A Metaverse Company — M&A Activity 2019

Aug 13, 2019

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

==> picture [61 x 61] intentionally omitted <==

==> picture [126 x 62] intentionally omitted <==

Starrise Media Holdings Limited 星宏傳媒控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1616)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF POWER FIT LIMITED

THE DISPOSAL

The Board is pleased to announce that on 13 August 2019 (after trading hours), the Company entered into the Sale and Purchase Agreement with the Purchaser, pursuant to which the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to acquire the Sale Interest, representing the entire issued and paid up share capital of the Target Group and all the shareholders’ loans owned by the Target Group to the Company and its affiliates on Completion, at a consideration of RMB335,318,840.

The gross proceeds and net proceeds from the Disposal amount to approximately RMB335.32 million and RMB333.84 million, respectively, of which RMB145.43 million shall be set off against the Sale Loan which remained outstanding upon the Completion. It is intended that the net proceeds from the Disposal will be used by the Company: (a) as to approximately RMB145.43 million for repayment of the Group’s debts and liabilities as they fall due; and (b) as to approximately RMB188.41 million for the Group’s business development and investments of the Media Business and general working capital purposes.

IMPLICATION UNDER THE LISTING RULES

As the applicable percentage ratios (as defined under the Listing Rules) in respect of the Disposal exceed 25% but are less than 75%, the Disposal constitutes a major transaction for the Company and is subject to the announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

1

The Purchaser is substantial shareholder of the Company interested in 273,609,836 Shares (representing approximately 19.31% of the issued share capital of the Company). Accordingly, the Purchaser is a connected person of the Company. The Disposal constitutes a connected transaction for the Company and is subject to the reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all independent non-executive Directors, has been established to advise the Independent Shareholders regarding the terms of the Sale and Purchase Agreement. Euto Capital Partners Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

THE EGM

The EGM will be convened for the Independent Shareholders to consider and, if thought fit, to approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder. Based on the information provided by the Purchaser, the Purchaser is a company wholly owned by Mr. Liu Dong, who is the chairman of the Company and executive Director. Therefore, the Purchaser and Mr. Liu have material interests. The Purchaser, Mr. Liu and their respective associate(s) are required to abstain from voting on the resolution(s) in relation to the Sale and Purchase Agreement at the EGM.

A circular containing, among other things, (i) further information on the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders regarding the terms of the Sale and Purchase Agreement; (iii) a letter from the Independent Financial Adviser contained their advice to the Independent Board Committee and the Independent Shareholders regarding the terms of the Sale and Purchase Agreement; and (iv) a notice of the EGM, is expected to be despatched to the Shareholders on or before 16 September 2019.

Shareholders and potential investors should note that Completion is subject to the fulfilment of the Conditions Precedent. As the Disposal may or may not proceed, Shareholders and potential investors should exercise extreme caution when dealing in the securities of the Company.

THE DISPOSAL

The Board is pleased to announce that on 13 August 2019 (after trading hours), the Company entered into the Sale and Purchase Agreement with the Purchaser, pursuant to which the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to acquire the Sale Interests, representing the entire issued and paid up share capital of the Target Group and all the shareholders’ loans owned by the Target Group to the Company and its affiliates on Completion, at the Consideration of RMB335,318,840.

2

A summary of the principal terms of the Sale and Purchase Agreement is set out below.

The Sale and Purchase Agreement

Date: 13 August 2019 (after trading hours) Parties: (1) The Company, as the vendor; and

• (2) The Purchaser, as the purchaser.

Consideration

The Consideration of RMB335,318,840 for the Sale Interests will be settled in full by payment in cash by the Purchaser in the following manner:

• (a) First installment – the amount equals to 20% of the Consideration shall be payable within 6 months from the date of the Sale and Purchase Agreement;

• (b) Second installment – the amount equals to 30% of the Consideration shall be payable within 12 months from the date of the Sale and Purchase Agreement;

• (c) Third installment – the amount equals to 30% of the Consideration shall be payable within 18 months from the date of the Sale and Purchase Agreement; and

• (d) Fourth installment – the amount equals to 20% of the Consideration shall be payable within 24 months from the date of the Sale and Purchase Agreement.

The Purchaser agrees to pay interests based on the accrued unpaid amount of the Third and Fourth installment at a simple interest rate of 6.5% per annum to the Company.

The Consideration has been determined after arm’s length negotiations between the parties with reference to (i) the unaudited consolidated net asset value of the Target Group as at 31 May 2019; (ii) the market value of the land held by the Target Group as at 30 June 2019; and (iii) the amount of Sale Loans as at the date of the Sale and Purchase Agreement.

