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Silverland Capital Corp. (the "Company") (TSX VENTURE:SV.P), a capital pool
company, is pleased to announce that it has entered into a letter of intent with
Lecho Investment Holdings Co., Ltd. ("Lecho"), a British Virgin Islands company,
and its controlling owner, relating to the acquisition of Zhengzhou Zhengli
Polymer Technology Co., Ltd. ("Zhengli Polymer") (a private Chinese company)
through its holding company Henan Zhengli Green Technology and Development Co.,
Ltd. (a private Chinese company), and its holding company, Origin Cleantech
Investment Co., Ltd. (a private Hong Kong company), (collectively, "Zhengli" and
the acquisition, the "Acquisition"). This transaction is intended to constitute
the Company's Qualifying Transaction (the "Transaction") and is not a Non-Arm's
Length Qualifying Transaction (as defined by the policies of the TSX Venture
Exchange (the "Exchange")). The Company and Lecho have entered an engagement
letter with PI Financial Corp. ("PI") pursuant to which PI will, subject to
completion of satisfactory due diligence and other conditions, act as sponsor in
connection with the Transaction. The agreement by PI to act as sponsor should
not be construed as any assurance with respect to the merits of the transaction
or the likelihood of completion.
Overview of Zhengli
Zhengli was established in 1998 and is a Chinese producer of water-soluble
polymers for oil extraction and wastewater treatment in China. Zhengli's product
offerings address the key steps in the tertiary oil extraction and wastewater
treatment process, such as enhanced oil recovery, viscosity modification, shale
inhibition, profile modification for oil extraction and water-sediment
separation and flocculation for the wastewater treatment.
Since 2003, Zhengli has developed more than 30 products across four product
categories, including the PAMII and PAMIII products that have become Zhengli's
main products sold to Chinese oil field operators. In the second half of 2008,
Zhengli has started the "Polymethyl Methacrylate (PMMA) Nanosphere" project in
cooperation with the Chinese Academy of Science for the next generation oil
extraction technology for oil wells with higher temperature and higher mineral
complexity. Polyacrylamide ("PAM") is a polymer that is highly water-absorbent,
forming a soft gel. One of the largest uses for PAM is to flocculate or
coagulate solids in a liquid.
While Zhengli's current primary customer base is in the oil extraction industry,
it has targeted a broad base of end-user customers in different industries
throughout China, consisting mostly of wastewater treatment plants, paper mill
factories, coal and mining factories. By capitalizing on its competitive
strengths, such as its strong relationships with major Chinese petroleum
companies, its depth of experience in the PAM industry in China, its research
and development skills, and its emphasis on customer service, Zhengli is
committed to becoming a leading provider of enhanced oil recovery and wastewater
treatment solutions in China.
For the year ended December 31, 2009, Zhengli had sales of CAN$18.2 million and
net income before taxes of CAN$5.0 million. The following table sets out
selected financial information of Zhengli for the year ended December 31, 2009.
All financial figures contained in this press release are based on unaudited
financial statements of Zhengli prepared in accordance with Canadian generally
accepted accounting principles.
For the Year Ended
December 31, 2009
(Unaudited, in CAN$)
--------------------
Sales 18,160,476
Gross profit 7,527,254
Net income 4,274,181
Current assets 11,407,687
Assets 20,912,587
Liabilities 9,551,718
Shareholders' Equity 11,360,869
The Chinese Polymer Industry
Enhanced Oil Recovery
Enhanced oil recovery ("EOR"), also referred to as improved oil recovery or
tertiary oil recovery, is most often achieved by injecting a liquid or gas into
an oil reservoir, thereby lowering oil viscosity and increasing the amount of
oil available for production. Due to the characteristics of Chinese oil fields,
PAM EOR is extensively used in China. The Chinese government's interest in EOR
has been fuelled primarily by an increase in Chinese oil production.
The "polymer flooding" EOR process has been used for several years in assisting
the operator to increase the efficiency of oil recovery of tertiary floods. By
the addition of one ton of polymer, typically an extra 100 to 150 tons
(approximately 750 to 1,125 barrels) of crude oil can be obtained. Approximately
80% of China's oil fields that require EOR technology are using the polymer
flooding method, and with 80% of the oil wells containing a large amount of
water, PAM may be the best method for continuing oil extraction in China.
