Item 2. Unregistered Sales of Equity Securities
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.
On September 30, 2019, HF Holding and Han Feng (the “ Sellers ”), two wholly-owned subsidiaries of the Company, entered into and closed a Loan Purchase and Sale Agreement (the “ Loan Sale Agreement ”) with Zhou Min Ni, the Chairman, Chief Executive Officer, and a principal stockholder of the Company.
The Loan Sale Agreement provided for the nonrecourse transfer and assignment to Mr. Ni of all of the Sellers’ rights and interests, and assumption by Mr. Ni of all of the Sellers’ obligations, under four unsecured loans, with an aggregate balance of principal and accrued interest of $12 million, extended by the Sellers to companies in which Mr. Ni or his immediate family members had or have an ownership or other pecuniary interest (the “ Related Party Loans ”), most of which were established while HF Holding. was a privately-held business. Under the terms of the Loan Sale Agreement, Mr. Ni acquired the Related Party Loans without warranty or recourse and assumed all risks of non-collection.
The Related Party Loans were assigned to Mr. Ni in consideration of the transfer to HF Holding of up to 1,203,803 shares (the “ Shares ”) of common stock of the Company owned by Mr. Ni. The amount of consideration was determined by valuing the Related Party Loans at their aggregate balance of principal and accrued interest, without discount for any issues of collectability, and by valuing the Shares within a range of per-share price approximating the typical market value of the Company’s common stock as reported on the Nasdaq Stock Market at two junctures in the Company’s history: (i) prior to the time of the Company’s agreement to enter into the merger with HF Holding in March 2018 (deemed for purposes of the Loan Sale Agreement to be $10.00 per share); and (ii) prior to the time of the announcement in June 2019 of the Company’s agreement to merge with B&R Global(deemed for purposes of the Loan Sale Agreement to be $13.30 per share). 298,688 of the Shares (the “ Escrow Shares ”) were placed in an escrow account for a period of one year; the remaining 905,115 Shares were irrevocably transferred to the Company in payment of the minimum purchase price for the Related Party Loans. In the event that the volume weighted average closing price of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the escrow period (the “ 250-day VWAP ”) equaled or exceeded $13.30 per share, then all of the
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Escrow Shares were to be returned to Mr. Ni. In the event that the 250-day VWAP was equal to or less than 10.00 per share, then all of the Escrow Shares were to be transferred and released to the Company for cancellation. In the event that the 250-day VWAP was less than the $13.30 per share but greater than $10.00 per share, then a portion of the Escrow Shares, calculated on a sliding scale, were to be transferred and released to the Company for cancellation and the balance were to be returned to Mr. Ni.
On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Sellers and Mr. Ni agreed that the 250-day VWAP was $10.59, and that, therefore, 231,685 of the Escrow Shares would be transferred to HF Holding and that the remaining 67,003 Escrow Shares would be returned to Mr. Ni. The 231,685 Escrow Shares transferred to HF Holding were subsequently canceled.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.