Kingwell Group Limited — M&A Activity 2015

Jul 28, 2015

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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GUOCANG GROUP LIMITED 國 藏 集 團 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock Code: 559)

MEMORANDUM OF UNDERSTANDING IN RELATION TO THE POSSIBLE ACQUISITION OF LNG STATION BUSINESS

The Board announces that on 28 July 2015 (after trading hours), the Company entered into a non-legally binding Memorandum with the Vendor in relation to the Possible Acquisition.

Pursuant to the Memorandum, the Vendor and the Company shall negotiate in good faith towards one another in ensuring that the Formal Sale and Purchase Agreement be entered into on or before 31 October 2015 (or such later date as the Vendor and the Company may agree). Should the Formal Sale and Purchase Agreement be materialised and completed, the Vendor shall as beneficial owner sell and the Company shall purchase the Sale Share and the Consideration shall be satisfied by the Company by allotment and issue of Consideration Shares and Warrants.

Upon Completion, the Group will indirectly own 51% of the equity interest of the PRC Company. The PRC Company owns 49% equity interest in CNOOC Green Energy. CNOOC Green Energy is owned as to 49% by the PRC Company and 51% by CNOOC Gas & Power.

The Vendor shall undertake to the Company that the audited net profit after taxation (including net profit attributable to non-controlling interests) for each of (i) Huangshi Port LNG Station for the financial year from 1 January 2016 to 31 December 2016; and (ii) each of the New LNG Stations for the period of one (1) year commencing from the date of commencement of operation of each New LNG Station shall be not less than HK$5,000,000.

The Vendor shall enter into a Service Agreement with the HK Company upon Completion, pursuant to which the HK Company shall appoint the Vendor as a director of the WFOE and the PRC Company to manage the business and operation of the WFOE and the PRC Company for a term of three (3) years commencing from the date of Completion.

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The Vendor shall use his best endeavours to procure the PRC Company to negotiate with the relevant corporations and/or PRC authorities with respect to the construction and operation of approximately 30 new LNG stations in Guangdong Province and approximately 200 new LNG stations in Henan Province, the terms and conditions of which shall be subject to further negotiations between the Vendor and the Company.

The Board wishes to emphasise that no binding agreement in relation to the Possible Acquisition has been entered into by the Vendor and the Company as at the date of this announcement. As such, the Possible Acquisition may or may not proceed. If the Possible Acquisition materialises, it will constitute a notifiable transaction on the part of the Company under Chapter 14 of the Listing Rules.

Shareholders and investors are urged to exercise caution when dealing in the securities of the Company. Further announcement in respect of the Possible Acquisition will be made by the Company in compliance with the Listing Rules as and when appropriate.

This announcement is made by the Company pursuant to Rule 13.09 of the Listing Rules and the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (chapter 571 of the Laws of Hong Kong).

The Board announces that on 28 July 2015 (after trading hours), the Company entered into a non-legally binding Memorandum with the Vendor in relation to the Possible Acquisition.

THE MEMORANDUM

Date: 28 July 2015 (after trading hours) Parties: (1) the Company as the purchaser; and (2) Mr. Chan Hon Kiu as the vendor.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendor is an Independent Third Party.

Subject matter

Pursuant to the Memorandum, subject to the terms and conditions of the Formal Sale and Purchase Agreement, the Vendor shall as beneficial owner sell and the Company shall purchase the Sale Share, representing the entire issued share capital of the Target Company.

Consideration

The Consideration shall be satisfied upon Completion by the Company in the following manner:

• (i) allotment and issue of 300,000,000 Consideration Shares, credited as fully paid, at an issue price of HK$0.40 per Consideration Share to the Vendor; and

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• (ii) allotment and issue of 100,000,000 Warrants whose exercise price shall be subject to further negotiations between the parties to the Memorandum and shall be determined upon signing of the Formal Sale and Purchase Agreement.

Operation Guarantee

Pursuant to the Memorandum, the Vendor shall undertake to the Company that the New LNG Stations will be operated in or before May 2016.

Profit Guarantee

Pursuant to the Memorandum, the Vendor shall undertake to the Company that the audited net profit after taxation (including net profit attributable to non-controlling interests) for each of (i) Huangshi Port LNG Station for the financial year from 1 January 2016 to 31 December 2016; and (ii) each of the New LNG Stations for the period of one year commencing from the date of commencement of operation of each New LNG Station (the ‘‘Profit Guarantee Period’’) shall be not less than HK$5,000,000 (the ‘‘Guaranteed Profit’’).

