China ITS (Holdings) Co., Ltd. — M&A Activity 2017

Nov 14, 2017

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.

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China ITS (Holdings) Co., Ltd. 中 国 智 能 交 通 系 统（ 控 股 ）有 限 公 司 (Incorporated in the Cayman Islands with limited liability) (Stock code: 1900)

DISCLOSEABLE TRANSACTION

ACQUISITION OF 58% INTEREST IN CEECGLOBAL LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES UNDER GENERAL MANDATE

THE SHARE PURCHASE AND SUBSCRIPTION AGREEMENT

The Board announces that on 14 November 2017 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, entered into the Share Purchase and Subscription Agreement with the Company, the Vendor, the Guarantors and the Target Company pursuant to which the Purchaser has conditionally agreed (i) to purchase the Sale Shares, representing 40% of the entire issued share capital of the Target Company as at the date of this announcement, from the Vendor at a total Consideration of RMB78,400,000 and (ii) to subscribe for the Subscription Shares, representing approximately 30% of the enlarged issued share capital of the Target Company, at the Subscription Price of RMB84,000,000. Upon completion of the purchase of the Sale Shares and the subscription of the Subscription Shares, the Purchaser will own approximately 58% of the total issued shares of the Target Company as enlarged by the Subscription Shares.

ISSUE OF CONSIDERATION SHARES

Pursuant to the Share Purchase and Subscription Agreement, part of the Consideration for the Acquisition, being RMB37,500,000, will be satisfied by the allotment and issue of 87,605,974 Consideration Shares by the Company to the Vendor at the Issue Price of HK$0.503 per Share.

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GENERAL MANDATE

The Consideration Shares will be allotted and issued pursuant to the General Mandate. The maximum number of Shares that can be issued under the General Mandate is 330,804,973 Shares. As at the date of this announcement, no Shares have been allotted and issued under the General Mandate and the 87,605,974 Consideration Shares amount to approximately 26.48% of the General Mandate.

APPLICATION FOR LISTING

Application will be made to the Stock Exchange for the grant of listing of and permission to deal in the Consideration Shares.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios in respect of the transactions contemplated under the Share Purchase and Subscription Agreement, is more than 5% but all of the applicable percentage ratios are less than 25%, the Share Purchase and Subscription Agreement and the transactions contemplated under it constitute a discloseable transaction of the Company and are subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

As the Completion is subject to the satisfaction of the conditions precedent under the Share Purchase and Subscription Agreement and the Completion may or may not proceed, Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares.

THE SHARE PURCHASE AND SUBSCRIPTION AGREEMENT

The Board announces that on 14 November 2017 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, entered into the Share Purchase and Subscription Agreement with the Company, the Vendor, the Guarantors and the Target Company pursuant to which the Purchaser has conditionally agreed (i) to purchase the Sale Shares, representing 40% of the entire issued share capital of the Target Company as at the date of this announcement, from the Vendor at a total Consideration of RMB78,400,000 and (ii) to subscribe for the Subscription Shares, representing approximately 30% of the enlarged issued share capital of the Target Company, at the Subscription Price of RMB84,000,000. Upon completion of the purchase of the Sale Shares and the subscription of the Subscription Shares, the Purchaser will own approximately 58% of the total issued shares of the Target Company as enlarged by the Subscription Shares.

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The principal terms of the Share Purchase and Subscription Agreement are as follows:

• Date : 14 November 2017

• Parties : (a) China ITS (Holdings) Co., Ltd., a wholly-owned subsidiary of the Company (as Purchaser)

• (b) the Company

• (c) TOTLAND INTERNATIONAL LIMITED (as Vendor)

• (d) Goal High

• (e) Mr. Hu Weimin

• (f) CEECGLOBAL LIMITED (as Target Company)

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendor, the Target Company, Goal High and their ultimate beneficial owners (including Mr. Hu) are third parties independent of the Company and its connected persons.

Subject matter

• : (a) The Purchaser has conditionally agreed to purchase and the Vendor has conditionally agreed to sell the Sale Shares, representing 40% of the entire issued share capital of the Target Company as at the date of this announcement, at a total Consideration of RMB78,400,000; and

  • (b) The Purchaser has conditionally agreed to subscribe for, and the Target Company has conditionally agreed to allot and issue to the Purchaser, the Subscription Shares, representing approximately 30% of the enlarged issued share capital of the Target Company, at the Subscription Price of RMB84,000,000.

