AMERICAN LORAIN CORPORATION (NASDAQ:ALN) Files An 8-K Entry into a Material Definitive Agreement
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), 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).
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 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.
Item 8.01 Other Events
Attached as Exhibit 99.l to this Current Report on Form 8-K and
incorporated into this Item 8.01 by reference is a copy of the
press release issued December 22, 2016 announcing the execution
of the Share Exchange Agreement.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Number | Description |
| 10.1 |
Share Exchange Agreement, dated as of December 22, 2016, by |
| 10.2 |
Form of Lock-Up Agreement, by and among American Lorain |
| 10.3 |
Form of Non-Competition and Non-Solicitation Agreement by |
| 99.1 |
Press Release issued December 22, 2016. |
* Certain exhibits and schedules to this exhibit have been
omitted in accordance with Regulation S-K Item 601(b)(2). The
Company agrees to furnish and supplemental a copy of all omitted
exhibits and schedules to the Commission upon its request.