If the actual audited net profit of Huangshi Port LNG Station or any of the New LNG Stations (including net profit attributable to non-controlling interests) during the Profit Guarantee Period (the ‘‘Actual Profit’’) is less than the Guaranteed Profit, the Vendor shall pay to the Company in cash or telegraphic transfer an amount calculated as follows:

Amount = (Guaranteed Profit – Actual Profit[(Note)] )

• Note: If Huangshi Port LNG Station or any New LNG Station records an audited net loss during the Profit Guarantee Period, the Actual Profit will be deemed as zero

The Guaranteed Profit of each LNG station shall be calculated separately. A surplus in any LNG station cannot offset any net loss in another LNG station.

Formal Sale and Purchase Agreement

The Vendor and the Company shall negotiate in good faith towards one another in ensuring that the Formal Sale and Purchase Agreement be entered into as soon as possible and in any event no later than 31 October 2015 or such later date as the Vendor and the Company may agree.

Pursuant to the Memorandum, the Vendor shall, prior to the entering into of the Formal Sale and Purchase Agreement, procure a PRC legal adviser to issue a legal opinion (in form and substance satisfactory to the Company) confirming, among other matters:

• (i) the PRC Company legally owns, constructs and operates Huangshi Port LNG Station; and

• (ii) the PRC Company has obtained or acquired all relevant permits, approvals and licenses from the relevant government authorities enabling the PRC Company to legally own, construct and operate the New LNG Stations.

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The Formal Sale and Purchase Agreement shall contain, including but not limited to, the following terms and conditions:

• (i) representations, warranties, undertaking and indemnifications which are customary for the transactions having the nature of the Possible Acquisition, to be given by the Vendor to the Company;

• (ii) the entering into of the Service Agreement by the Vendor and the appointment of the Vendor as director of the WFOE and the PRC Company upon Completion; and

• (iii) the conditions precedent as set out in the Memorandum.

If no Formal Sale and Purchase Agreement is entered into on or before 31 October 2015 (or such later date to be agreed by the parties thereto), the Memorandum shall lapse.

Conditions precedent of the Possible Acquisition

Completion of the Possible Acquisition is conditional upon:

• (i) the Company being satisfied in its absolute discretion with the results of the due diligence review to be conducted pursuant to the Memorandum;

• (ii) (if necessary) the approval by the Shareholders at an extraordinary general meeting of the Formal Sale and Purchase Agreement and the transactions contemplated thereunder (including but not limited to the issue of the Consideration Shares and the Warrants);

• (iii) (if necessary) the Listing Committee of the Stock Exchange having approved the listing of, and permission to deal in, the Consideration Shares and the Shares which may be allotted and issued upon the exercise of the Warrants;

• (iv) the completion of the Reorganisation in a way agreed by the Vendor and the Company; and

• (v) any other conditions agreed by the Vendor and the Company to be included in the Formal Sale and Purchase Agreement.

Due diligence

The Company shall and shall procure that its advisers and agents shall, forthwith upon the signing of the Memorandum, conduct such review of the assets, liabilities, operations and affairs of the Target Group as it may consider appropriate and the Vendor shall provide and procure the Target Group and their agents to provide such assistance as the Company and its advisers and agents may require in connection with such review and shall procure that such due diligence review shall be completed on or before 31 October 2015 (or such later date as the Vendor and the Company may agree).

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Exclusivity

In consideration of the expenses to be incurred by the Company in the negotiation of the Memorandum and in conducting its due diligence review, the Vendor will not, and will procure that the Target Group and their respective directors, officers, employees, representatives and agents will not, directly or indirectly, on or before 31 October 2015 (i) solicit, initiate or encourage inquiries or offers from, or (ii) initiate or continue negotiations or discussions with or furnish any information to, or (iii) enter into any agreement or statement of intent or understanding with, any person or entity other than the Company with respect to the sale or other disposition of the Sale Share or the sale, subscription, or allotment of any part thereof or any other shares of the Target Group. If the Target Group or the Vendor receives any such inquiry or offer, the Vendor will promptly notify the Company.

Service Agreement

Pursuant to the Memorandum, the Vendor shall enter into a Service Agreement with the HK Company upon Completion, pursuant to which the HK Company shall appoint the Vendor as a director of the WFOE and the PRC Company to manage the business and operation of the WFOE and the PRC Company for a term of three (3) years commencing from the date of Completion.

