Item 1.01 Entry Into A Material Definitive Agreement.
Share Exchange Agreement
General Terms, Effects, and Consideration
On December 22, 2016, American Lorain Corporation
(
Lorain
or the
Company
) entered into a Share Exchange
Agreement with Shengrong Environmental Protection Holding Company Limited, a
business company incorporated in the British Virgin Islands with limited
liability (
Shengrong
), and each of Shengrongs shareholders
(collectively, the
Sellers
), pursuant to which, among other things and
subject to the terms and conditions contained therein, the Company will effect
an acquisition of Shengrong and its subsidiaries, including Hubei Shengrong
Environmental Protection Energy-Saving and Technology Co. Ltd., a registered
company in Hubei China (
Hubei Shengrong
and collectively with Shengrong
and their respective subsidiaries, the
Shengrong Group
) by acquiring
from the Sellers all outstanding equity interests of Shengrong (the
Acquisition
).
Pursuant
to the Share Exchange Agreement, in exchange for all of the outstanding shares
of Shengrong, the Company will issue 114,000,000 shares of common stock of
Lorain (the
Exchange Shares
) to the Sellers. The Exchange Shares will
be allocated among the Sellers pro-rata based on each Sellers ownership of
Shengrong prior to the Acquisition. The Exchange Shares will be subject to a
lock-up as set forth in the Lock-Up Agreement as described below under the
heading Lock-Up Agreement.
Representations and Warranties
The
Share Exchange Agreement contains a number of representations and warranties
made by the Company, on the one hand, and Shengrong and the Sellers on the other
hand, made solely for the benefit of the other, which in certain cases are
subject to specified exceptions and qualifications contained in the Share
Exchange Agreement or in information provided pursuant to certain disclosure
schedules to the Share Exchange Agreement. The representations and warranties
are customary for transactions similar to the Acquisition.
The
Share Exchange Agreement also contains certain customary covenants by each of
the parties during the period between the signing of the Share Exchange
Agreement and the earlier of the Closing or the termination of the Share Exchange
Agreement in accordance with its terms, including but not limited to covenants
regarding (1) the operation of their respective businesses in the ordinary
course of business, (2) confidentiality and publicity, (3) no solicitation of
other competing transactions, and (4) a spin-off of all of the existing assets
of Lorain prior to or promptly following the closing of the Acquisition.
Conditions to Closing
The
obligation of the parties to complete the Acquisition is subject to the
fulfillment of certain closing conditions, including but not limited to:
-
the approval of the Share Exchange Agreement and the transactions
contemplated thereby (including the Acquisition) by a majority of the
Companys shareholders;
-
all necessary consents from government authorities and third parties have
been obtained;
-
the election of certain directors to serve as directors on Lorains board
of directors;
-
the entrance by the applicable parties into certain ancillary agreements,
including the Lock-Up Agreement and the Non-Competition and Non-Solicitation
Agreement; and
-
no adverse effect has occurred to any party as of Closing.
A
copy of the Share Exchange Agreement is filed with this Current Report on Form
8-K as Exhibit 10.1 and is incorporated herein by reference, and the foregoing
description of the Share Exchange Agreement is qualified in its entirety by
reference thereto.
Lock-Up Agreement
At
the closing of the Acquisition, the Company and Shengrong will enter into a
Lock-Up Agreement with the Sellers, in substantially the form attached to the
Share Exchange Agreement, with respect to the Exchange Shares received by the
Sellers in the Acquisition. In such Lock-Up Agreement, each Seller will agree
that such Seller will not, from the closing of the Acquisition until the first
anniversary of the closing (or if earlier, the date on which the Company
consummates a liquidation, merger, share exchange or other similar transaction
with an unaffiliated third party that results in all of the Companys
shareholders having the right to exchange either equity holdings in us for cash,
securities or other property) (the
Lock-up Period
), (i) lend, offer,
pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any Exchange Shares, (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Exchange Shares or (iii) publicly disclose the
intention to do any of the foregoing, whether any such transaction described in
clauses (i), (ii), or (iii) above is to be settled by delivery of Exchange
Shares or other securities, in cash or otherwise.