To secure the due and timely performance of the Purchaser of its obligations under the Sale and Purchase Agreement, the Purchaser has agreed to (i) provide proof of its assets and available capital to allow the Directors to be reasonably assured of its ability to pay the Consideration; (ii) deposit an amount which equals to the first installment of the Consideration at a designated account of a custodian on Completion; and (iii) grant the Company a charge (the “ Share Charge ”) over the entire issued share capital of the Target Company on Completion and such charge shall remain effective until the full amount of the Consideration has been paid by the Purchaser to the Company. In addition, the Purchaser agreed to procure that Mr. Liu Dong (being the sole beneficial owner of the Purchaser) to undertake to the Company, in the event that the Purchaser is unable to pay any part of the Consideration on time in accordance with the Sale and Purchase Agreement, Mr. Liu Dong shall immediately pay the Company all such amount which maybe outstanding and payable by the Purchaser to the Company at the time pursuant to the Sale and Purchase Agreement (“ Mr. Liu’s Undertaking ”).

3

Conditions Precedent

The Disposal will be subject to the following Conditions Precedent:

• (a) the Company has obtained all necessary consents, approvals and permits in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder;

• (b) the Purchaser has obtained all necessary consents, approvals and permits in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder;

• (c) the Purchaser having executed the Share Charge in the agreed form;

• (d) the Company having obtained Mr. Liu’s Undertaking in the agreed form; and

• (e) the Company having complied with all applicable requirements under the Listing Rules (including the obtaining of the approval of Independent Shareholders at the EGM in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder), and/or having completed, obtained and fulfilled all necessary approvals, notices and clearances of any relevant regulatory authorities or other relevant third parties as required in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder, if applicable.

The Company and the Purchaser shall use its reasonable endeavours to procure that all Conditions above are satisfied on or before 31 December 2019 (the “ Long Stop Date ”). None of the Conditions Precedent above may be waived by any party in any event.

If the Conditions Precedent are not fulfilled or waived before the Long Stop Date (or such other date as the parties may agree in writing), the Sale and Purchase Agreement shall lapse and become null and void and the parties shall be released form all obligations thereunder save for liabilities for any antecedent breaches thereof.

Completion

Completion shall take place within two Business Days after the day on which the last Condition is fulfilled or such other date as the parties may agree in writing.

INFORMATION ON THE PURCHASER

The Purchaser is an investment holding company incorporated in the British Virgin Islands with limited liability and wholly-owned by Mr. Liu Dong, who is the chairman of the Company and an executive Director. The Purchaser is a substantial shareholder of the Company interested in 273,609,836 Shares (representing approximately 19.31% of the issued share capital of the Company).

INFORMATION ON THE TARGET GROUP

As at the date of this announcement, the Target Group comprise the Target Company, YSL(HK), Yinshilai Textile and Yinshilai New Material.

4

The Target Company

The Target Company is an investment holding company incorporated in the British Virgin Islands with limited liability. Its subsidiaries are principally engaged in the sales of textile products and the provision of textile products processing services. As at the date of this announcement, the entire issued share capital of the Target Company is held by the Company.

YSL(HK)

YSL(HK) is an investment holding company incorporated in Hong Kong with limited liability. As at the date of this announcement, the entire issued share capital of YSL(HK) is held by the Target Company.

Yinshilai Textile

Yinshilai Textile is a company incorporated in the PRC with limited liability, which is principally engaged in the manufacturing and sales of textile products. As at the date of this announcement, the entire issued share capital of Yinshilai Textile is held by YSL(HK).

Yinshilai New Material

Yinshilai New Material is a company incorporated in the PRC with limited liability, which is principally engaged in the manufacturing and sales of textile products. As at the date of this announcement, the entire issued share capital of Yinshilai New Material is held by Yinshilai Textile.

The structure of the Target Group as at the date of this announcement is set out as follows:

==> picture [97 x 283] intentionally omitted <==

----- Start of picture text -----

The Company
100%
The Target
Company
100%
YSL (HK)
100%
Yinshilai Textile
100%
Yinshilai New
Material
----- End of picture text -----

5

As at 31 May 2019, the unaudited consolidated total asset value and net asset value of the Target Group were approximately RMB720.43 million and RMB180.34 million, respectively. The unaudited consolidated net loss before taxation attributable to the Target Group for the 5 months ended 31 May 2019 is approximately RMB4,680,000.

The unaudited consolidated net profit/(loss) attributable to the Target Group for the two years immediately preceding the date of the Sale and Purchase Agreement are as follows:

	For the year	ended
	31 December
	2017	2018
	RMB’000	RMB’000
Net profit/(loss) before taxation	8,358	11,323
Net profit/(loss) after taxation	7,802	7,700

Upon Completion, the Target Group will cease to be subsidiaries of the Company.

