Item
1.01 Entry into a Material Definitive Agreement.
On
December 30, 2019, Fortune Valley Treasures, Inc. (“FVTI”), along with Qianhai DaXingHuaShang Investment (Shenzhen)
Co., Ltd., a subsidiary of FVTI and a wholly foreign-owned enterprise (“QHDX”), entered into an equity interest transfer
agreement (the “Agreement”) with shareholders (the “Original Shareholders”) of Foshan BaiTaFeng Beverage
Development Co., Ltd. (“BTF”), who collectively owned 100% equity interest of BTF, a limited liability company engaged
in the business of bottling and distributing of drinking water in China.
Pursuant
to the Agreement, QHDX agreed to purchase 80% of BTF’s equity interest (the “Equity Transfer”) from Mr. Chunbin
Li, the legal representative and one of the Original Shareholders of BTF (the “Seller”), in exchange for shares of
FVTI’s common stock (“Issuable Shares”). The completion of the registration of the Equity Transfer with local
government authorities (the “Closing”) is subject to satisfaction of all the closing conditions (unless waived), including
but not limited to, the approval of the Equity Transfer by BTF shareholders, completion of due diligence review of BTF to the
satisfaction of QHDX, waiver from the Original Shareholders to the right of first refusal to purchase the equity interest subject
to the Equity Transfer. It is agreed that the Closing shall be conducted prior to the completion of an initial draft of the audited
financial statements of BTF.
According
to the Agreement, the total number of Issuable Shares will be determined according to the following formula:
Number
of Issuable Shares = A x 80% x 15 ÷ 3.02 ÷ B
For
the purpose of the foregoing formula:
A
= Net profit of BTF during the period from October 1, 2019 to September 30, 2020.
B
= 7:1, which is the exchange rate of U.S. Dollars to Chinese Yuan mutually agreed by the parties.
Pursuant
to the Agreement, FVTI will issue the Issuable Shares to the Seller within 30 business days after September 30, 2020 pursuant
to a separate subscription agreement to be entered into by FVTI and the Seller or his designee.
BTF
and the Original Shareholders have agreed to achieve certain operation objectives of BTF, including a net profit of RMB 9 million
(approximately $1.29 million) for the period from October 1, 2019 to September 30, 2020 and a net profit of RMB 3 million (approximately
$0.14 million) for the fiscal year ended December 31, 2019. Pursuant to the Agreement, as long as the Seller continues to serve
as the general manager and legal representative of BTF, the Original Shareholders and BTF shall ensure BTF achieves an increase
in annual net profit of no less than 10% during each year of the five years after September 30, 2020.
Pursuant
to the Agreement, BTF will establish a board of directors consisting of three individuals, two of which will be designated by
QHDX and one by the Original Shareholders, and appoint a person designated by the Original Shareholders as general manager. To
ensure the continuous operations of BTF, the parties agreed that BTF will retain its existing employees and all the management
members of BTF shall sign employment agreements and non-compete agreements with BTF. The parties further agreed that BTF will
not make any profit distribution within three years after the execution of the Agreement. Any subsequent share transfer or share
pledge of QHDX’s equity interest in BTF is subject to the prior written consent of the Original Shareholders. In the event
of a late payment of the consideration by QHDX or any delay in the registration of the Equity Transfer with local government caused
by the Seller, a daily penalty of 0.05% of the outstanding payment is assessed.