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Item
1.01
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Entry
into a Material Definitive
Agreement
|
On
January 9
,
2008
Beijing Deli Solar Technology Development Co., Ltd., our wholly-owned subsidiary
(“Deli Solar (Beijing)”), entered into an Equity Purchase Agreement, and a
Complementary Agreement, with Shenzhen PengSangPu Solar Industrial Products
Corporation (“SZPSP”) and its shareholders to acquire 100% of the outstanding
equity interests of SZPSP from its three current
shareholders.
SZPSP
was
incorporated as a limited liability company under the law of the People’s
Republic of China (“PRC”) on September 23, 1993. Its registered capital
was Renminbi Yuan (“RMB”) 2,650,000 (equivalent to $365,916) which was
contributed by its three individual shareholders. On July 13, 2006, the
registered capital increased to $1,767,443 (RMB 12,800,000).
SZPSP
is
principally engaged in the re-sale of energy-saving heating products such as
heat pipes, heat exchangers, pressure water boilers, solar energy water heaters
and radiators. Currently, SZPSP is also operating a distribution facility
in Shenzhen, PRC.
Cash
Purchase Price
: Under the
Equity Purchase Agreement, Deli Solar (Beijing) agreed to purchase the 100%
equity interest of SZPSP from its current three shareholders.
Part
of
the consideration of the transaction is RMB 20 million ($2,761,629) payable
in
cash.
This purchase price is based on a net asset value of SZPSP. Should
the net asset value is less than RMB 20 million (based on the audit report
of
SZPSP), the cash payment will reduced to the amount of the net asset value
as
calculated in the audited report. The three shareholders have agreed to loan
the
proceeds back to the Deli Solar (Beijing) and will be used as working capital
(the “Shareholders’ Loan”). Fifty (50%) of the principal of the Shareholders’
Loan shall be paid within one year upon the entry of the Complementary Agreement
(the “Closing”) and the remaining balance be paid off within two
years.
Stock
Purchase Price
.
In
addition to the payment of the cash purchase price under the Complementary
Agreement the parties agreed to an appraisal value of RMB 20 million of SZPSP’s
trademarks and other intangible assets. The consideration for these intangible
assets and the net assets that is excess of RMB 20 million shall be paid
in
shares of our common stock based on the average closing price of our common
stock for the 30 days immediately preceding the execution of the Complementary
Agreement (the” Share Price”), provided however that if on the first anniversary
of the closing our common stock price is lower than the Share Price, we will
pay
the difference. Fifty percent (50%) of these shares shall be transferable
and
unrestricted within one (1) year after the Closing and the remaining Fifty
percent (50%) transferable within two (2) years. The shares shall be transferred
to SZPSP within 180 days of the closing.
SZPSP
warranted in the Complementary Agreement that if (i) its sales revenue is less
than RMB 99 million (approximately $13,670,068) with an after-tax net profit
of
less than RMB 9.43 million (approximately $1,302,108) for the year ended
December 31, 2008; or (ii) if in the year ended December 31, 2009, it doesn’t
reach the targeted sales revenue of RMB 143.9 million (approximately
$19,868,336) or the after-tax net profit of RMB 12.13 million (approximately
$1,674,789), SZPSP will pay the difference between the revenue and the targeted
revenue of the year specified by reducing the amount payable on the
shareholders’ loan. If the shareholders’ loan is not sufficient to pay the
difference, the common shares held by SZPSP will be returned to us to the extent
necessary for the remaining balance.
The
current shareholders of SZPSP, being the management of SZPSP, will enter into
employment contracts with us for a term of three years to remain in their
current managing positions of SZPSP, subject to further amendments of such
employment arrangement.
After
the
Closing, Deli Solar (Beijing) has the right to a majority of the board seats
of
SZPSP.