8-K

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):  July 3, 2009

SMARTHEAT, INC.

(Exact Name of Registrant as Specified in its Charter)

Nevada	000-53052	98-0514768
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

A-1, 10, Street 7

Shenyang Economic and Technological Development Zone

Shenyang, China 110027

(Address of Principal Executive Offices)   (Zip Code)

+86 (24) 2519-7699

(Registrant’s Telephone Number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨  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

On July 3, 2009, SmartHeat, Inc. (the “Company”) entered into a Senior Loan Agreement with an institutional investor (the “Lender”) to obtain a loan in the amount of US $9,000,000.00 (the “Agreement”).

Under the terms of the Agreement, the Company agreed to a simple interest rate of 10% per annum payable quarterly beginning on September 30, 2009. The principal amount and any unpaid interest accrued thereon are due six (6) months from the date of the Agreement.

The Lender may demand payment of principal and interest three (3) months from the date of the Note, in the event of a change of control or upon material organic changes to the Company. The terms of any subsequent financing must meet with Lender’s consent.

The loan is evidenced by the Senior Loan Agreement and a 10% Senior Promissory Note (the “Note”) in the amount of US $9,000,000.00.

The foregoing descriptions of the Senior Loan Agreement and the Senior Promissory Note are qualified in their entirety by reference to the full text of those documents, which are attached hereto as Exhibits 10.16 and 10.17 respectively, and are incorporated herein by reference.

ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION

The information set forth under Item 1.01 is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(a) Not applicable.

(b) Not applicable.

(c) Exhibits.  The following exhibits are filed with this report:

Exhibit Number	Description
10.16	Senior Loan Agreement dated July 3, 2009.
10.17	10% Senior Promissory Note dated July 3, 2009.
99.1	Press Release, SmartHeat Inc. Completes $9 Million Credit Financing, to Report 2nd Quarter Financial Results before August 15, 2009, dated July 7, 2009.

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.

Dated: July 7, 2009

SMARTHEAT INC.
By:	/s/ Jun Wang
Name:	Jun Wang
Title:	Chairman & Chief Executive Officer

EX-10.16

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 A-1, 10, Street 7 Shenyang Economic and Technological Development Zone Shenyang, China 110027 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, 24 De Castro Street, Wickhams 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 J.P. Morgan 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 EDGAR 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 Newman Law Firm IOLA 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 Newman Law Firm shall confirm receipt of the funds to Lender in writing and all funds held in the Newman Law Firm IOLA 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:

A-1, 10, Street 7

Shenyang Economic and Technological Development Zone

Shenyang, China 110027

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With a copy to (which copy shall constitute notice):

The Newman Law Firm, PLLC

14 Wall Street, 20th Floor

New York, NY 10005

Attention: Robert Newman

If to the Lender.

Akara Bldg, 24 De Castro Street,

Wickhams 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

SMARTHEAT INC.
By:	/s/James Wang
	Name: James Wang
	Title: President & Chief Executive Officer
SHENYANG TAIYU MACHINERY &
ELECTRONIC EQUIPMENT CO, LTD.
By:	/s/James Wang
	Name: James Wang
	Title: President and Chief Executive Officer
STRONG GROWTH CAPITAL, LTD
By:	/s/ Venlaw Consultants Co. Inc.
	Authorized
	Signatory:  Corporate Directors

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EX-10.17

 

SMARTHEAT INC.

SHENYANG TAIYU MACHINERY & ELECTRONIC CO, LTD

10% Senior Promissory Note

Issuance Date: July 3, 2009	New York, NY
Principal Amount: U.S. $ 9,000,000.00

For value received, SMARTHEAT INC., a Nevada corporation, andTaiyu Machinery & Electronic Equipment Co, Ltd.., a company organized under the Peoples Republic of China  (jointly and severally, the “ Maker”), hereby promises to pay to the order of Strong Growth Capital, Ltd, a British Virgin Islands company with an address of Akara Bldg, 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands (together with its successors, representatives, and permitted assigns, the “Holder”), in accordance with the terms hereinafter provided and subject to the terms and conditions of the Senior Loan Agreement by and between the Maker and the Holder, dated the even date hereof (the “Senior Note Agreement”), the principal amount of NINE MILLION U.S. DOLLARS AND ZERO CENTS (U.S.$9,000,000.00), together with interest thereon.

