Item
1.01.
|
Entry
into a Material Definitive Agreement.
|
Background
of the Disposition
China
Commercial Credit, Inc. (the “
Company
”, “
we
” or “
us
”) had two lines of
business: one is the direct loans, loan guarantees and financial leasing services to small-to-medium sized businesses, farmers
and individuals in the city of Wujiang, Jiangsu Province; and the other is the used luxurious car leasing business. The direct
loans and loan guarantees business was carried out by Wujiang Luxiang Rural Microcredit Co., Ltd. (“
Wujiang Luxiang
”),
the Company’s VIE entity. The financial leasing services were carried out by the Company’s indirect subsidiary, Pride
Financial Leasing (Suzhou) Co. Ltd (“
PFL
”). The Company’s recently launched used luxurious car leasing
business is carried out by the Company’s VIE entity, Beijing Youjiao Technology Limited (“
Beijing Youjiao
”).
Historically,
our core business has been the direct loan and loan guarantee. However, since 2016, the microcredit companies in Wujiang area
went through the most difficult time since their inceptions in 2008. Twelve of fourteen microcredit companies in the Wujiang area
went bankrupt while the remainder are struggling with high default rates due to the poor economic condition, especially the slow-down
in the textile industry. The operations of Wujiang Luxiang were also affected. For the year ended December 31, 2017, we had a
loss of $5,486,667 and a net loss of $10,699,740 compared to a revenue of $2,246,807 and net loss of $2,580,136 in 2016, a change
of 344% and an increase of 315%, respectively. As a result of the deteriorating economic condition, we experienced a substantial
increase in the amount of default loans in both our direct lending and guarantee business. The amount of underlying loans we guaranteed
has been increased by 6.7% to $11.6 million as of December 31, 2017 compared to $10.9 million as of December 31, 2016. As of March
31, 2018, eleven cases against the Company were finally adjudicated by the Court, in which the Company was jointly liable, together
with the defaulted customers and other guarantees, to repayment the principal, interest and penalties of $6.91 million. Additionally,
three cases against the Company have not been adjudicated by the Court, in which the Company is jointly liable, together with
the defaulted customers and other guarantees, to repayment the principal, interest and penalties of $2.97 million. In addition,
the Department of Finance of Wujiang region has been evaluating the collection and performance of Wujiang Luxiang and may initiate
proceeding to revoke Wujiang Luxiang’s business license if the operation is not improved. The Company’s financial
leasing business has been on hold since October 2015 after we signed two leasing contracts worth a total of total $4.88 million
February 2015. We do not currently have further funds to deploy in the financial leasing business and plan to hold off expansion
of the leasing business
On
February 28, 2018, we received a letter (the “
Notification Letter
”) from The NASDAQ Stock Market LLC (“
Nasdaq
”)
notifying the Company that it is not in compliance with the minimum of $35 million Market Value of Listed Securities (MVLS) requirement
for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(2) requires listed securities to maintain a minimum
MVLS. The Company was provided one hundred and eighty calendar days, or until August 27, 2018, to regain compliance with the MVLS
requirement.
The
Company believed it is very difficult, if possible at all, to make collections on the default loans and guarantee obligations
paid on behalf of guarantees. As of March 31, 2018, the Company has a stockholder deficit (or so-called negative net asset) of
approximately $4.5 million. Management believes, if we keep operating the micro-lending, loan guarantee and financial leasing
business, we will not be able to achieve the necessary minimum stockholder equity requirement or the minimum of $35 million MVLS
requirement as required by the Nasdaq Listing Rules to regain compliance by August 27, 2018. As such, the Company has been actively
seeking to dispose the micro-lending, loan guarantee and financial leasing business while focusing on the luxurious car leasing
or engage in other more profitable businesses.
VIE
Termination Agreement
As
previously disclosed, on May 10, 2018. Beijing Youjiao and our indirect subsidiary, Wujiang Luxiang Information Technology Consulting
Co. Ltd., a limited liability company formed under the laws of the PRC (“
WFOE
”), entered into a series of contractual
agreements with the Company including, Exclusive Business Cooperation Agreement, Exclusive Option Agreement, Share Pledge Agreement
and the Powers of Attorney (the “
VIE Agreements
”).