• Subscription Shares

• : The Subscription Shares shall be preference shares which entitle the holder(s) a priority in the distribution of assets of the Target Company upon liquidation or winding up of the Target Company over holder(s) of the ordinary shares of the Target Company. Other than such liquidation preference, the rights attached to the Subscription Shares are identical to that of the ordinary shares of the Target Company in all material respects.

• Consideration for : RMB78,400,000 the Acquisition

The Consideration was arrived at after arm’s length negotiations between the parties with reference to the valuation of 40% equity interest in Target Company as at 30 September 2017, conducted by an independent valuer.

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• Payment terms for : The Consideration will be satisfied in the following manner: the Acquisition

• (a) RMB40,900,000, being part of the Consideration, will be satisfied in cash, of which (i) 50% (being RMB20,450,000) shall be payable by the Purchaser to the Vendor within 30 days after the Completion date, and (ii) the remaining 50% (being RMB20,450,000) shall be payable within 90 days after the Completion date;

The above cash Consideration will be satisfied out of the Group’s internal resources.

• (b) RMB37,500,000, being the remaining Consideration, will be satisfied by the issue and allotment of 87,605,974 Consideration Shares by the Company to the Vendor at the Issue Price of HK$0.503 per Share within 30 business days after the Completion date.

• The Issue Price of HK$0.503 per Consideration Share represents: (a) a premium of approximately 1.62% to the closing price of HK$0.495 per Share as quoted on the Stock Exchange on 14 November, 2017, the date of the Share Purchase and Subscription Agreement;

• (b) a premium of approximately 1.41% over the average closing price of approximately HK$0.496 per Share as quoted on the Stock Exchange for the five consecutive trading days immediately prior to the date of the Share Purchase and Subscription Agreement; and

• (c) a premium of approximately 0.40% over the average closing price of approximately HK$0.501 per Share as quoted on the Stock Exchange for the ten consecutive trading days immediately prior to the date of the Share Purchase and Subscription Agreement.

The Issue Price was arrived at after arm’s length negotiations between the parties based on the average closing price as quoted on the Stock Exchange for 30 consecutive trading days immediately prior to 9 November 2017.

The Directors are of the opinion that the Issue Price is fair and reasonable and is in the best interests of the Company and the Shareholders as a whole.

The Consideration Shares will, when fully paid, rank pari passu in all respects with the existing issued Shares of the Company upon issuance.

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• Subscription Price : RMB84,000,000 for the Subscription The Subscription

The Subscription Price was arrived at after arm’s length negotiations between the parties taking into account various factors including the industry of Target Company, net asset of Target Company and the growth prospect of Target Company.

• Payment terms for the Subscription

• : The Subscription Price will be satisfied in full in cash and shall be payable in five installments of RMB16,800,000 each. The first installment shall be payable within 30 days after the Completion Date and the remaining four installments shall be payable within 30 days after each anniversary of the Completion Date.

The Subscription Price will be satisfied out of the Group’s internal resources.

• Conditions precedent

• : The Completion shall be subject to amongst other things, the following conditions:

• (a) completion of the change of members of the board of directors of the Target Company;

• (b) the Listing Committee granting the listing of and permission to deal in the Consideration Shares on the Stock Exchange;

• (c) the Vendor having obtained directors’ and shareholders’ approval and the Purchaser having obtained directors’ approval in relation to the transactions contemplated under the Share Purchase and Subscription Agreement;

• (d) the Vendor, the Target Company and its subsidiaries and the Purchaser having obtained the necessary approvals and consents from and completed the necessary registrations and reporting with the government authorities or third parties (if applicable); and

• (e) the Vendor having executed and delivered the Share Charge to the Purchaser.

If any of the above conditions is not satisfied or waived (if applicable) before the Long Stop Date, the obligations and liabilities of the parties under the Share Purchase and Subscription Agreement, other than those in relation to termination, applicable laws, costs and expenses et cetera, shall be null and void.

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Profit guarantee

: Profit Guarantee

The Guarantors warrant to the Purchaser and the Company that in respect of the financial period from 2017 to 2021 (the ‘‘Profit Guarantee Period’’), the aggregate audited consolidated net profits of the Target Company for each financial year during the Profit Guarantee Period shall be no less than RMB154,000,000 (the ‘‘Guaranteed Profit’’). Further, the audited consolidated net profits of the Target Company:

• (a) for the financial year of 2017 shall be no less than RMB20,000,000;

• (b) for the financial year of 2018 shall be no less than RMB25,000,000;

• (c) for the financial year of 2019 shall be no less than RMB30,000,000;

• (d) for the financial year of 2020 shall be no less than RMB36,000,000; and

• (e) for the financial year of 2021 shall be no less than RMB43,000,000 (each a ‘‘Financial Year Target’’).