All payments under or pursuant to this Note shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to the Maker or by wire transfer of funds to the Holder’s account, as requested by the Holder.  The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on January 4, 2010 (the “Maturity Date”) or at such earlier time as provided herein.

ARTICLE I

PAYMENT

Section 1.1       Interest.  Beginning on the date of this Note (the “Issuance Date”), the outstanding principal balance of this Note shall bear interest at a rate per annum equal to ten percent (10%), payable in U.S. dollars, payable quarterly commencing on September 30, 2009 and thereafter on the last day of the month in each quarter (“Interest Payment Date”).  Interest shall be computed on the basis of a 365-day year, simple interest, and shall accrue commencing on the Issuance Date.  Furthermore, upon the occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker will pay interest to the Holder, payable on demand, on the outstanding principal balance of and unpaid interest on the Note from the date of the Event of Default until such Event of Default is cured at the rate of the lesser of sixteen percent (16%) and the maximum applicable legal rate per annum. This Note shall hold a senior position to any other debt of the Maker.

Section 1.2       Payment of Principal; Prepayment.   The Principal Amount hereof shall be paid in full on the earliest of (i) the Maturity Date, (ii) the due date of any mandatory prepayment as set forth herein (such prepayment pursuant to this clause (ii) to be in part if sufficient funds are not available for application pursuant to Section 1.5 hereof), or (iii) upon acceleration of this Note in accordance with the terms hereof. Any amount of principal repaid hereunder may not be reborrowed.  The Maker may prepay all or any portion of the principal amount of this Note without premium or penalty.

Section 1.3       Payment on Non-Business Days.  Whenever any payment to be made shall be due on a Saturday, Sunday or a holiday recognized by the branch offices J.P. Morgan Bank located in New York City, NY, such payment may be due on the next succeeding business day.

Section 1.4       Use of Proceeds.  The Maker shall use the proceeds of this Note only for general working capital.

Section 1.5       Mandatory Prepayment.  Notwithstanding anything to the contrary contained herein, upon the earliest to occur of (i) 90 days from the date hereof, (ii) Maker’s receipt of any financing from any source in any amount, (iii) any change of control, as solely determined by the Holder, of the Maker, (iv) any material change of the Maker’s business and financial position, as solely determined by the Holder, (v) any change to the shareholdings of any person under a 3 year share lockup agreement entered by certain insiders of the Maker, whose shares are currently in escrow custody with law firm Buchanan, Ingersoll & Rooney or (vi) departure of any members of management of the Maker including those who may or may not hold shares of the Makers’s common stock, as solely determined by the Holder. In each case the entire outstanding principal amount of this Note, and all interest due thereon shall become payable upon demand of the Holder. 

ARTICLE II

EVENTS OF DEFAULT;  REMEDIES

Section 2.1       Events of Default.  Unless waived in writing by the Holder, the occurrence of any of the following events shall be an “Event of Default ” under this Note:

(a)           any default in the payment of (1) the principal amount hereunder when due, or (2) interest on this Note when the same shall become due and payable (whether on the Maturity Date, Interest Payment Date, the date of any mandatory prepayment, by acceleration or otherwise); or

(b)           the Maker shall fail to observe or perform any other covenant or agreement contained in this Note or the Senior Loan Agreement; or

(c)           any material representation or warranty made by the Maker herein or in the Senior Note Agreement shall prove to have been false or incorrect or inaccurate or breached in a material respect on the date as of which made; or

(d)           the Maker shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors’ rights generally, (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (vi) issue a notice of bankruptcy or winding down of its operations or issue a press release regarding same, or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; or

(e)           a proceeding or case shall be commenced in respect of the Maker, without its application or consent, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Maker, or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of thirty (30) days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Maker or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Maker and shall continue undismissed, or unstayed and in effect for a period of thirty (30) days.

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Section 2.2       Remedies Upon An Event of Default.  If an Event of Default shall have occurred and shall be continuing, the Holder of this Note may, at any time, at its option, declare the entire unpaid principal balance of this Note, together with all interest accrued hereon, due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Maker.    The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Holder’s right to pursue actual damages for any failure by the Maker to comply with the terms of this Note.

ARTICLE III

MISCELLANEOUS

Section 3.1        Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, at the address set forth on the signature page hereto (in the case of the Maker) or above (in the case of the Holder) (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received),  (b) on the second business day following the date of mailing by an internationally recognized overnight courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur or (c) by email, telefax or other electronic means to the email address and telfax number listed below.  Copies of such notice shall be delivered by any of the foregoing means to Robert Newman, Esq., The Newman Law Firm, PLLC, 14 Wall Street, New York, NY 10005, Fax (212) 202-6055, and such delivery shall constitute effective notice to the Maker hereunder. 

