China Silver Group Limited — Capital/Financing Update 2014

May 20, 2014

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 SILVER GROUP LIMITED 中國白銀集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 815)

CONNECTED TRANSACTION RELATING TO THE ENTERING INTO OF VIE AGREEMENTS FOR THE FORMATION OF A JOINT VENTURE COMPANY

On 20 May 2014, the Group participated in the formation of JVCO through the VIE Structure and the entering into of various VIE Agreements. The VIE Agreements were made among SZ Silver (which is a wholly-owned subsidiary of the Company) on the one part, and SZCO (which is a shareholder of JVCO) and Mr. Chen and Mr. Qian (who are the shareholders of SZCO and both Independent Third Parties) on the other part. The VIE Structure allows the Group to exercise full control over SZCO. As a result, the Group, through SZCO by way of the VIE Structure, effectively holds 30% of the equity interest in JVCO which is principally engaged in the fast-growing e-commerce business. Upon completion of the VIE Agreements, SZCO will become a subsidiary of the Company and its financial results will be consolidated into the accounts of the Group while JVCO will become an associate of the Company and its financial results will be accounted for using the equity method.

JVCO was established on 11 March 2014 among Mr. Chen, Richwise Venture, SHCO (an Independent Third Party) and ZHCO (an Independent Third Party). Pursuant to the Original JV Articles, the registered capital of JVCO should be contributed as to 30%, 20%, 29% and 21% by Mr. Chen, Richwise Venture, SHCO and ZHCO respectively. On 17 April 2014, Mr. Chen transferred his entire equity interest in JVCO to SZCO at a nominal consideration of RMB1. On completion of transfer of such equity interest, JVCO is owned as to 30%, 20%, 29% and 21% by SZCO, Richwise Venture, SHCO and ZHCO respectively.

Richwise Venture is owned as to 70% by Mr. Shi, who is interested in 70% of the issued share capital of Richwise Capital. Richwise Capital is the sole shareholder of Best Conduct, which in turn is a substantial shareholder of the Company. As such, Mr. Shi is a substantial shareholder of the Company and thus a connected person of the Company. At the same time, Richwise Venture is an associate of Mr. Shi and is deemed to be a connected person of the Company. The formation of JVCO is therefore a connected transaction of the Company under Chapter 14A of the Listing Rules.

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As the applicable percentage ratios (the asset ratio and the consideration ratio) in respect of the capital contribution by SZCO to JVCO of RMB1.8 million (equivalent to approximately HK$2.2 million) exceed 0.1% but are less than 5%, the formation of JVCO by way of the VIE Structure constitutes a connected transaction and is subject to the reporting, announcement and annual review requirements but is exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

On the other hand, as the applicable percentage ratios in respect of the transactions contemplated under each of the VIE Agreements are less than 5%, the entering into of the VIE Agreements does not constitute a notifiable transaction for the Company under Chapter 14 of the Listing Rules.

INTRODUCTION

On 20 May 2014, the Group participated in the formation of JVCO through the VIE Structure and the entering into of various VIE Agreements. The VIE Agreements were made among SZ Silver (which is a wholly-owned subsidiary of the Company) on the one part, and SZCO (which is a shareholder of JVCO) and Mr. Chen and Mr. Qian (who are the shareholders of SZCO and both Independent Third Parties) on the other part. The VIE Structure allows the Group to exercise full control over SZCO. As a result, the Group, through SZCO by way of the VIE Structure, effectively holds 30% of the equity interest in JVCO which is principally engaged in the fast-growing e-commerce business. Upon completion of the VIE Agreements, SZCO will become a subsidiary of the Company and its financial results will be consolidated into the accounts of the Group while JVCO will become an associate of the Company and its financial results will be accounted for using the equity method.

JVCO was established on 11 March 2014 among Mr. Chen, Richwise, SHCO (an Independent Third Party) and ZHCO (an Independent Third Party). Pursuant to the Original JV Articles, the registered capital of JVCO should be contributed as to 30%, 20%, 29% and 21% by Mr. Chen, Richwise Venture, SHCO and ZHCO respectively. On 17 April 2014, Mr. Chen transferred his entire equity interest in JVCO to SZCO at a nominal consideration of RMB1. On completion of transfer of such equity interest, JVCO is owned as to 30%, 20%, 29% and 21% by SZCO, Richwise Venture, SHCO and ZHCO respectively.