China's crude oil output in 2009 was 189.5 million tons. Presently, over 15% of
the total (approximately 28.5 million tons) was extracted by PAM annually. In
addition, 20% more oil can be extracted by the application of PAM. According to
the SINOPEC Exploration & Production Research Institute, market growth for PAM
in oil extraction industry is estimated to increase steadily at 20% to 30%
annually in China.
Water Treatment
China is encountering a water shortage and natural water resource pollution due
to the rapid growth in population, urbanization and industrialization. In recent
years, China has started to address these issues by enacting stricter
environmental regulations. With China's heavy investment in its water and
wastewater infrastructure, the demand for water treatment-related services and
products has experienced, and is expected to continue to experience, rapid
growth.
The Chinese government has taken various measures to address the water shortage
and pollution concerns. In 2006, China's Ministry of Construction required that
by 2010, the municipal wastewater treatment rate should not be lower than 70%,
and all cities and counties should establish or plan to establish centralized
wastewater treatment facilities. Water supply remains one of the major focuses
of the Chinese government. With the improvements in municipal wastewater
treatment facilities, it is expected that China will also begin to levy sewage
treatment fees throughout the country in the near term. China has also
introduced new standards for drinking water quality that increased the number of
items classified as pollutants. At the same time, the Chinese government has
imposed a higher water tariff. The stricter government regulations and increased
water tariff is expected to create opportunities for products and services in
the water treatment value chain in China.
The primary water treatment agents used in the Chinese market include scale and
corrosion inhibition agents, biocides, and inorganic and organic flocculants.
Polymers are being widely accepted in a range of demanding industrial and
municipal applications involving process water treatment, wastewater and
effluent treatment. Polymers are used as flocculants to make fine particulates
clump together into flocs. These flocs may float to the top of the liquid or
settle at the bottom before being transported to the sludge process tank. By
separating the solids and liquids in wastewater, together with the
micro-biological methods, wastewater can be treated properly and be disposed.
The Transaction
Pursuant to the terms of the Acquisition, the Company will acquire control of
Zhengli, and as consideration, subject to Exchange approval, the Company will
issue such number of common shares representing approximately 97% of the issued
and outstanding common shares of the Company after completion of the Acquisition
(not including the completion of the Escrowed Shares Transfer (as defined below)
and the completion of any Concurrent Offering (as defined below)). The
consideration amount for the Acquisition will be determined between the Company
and Zhengli prior to executing the definitive agreement for the Acquisition (the
"Definitive Agreement") based on the understanding that the current shareholders
of the Company will own approximately 3% of Zhengli at the closing of the
Transaction (not including the completion of the Escrowed Shares Transfer or any
Concurrent Offering).
Subject to the Exchange policies and securities regulation, its is expected that
certain founders will sell, and the controlling owner of Lecho, Ms. Fangfang
(Echo) Liu, will purchase, an aggregate of 420,000 common shares that are held
in escrow under the requirements of the Exchange at a price of CAN$0.24225 (or
CAN$0.285 less a 15% discount) per share (the "Escrowed Shares Transfer").
If required for purposes of completing the Transaction under the policies of the
Exchange, either the Company or Lecho will complete a concurrent offering prior
to or concurrent with the closing of the Transaction, subject to the approval of
the Exchange (the "Concurrent Offering"). If a Concurrent Offering is to be
completed, it is expected the Company would engage an agent who would be paid
customary compensation for such agency services. If appropriate, the Company
would also apply for an exemption from the Exchange's sponsorship requirement.
The Company currently has 2,700,000 common shares issued and outstanding and has
outstanding options exercisable into 270,000 common shares of the Company at an
exercise price of CAN$0.20 per share and outstanding agent's options exercisable
into 150,000 common shares of the Company at an exercise price of CAN$0.20 per
share.
Upon completion of the Transaction, it is expected that the resulting issuer
will meet the public distribution requirements of at least an Exchange Tier 2
issuer. Shareholders of the Company and the resulting issuer will be subject to
applicable Exchange escrow policies. It is also expected that Ms. Fangfang
(Echo) Liu, a Canadian citizen, who currently controls 100% of Zhengli, will
also control the resulting issuer. Ms. Liu is the daughter of Songyin Liu, the
current President of Zhengli Polymer and a proposed director and officer of the
resulting issuer.
