Item
1.01 Entry into a Material Definitive Agreement.
On
January 1, 2017, China Green Agriculture, Inc., a Nevada corporation (the “Company” or “CGA”), through
its wholly-owned subsidiary Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd., a company organized under the laws of the People’s
Republic of China (“Jinong”), as authorized by the board of directors of the Company and Jinong, entered into (i)
Strategic Acquisition Agreements (the “SAA”), and (ii) Agreements for Convertible Notes (the “ACN”), with
the shareholders of the companies as listed below (the “Targets”). The transaction represented by the SAA, ACN and
the VIE Agreements as defined below are collectively referred to as the “Strategic Acquisitions.”
|
Company Name
|
|
Business Scope
|
|
Cash Payment for Acquisition
(RMB
[1]
)
|
|
|
Principal of Notes for Acquisition
(RMB)
|
|
|
Sunwu County Xiangrong Agricultural Materials Co., Ltd.
|
|
Sales of pesticides, agricultural chemicals, chemical fertilizers, agricultural materials; Manufacture and sales of mulches.
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
|
Anhui Fengnong Seed Co., Ltd.
|
|
Wholesale and retail sales of pesticides; Sales of chemical fertilizers, packaged seeds, agricultural mulches, micronutrient fertilizers, compound fertilizers and plant growth regulators
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
|
Total
|
|
|
|
|
8,000,000
|
|
|
|
12,000,000
|
|
|
|
[1]
|
RMB:
Abbreviation for renminbi, the official currency of the People’s Republic of China where Jinong and the Targets operate.
The exchange rate between RMB and U.S. dollars on January 1, 2017 is RMB1=US$0.144, according to the exchange rate published
by Bank of China.
|
Pursuant
to the SAA and the ACN, the shareholders of the Targets, while be in possession of the equity interests and will continue to be
the legal owners of such interests, agreed to pledge and entrust all of their equity interests, including the proceeds thereof
but excluding any claims or encumbrances, and the operations and management of its business to Jinong, in exchange of an aggregated
amount of RMB8,000,000 (approximately $1,152,000) to be paid by Jinong within three days following the execution of the SAA, ACN
and the VIE Agreements, and convertible notes with an aggregated face value of RMB12,000,000 (approximately $1,728,000) with an
annual fixed compound interest rate of 3% and term of three years.
The
SAA contains representations and warranties by both Jinong and the shareholders of the Targets including:
Should
the shareholders of the Targets fail to satisfy the conditions listed in the exhibit to the SAA, i.e., the entry into the VIE
Agreements, as defined below or are in breach of any representations or warranties in the SAA, other than the direct and consequential
damages that may cause to Jinong, they shall pay RMB100,000 (approximately $14,400) as a breach make up.
The
shareholders of the Targets agree and ensure its main management members and technology persons to agree and enter into Non-Compete
Agreements which shall prohibit any direct or indirect operation, holding of equity interests of the same or similar business
of the Targets, its customers or suppliers, unless the operation of such an entity is through the Targets.
The
equity interests of the Targets do not have any form of Claims or Encumbrances, as such terms are defined in the SAA. The shareholders
of the Targets represented that there is no action, suit, arbitration, or legal proceeding pending or, currently threatened against
the Targets that would have a material adverse effect on the Target’s capacity to fulfill their contractual obligations.
The Targets shall have a minimum of 10% of annual compound growth rate (the “Growth Rate”) within the three (3) years
after the closing of the Strategic Acquisitions (the “Closing”).
According
to the SAA, all the existing employees will continue to be the employees of the Targets after the Closing based on the current
employment terms, subject to the decisions from the new board of the Targets to be formed after the Closing.
Under the ACN,
each convertible note (or note, as referred to below) has a face value of RMB100 with a term of three years and an annual fixed
compound interest rate of 3%. The convertible notes take priority over the preferred stock and common stock of Jinong, and any
other class or series of capital stocks Jinong issues in the future in terms of interests and payments in the event of any liquidation,
dissolution or winding up of Jinong. On or after the third anniversary of the issuance date of the note, which would be January
1
st
, 2020 (the “Mature Date”), noteholders may request Jinong to process the note conversion through mechanics
of conversion chosen by Jinong. The noteholder shall not have Jinong convert the note prior to the Mature Date and Jinong may
decline the conversion if the noteholder requests so. If the note is converted into the common stock of CGA, the noteholder will
become the holders of the common stock of CGA.
The
per share conversion price of the note is the higher of the following: (i) $5.00 per share or (ii) 75% of the closing price of
CGA’s on the date the noteholder delivers the conversion notice.
If
the profits of the Targets hit certain level of sales target set by the parties, i.e., the Growth Rate, Jinong may at its discretion,
convert the notes to (i) cash , (ii) equity of CGA, or (iii) to a combination of cash and equity of CGA, in the amount of the
face value of the notes with compound interest for three years.
Upon
the arrival of the Mature Date of the note, the noteholder can (i) requests Jinong to convert all or a part of the note; (ii)
continue to hold the note until such a holder delivers a conversion request at his/her will; however, if the holder chooses to
hold the note after the Mature Date, no interests shall accrue on the note after the three year term.
