I understand that there is a service agreement for 10 years. What does this entitle them to? It doesn't seem to be clear if they have the rights to income from the subsidiary during this time. In addition, to they have an option to purchase the subsidiary in the future?
Thanks for your help. Please provide links to backup if possible. This is clearly a big question mark on everything from my perspective
Heilongjiang Shuaiyi is a sub of NUIN. The owners of Heilongjiang Shuaiyi have become a majority shareholders of NUIN eliminaating the aqusiation payable and showing their confidence in the future of NUIN. It's a win win for shareholders and the founders.
The Term of Service during which Harbin Baixin shall provide the Services is ten (10) years, starting from the execution date hereof, which shall automatically renew for successive ten (10) year periods, unless Harbin Baixin notifies Heilongjiang Shuaiyi of its intention not to renew at least ninety (90) days prior to the expiration of the initial or renewal Term of Service.
3. Service Fees
3.1 Heilongjiang Shuaiyi agrees to pay the Service Fees (hereinafter referred to as the “Service Fees”) for the Services provided by Harbin Baixin in accordance with the terms of this Agreement. <b> The Service Fees shall be calculated based on the market price in light of the particulars of the Services and the timing of such Services provided by Harbin Baixin. </B>
What does that even mean?
I don't understand why these entities are being consolidated.
Pursuant to an exclusive purchase option agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and Heilongjiang Shuaiyi, the Shuaiyi Founders granted to Harbin Baixin an option to purchase at any time during the term of this agreement, all or part of the equity interests in Heilongjiang Shuaiyi (the “Equity Interests”), at the exercise price equal to the lowest possible price permitted by Chinese laws;
Pursuant to an equity pledge agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and Heilongjiang Shuaiyi, the Shuaiyi Founders pledged all of the Equity Interests to Harbin Baixin to secure the full and complete performance of the obligations and liabilities on the part of the Shuaiyi Founders and Heilongjiang Shuaiyi under this and above contractual arrangements (the Pledge Agreement together with the Service Agreement, the Option Agreement, the Voting Rights Agreement and the Equity Transfer Agreement, the “Restructuring Documents”).
As a result of the Restructuring, the Company transferred all of its indirect equity interests in Heilongjiang Shuaiyi back to the Shuaiyi Founders, among whom, Ms. Lianyun Han became a majority shareholder of Heilongjiang Shuaiyi by owning 68.3% equity interest in Heilongjiang Shuaiyi. At the same time, through the Contractual Arrangement, the Company maintains substantial control over the VIEs’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. As the primary beneficiary of the VIEs, the Company is entitled to consolidate the financial results of the VIEs in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities (collectively, “ASC Topic 810”).
Looks like they are the primary beneficiary even though they don't own the company and that they have a purchase option. It is very confusing transaction. Why did the founders do it?