The
form of the Lock-up Agreement contains certain exceptions to the foregoing
restrictions. Each Seller will be allowed to transfer any of its Exchange Shares
by gift, will or intestate succession or to any affiliate, stockholder, members,
party or trust beneficiary, provided in each such case that the transferee
thereof agrees to be bound by the restrictions set forth in the Lock-up
Agreement. Additionally, each Seller will be allowed to pledge its Exchange
Shares to an unaffiliated third party as a guarantee to secure loans made by
such third party to Shengrong or any of its subsidiaries. The form of the
Lock-Up Agreement is filed with this Current Report on Form 8-K as Exhibit 10.2
and is incorporated herein by reference, and the foregoing description of the
Lock-Up Agreement is qualified in its entirety by reference thereto.
Non-Competition and Non-Solicitation Agreement
At
the closing of the Acquisition, certain Sellers and individuals associated with
such Sellers that are involved in the management of Shengrong (together with
such Seller referred to as the
Subject Parties
) will enter into
Non-Competition and Non-Solicitation Agreements in favor of Lorain, Shengrong
and their respective successors, affiliates and subsidiaries (referred to as the
Covered Parties
), in substantially the form attached to the Share
Exchange Agreement, relating to post-acquisition business of the Company (the
Business
) in the industrial waste management in the Peoples Republic
of China (the
PRC
). Under the Non-Competition and Non-Solicitation
Agreements, for a period from the closing of the Acquisition to four years
thereafter (or if later, the date on which the Subject Parties, their respective
affiliates or any of their respective officers, directors or employees are no
longer directors, officers, managers or employees of Shengrong or its
subsidiaries), each Subject Party and its affiliates will not, without the
Companys prior written consent, anywhere in the PRC, directly or indirectly
engage in (or own, manage, finance or control, or become engaged or serve as an
officer, director, employee, member, partner, agent, consultant, advisor or representative of, an
entity that engages in) the Business. However, the Subject Parties and their
respective affiliates will be permitted under the Non-Competition and
Non-Solicitation Agreements to own passive portfolio company investments in a
competitor, so long as the Subject Parties and their affiliates and their
respective shareholders, directors, officer, managers and employees who were
involved with the business of Shengrong and its subsidiaries are not involved in
the management or control of such competitor. Additionally, family members and
associates of Subject Parties will be permitted to continue their existing
activities as specified in the agreement, even if competitive, as long as the
Subject Parties are not involved in the management or control of such
competitor. Under the Non-Competition and Non-Solicitation Agreements, during
such restricted period, the Subject Parties also will not, without the Companys
prior written consent, (i) solicit or hire the Covered Parties employees,
consultants or independent contractors as of the closing (or during the year
prior to the closing) or otherwise interfere with the Covered Parties
relationships with such persons, (ii) solicit or divert the Covered Parties
customers as of the closing (or during the year prior to the closing) relating
to the Business or otherwise interfere with the Covered Parties contractual
relationships with such persons, or (iii) interfere with or disrupt any Covered
Parties vendors, suppliers, distributors, agents or other service providers for
a purpose competitive with a Covered Party as it relates to the Business. The
Subject Parties will also agree in each Non-Competition and Non-Solicitation
Agreement to not disparage the Covered Parties and to keep confidential and not
use the confidential information of the Covered Parties.
A
form of the Non-Competition and Non-Solicitation Agreement is filed with this
Current Report on Form 8-K as Exhibit 10.3 and is incorporated herein by
reference, and the foregoing description of the Non-Competition and
Non-Solicitation Agreement is qualified in its entirety by reference thereto.
About Shengrong
Overview
Shengrongs
operating subsidiary, Hubei Shengrong, was formed in 2009. Since inception,
Hubei Shengrong has been focused on the research, development, production and
sale of solid waste recycling systems for the mining and industrial sectors in
the PRC. During the year ended December 31, 2015 and the nine months ended
September 30, 2016, Hubei Shengrong generated approximately $23.9 million and
$20.5 million, respectively, of revenue, and approximately $7.5 million and $6.6
million, respectively, of net income, from sales of its solid waste recycling
systems. Hubei Shengrong is a pioneer in China for the achievement of zero
emission of manganese tailings recycling projects. Hubei Shengrong is also a
pioneer in the separation of titanium dioxide pigment black tailings.