In
anticipation of the Disposition (as defined below), on June 19, 2018, WFOE entered into certain termination agreement with Beijing
Youjiao and Aizhen Li, the sole shareholder of Beijing Youjiao to terminate the VIE Agreements by and among WFOE, Beijing Youjiao
and Aizhen Li dated June 19, 2018 (the “
Termination Agreement
”). The Termination Agreement became effective
immediately upon its execution.
Hao
Limo VIE Agreements
On
June 19, 2018, our indirectly owned subsidiary Hao Limo Technology (Beijing) Co., Ltd. (“
Hao Limo
”)
entered into a series of agreements (the “
Youjiao VIE Agreements
”) with Beijing Youjiao and Aizhen Li, the
sole shareholder of Beijing Youjiao. The Youjiao VIE Agreements are designed to provide Hao Limo with the power, rights and obligations
equivalent in all material respects to those it would possess as the sole equity holder of Beijing Youjiao, including absolute
control rights and the rights to the management, operations, assets, property and revenue of Beijing Youjiao. The purpose of the
VIE Agreements is solely to give Hao Limo the exclusive control over Beijing Youjiao’s management and operations. Beijing
Youjiao has the requisite license to carry out used luxurious car leasing business in China.
Material
terms of each of the Youjiao VIE Agreements are described below:
Exclusive
Business Cooperation Agreement
Pursuant
to the Exclusive Business Cooperation Agreement between Beijing Youjiao and Hao Limo, Hao Limo provides Beijing Youjiao with technical
support, consulting services and management services on an exclusive basis, utilizing its advantages in technology, human resources,
and information. Additionally, Beijing Youjiao granted an irrevocable and exclusive option to Hao Limo to purchase from Beijing
Youjiao, any or all of Beijing Youjiao’s assets at the lowest purchase price permitted under the PRC laws. Should Hao Limo
exercise such option, the parties shall enter into a separate asset transfer or similar agreement. For services rendered to Beijing
Youjiao by Hao Limo under this agreement, Hao Limo is entitled to collect a service fee calculated based on the time of services
rendered multiplied by the corresponding rate, plus amount of the services fees or ratio decided by the board of directors of
Hao Limo based on the value of services rendered by Hao Limo and the actual income of Beijing Youjiao from time to time, which
is substantially equal to all of the net income of Beijing Youjiao.
The
Exclusive Business Cooperation Agreement shall remain in effect for ten years unless it is terminated by Hao Limo with 30-day
prior written notice. Beijing Youjiao does not have the right to terminate the agreement unilaterally. Hao Limo may unilaterally
extend the term of this agreement with prior written notice.
Share
Pledge Agreement
Under
the Share Pledge Agreement among Beijing Youjiao, Aizhen Li and Hao Limo, Aizhen Li pledged all of her equity interests in Beijing
Youjiao to Hao Limo to guarantee the performance of Beijing Youjiao’s obligations under the Exclusive Business Cooperation
Agreement. Under the terms of the agreement, in any event of default, as set forth in the Share Pledge Agreement, including that
Beijing Youjiao or Aizhen Li breach their respective contractual obligations under the Exclusive Business Cooperation Agreement,
Hao Limo, as pledgee, will be entitled to certain rights, including, but not limited to, the right to dispose of the pledged equity
interest in accordance with applicable PRC laws. Hao Limo shall have the right to collect any and all dividends declared or generated
in connection with the equity interest during the term of pledge.
The
Share Pledge Agreement shall be effective until all payments due under the Exclusive Business Cooperation Agreement have been
paid by Beijing Youjiao. Hao Limo shall cancel or terminate the Share Pledge Agreement upon Beijing Youjiao’s full payment
of fees payable under the Exclusive Business Cooperation Agreement.
Exclusive
Option Agreement
Under
the Exclusive Option Agreement, Aizhen Li irrevocably granted Hao Limo (or its designee) an exclusive option to purchase, to the
extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in Beijing Youjiao.
The option price is equal to the capital paid in by Aizhen Li subject to any appraisal or restrictions required by applicable
PRC laws and regulations.
The
agreement remains effective for a term of ten years and may be renewed at Hao Limo’s election.
Power
of Attorney
Under
the Power of Attorney, Aizhen Li authorized Hao Limo to act on her behalf as her exclusive agent and attorney with respect to
all rights as shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s
rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association of Beijing
Youjiao, including but not limited to the sale or transfer or pledge or disposition of shares held by Aizhen Li in part or in
whole; and (c) designating and appointing on behalf of Aizhen Li the legal representative, the executive director, supervisor,
the chief executive officer and other senior management members of Beijing Youjiao.