Section 3.2        Governing Law; Drafting; Representation.  This Note shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Note shall not be interpreted or construed with any presumption against the party causing this Note to be drafted.  

Section 3.3        Headings.  Article and section headings in this Note are included herein for purposes of convenience of reference only and shall not constitute a part of this Note for any other purpose.

Section 3.4       Binding Effect; Amendments.  The obligations of the Maker and the Holder set forth herein shall be binding upon the successors and assigns of each such party.  This Note may not be modified or amended in any manner except in writing executed by the Maker and the Holder.

Section 3.5       Consent to Jurisdiction.  Each of the Maker and the Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Note and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Each of the Maker and the Holder consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it hereunder and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

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Section 3.6       Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

Section 3.7       Maker Waivers; Dispute Resolution.  Except as otherwise specifically provided herein, the Maker and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Maker liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

(a)           No delay or omission on the part of the Holder in exercising its rights under this Note, or course of conduct relating hereto, shall operate as a waiver of such rights or any other right of the Holder, nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion.

(b)           THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed by its duly authorized officer as of the date first above indicated.

SMARTHEAT INC.
By:	/s/ James Wang
Name:	James Wang
Title:	President and Chief Executive Officer
SHENYANG TAIYU MACHINERY & ELECTRONIC CO, LTD EQUIPMENT CO, LTD..
By:	/s/James Wang
Name:	James Wang
Title:	President and  Chief Executive Officer
Address of Maker: A-1, 10, Street 7 Shenyang Economic and Technological Development Zone Shenyang, China 110027

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EX-99.1

SmartHeat Inc. Completes $9 Million Credit Financing, to Report 2nd Quarter Financial Results before August 15, 2009

NEW YORK, July 7, 2009 /PRNewswire-Asia/ — SmartHeat Inc. (Nasdaq: HEAT - News; website: www.smartheatinc.com), a market leader in China's clean technology, energy savings industry announces today that SmartHeat has completed a $9 million credit facility with an institutional investor that provides the Company with a six month loan carrying an interest rate of 10% annually to fund 3rd quarter cash flows and operations.

This credit financing has no dilution to SmartHeat shareholders. The 3rd quarter is historically SmartHeat’s strongest quarter in a year. As previously announced, SmartHeat is a direct beneficiary of China’s national drive for cleaner environment through clean technology.

SmartHeat’s second quarter earnings are expected to be released before August 15, 2009.

James Jun Wang, CEO of SmartHeat, commented: "As SmartHeat’s largest shareholders, our management team has voluntarily locked up their entire shareholdings for 3 years until January 2012. Our vested interest is with our shareholders. SmartHeat is highly sensitive to shareholder dilution in any financing activities. Today’s completion of the $9 million credit financing not only causes no dilution to our shareholders but also provides sufficient cash flow as we enter our busiest and the strongest quarter in a year. This financing allows SmartHeat to continue its current growth momentum of winning significant customer orders in a favorable market environment."

About SmartHeat Inc.

Founded by James Jun Wang, a former executive at Honeywell China, SmartHeat Inc. (www.smartheatinc.com) is a Nasdaq Global Market listed (Nasdaq: HEAT - News) US company with its primary operations in China. SmartHeat is a market leader in China's clean technology energy savings industry. SmartHeat manufactures standard plate heat exchangers, custom plate heat exchanger units and heat meters. SmartHeat's products directly address air pollution problems in China where massive coal burning for cooking and heating purposes is the only source of economical heat energy in China. With broad product applications, SmartHeat's products significantly reduce heating costs, increase energy use and reduce air pollution. SmartHeat's customers include global Fortune 500 companies as well as municipalities and industrial/residential users. China's heat transfer market is currently estimated at approximately $2.4 billion with double-digit annual growth according to China Heating Association.

Safe Harbor Statement

All statements in this press release that are not historical are forward- looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. SmartHeat's actual results may differ from its projections. Further, preliminary results are subject to normal year-end adjustments. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect SmartHeat's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in SmartHeat's filings with the Securities and Exchange Commission.

Contact Information:

Ms. Jane Ai, Corporate Secretary

SmartHeat Inc.

Tel: 011-86-13309831658

Email: info@SmartHeatinc.com