Competitive Advantages
Hubei
Shengrongs management believes that the following competitive strengths
differentiate the company from its competitors and are the key factors to its
success:
Hubei Shengrong is addressing a large unmet market need
and taking advantage of the trend in the PRC for green technology
According
to the China Environmental Status Bulletin, since 2011, approximately 3 billion
tons of industrial solid waste have been generated annually on average. On March
16, 2016, the National Peoples Congress in the PRC issued the Thirteenth Five
Year Plan for Economic and Social Development, in which the government
established a national policy to preserve natural resources and protect the
environment. According to the Notification for National Science and Technology
Creation Plan in Thirteenth Five Year Plan issued by the PRC State Counsel on
July 28, 2016, the government encouraged the stimulation of green technology to
preserve water and mining resources.
Leading provider of recycling technology for solid
industrial and mining waste
Using
Hubei Shengrongs high-tech systems, end users recycle refractory metal mineral
tailings, including but not limited to copper, iron, manganese and molybdenum
tailings and aluminum slag, and low grade metal minerals, into valuable metals
and construction materials, leaving no waste discharge. Based on their extensive
experience in the industry, Hubei Shengrong management believes
that Hubei Shengrong is a leading enterprise in the PRC in the design,
engineering, manufacture and sale of solid waste recycling systems for the
mining and industrial sectors in the PRC.
Hubei Shengrongs innovative, high efficiency technology has been recognized by
various government and industry agencies, including the PRC Ministry of Land and
Resources, the PRC Ministry of Industry and Information and the PRC Ministry of
Science and Technology. Hubei Shengrongs manganese tailings separation and
comprehensive utilization technology was included in the 2013 Ministry of
Industry and Information Technology (MIIT) Advanced Applicable Technology
Directory. High efficiency permanent magnetic separation and comprehensive
utilization system technology was included in the 2014 Ministry of Land and
Resource Mineral Resources Saving and Comprehensive Utilization Advanced
Applicable Technology Directory.
Experienced management and operational team
Hubei
Shengrongs senior management team and key operating personnel have extensive
management skills, relevant operating experience and industry knowledge.
Ms. Jiazhen Li, Chairman
Ms.
Li has over seven years of work experience in environmental protection equipment
and industrial waste recycling and utilizing area. She co-founded Hubei
Shengrong Environmental Protection and Energy Saving Technology Co. Ltd. in
2009. Ms. Li won the third prize of Tech-Innovation Award issued by the Wuhan
City Government in 2010, and under her leadership, her team won the second place
in the China (Shenzhen) Innovation Tournament 2011. Ms. Li is also the
co-inventor of multiple important patents owned by the Company. Ms. Li served as
the Director of Sales for Wuhan Textile Industry Co. Ltd during the period from
1983 to 1995. She founded Wuhan Mingjia Trading Co. Ltd in 1995. Wuhan Mingjia
is engaged in the business of fashion design, manufacture, marketing and
distribution. Wuhan Mingjia owns two fashion brands, MG and Mingjia Guixiu,
in China. Ms. Li actively serves as the Vice President of Hubei Wuhan Qiaokou
District Commercial and Industrial Association. Ms. Li graduated from Beijing
College of Economics and Management with a bachelor degree in Marketing and
obtained her MBA degree from Welsh College of Wuhan University.
Mr. Xiaonian Zhang, Chief Executive Officer
Mr.
Zhang co-founded Hubei Shengrong Environmental Protection and Energy Saving
Technology Co. Ltd. in 2009. From 1974 to 1999, Mr. Zhang worked in the Wuhan
subsidiary of Sinopec Corp. as an engineer and chief engineer. Mr. Zhang won
multiple science and technology innovation awards from Sinopec Corp. From 1999
to 2008, Mr. Zhang served as the head of the technology department in Wuhan
Tongchuang Tiannian Magnetoelectric Technology Co. Ltd. Mr. Zhang has been
involved in the development of technologies high efficiency permanent magnetic
separation of industrial solid wastes and comprehensive utilization of tailings
over the past forty years. He has led projects of petroleum catalyst magnetic
separating system and manganese carbonate tailings comprehensive utilization,
manganese oxide river sand comprehensive recycling and hematite comprehensive
recycling, titanium dioxide pigment black tailings comprehensive separating and
ultra fine microsilica purifying. Mr. Zhang received his bachelor of Automatic
Control degree from Huazhong University of Science and Technology.