REASONS FOR AND BENEFITS OF THE DISPOSAL

The Group is principally engaged in (i) the sales of textile products and the provision of textile products processing services (the “ Textile Business ”); and (ii) the licensing of drama series and films and the provision of drama series and films production, distribution and related services (the “ Media Business ”).

As disclosed in the Company’s annual report for the year ended 31 December 2018, while the Group’s Media business focuses on creativity, innovation and culture targeting end-users, the business model of the Group’s textile business focuses on conventional industrial production targeting enterprise customers such as home textiles and clothing manufactures. Given such difference in business model, the skill sets of management personnel involved, the target customers and the corporate culture are very different between the two segments.

Since 2016, the overall textile industry in the PRC has been experiencing a consistent, notable decline. It is expected that the textile industry in the PRC will not recover in short term due to the domestic economic slowdown together with instability in global economic growth as a result of international trade disputes and the advent of trade protectionism. In addition, due to the low return on assets nature of the textile industry and as part of a traditional production industry which is over saturated and highly reliant on efficiency and cost control for its success (as opposed to the reliance on creativity and forward thinking in the media industry), the growth potential of the traditional Textile Business would be limited. In view of above, the PRC Government has since implemented various guidance to promote the upgrading and transformation of the industrial textile industry in the PRC. Innovative, cost-effective and environmentally-friendly efforts are the key development area to promote such transformation.

The Group adopted various measures and efforts in line with the guidance with the view to upgrade its Textile Business. However, despite the efforts, the Target Group experienced further decline in profitability from a gross profit margin of 18.3% for the year ended 31 December 2016 to 13.1% for the year ended 31 December 2018 and had been loss-making since the start of 2019. In comparison, the gross profit margin of the Group’s Media Business was 37.0% for the year ended 31 December 2018. Given the limited growth potential of the Textile Business and the loss attributable to the Target Group for the 5 months ended 31 May 2019, the Directors consider that the Disposal represents a good opportunity for the Group to achieve a strategic transformation

6

and allows the Group to reallocate its resources to its Media Business (which has higher return) and other investment opportunities as and when they arise. Having considered all of the above factors, the Directors (excluding the independent non-executive Directors who have deferred the expression of their views pending the obtaining of advice from the Independent Financial Adviser and excluding Mr. Liu Dong who has a material interest in the Disposal) consider that the terms of the Sale and Purchase Agreement are fair and reasonable and the entering into of the Sale and Purchase Agreement is in the best interests of the Company and the Shareholders as a whole.

FINANCIAL IMPACT OF THE DISPOSAL

Upon Completion, the Company will cease to have any equity interest in the Target Group. As such, the results of the Target Group will no longer be consolidated into the financial statements of the Group.

Based on (i) the consideration of the Disposal of approximately RMB335.32 million; (ii) the unaudited consolidated net asset value of the Target Group as at 31 May 2019 of approximately RMB180.34 million and (iii) the Sale Loan in the amount of approximately RMB145.43 million, it is expected that the Company will record a gain on the Disposal of approximately RMB9.55 million, which will be subject to audit. The actual amount of the gain to be recognised by the Group can only be determined when the consolidated net asset value of the Target Group as at the date of Completion and the transaction costs attributable to the Disposal are ascertained, and therefore maybe different from the aforesaid amount.

USE OF PROCEEDS

The gross proceeds and net proceeds from the Disposal amount to approximately RMB335.32 million and RMB333.84 million, respectively, of which RMB145.43 million shall be set off against the Sale Loan which remained outstanding upon the Completion. It was intended that the net proceeds from the Disposal will be used by the Company: (a) as to approximately RMB145.43 million for repayment of the Group’s debts and liabilities as they fall due; and (b) as to approximately RMB188.41 million for the Group’s business development and investments of the Media Business and general working capital purposes.

IMPLICATIONS UNDER THE LISTING RULES

As the applicable percentage ratios (as defined under the Listing Rules) in respect of the Disposal exceed 25% but are less than 75%, the Disposal constitutes a major transaction for the Company and is subject to the announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The Purchaser is a substantial shareholder of the Company interested in 273,609,836 Shares (representing approximately 19.31% of the issued share capital of the Company). Accordingly, the Purchaser is a connected person of the Company. The Disposal constitutes a connected transaction for the Company and is subject to the reporting, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all independent non-executive Directors, has been established to advise the Independent Shareholders regarding the terms of the Sale and Purchase Agreement. Euto Capital Partners Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

7

THE EGM

The EGM will be convened for the Independent Shareholders to consider and, if thought fit, to approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder. Based on the information provided by the Purchaser, the Purchaser is a company wholly owned by Mr. Liu Dong, who is the chairman of the Company and executive Director. Therefore, the Purchaser and Mr. Liu have material interests. The Purchaser, Mr. Liu and their respective associate(s) are required to abstain from voting on the resolution(s) in relation to the Sale and Purchase Agreement at the EGM.