In addition, prior to completion of the Acquisition, it is intended that the
Company will continue out of British Columbia and into the Cayman Islands (the
"Continuation").
The approval of the Company's shareholders will be required for the Continuation
and such other matters in support of the Transaction including, if required, a
change of name to be determined by Zhengli (the "Name Change"). The directors
and principal shareholders of the Company, including DoubleOcean Financial Group
Ltd., Gong (Michael) Chen, Feng (Frank) Jia, Steve Paquin, Charles Desjardin and
Da Li, are expected to enter into a voting support agreement to approve the
Continuation and such other matters in support of the Transaction (including, if
required, the Name Change). The Company intends to call a shareholders' meeting
to be held to consider and, if thought fit, to approve such matters.
The completion of the Transaction will be subject to at least the following
mutual conditions precedent:
1. the execution of the Definitive Agreement;
2. the approval of the Continuation and other matters in support of the
Transaction (including, if required, the Name Change) by the requisite majority
of the votes cast by the shareholders of the Company at a properly constituted
meeting of the shareholders of the Company;
3. the receipt of all necessary regulatory, corporate and third party approvals,
including the approval of the Exchange, and compliance with all applicable
regulatory requirements and conditions in connection with the Transaction;
4. the maintenance of the Company's listing on the Exchange;
5. the confirmation of the representations and warranties of each party to the
Definitive Agreement as set out in such agreement;
6. the absence of any material adverse effect on the financial and operational
condition or the assets of each of the parties to the Definitive Agreement;
7. the delivery of standard completion documentation including, but not limited
to, legal opinions from Canadian and Cayman Islands legal counsels, officers'
certificates and certificates of good standing or compliance; and
8. other condition precedents customary for a transaction such as the Transaction.
The completion of the Transaction is also subject to, among other things, the
following conditions precedent in favour of Zhengli:
1. at closing, except for certain budgeted liabilities and the obligations to a
sponsor or agent appointed jointly by the Company and Zhengli in connection with
this Transaction, the Company will have no liabilities or obligations
(contingent or otherwise) in excess of CAN$5,000, inclusive of liabilities
relating to the fees and disbursements of its counsel appointed in connection
with this Transaction, as evidenced by an officer's certificate of the Company
to be tendered on closing of the Transaction;
2. if required, the completion of the Concurrent Offering;
3. at closing, the Company will have cash of not less than CAN$143,550 (not
including the net proceeds of any Concurrent Offering); and
4. the termination of all agreements involving the Company and relating to
administration or leases without any further liability to the Company or the
resulting issuer.
The conditions precedent in favour of the Company may be waived in whole or in
part by the Company and the conditions precedent in favour of Zhengli may be
waived in whole or in part by Zhengli.
The completion of the Transaction is expected to occur on the day that is the
tenth business day following the satisfaction or waiver of the conditions
precedent (other than those conditions precedent to be completed concurrent with
the closing) or such other date as mutually agreed to by the Parties, but in any
event no later than December 15, 2010 or such later date to be set out in the
Definitive Agreement. Generally, each of the Company and Zhengli will bear their
own respective costs and expenses associated with the Transaction.
Overview of Management and the Board of Directors
Management
It is expected that the management of the resulting issuer will consist of
Songyin Liu as Chief Executive Officer, President and Chairman of the Board;
Gong (Michael) Chen as Chief Financial Officer; and certain other officers to be
determined.
Songyin Liu is currently the President of Zhengli Polymer. Mr. Liu founded
Zhengli Polymer in 1993 in manufacturing PAM products that could be used in
water treatment and energy generation with technologies developed by the Chinese
Academy of Science ("CAS"). Previously, Mr. Liu was director of the department
of electric equipment design at a high technology development company of
Zhengzhou Institute of Technology where he made a number of technological
breakthroughs in PLC display control and printing systems.