The audited financial statements of the Target Company shall be completed by Hong Kong Certified Public Accountants based on international accounting standards within 90 days after the end of each financial year during the Profit Guarantee Period.

Compensation

• (a) If the aggregate of the audited consolidated net profits of the Target Company (the ‘‘Actual Profit’’) for each financial year during the Profit Guarantee Period is less than 100% but exceeds 60% of the aggregate sum of the Guaranteed Profits for each financial year during the Profit Guarantee Period, the Guarantors shall compensate the Company and the Purchaser in the following manner:

• (i) as compensation for the cash payment made by the Purchaser under the Share Purchase and Subscription Agreement, the Purchaser is entitled at anytime to request the Guarantors to pay the Purchaser in cash three days after receiving written notice from the Purchaser (the ‘‘Compensation Notice’’) the compensation amount calculated according to the following formula:

• (B C)

• A = x (RMB40,900,000 + RMB84,000,000) B

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where ‘‘A’’ is the compensation amount;

‘‘B’’ is the aggregate of the Guaranteed Profits of the Target Company for each financial year during the Profit Guarantee Period;

‘‘C’’ is the aggregate of Actual Profits of the Target Company for each financial year during the Profit Guarantee Period; and

• (ii) as compensation for the issue of Consideration Shares under the Share Purchase and Subscription Agreement, the Purchaser is entitled at anytime to request the Guarantors to pay the Purchaser in cash either from proceeds from selling the Shares held or its own financial resources within three days after receiving the Compensation Notice the compensation amount calculated according to the following formula:

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where ‘‘D’’ is the compensation amount;

‘‘E’’ is the closing price per Share as quoted on the Stock Exchange on the date of issue of the Compensation Notice;

‘‘F’’ is the number of Consideration Shares issued to the Vendor.

• (b) If, at the expiry of the Profit Guarantee Period, the aggregate of the Actual Profits of the Target Company is less than 60% of the aggregate of the Guaranteed Profits, the Company and the Purchaser are entitled to the following compensation, the Guarantors shall within three days after receiving the Compensation Notice from the Purchaser:

• (i) pay to the Purchaser in cash (a) an amount equivalent to the closing price per Share as quoted on the Stock Exchange on the date of issue of the Compensation Notice multiplied by the total number of Consideration Shares, and (b) RMB40,900,000 being the purchase price of approximately 28% ordinary shares of the enlarged issued share capital of the Target Company from the Purchaser;

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• (ii) the Guarantors shall purchase approximately 30% preference shares of the enlarged issued share capital of the Target Company from the Purchaser at a cash consideration equivalent to the cash payment made by the Purchaser to the Target Company for the Subscription; and

• (iii) the Guarantors shall make additional compensation in cash to the Purchaser in an amount equal to the sum of:

  • each payment of consideration actually paid by the Company or the Purchaser, or the value of the Consideration Issues actually issued by the Company calculated at the Issue Price (as applicable) × 20% × (the number of days between the date of such payment or issuance of Consideration Shares and the date on which the entire amount of compensation as described in this paragraph is settled) ÷ 365

• (c) In the event that, at the expiry of the Profit Guarantee Period, the aggregate of the Actual Profits of the Target Company exceeds the aggregate of the Guaranteed Profits, 30% of the excess amount shall be applied towards awarding the management personnel of the Target Company.

Share charge

• : After issue of the Consideration Shares to the Vendor, the Vendor agrees to promptly charge all the Consideration Shares in favor of the Purchaser to secure certain obligations of the Vendor under the Share Purchase and Subscription Agreement, including those relating to the Profit Guarantee, in accordance with the Share Charge. The Purchaser may release all or part of the charged Consideration Shares based on its assessment of the Target Company’s performance with reference to each Financial Year Target during the Profit Guarantee Period. In the event that the Share Charge is enforced, the Purchaser will be entitled to dispose of any Consideration Shares subject to the Share Charge to independent third parties for cash and apply the proceeds as compensation for breaches of the Share Purchase and Subscription Agreement on the part of the Vendor in accordance with the terms of the Share Charge and the Share Purchase and Subscription Agreement.