Construction of new LNG stations

Pursuant to the Memorandum, the Vendor shall use his best endeavours to procure the PRC Company to negotiate with the relevant corporations and/or PRC authorities with respect to the construction and operation of approximately 30 new LNG stations in Meizhou city of Guangdong Province and approximately 200 new LNG stations in Henan Province, the terms and conditions of which shall be subject to further negotiations between the Vendor and the Company.

INFORMATION OF THE TARGET GROUP AND REORGANISATION

The Target Company is principally engaged in investment holding. Pursuant to the Memorandum, for the purpose of the Reorganisation, the Target Company will incorporate the HK Company as a direct wholly-owned subsidiary of the Target Company. The HK Company will establish the WFOE in the PRC which will further acquire 51% equity interest in the PRC Company from the Vendor. Upon completion of the Reorganisation, the WFOE will beneficially own 51% of the equity interest in the PRC Company.

The PRC Company was established in the PRC with limited liability and is beneficially owned as to 60% by the Vendor, 25% by Mr. Yang Lixiong and 15% by Mr. Chen Junhao respectively. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of Mr. Yang Lixiong and Mr. Chen Junhao is an Independent Third Party. The PRC Company is principally engaged in the business of retail and wholesale of metal, mechanical equipment, electrical equipment, calculators, packaging materials, chemical raw materials and products (excluding toxic chemicals), plastic products, construction materials, hardware tools, electric compliance, knitting products, office supplies and wholesale and retail trade of paper (subject to valid licenses or specific approval from the PRC authorities in relation to special projects).

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The PRC Company has established the PRC Company (Huangshi Branch) on 24 April 2013 and owns 49% equity interest in CNOOC Green Energy.

The PRC Company (Huangshi Branch) is principally engaged in undertaking business relations in connection with the business scope of the PRC Company (operations involving industry specific license).

CNOOC Green Energy is a company established in the PRC with limited liability. As at the date of this announcement, CNOOC Green Energy is owned as to 49% by the PRC Company and 51% by CNOOC Gas & Power. CNOOC Green Energy is principally engaged in the business of investment and construction in the energy industry, and construction and operation of LNG stations (for projects involving operating license, prior approval from the relevant authorities must be obtained).

REASONS FOR THE POSSIBLE ACQUISITION

The Group is principally engaged in the businesses of trading and distribution of liquor and wine, manufacturing and sale of electric cycle, investments in listed securities and provision of money lending services.

The Board continuously explores different investment opportunities and is of the view that the Possible Acquisition presents an excellent opportunity for the Group to further expand and diversify its business portfolio by entering into the LNG station business.

Through the Possible Acquisition of 51% equity interest of the PRC Company, if materialised, the Group will have 49% equity interest in CNOOC Green Energy, in which CNOOC Gas & Power owns 51% equity interest. The Group will have opportunities to cooperate with CNOOC Gas & Power in the future. Furthermore, the Vendor will procure the PRC Company to negotiate with relevant corporations and/or PRC authorities to construct and operate approximately 30 new LNG stations in Guangdong Province and approximately 200 new LNG stations in Henan Province, which will help the Group to further expand the LNG business and even in the battery recharging business for pure electric automobiles. Upon the Completion, if materialised, the Group would further step into the fast growing green energy business.

In consideration of the above, the Directors are of the view that the terms of the Memorandum are fair and reasonable and the Possible Acquisition is in the interests of the Company and Shareholders as a whole.

GENERAL

The Memorandum does not constitute legally-binding commitment in respect of the Possible Acquisition. The Possible Acquisition is subject to, among others, the execution and completion of the Formal Sale and Purchase Agreement. The Board wishes to emphasise that no binding agreement in relation to the Possible Acquisition has been entered into by the Vendor and the Company as at the date of this announcement. As such, the Possible Acquisition may or may not proceed.

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In the event the Possible Acquisition materialises, it will constitute a notifiable transaction on the part of the Company pursuant to Chapter 14 of the Listing Rules. Further announcement(s) will be made by the Company in accordance with all applicable requirements of the Listing Rules as and when appropriate.

Shareholders and investors are urged to exercise caution when dealing in the securities of the Company. Further announcement in respect of the Possible Acquisition will be made by the Company in compliance with the Listing Rules as and when appropriate.

