Item 1.01
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Entry into a Material Definitive Agreement.
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On July 4, 2020, Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan
Ruixi”), a majority owned subsidiary of Senmiao Technology Limited (the “Company”), Sichuan Jinkailong Automobile
Leasing Co., Ltd. (“Jinkailong), a Chinese limited liability company in which Hunan Ruixi owns a 35% equity interest and
controls the remaining 65% equity interest through voting agreements with the other shareholders (the “Voting Agreements”),
and the other shareholders of Jinkailong entered into an agreement (the “JKL Investment Agreement”) with Hongyi Industrial
Group Co., Ltd. (“Hongyi”), a group company focusing on real estate and industrial investment which is an affiliate
of the largest shareholder of Chengdu Road & Bridge Engineering Co., Ltd., a construction engineering company publicly listed
on the A-Share market in China. Jinkailong is an automobile transaction and related services company in Chengdu City, Sichuan Province,
China, which primarily facilitates automobile sales and financing transactions to drivers in the ride-hailing service sector and
provides relevant after-transaction services and car rental services.
Pursuant to the
JKL Investment Agreement, Jinkailong agreed to issue and Hongyi agreed to subscribe for a 27.66% equity interest in
Jinkailong in consideration of RMB50 million (approximately $7.1 million) (the “Investment”). The Investment will
be made in two payments: (i) the first payment of RMB10 million (approximately $1.4 million) is due no later than September
30, 2020 and (ii) the remaining RMB40 million (approximately $5.7 million) is due within 30 days after the record-filing of
the Investment has been made with the local PRC government and the other shareholders of Jinkailong having made their
respective capital contributions in full in cash, but no later than December 31, 2020. As a result, Hunan Ruixi will be
required to pay RMB3.5 million (approximately $0.5 million) to Jinkailong as a capital contribution. Upon the full payment of
the consideration, the Investment will be deemed to be closed (the “Closing”).
As a result of the
Investment, the original shareholders’ ownership percentage will be proportionally diluted but Hunan Ruixi will continue
to control Jinkailong pursuant to the Voting Agreements.
The JKL Investment
Agreement sets performance targets for Jinkailong during a three-year performance commitment period following the Closing. During
the performance commitment period, Jinkailong has agreed, and its original shareholders have agreed to cause Jinkailong, to seek
to achieve annual revenue for Jinkailong of no less than RMB52 million (approximately $7.4 million), RMB90 million (approximately
$12.7 million) and RMB110 million (approximately $15.6 million), respectively, and annual net profit of no less than RMB10 million
(approximately $1.4 million), RMB20 million (approximately $2.8 million) and RMB25 million (approximately $3.5 million), respectively,
during the first, second and third year of the performance commitment period.
The JKL Investment
Agreement also provides Hongyi certain shareholder rights, including, but not limited to, the right to receive any undistributed
dividends, a right of first refusal for any equity transfer from the other shareholders of Jinkailong, a tag-along right during
the performance commitment period, anti-dilution rights, redemption rights, subscription rights and priority in liquidation or
dissolution of Jinkailong. Specifically, pursuant to the redemption right provision in the JKL Investment Agreement, in the event
that Jinkailong (i) fails to become public through an IPO for a valuation of no less than RMB350 million (approximately $49.5
million) or merge with a public company for a valuation of no less than RMB300 million (approximately $42.5 million) within the
six months following the performance commitment period, (ii) fails to achieve an accumulated net profit of RMB24 million (approximately
$3.4 million) for the first two years of the performance commitment period or a net profit of RMB20 million (approximately $2.9 million)
for the third year of the performance commitment period, or (iii) has any material and adverse change to its core business, including
but not limited to being included in the list of dishonest persons and loss of over one third of its online ride-hailing taxi operating
licenses, as well as bankruptcy, liquidation or cessation of operations, Hongyi shall have the right to require certain shareholders
of Jinkailong (including Hunan Ruixi) to repurchase all of its equity interest in Jinkailong. Based on a repurchase formula provided
for in the JKL Investment Agreement, the maximum repurchase amount that Hunan Ruixi would be subject to is RMB28,320,000 (approximately
$4.0 million).
Under the JKL Investment
Agreement, the other shareholders of Jinkailong, except one individual shareholder, are prohibited from disposing of their equity
interest in Jinkailong until six months after the performance commitment period. In addition, all parties have acknowledged and
agreed to comply with relevant U.S. securities regulations on confidentiality of material nonpublic information regarding the Company
that they may receive on account of their ownership of Jinkailong.
The principal use of
proceeds from the Investment will be to support Jinkailong’s automobile purchase and finance business, provided that Hongyi’s
prior consent is required if the proceeds are to be used for any automobile business investment that exceeds RMB1 million (approximately
$0.7 million) or for any non-automobile business investment (regardless of the amount). Jinkailong plans to use the proceeds from
the Investment to expand its auto business in Chengdu, China. Specifically, Jinkailong plans to purchase more automobiles for its
car rental business and open additional retail stores to provide auto financing and transaction facilitation services to ride-hailing
drivers in Chengdu.
The foregoing description
of the JKL Investment Agreement is only a summary and is qualified in its entirety by reference to the full text of the JKL Investment
Agreement which is being filed as Exhibit 10.1 to this Current Report on Form 8-K.