• Management : The Purchaser shall have the right to nominate two out of three representatives to the board of directors of the Target Company.

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• Completion : Subject to the satisfaction or waiver of all conditions precedent under the Share Purchase and Subscription Agreement, Completion of the Acquisition and the Subscription shall take place within five business days after the amount of stamp duty payable by the parties for the Acquisition has been adjudicated.

REASONS FOR AND BENEFITS OF THE ACQUISITION AND THE SUBSCRIPTION

The Acquisition and Subscription will facilitate the Group in taking advantage of the industrial development opportunities brought forth by the ‘‘One Belt, One Road’’ development strategy of the PRC. The Target Company’s electric power engineering procurement, construction and integration business complements the business of the Group and can create potential synergies, bearing positive significance for the future development of the Group.

The Directors are of the view that that the terms of the Share Purchase and Subscription Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INFORMATION OF THE GROUP, THE TARGET COMPANY, THE VENDOR, GOAL HIGH AND MR. HU

Information of the Group

The Group is primarily engaged in the provision of communications, surveillance specialised solutions and value-added operation and services.

Information of the Target Company

The Target Company is primarily engaged in investment, design, sales and integration of equipment for various segments of overseas energy and electric power industry. As at the date of this announcement, the Vendor and Goal High directly holds 40% and 60% of its entire issued share capital, respectively and Mr. Hu indirectly holds 62% of its entire issued share capital through the Vendor and Goal High and ultimately controls the Target Company.

Set out below is the unaudited consolidated financial information of the Target Company for the nine months ended 30 September 2017[(Note)] :

For the year ended 30 September 2017 Net profit/(loss) before tax RMB9,617,000 Net profit/(loss) after tax RMB8,987,000

Note: The Target Company did not commence business until 1 January 2017.

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The unaudited consolidated net asset value of the Target Company as at 30 September 2017 was approximately RMB9,059,000.

Upon completion of the Acquisition and Subscription, the Group will hold more than 50% of the enlarged issued share capital of the Target Company and the Target Company will become a subsidiary of the Company. The financial results of the Target Company will be consolidated into the consolidated financial statements of the Group in accordance with the Group’s accounting policies.

Information of the Vendor, Goal High and Mr. Hu

The Vendor is a limited liability company incorporated in the BVI and is principally engaged in investment holding. As at the date of this announcement, Mr. Hu directly holds 50% of its entire issued share capital.

Goal High is a limited liability company incorporated in the BVI and is principally engaged in investment holding. As at the date of this announcement, Mr. Hu directly holds 70% of its entire issued share capital.

Mr. Hu, indirectly holds 62% interests in Target Company, and is the controller, director of the of the Target Company.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendor, the Target Company, Goal High and their ultimate beneficial owners (including Mr. Hu) are third parties independent of the Company and its connected persons.

ISSUE OF CONSIDERATION SHARES

Pursuant to the Share Purchase and Subscription Agreement and subject to the conditions contained therein, part of the Consideration, being RMB37,500,000, will be satisfied by the allotment and issue of 87,605,974 Consideration Shares by the Company to the Vendor at the Issue Price of HK$0.503 per share.

The Consideration Shares will be allotted and issued pursuant to the General Mandate and is not subject to Shareholders’ approval. The Consideration Shares represent approximately 5.30% of the issued share capital of the Company as at the date of this announcement and approximately 5.03% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares.

Fund Raising Activities in the Past Twelve Months

The Company has not conducted any equity fund raising activities during the past 12 months immediately preceding the date of this announcement.

GENERAL MANDATE

The Consideration Shares will be allotted and issued pursuant to the General Mandate and is not subject to Shareholders’ approval. The maximum number of Shares that can be issued under the General Mandate is 330,804,973 Shares. As at the date of this announcement, no

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Shares have been allotted and issued under the General Mandate and the 87,605,974 Consideration Shares amount to approximately 26.48% of the number of Shares authorised by the General Mandate.

APPLICATION FOR LISTING

Application will be made to the Stock Exchange for the grant of listing of and permission to deal in the Consideration Shares.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios in respect of the transactions contemplated under the Share Purchase and Subscription Agreement, is more than 5% but all of the applicable percentage ratios are less than 25%, the Share Purchase and Subscription Agreement and the transactions contemplated under it constitute a discloseable transaction of the Company and are subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

As the Completion is subject to the satisfaction of the conditions precedent under the Share Purchase and Subscription Agreement and the Completion may or may not proceed, Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares.