VIE AGREEMENTS

A summary of the principal terms of the VIE Agreements is set out below.

(1) Exclusive Option Agreement

Date: 20 May 2014 Parties: (1) Mr. Chen (2) Mr. Qian (3) SZ Silver (4) SZCO Term: The Exclusive Option Agreement became effective upon signing by all parties and will be terminated when all the rights and assets in SZCO are transferred to SZ Silver and/or other entity(ies) or person(s) designated by SZ Silver in accordance with the terms of the Exclusive Option Agreement and the laws of the PRC.

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Subject:

Mr. Chen and Mr. Qian irrevocably and unconditionally agree, to the extent permitted under the laws of the PRC, to transfer to SZ Silver or any other entity(ies) or persons(s) designated by SZ Silver their equity interests in SZCO.

SZCO irrevocably and unconditionally agrees, to the extent permitted under the laws of the PRC, to transfer to SZ Silver or any other entity(ies) or persons(s) designated by SZ Silver the assets of SZCO (including all tangible and intangible assets held by SZCO during the term of the Exclusive Option Agreement).

SZ Silver may exercise, at its sole discretion, its rights under the paragraphs above at any time and in any manner permitted under the laws of the PRC. The exercise price of the rights payable to each of Mr. Chen and Mr. Qian is the lower of (i) the amount of registered capital contributed by Mr. Chen or Mr. Qian in accordance with their respective percentage of equity interest in SZCO and (ii) the lowest price permitted under the laws of the PRC.

Mr. Chen and Mr. Qian undertake that, among other things, they will not (i) transfer, mortgage, create any security interest or third party rights in their respective equity interests in SZCO; (ii) amend the articles of association of SZCO; (iii) increase or decrease the registered capital of SZCO; or (iv) appoint or remove any directors of SZCO.

(2) Exclusive Consultancy and Services Agreement

Date: 20 May 2014 Parties: (1) SZ Silver (2) SZCO Term: The Exclusive Consultancy and Services Agreement became effective upon signing by both parties and may be terminated either by written agreement by both parties or in accordance with the requirements by the laws of the PRC. Subject: SZCO engages SZ Silver on an exclusive basis to provide consultancy services in relation to technology approval, technology support, technology consultation and other related corporate consultation services.

In consideration of the provision of consultancy services, SZCO will pay SZ Silver (i) a service fee equivalent to 95% of the annual operational revenue of SZCO, or any amount as agreed by SZCO and SZ Silver; and (ii) another service fee agreed separately between SZCO and SZ Silver for specific technology services provided by SZ Silver on the request of SZCO.

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(3) Proxy Agreement

Date: 20 May 2014 Parties: (1) Mr. Chen (2) Mr. Qian (3) SZ Silver (4) SZCO Term: The Proxy Agreement became effective upon signing by all parties and continues to be valid until terminated in writing by all parties. Subject: Mr. Chen and Mr. Qian irrevocably undertake that they will authorise persons designated by SZ Silver to exercise on their behalf the rights as a shareholder of SZCO under the articles of association of SZCO, including but not limited to (i) the right to convene and attend shareholders’ meeting of SZCO; and (ii) the right to vote as shareholders of SZCO. Share Pledge Agreement Date: 20 May 2014 Parties: (1) Mr. Chen (2) Mr. Qian (3) SZ Silver (4) SZCO Term: The Share Pledge Agreement became effective upon signing by all parties and remains in effect until the later to occur of the following: (i) all of the obligations of Mr. Chen, Mr. Qian and SZCO under the Exclusive Option Agreement, the Exclusive Consultancy and Services Agreement and the Proxy Agreement are satisfied in full or (ii) all the direct, indirect or incidental loss suffered by SZ Silver as a result of the breach by Mr. Chen, Mr. Qian or SZCO under the Exclusive Option Agreement, the Proxy Agreement and/or the Share Pledge Agreement has been discharged in full. If there is any breach under the Share Pledge Agreement, SZ Silver shall be entitled to enforce the pledge in accordance with the terms of the Share Pledge Agreement and the laws of the PRC after giving written notice to Mr. Chen and Mr. Qian.

