Weida Communications, Inc. said it completed a series of contractual arrangements resulting in its acquisition of effective management control and 51% profit-sharing interest in Guangzhou Weida Communications Co., Ltd.
Under the terms of the transaction, Weida Communications acquired effective majority ownership and control of Guangzhou Weida Communications through a 51% profit-sharing interest held by a wholly owned Hong Kong entity and other contractual arrangements. Under the agreements Weida Communications can designate three of Guangzhou Weida's five directors.
As part of the transaction, Weida Communications will be issuing 16.3 million shares to the shareholders of Guangzhou Weida. Weida Communications also is committed to paying Guangzhou Weida shareholders $15 million 12 months from the time of the just-completed transaction or when the companies complete formation of a Sino-foreign equity joint venture. The parties are seeking Peoples Republic of China regulatory approvals for the EJV, in which Weida Communications would hold a 25% ownership interest in addition to its profit-sharing interest. When the EJV takes effect, its profit-sharing interest will be reduced to 26% so as to maintain its effective 51% majority interest.
Weida Communications and Guangzhou Weida have agreed that no cash payments will be made to Guangzhou Weida shareholders until the EJV is approved or for 12 months while the process is under way. Approval and formation of the equity joint venture is not required for Weida Communications to achieve its basic control and financial reporting objectives for the acquisition, which it meets through the 51% profit-sharing and contractual structure.