This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Shares.

DEFINITIONS

In this announcement, the following expressions shall have the following meanings unless the context requires otherwise:

‘‘Acquisition’’	the acquisition of Sale Shares by the Purchaser from the
	Vendor pursuant to the Share Purchase and Subscription
	Agreement
‘‘Board’’	the Board of Directors
‘‘Company’’	China ITS (Holdings) Co., Ltd. (中国智能交通系统(控股)有
	限公司), a company incorporated in the Cayman Islands
	with limited liability whose Shares are listed on the Main
	Board of the Stock Exchange
‘‘Completion’’	completion of the Acquisition and the Subscription
‘‘connected person’’	has the same meaning ascribed to it under the Listing Rules
‘‘Consideration Shares’’	87,605,974 Shares to be allotted and issued to the Vendor as
	part of the Consideration pursuant to the Share Purchase and
	Subscription Agreement

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‘‘Consideration’’

the total consideration for the Acquisition, being RMB78,400,000

• ‘‘Director(s)’’ the director(s) of the Company

• ‘‘GeneralGeneral Mandate’’’’

‘‘GeneralGeneral Mandate’’’’ the general mandate granted to the Directors by the Shareholders at the annual general meeting of the Company on 23 May 2017 for allotment and issue of new Shares ‘‘Goal High’’ Goal High Global Limited, a company incorporated in the British Virgin Islands with limited liability, it is owned as to 70% by Mr. Hu and it directly holds 60% of the entire issued share capital of the Target Company as at the date of this announcement

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘Guarantors’’ the Vendor, Goal High and Mr. Hu

• ‘‘Issue Price’’ HK$0.503 per Consideration Share

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange

• ‘‘Long Stop Date’’ 30 June 2018

• ‘‘Mr. Hu’’ Mr. Hu Weimin (胡衞民), one of the ultimate beneficial owners of the Target Company

• ‘‘PRC’’ the People’s Republic of China

‘‘Profit Guarantee’’ the warranty given by the Guarantors in relation to the Guaranteed Profits as set out in the paragraph headed ‘‘The Share Purchase and Subscription Agreement — Profit Guarantee’’ in this announcement

• ‘‘Purchaser’’ China ITS (Holdings) Co., Ltd., a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company

• ‘‘RMB’’ Renminbi, the lawful currency of the PRC

• ‘‘Sale Shares’’ 4,000 ordinary shares of the Target Company held by the Vendor, representing 40% of the entire issued share capital of the Target Company as at the date of this announcement

‘‘Share Charge’’ the share charge to be entered into by the Vendor in favour of the Purchaser in relation to the charge of the Consideration Shares

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• ‘‘Share Purchase and the share purchase and subscription agreement dated 14 Subscription Agreement’’ November 2017 entered into between the Purchaser, the Company, the Vendor, the Guarantors and the Target Company in relation to the Share Purchase and the Subscription

• ‘‘Share(s)’’ ordinary share(s) of HK$0.0002 each in the share capital of the Company

• ‘‘Shareholder(s)’’ the shareholder(s) of the Company

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘Subscription Price’’ the subscription price for the Subscription Shares, being RMB84,000,000

• ‘‘Subscription Shares’’ 4,286 preference shares of the Target Company to be allotted and issued to and subscribed by the Purchaser pursuant to the Share Purchase and Subscription Agreement, representing approximately 30% of the enlarged issued share capital of the Target Company

• ‘‘Subscription’’ the subscription of the Subscription Shares by the Purchaser

• ‘‘Target Company’’ CEECGLOBAL LIMITED, a company incorporated in Hong Kong with limited liability

• ‘‘Vendor’’ Totland International Limited, a company incorporated in the British Virgin Islands with limited liability, it is owned as to 50% by Mr. Hu and it directly holds 40% of the entire issued share capital of the Target Company as at the date of this announcement

• ‘‘%’’ per cent

By order of the Board

China ITS (Holdings) Co., Ltd. Liao Jie Chairman

Beijing, 14 November 2017

As at the date of this announcement, the executive directors of the Company are Mr. Liao Jie and Mr. Jiang Hailin, the non-executive director of the Company is Mr. Tim Tianwei Zhang, and the independent non-executive directors of the Company are Mr. Zhou Chunsheng, Mr. Choi Onward and Mr. Ye Zhou.

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