A circular containing, among other things, (i) further information on the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders regarding the terms of the Sale and Purchase Agreement; (iii) a letter from the Independent Financial Adviser contained their advice to the Independent Board Committee and the Independent Shareholders regarding the terms of the Sale and Purchase Agreement; and (iv) a notice of the EGM, is expected to be despatched to the Shareholders on or before 16 September 2019.

Shareholders and potential investors should note that Completion is subject to the fulfilment of the Conditions Precedent. As the Disposal may or may not proceed, Shareholders and potential investors should exercise extreme caution when dealing in the securities of the Company.

DEFINITIONS

The following terms have the following meanings in the announcement, unless the context otherwise requires:

“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Business Day”	a day (other than Saturdays, Sundays and public holidays in
	Hong Kong and any day on which a tropical cyclone warning
	no. 8 or above or a “black” rainstorm warning signal is hoisted
	or remains hoisted or in effect between 9:00 a.m. and 5:00 p.m.)
	on which banks in Hong Kong are open for business
“Company”	Starrise Media Holdings Limited, a company incorporated in
	the Cayman Islands with limited liability, the shares of which
	are listed on the Main Board of the Stock Exchange with stock
	code: 1616
“Completion”	the completion of the Disposal in accordance with the terms
	and conditions of the Sale and Purchase Agreement
“connected person(s)”	has the meaning ascribed to it under the Listing Rules

8

“Conditions Precedent” the conditions precedent to the Completion as set out in the Sale and Purchase Agreement “Consideration” RMB335,318,840, being the consideration payable by the Purchaser to the Company pursuant to the Sale and Purchase Agreement “Director(s)” the director(s) of the Company “Disposal” the disposal of the entire issued share capital of the Target Company by the Company to the Purchaser “EGM” the extraordinary general meeting of the Company to be convened to approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder “Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board the independent committee of the Board comprising all the Committee” independent non-executive Directors established to advise the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder “Independent Financial Euto Capital Partners Limited, a licensed corporation to carry Adviser” out Type 6 (advising on corporation finance) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder “Independent Shareholders” Shareholders other than the Purchaser, Mr. Liu Dong and their respective associates “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Listing Rules” “PRC”

The People’s Republic of China

“Purchaser” Excel Orient Limited（東越有限公司）, a company incorporated in the British Virgin Islands with limited liability and wholly-owned by Mr. Liu Dong “RMB” Renminbi, the lawful currency of the PRC

“RMB”

9

“Sale and Purchase	the sale and purchase agreement dated 13 August 2019 between
Agreement”	the Company and the Purchaser in respect of the Disposal
“Sale Interests”	Collectively, the Sale Shares and the Sale Loans
“Sale Loan(s)”	the entire loans owing by the Target Group to the Company and
	its affiliates on Completion
“Sale Shares(s)”	the entire issued share capital of the Target Company, which is
	wholly owned by the Company prior to the entering into of the
	Sale and Purchase Agreement
“Shareholders”	the shareholders of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target Company”	Power Fit Limited, a company incorporated in the British Virgin
	Islands with limited liability and a wholly-owned subsidiary of
	the Company
“Target Group”	the Target Company and its subsidiaries
“Yinshilai New Material”	Zibo Yinshilai Textile New Material Technology Co., Ltd*（淄
	博銀仕來紡織新材料科技有限公司）, a company established
	in the PRC with limited liability and a wholly-owned subsidiary
	of Yinshilai Textile
“Yinshilai Textile”	Zibo Yinshilai Textile Co., Ltd*（淄博銀仕來紡織有限公司）,
	a company established in the PRC with limited liability and a
	wholly-owned subsidiary of YSL (HK)
“YSL (HK)”	YSL (HK) Limited（銀仕來（香港）有限公司）, a company
	incorporated in Hong Kong with limited liability and a
	wholly-owned subsidiary of the Target Company

By Order of the Board Starrise Media Holdings Limited LIU Dong Chairman

Shandong, the PRC, 13 August 2019

As at the date of this announcement, the Board comprises eight Directors, namely Mr. LIU Dong, Mr. LIU Zongjun, Ms. CHEN Chen, Mr. HE Han and Mr. TAN Bin as executive Directors; and Mr. LAM Kai Yeung, Ms. LIU Chen Hong and Mr. WANG Liangliang as independent nonexecutive Directors.

• for identification purpose only

10