(4) Share Pledge Agreement

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JV ARTICLES

A summary of the JV Articles is set out below:–

Date:	16 April 2014
Parties:	(1) SZCO
	(2) Richwise Venture
	(3) SHCO
	(4) ZHCO
Equity interests	The equity interests in JVCO are held as follows:
in JVCO:
	(1) SZCO: 30%
	(2) Richwise Venture: 20%
	(3) SHCO: 29%
	(4) ZHCO: 21%
Registered capital	The amount of the registered capital of JVCO is RMB6 million
and capital	(approximately HK$7.5 million), which will be paid by instalments within
contribution:	10 years of the establishment of JVCO by the JV Parties in proportion to
	their respective equity interest as follows:
	(1) SZCO: RMB1.8 million (approximately HK2.2 million)
	(2) Richwise Venture: RMB1.2 million (approximately HK1.5 million)
	(3) SHCO: RMB1.74 million (approximately HK2.2 million)
	(4) ZHCO: RMB1.26 million (approximately HK1.6 million)
Scope of business	Development of computer database, computer system analysis, computer
of JVCO:	network hardware and software, provision of computer technology service,
	investment in technology-based enterprises, e-commerce, design and sales
	of jewelleries, crafts and collections, and import and export business.
Management of	The board of directors of JVCO comprises five directors, of whom two are
JVCO:	appointed by SZCO, and one appointed by Richwise Venture, SHCO and
	ZHCO. The chairman of the board of directors of JVCO (who is also the
	legal representative of JVCO) is appointed by SZCO.
	The supervisory committee of JVCO comprises one manager who is
	appointed by the chairman of the board of directors of JVCO.

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DIAGRAM OF THE VIE STRUCTURE AND THE JOINT VENTURE

The following diagram shows the shareholding structure of JVCO and the VIE Structure in relation to JVCO.

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Company
100%
SZ Si lver
Mr. Chen Mr. Qian
80% 20%
Richwise
S ZC O SHCO ZHCO
Venture
30% 29% 21% 20%
VIE Agreements JVCO
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REASONS FOR AND BENEFITS OF THE TRANSACTIONS

The Group’s objective is to promote the downstream silver retail business through the fast-growing e-commerce sales channel. By indirectly holding 30% of the equity interest of JVCO, the Group is able to combine and capitalise on the experience, expertise and resources of the other JV Parties in the arena of e-commerce business to build one of the largest and most comprehensive jewellery e-commerce platforms in the PRC.

However, certain laws and regulations in the PRC do not allow the Company, not being a PRC domestic company, to participate directly in the formation of JVCO. In light of the legal restrictions and after having considered the potential growth and opportunities in the e-commerce business in the PRC, the Company decides to participate in the formation of JVCO indirectly through the VIE Structure. The business of JVCO is in line with the Group’s principal activities.

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The Company’s PRC legal adviser confirmed that the use of the VIE Structure and the VIE Agreements comply with the laws of the PRC and the rules and regulations applicable to the e-commerce industry, do not contravene the articles of association of either of SZ Silver or SZCO, and would not be deemed as concealing illegal intentions with a lawful form. As a result, the Directors believe that the VIE Agreements are enforceable under the laws of the PRC, and the VIE Structure is in line with the principles (as stated below) set out in the listing decision HKEx-LD43-3 published by the Stock Exchange.

Each of the VIE Agreements includes a provision that each such agreement is binding on the successors and permitted assignees of the parties. If Mr Chen or Mr Qian dies, becomes bankrupt or is divorced, the Company may exercise its option under the Exclusive Option Agreement to replace Mr. Chen or Mr. Qian and the newly-appointed nominee shareholder of SZCO will still be subject to the VIE Agreements.

Mr. Chen and Mr. Qian undertake in the Exclusive Option Agreement that during the period that the VIE Structure remains effective, (i) unless otherwise agreed by SZ Silver in writing, they would not participate in any business which may potentially affect the businesses or reputation of SZCO, and (ii) they would not enter into any agreements which may create conflict of interest between them and SZ Silver. Furthermore, if there is a conflict of interest, Mr. Chen and Mr. Qian agree to take appropriate remedial actions.