Gong (Michael) Chen is currently the President, Chief Executive Officer,
Secretary and a director of the Company. Mr. Chen is also the President and
Managing Director of DoubleOcean Financial Group Ltd., a financial advisory
company. Mr. Chen has extensive experience with publicly listed companies and
has acted in the capacity of Chief Financial Officer of a number of TSX or
Exchange-listed public companies including Spur Ventures Inc., Precision
Assessment Technology Corporation, and Wex Pharmaceuticals Inc. Mr. Chen
received a Bachelor degree in International Finance from Peking University in
Beijing, China in 1992 and his MBA degree from the University of Arizona in
1997. Mr. Chen is a Certified Public Accountant in the United States.
Board of Directors
It is the intention of the Company and Zhengli to establish and maintain a board
of directors with a combination of appropriate skill sets that is compliant with
all regulatory and corporate governance requirements, including any applicable
independence requirements. The board of directors of the Company currently
consists of four members. Upon completion of the Transaction, the board is
expected to be reconstituted to be comprised of seven members to be nominated or
approved by Zhengli, subject to the policies of the Exchange and Canadian
securities laws. The following are the proposed directors for the resulting
issuer: Songyin Liu, Fangfang (Echo) Liu, Feipeng Wu, Ermo Ou, Douglas Betts,
John Reynolds, and Yucai (Rick) Huang.
Fangfang (Echo) Liu is currently the director of Zhengli Polymer and its manager
of corporate planning. Previously, Ms. Liu was responsible for Zhengli Polymer's
wastewater treatment market and after-sales services. Ms. Liu has been involved
with Zhengli Polymer since 2008 having helped increase market shares in
wastewater treatment and improving customer service quality. Ms.Liu holds a
Bachelor of Commerce degree from the University of Toronto.
Feipeng Wu is the head of the functional polymeric materials lab at the
Technical Institute of Physics and Chemistry, Chinese Academy of Sciences. He
obtained his Bachelor of Science degree from the Department of Chemistry,
Beijing Normal University in 1985 and his Ph.D. from the University of Tokyo,
Japan in 2000. He became professor at the aforementioned institute since 2001.
His research focuses on the development of functional polymeric materials. He
has published more than 70 research articles in the scientific journals and
applied more than 30 invention patents in China.
Ermo Ou recently joined the SmithStreet Financial Advisory team to lead its
business development. Mr. Ou was previously an executive with Zeuspac Capital
where he oversaw the portfolio's capital market activities. He was also a
founding member of the First Leaside Group of Companies, first as Vice President
of F.L. Securities, a limited market dealer in Canada, then as COO of First
Leaside Securities, one of Canada's growing full-service retail brokerage. Mr.
Ou is also Vice President, Corporate Planning of Cathay Forest Products Corp.,
an Exchange-listed company. Mr. Ou graduated from the University of Toronto with
a Bachelor of Business Administration and an EMBA from Jiaotong University. Mr.
Ou is also a Chartered Financial Analyst.
Douglas Betts is the President, CEO and a director of Kingsway International
Holdings Limited, a TSX-listed company and has been associated with the Kingsway
Group for over 18 years. Mr. Betts co-founded Borealis Funds Management Ltd.
where he served from 1997 to 2001 as Managing Director responsible for sourcing
and structuring investment transactions. Before joining Borealis, Mr. Betts was
a partner with Torys LLP, a Canadian law firm where he practiced business law
with an emphasis on securities and real estate. Mr. Betts has a law degree from
the University of Ottawa and has been involved in business transactions in Asia
for over 20 years.
The Hon. John D. Reynolds, P.C. has been the President of Gainey Consultants
Inc. since 1997. He is also a director of a number of Exchange listed companies
including Cathay Forest Products Corp., AgriMarine Industries Inc., ARA Safety
Inc., Calibre Mining Corp., Catalyst Copper Corp., Rusoro Mining Ltd., Encanto
Potash Corp. and Terrane Metals Corp. Since 2006, Mr. Reynolds has been Senior
Strategic Advisor to the Canadian law firm of Lang Michener LLP. He has nearly
40 years of experience at the highest levels of Canadian national and provincial
government and in a diverse range of cross-border business enterprises.
Yucai (Rick) Huang has served as the Chief Financial Officer of Hanwei Energy
Services Corp. since 2007. Mr. Huang previously held various management
positions with the Pepsi Bottling Group (Canada), Schering-Plough Canada, and
Coca-Cola China. Mr. Huang is a Certified General Accountant in Canada and holds
a MBA degree from the Ivey Business School of the University of Western Ontario
in Canada and a bachelor degree of economics from the Shanghai International
Studies University in China.
About Silverland Capital Corp.