DEFINITIONS

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

‘‘Board’’	the board of Directors
‘‘BVI’’	the British Virgin Islands
‘‘CNOOC Gas & Power’’	中海石油氣電集團有限責任公司 (in English, for
	identification purpose only, CNOOC Gas & Power Group
	Limited), a company established in the PRC with limited
	liability
‘‘CNOOC Green Energy’’	中海油黃石交通新能源有限公司 (in English, for
	identification purpose only, CNOOC Huangshi Transport
	Green Energy Company Limited), a company established in
	the PRC with limited liability and is owned as to 49% by
	the PRC Company and 51% by CNOOC Gas & Power
‘‘Company’’	Guocang Group Limited, a company incorporated in
	Bermuda with limited liability whose issued Shares are
	listed on the main board of the Stock Exchange
‘‘Completion’’	completion of the Possible Acquisition in accordance with
	the terms of the Formal Sale and Purchase Agreement
‘‘connected person’’	has the meaning ascribed to it under the Listing Rules
‘‘Consideration’’	the aggregate consideration for the Sale Share
‘‘Consideration Share(s)’’	300,000,000 new Shares to be allotted and issued by the
	Company to the Vendor to settle part of the Consideration at
	Completion
‘‘Director(s)’’	the director(s) of the Company
‘‘Formal Sale and Purchase	the formal sale and purchase agreement which may or may
Agreement’’	not be entered into between the Vendor and the Company in
	relation to the Possible Acquisition
‘‘Group’’	the Company and its subsidiaries

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‘‘HK Company’’

• a company to be incorporated in Hong Kong with limited liability, the entire issued share capital of which will be owned by the Target Company

• ‘‘Hong Kong’’ Hong Kong Special Administrative Region of the PRC

• ‘‘Huangshi Port LNG the LNG station currently operated by the PRC Company in Station’’ Hunagshi city in the PRC

• ‘‘Independent Third Party’’

• third party independent of and not connected with the Company and its connected persons

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

• ‘‘LNG’’ liquefied natural gas

• ‘‘Memorandum’’

• the non-legally binding memorandum of understanding dated 28 July 2015 and entered into between the Vendor and the Company setting out the preliminary understanding in relation to the Possible Acquisition

• ‘‘New LNG Station(s)’’

• the three LNG stations to be operated by the PRC Company in or before May 2016

• ‘‘Possible Acquisition’’

• the possible acquisition by the Company from the Vendor of the Sale Share as contemplated under the Memorandum

• ‘‘PRC’’

• the People’s Republic of China, which for the purpose of this announcement excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

• ‘‘PRC Company’’

• 湖北聖吉投資有限公司 (in English, for identification purpose only, Hubei Shengji Investment Company Limited), a company established in the PRC with limited liability, which is owned as to 60% by the Vendor, 25% by Mr. Yang Lixiong (楊立雄) and 15% by Mr. Chen Junhao (陳俊豪)

• ‘‘PRC Company (Huangshi 湖北聖吉投資有限公司黃石分公司 (in English, for Branch)’’ identification purpose only, Hubei Shengji Investment Company Limited (Huangshi Branch)), a branch company established under the PRC Company

• ‘‘Reorganisation’’

• the formation of the group structure by the Target Company as one of the conditions to the Formal Sale and Purchase Agreement whereby the HK Company shall establish the WFOE and the WFOE shall subsequently acquire 51% of the equity interest of the PRC Company

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• ‘‘Sale Share’’ one share of the Target Company, being the entire issued share capital of the Target Company

• ‘‘Service Agreement’’ the service agreement to be entered into between the Vendor and the HK Company in relation to the management of the business and operation of the WFOE and the PRC Company

• ‘‘Share(s)’’ ordinary share(s) of HK$0.05 each in the share capital of the Company

• ‘‘Shareholder(s)’’ the holder(s) of issued Share(s) ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Target Company’’ Cosmos Rich Global Limited (宇豐環球有限公司), a company incorporated in the BVI with limited liability, the entire issued share capital of which is owned by the Vendor

• ‘‘Target Group’’ the Target Company, HK Company, WFOE and PRC Company and its subsidiaries and branches

• ‘‘Warrants’’ warrant(s) proposed to be issued by the Company to subscribe for new Shares as part of the Consideration

• ‘‘WFOE’’ a wholly foreign-owned enterprise to be established by the HK Company in the PRC for the purpose of the Reorganisation

• ‘‘Vendor’’ Mr. Chan Hon Kiu ‘‘HK$’’ Hong Kong dollars, the lawful currency for the time being of Hong Kong

By order of the Board Guocang Group Limited Wong Hin Shek Chairman and Executive Director

Hong Kong, 28 July 2015

As at the date of this announcement, the executive directors of the Company are Mr. Wong Hin Shek and Mr. Chi Chi Hung Kenneth; and the independent non-executive directors are Mr. Chiu Wai On, Mr. Man Kwok Leung and Dr. Wong Yun Kuen.

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