The Company agrees that it will unwind the VIE Structure as soon as the law allows the e-commerce business in the PRC to be operated without the VIE Structure. However, the Company’s acquisition of the equity interest of Mr. Chen and Mr. Qian in SZCO and/or assets of SZCO may only be conducted to the extent as permitted by the laws of the PRC and will be subject to the required approvals and procedures under the laws of the PRC. Mr. Chen and Mr. Qian undertake that, subject to the laws and regulations in the PRC, they will return to the Company any consideration they receive in the event that the Company (or SZ Silver, through the Company) acquires the equity interest of SZCO when unwinding the VIE Structure.

The VIE Agreements contain dispute resolution clauses that (i) provide for arbitration and that arbitrators may award remedies over the shares or assets of SZCO, injunctive relief (for example, for the conduct of business or to compel the transfer of assets) or order the winding up of SZCO, and (ii) provide the courts of competent jurisdictions with the power to grant interim remedies in support of the arbitration pending formation of the arbitration panel. The courts of the PRC and Hong Kong are specified as having jurisdiction for this purpose.

INFORMATION ABOUT THE PARTIES

SZ Silver is a limited liability company established in the PRC and a direct wholly-owned subsidiary of the Company. It is principally engaged in the retailing of silver jewellery in the PRC.

SZCO is a limited liability company established in the PRC which is owned as to 80% by Mr. Chen and 20% by Mr. Qian. It is principally engaged in investment holding.

Richwise is a limited liability company established in the PRC and is owned as to 70% by Mr. Shi. It is principally engaged in early stage investment in startups in the area of internet, new media and information technology.

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SHCO is a limited liability company established in the PRC and an Independent Third Party. It is an investment fund established by high technology entrepreneurs formerly from Alibaba Group and other well-known technology companies in the PRC and is principally engaged in the investment in telecommunications, media and technology companies.

ZHCO is a limited liability company established in the PRC and an Independent Third Party. It is principally engaged in the provision of one-stop internet and mobile network solutions to technology companies. The core members of ZHCO are formerly from Alibaba Group and other well-known technology companies in the PRC.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Mr. Chen, Mr. Qian, SHCO, ZHCO and the respective ultimate beneficial owners of SHCO and ZHCO are third parties independent of the Company and connected persons of the Company.

IMPLICATIONS UNDER THE LISTING RULES

Richwise Venture is owned as to 70% by Mr. Shi, who is interested in 70% of the issued share capital of Richwise Capital. Richwise Capital is the sole shareholder of Best Conduct, which in turn is a substantial shareholder of the Company. As such, Mr. Shi is a substantial shareholder of the Company and thus a connected person of the Company. At the same time, Richwise Venture is an associate of Mr. Shi and is deemed to be a connected person of the Company. The formation of JVCO is therefore a connected transaction of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios (the asset ratio and the consideration ratio) in respect of the capital contribution by SZCO to JVCO of RMB1.8 million (equivalent to approximately HK$2.2 million) exceed 0.1% but are less than 5%, the formation of JVCO by way of the VIE Structure constitutes a connected transaction and is subject to the reporting, announcement and annual review requirements but is exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

On the other hand, as the applicable percentage ratios in respect of the transactions contemplated under each of the VIE Agreements are less than 5%, the entering into of the VIE Agreements does not constitute a notifiable transaction for the Company under Chapter 14 of the Listing Rules.

The Directors (including the independent non-executive Directors) are of the view that the participation in the joint venture (i.e. JVCO) by way of the VIE Structure is beneficial to the Group’s core business, and that the JV Articles and the terms of the VIE Agreements have been arrived at after arm’s length negotiations, are on normal commercial terms, fair and reasonable, and in the interests of Company and the Shareholders as a whole. So far as the Company is aware, none of the Directors had any material interest in the VIE Structure, and accordingly none of the Directors was required to abstain from voting on the board resolutions to approve the establishment of the VIE Structure or the entering into of any of the VIE Agreements.