Although
it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that
of the Exclusive Option Agreement.
This
Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this
Power of Attorney, so long as Aizhen Li is a shareholder of Beijing Youjiao.
Timely
Reporting Agreement
To
ensure Beijing Youjiao promptly provides all of the information that Hao Limo and the Company need to file various reports with
the SEC, a Timely Reporting Agreement was entered between Beijing Youjiao and the Company.
Under
the Timely Reporting Agreement, Beijing Youjiao agreed that it is obligated to make its officers and directors available to the
Company and promptly provide all information required by the Company so that the Company can file all necessary SEC and other
regulatory reports as required.
Although
it is not explicitly stipulated in the Timely Reporting Agreement, the parties agreed its term shall be the same as that of the
Exclusive Business Cooperation Agreement.
The
Youjiao VIE Agreements became effective immediately upon their execution.
Disposition
On
June 19, 2018, the Company, HK Xu Ding Co, Limited, a private limited company duly organized under the laws of Hong Kong (the
“
Purchaser
”) and CCCR International Investment Ltd., a business company incorporated in the British Virgin
Islands with limited liability (“
CCC BVI
”) entered into certain Share Purchase Agreement (the “
Purchase
Agreement
”). Pursuant to the Purchase Agreement, the Purchaser agreed to purchase CCC BVI in exchange of cash purchase
price of $500,000. The transaction contemplated by the Purchase Agreement is hereby referred as
Disposition
.
CCC
BVI is the sole shareholder of CCC International Investment Ltd. (“
CCC HK
”), a company incorporated under the
laws of the Hong Kong S.A.R. of the PRC, which is the sole shareholder of WFOE. WFOE, via a series of contractual arrangements,
controls Wujiang Luxiang. CCC HK is the sole shareholder of PFL.
Upon
closing of the Disposition, the Purchaser will become the sole shareholder of CCC BVI and as a result, assume all assets and obligations
of all the subsidiaries and VIE entities owned or controlled by CCC BVI.
The
Disposition was approved by the board of directors of the Company. Benchmark Company, LLC rendered a fairness opinion in connection
with the Disposition, indicating that the Consideration to be received by the Company in the transaction is fair to the Company’s
shareholders from a financial point of view,
The
Termination Agreement, Youjiao VIE Agreements and Purchase Agreement are filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6
and 10.7 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief
description of the material terms of these agreements, and does not purport to be a complete description of the rights and obligations
of the parties thereunder and are qualified in its entirety by reference to such exhibits.
Below
is the Company’s structure chart prior to the completion of the Termination Agreement, VIE Agreements and Purchase Agreement.
Below
is the Company’s structure chart after the completion of the Termination Agreement, VIE Agreements and Purchase Agreement.
Private
Placement in June
On
June 19, 2018, the Company entered into certain securities purchase agreements (the “
June SPAs
”) with certain
“non-U.S. Persons” as defined in Regulation S of the Securities Act of 1933, as amended (the “
Securities
Act
”) pursuant to which the Company agreed to sell an aggregate of 568,037 shares (the “
Shares
”)
of its common stock, par value $0.001 per share (“
Common Stock
”), at a per share purchase price of $0.78. The
net proceeds to the Company from such Offering (defined as below) will be approximately $443,000.
The
June SPAs are part of the subscription the Company received in a private placement offering (the “
Offering
”)
of its Common Stock at a per share purchase price of $0.78 up to an aggregate gross proceeds of Two Million Dollars ($2,000,000)
to “non-U.S. Persons” as defined in Regulation S. The Offering shall be on a rolling basis until June 30, 2018 unless
the Company extends for an additional 30 days at its sole discretion.
The
net proceeds of the Offering shall be used by the Company in connection with the Company’s operation of certain used luxurious
car leasing or other related business as approved by the board of directors of the Company.
The
parties to the June SPAs have each made customary representations, warranties and covenants. The Shares sold pursuant to the June
SPAs are subject to certain lock-up whereby the 40% of the Share shall be subject to a six-month lock-up from the closing of the
June SPAs, 30% of the Shares a nine-month lock-up from the closing and the last 30% of the Shares a twelve-months lock-up from
the closing.
The
form of the June SPAs are filed as Exhibit 10.8 to this Current Report on Form 8-K and such document is incorporated herein by
reference. The foregoing is only a brief description of the material terms of the June SPA, and does not purport to be a complete
description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.