In
the event that the behavior of the Targets or noteholders materially impair Jinong or, if the annual compounded rate for sales
within the three years following the acquisition of any of the Targets by Jinong fail to achieve the sales target listed in the
SAA, or the Growth Rate, Jinong may request noteholders to redeem the shares they hold of the Targets with (i) amount represented
by the convertible notes including the accrued interests and the cash payment Jinong made on the Closing of the Strategic Acquisition
and (ii) 15% of the amount under (i) mentioned immediately prior to this item. However, the noteholder can elect to offset the
payment of the interests of the note by the annual increase rate the Targets realizes, despite a lower rate.
Jinong,
the Targets, and the shareholders of the Targets also entered into a series of contractual agreements for the Targets to qualify
as variable interest entities or VIEs (the “VIE Agreements”). The VIE Agreements are as follows:
Entrusted
Management Agreements
Pursuant
to the terms of certain Entrusted Management Agreements dated January 1, 2017, between Jinong and the shareholders of the Targets
(the “Entrusted Management Agreements”), the Targets and their shareholders agreed to entrust the operations and management
of its business to Jinong. According to the Entrusted Management Agreement, Jinong possesses the full and exclusive right to manage
the Targets’ operations, assets and personnel, has the right to control all of the Targets' cash flows through an entrusted
bank account, is entitled to the Targets' net profits as a management fee, is obligated to pay all of the Targets’ payables
and loan payments, and bears all losses of the Targets. The Entrusted Management Agreements will remain in effect until (i) the
parties mutually agree to terminate the agreement; (ii) the dissolution of the Targets; or (iii) Jinong acquires all of the assets
or equity of the Targets (as more fully described below under “Exclusive Option Agreements”).
Exclusive
Technology Supply Agreements
Pursuant
to the terms of certain Exclusive Technology Supply Agreements dated January 1, 2017, between Jinong and the Targets (the “Exclusive
Technology Supply Agreements”), Jinong is the exclusive technology provider to the Targets. The Targets agreed to pay Jinong
all fees payable for technology supply prior to making any payments under the Entrusted Management Agreement. The Exclusive Technology
Supply Agreements shall remain in effect until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution
of the Targets; or (iii) Jinong acquires the Targets (as more fully described below under “Exclusive Option Agreements”).
Shareholder’s
Voting Proxy Agreements
Pursuant
to the terms of certain Shareholder’s Voting Proxy Agreements dated January 1, 2017, among Jinong and the shareholders of
the Targets (the “Shareholder’s Voting Proxy Agreements”), the shareholders of the Targets irrevocably appointed
Jinong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC
law and the Articles of Association of the Targets, including the appointment and election of directors of the Targets. Jinong
agreed that it shall maintain a board of directors, the composition of which will be the members of the Board of CGA. The Shareholder’s
Voting Proxy Agreements will remain in effect until Jinong acquires all of the assets or equity of the Targets.
Exclusive
Option Agreements
Pursuant
to the terms of certain Exclusive Option Agreements dated January 1, 2017, among Jinong, the Targets, and the shareholders of the
Targets (the “Exclusive Option Agreements”), the shareholders of the Targets granted Jinong an irrevocable and exclusive
purchase option (the “Option”) to acquire the Targets’ equity interests and/or remaining assets, but only to
the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable
at any time at Jinong’s discretion so long as such exercise and subsequent acquisition of the Targets does not violate PRC
law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive
agreements setting forth the kind and value of such consideration. Jinong may transfer all rights and obligations under the Exclusive
Option Agreements to any third parties without the approval of the shareholders of the Targets so long as a written notice is
provided. The Exclusive Option Agreements may be terminated by mutual agreements or by 30 days written notice by Jinong.
Equity
Pledge Agreements
Pursuant
to the terms of certain Equity Pledge Agreements dated January 1, 2017, among Jinong and the shareholders of the Targets (the “Pledge
Agreements”), the shareholders of the Targets pledged all of their equity interests in the Targets to Jinong, including
the proceeds thereof, to guarantee all of Jinong's rights and benefits under the Entrusted Management Agreements, the Exclusive
Technology Supply Agreements, the Shareholder’ Voting Proxy Agreements and the Exclusive Option Agreements. Prior to termination
of the Pledge Agreements, the pledged equity interests cannot be transferred without Jinong's prior written consent. The Pledge
Agreements may be terminated only upon the written agreement of the parties.
Non-Compete
Agreements
Pursuant
to the terms of certain Non-Compete Agreements dated January 1, 2017, among Jinong and the shareholders of the Targets (the “Non-Compete
Agreements”), the shareholders of the Targets agreed that during the period beginning on the initial date of their services
with Jinong, and ending five (5) years after termination of their services with Jinong, without Jinong’s prior written consent,
they will not provide services or accept positions including but not limited to partners, directors, shareholders, managers, proxies
or consultants, provided by any profit making organizations with businesses that may compete with Jinong. They will not solicit
or interfere with any of the Jinong’s customers, or solicit, induce, recruit or encourage any person engaged or employed
by Jinong to terminate his or her service or engagement. In the event that the shareholders of the Targets breach the non-compete
obligations contained therein, Jinong is entitled to all loss and damages; in the event that the damages are difficult to determine,
remedies bore the shareholders of the Targets shall be no less than 50% of the salaries and other expenses Jinong provided in
the past.