Silverland Capital Corp., a capital pool company within the meaning of the
policies of the Exchange, was incorporated in British Columbia on January 7,
2009 and was listed on the Exchange on May 28, 2010. The Company does not have
any operations and has no assets other than cash. The Company's business is to
identify and evaluate businesses and assets with a view to completing a
Qualifying Transaction.
Except for statements of historical fact, all statements in this press release,
including, but not limited to, statements regarding future plans, objectives and
payments are forward-looking statements that involve various risks and
uncertainties.
Completion of the transaction is subject to a number of conditions, including
but not limited to, Exchange acceptance and if applicable pursuant to Exchange
Requirements, majority of the minority approval. Where applicable, the
transaction cannot close until the required shareholder approval is obtained.
There can be no assurance that the transaction will be completed as proposed or
at all.
Investors are cautioned that, except as disclosed in the management information
circular or filing statement to be prepared in connection with the transaction,
any information released or received with respect to the transaction may not be
accurate or complete and should not be relied upon. Trading in the securities of
a capital pool company should be considered highly speculative.
The TSX Venture Exchange has in no way passed on the merits of the proposed
transaction and has neither approved or disapproved the contents of this press
release.
It is expected that PI Financial Corp, subject to completion of satisfactory due
diligence, will agree to act as sponsor in connection with the transaction. An
agreement to sponsor should not be construed as any assurance with respect to
the merits of the transaction or the likelihood of completion.
Disclaimer for Forward-Looking Information
This press release contains forward-looking statements and information that are
based on the beliefs of management and reflect the Company's current
expectations. When used in this press release, the words "estimate", "project",
"belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should"
and the negative of these words or such variations thereon or comparable
terminology are intended to identify forward-looking statements and information.
The forward-looking statements and information in this press release includes
information relating to the business plan of Zhengli including its commitment to
becoming a leading provider of enhanced oil recovery and wastewater treatment
solutions in China, the Acquisition (including the structure of the
Acquisition), the Transaction (including shareholder approval, principal
shareholder support, and other terms such as the Continuation, the Name Change,
and the completion or termination), the Concurrent Offering (if any), the
principal owner, and the directors and management of the resulting issuer upon
completion of the Transaction. Such statements and information reflect the
current view of the Company with respect to risks and uncertainties that may
cause actual results to differ materially from those contemplated in those
forward-looking statements and information.
By their nature, forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements, or other future events, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following
risks: risks associated with the completion of the Transaction and matters
relating thereto and the risks associated with the marketing and sale of
securities, the need for additional financing, reliance on key personnel, the
potential for conflicts of interest among certain officers or directors with
certain other projects, and the volatility of the Company's common share price
and volume. Forward-looking statements are made based on management's beliefs,
estimates and opinions on the date that statements are made and the Company
undertakes no obligation to update forward-looking statements if these beliefs,
estimates and opinions or other circumstances should change. Investors are
cautioned against attributing undue certainty to forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated or implied by forward-looking
statements and information. Such factors include, among others, risks related to
Zhengli's business such as failure of the business strategy, stable supply
prices, demand and market prices for its products, and government regulations;
risks related to Zhengli's operations, such as additional financing requirements
and access to capital, reliance on key and qualified personnel, insurance,
competition, intellectual property and reliable supply chains; risks related to
Zhengli and its business generally such as potential exposure to tax under
Canadian income tax, Chinese regulations relating to offshore special purpose
companies, recent Chinese regulations relating to cross-border mergers and
acquisitions, environmental protection, currency exchange rates and conflicts of
interest; and risks related to doing business in China such as tax, repatriation
of profit and currency conversion, acquisition and appropriation of land use
rights, foreign investment, permits and business licenses, employment contracts,
government intervention, shareholders' rights and enforcement of judgments and a
developing legal system.
The Company cautions that the foregoing list of material factors is not
exhaustive. When relying on the Company's forward-looking statements and
information to make decisions, investors and others should carefully consider
the foregoing factors and other uncertainties and potential events. The Company
has assumed a certain progression, which may not be realized. It has also
assumed that the material factors referred to in the previous paragraph will not
cause such forward-looking statements and information to differ materially from
actual results or events. However, the list of these factors is not exhaustive
and is subject to change and there can be no assurance that such assumptions
will reflect the actual outcome of such items or factors.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE REPRESENTS THE
EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND,
ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE
UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS
INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT
UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED
IN ACCORDANCE WITH APPLICABLE LAWS.