the Asset list can’t be
      transferred to Party B according to the agreement due to Party A’s reason
      (except those that are transferred according to the writing agreement
      reached by both parties in terms of specific transfer method and time), an
      agreement shall be reached additionally by both parties through
      negotiation to reduce the quantity of assets to be acquired and the
      payment correspondingly.

            

    

     

    
      	
              V.

            	
              Implementation
      of acquisition

            

    

     

    This
agreement is implemented after the boards of directors of Party A and Party B
approve the proposal on assets acquisition. In the course of the implementation,
it should be guaranteed that the two parties hereto enjoy and bear equivalent
interests and risks. Detailed implementation steps are as follows (the
resolution of the boards of directors of Party A and Party B on approving the
assets acquisition shall be deemed as appendices to this
agreement):

     

    Step I: Party B pays Party A the
earnest of RMB 3,000,000.00 yuan (RMB three million yuan) to the designated
account of Party A, and Party A shall, after receiving the earnest, carry out
overall inventory check over the assets listed in the Asset list jointly with
Party B.

     

    If the
following cases occur in the implementation of Step I, Party A shall return the
earnest in full amount and the rest paid sum and interest incurred to Party
B, and promise that Party B shall have the right to mortgage or pledge the
existing land, housing and relevant equipment listed in the Asset list, as a
guarantee for refunding the above-mentioned money by Party A.

     

    
      	
              1.

            	
              Termination
      of this agreement caused by the fact that it is found that the assets have
      material discrepancy or have changed in the course of assets inventory
      check;

            

    

     

    
      	
              2.

            	
              Termination
      of the agreement proposed by Party A unilaterally for
      non-payment.

            

    

     

    Step II:
If there is no discrepancy found in the subject assets inventory check, Party B
shall within 7 days pay Party A RMB 7,250,000.00 (RMB seven million two hundred
and fifty thousand Yuan) to the designated account of Party A as the first
sum of assets acquisition payment. After Party A receives this sum of
payment, Party B shall enter the business and receive all the subject assets
(including physical assets, related formalities and certificates, etc.),
existing raw materials in stock, and other material assets; and take over the
business management right of the business (including the power of attorney of
corporate, the company’s official seal, special seal for financial affairs,
business license, tax registration certificate, etc. as the handover &
takeover of assets between the two parties hereto). And Party A shall assist
Party B in going through the transfer procedures of the abovementioned subject
assets, including house property, land, trademark right, etc., and the expenses
arising therefrom shall be borne by Party B.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    In the
implementation of step II, if the following cases occur, Party A shall return
all the earnest and the first sum of assets acquisition payment to Party
B:

     

    
      	
              1.

            	
              The
      performance of the agreement becoming impossible resulted by the main
      subject assets (factory buildings and land) being unable to be transferred
      due to Party A’s reason;

            

    

     

    
      	
              2.

            	
              Termination
      of the agreement proposed by Party A unilaterally for
      non-payment.

            

    

     

    Step III:
After the transfer procedures of such assets as house property, land and trade
mark are completed, the two parties hereto shall formally carry out handover
& takeover. Party A shall assist Party B in going through all the transfer
procedures within the contractual period. Party B shall pay Party A the second
sum of acquisition payment of RMB 10,250,000.00 yuan (RMB ten million two
hundred and fifty thousand Yuan) on June 30, 2009.

     

    Step IV:
Party B shall pay Party A RMB 13,000,000.00 yuan (RMB thirteen million yuan) and
RMB 12,300,000.00 yuan (RMB twelve million three hundred thousand Yuan)
respectively on Sept. 30, 2009 and March 1, 2010, as part of the acquisition
payment. Party B shall pay Party A the rest part of payment of RMB 8,200,000.00
yuan (RMB eight million two hundred thousand Yuan) on Sept. 30,
2010.

     

    
      	
              VI.

            	
              Placement
      of existing personnel

            

    

     

    Party B
shall consider employing some of the existing personnel of Party A who meet
Party B’s requirements.

     

    
      	
              VII.

            	
              Prohibition
      of business strife

            

    

     

    As the
shareholders of Party A, Li Shufeng and Wang Shu promise Party B not
to engage in any work and business that have competitive relationship with
Party B, not to invest and establish any business that bears competitive
relationship with Party B, not to work in any business that bears competitive
relationship with Party B and not to engage in any other acts that may bring
about or form competitive relationship with Party B. The binding period of
prohibition of business strife shall be 3 years commencing from the date
when the assets acquisition is finished.

     

    If Li
Shufeng and Wang Shu violate the provisions of this article, they shall pay
Party B RMB 1 million yuan as the penalty; in case that the actual loss caused
by their violation to the provisions exceeds the amount of the penalty, they
shall further pay Party B a sum of money at the amount of the
balance.

     

    
      	
              VIII.

            	
              Miscellaneous

            

    

     

    
      	
              1.

            	
              As
      for the matters of applying for national project fund support, Party B
      promises to strictly follow the project requirements for the projects, and
      Party A shall assist Party B in handling the allocation matters of the
      project fund (RMB nine million seven hundred thousand Yuan). The fund
      shall belong to Party B after
allocated;

            

    

     

    
      	
              2.

            	
              The
      agreement is a conventional agreement of the two parties hereto. If Party
      B needs to further conclude assets transfer agreements or sign related
      documents as per the information disclosure requirements of listed
      companies, Party A shall provide cooperation. But in practical execution,
      both Parties hereto shall take the provisions on assets acquisition,
      payment, etc. of this agreement as the
  criterion;

            

    

     

    
      	
              3.

            	
              After
      the handover & takeover of the business between the two parties hereto
      is finished, if Party B fails to pay the acquisition payment on time for
      its own reason, it shall pay Party A overdue fine equal to 1‰ of the
      overdue unpaid amount per day. If Party B’s payment is more than 60 days
      overdue, Party A shall have the right to claim the management right back,
      and Party B shall compensate Party A for the actual loss of Party
      A;

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    
      	
              4.

            	
              After
      this agreement comes into force, in case that Party A’s assets (tangible
      and intangible) have undergone transfer during the period of management by
      Party B in trust, Party B shall not withdraw from the
      acquisition;

            

    

     

    
      	
              5.

            	
              The
      appendices to this agreement shall be of the same legal force with
      this agreement.

            

    

     

    
      	
              IX.

            	
              Effect
      and rescission of agreement

            

    

     

    This
agreement is made in quadruplicate with each of the two parties hereto holding
two copies, and shall come into force upon Party A and Party B’s affixing their
seals and their legal or authorized representatives’ signing.

     

    If this
agreement is terminated by two parties hereto, the follow-up related matters
shall be handled according to the provisions of this agreement. If this
agreement can’t be implemented because of Force Majeure, it shall be rescinded
and related matters shall be handled as per relevant laws of the
country.

     

    Party A:
Siping Beifang Heat Exchanger Manufacture Co., Ltd

     

    Legal
Representative: /s/ Li Shufeng, President

     

    Date: May
27, 2009

     

    Party B:
Shenyang Taiyu- Machinery and Electrical Equipment Co., Ltd

     

    Legal
Representative: /s/ Wang Jun, President

     

    Date: May
27, 2009

     

    
      
         

      

      
        6

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