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DEFINITIONS

“associate”	has the meaning ascribed to it in the Listing Rules;
“Best Conduct”	Best Conduct Investments Limited, a limited liability company
	incorporated in the British Virgin Islands which is wholly owned by
	Richwise Capital;
“Board”	the board of Directors;
“Company”	China Silver Group 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;
“connected person”	has the meaning ascribed to it in the Listing Rules;
“controlling shareholder”	has the meaning ascribed to it in the Listing Rules;
“Director(s)”	director(s) of the Company;
“Exclusive Consultancy	the exclusive consultancy and services agreement dated 20 May 2014
and Services Agreement”	and entered into between SZ Silver and SZCO;
“Exclusive Option	the exclusive option agreement dated 20 May 2014 and entered into
Agreement”	between Mr. Chen, Mr. Qian, SZ Silver and SZCO;
“Group”	the Company and its subsidiaries;
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong;
“Independent Third Party”	a party who is independent of, and not connected with the Company
	or any of its connected persons;
“JV Articles”	the Articles of Association of JVCO dated 16 April 2014 and entered
	into among the JV Parties and in relation to the establishment,
	ownership and operation of JVCO;
“JVCO”	a limited liability company established as a joint venture company
	in the PRC called深圳市大溪地科技有限公司(Shenzhen Daxidi
	Technology Company Limited*), whose equity interests are owned
	by SZCO, Richwise Venture, SHCO and ZHCO as to 30%, 20%,
	29% and 21%, respectively;
“JV Parties”	collectively, SZCO, Richwise Venture, SHCO and ZHCO;
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited;
“Mr. Chen”	Mr. Chen He, who owns 80% of the equity interest in SZCO and an
	Independent Third Party;

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“Mr. Qian”

• Mr. Qian Pengcheng, who owns 20% of the equity interest in SZCO and an Independent Third Party;

“Mr. Shi”	Mr. Shi Jinlei, a substantial shareholder of the Company and a
	controlling shareholder of Richwise Venture;
“Original JV Articles”	the original Articles of Association of JVCO dated 11 March 2014
	and entered into among Mr. Chen, Richwise Venture, SHCO and
	ZHCO and in relation to the establishment, ownership and operation
	of JVCO;
“percentage ratios”	has the meaning ascribed to it in Chapter 14 of the Listing Rules;
“PRC”	the People’s Republic of China;
“Proxy Agreement”	the proxy agreement dated 20 May 2014 and entered into between
	Mr. Chen, Mr. Qian, SZ Silver and SZCO;
“Richwise Venture”	深圳睿富創業投資有限公司(Shenzhen Richwise Venture
	Investment Company Limited*), a limited liability company
	established in the PRC and is owned as to 70% by Mr. Shi;
“Richwise Capital”	Richwise Capital Group Limited (睿富資本集團有限公司), a limited
	liability company incorporated in the British Virgin Islands which is
	owned as to 70% by Mr. Shi;
“RMB”	Renminbi, the lawful currency of PRC;
“Shareholders”	shareholders of the Company;
“Share Pledge Agreement”	the share pledge agreement dated 20 May 2014 and entered into
	between Mr. Chen, Mr. Qian, SZ Silver and SZCO;
“SHCO”	上海阿米巴創業投資合伙企業（有限合伙）(Shanghai Ameoba
	Venture Investment Partnership Enterprise (Limited Partnership)*), a
	limited liability company established in the PRC and an Independent
	Third Party;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“SZCO”	深圳銀瑞吉文化發展有限公司(Shenzhen Yinruiji Cultural
	Development Company Limited*), a limited liability company
	established in the PRC which is owned as to 80% by Mr. Chen and
	20% by Mr. Qian;
“SZ Silver”	深圳國銀通寶有限公司(Shenzhen Guoyintongbao Company
	Limited*), a limited liability company established in the PRC and a
	direct wholly-owned subsidiary of the Company;

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“VIE Agreements” collectively, the Exclusive Consultancy and Services Agreement, the Exclusive Option Agreement, the Proxy Agreement and the Share Pledge Agreement;

“VIE Structure” the structure established through the entering into of the VIE Agreements, which enables the Group to effectively hold and control JVCO;

“ZHCO” 珠海市動態科技有限公司 (Zhuhai Dongtai Technology Company Limited*), a limited liability company established in the PRC and an Independent Third Party;

“%” per cent.

Amounts denominated in RMB in this announcement have been converted into HK$ at the rate of RMB1=HK$1.24 for illustration purpose only.

By order of the Board China Silver Group Limited Moy Yee Wo Matthew Company Secretary

Hong Kong, 20 May 2014

As at the date of this announcement, the Board comprises Mr. Chen Wantian, Mr. Song Guosheng and Mr. Chen Guoyu as executive Directors; Dr. Jiang Tao, Dr. Li Haitao and Dr. Zeng Yilong as independent non-executive Directors.

• For identification purpose only

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