KLN Logistics Group Limited — M&A Activity 2022

Feb 18, 2022

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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(Incorporated in the British Virgin Islands and continued into Bermuda as an exempted company with limited liability)

Stock Code 636

DISCLOSEABLE TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET COMPANY

The Board wishes to announce that on 17 February 2022 (U.S. time), the Buyer, an indirect wholly‐owned subsidiary of the Company, entered into the Agreement with the Sellers and the Target Company, pursuant to which the Buyer agreed to acquire all of the equity interest of the Target Company from the Sellers in four separate Tranches. Upon Closings, the Target Company will become a wholly‐owned subsidiary of the Company.

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

INTRODUCTION

The Board wishes to announce that on 17 February 2022 (U.S. time), the Buyer, an indirect wholly‐ owned subsidiary of the Company, entered into the Agreement with the Sellers and the Target Company, pursuant to which the Buyer agreed to acquire all of the equity interest of the Target Company from the Sellers in four separate Tranches. Upon Closings, the Target Company will become a wholly‐owned subsidiary of the Company.

PRINCIPAL TERMS OF THE AGREEMENT

1. Date

17 February 2022 (U.S. time)

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2. Parties

• (i) the Buyer

• (ii) the Target Company

• (iii) the Sellers

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the Sellers are third parties independent of the Company and its connected persons.

1. Assets to be acquired

The Buyer agreed to acquire and the Sellers agreed to sell the Target Shares, representing 100% of the issued and outstanding capital stock of the Target Company, in four separate tranches (each, a “ Tranche ” and collectively, the “ Tranches ”), with details as follows:

each, a “	Tranch	e” and collectively, the “Tranc	hes”), with details as follows:
		Date of closing of the	Number of Target Shares	Percentage of
		relevant Tranche	to be acquired under	total number of
			the relevant Tranche	Target Shares
Tranche	1	Tranche 1 Closing Date	140,000	70%
Tranche	2	Tranche 2 Closing Date	20,000	10%
Tranche	3	Tranche 3 Closing Date	20,000	10%
Tranche	4	Tranche 4 Closing Date	20,000	10%

1. Consideration and payment arrangement

Tranche 1

The total consideration for the Tranche 1 Target Shares is USD89,600,000, subject to the post‐ closing adjustment as provided in the Agreement taking into account the net tangible asset value of the Target Company as at the Tranche 1 Closing.

90% of the Tranche 1 consideration shall be paid to the Sellers in cash on the Tranche 1 Closing Date and the remaining 10% shall be held back as security for the post‐closing adjustment.

Tranche 2

The total consideration for the Tranche 2 Target Shares is USD50,000,000, subject to adjustment as provided in the Agreement.

The Tranche 2 consideration shall be paid to the Sellers in cash on the Tranche 2 Closing Date.

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Tranche 3

The total consideration for the Tranche 3 Target Shares is an amount equal to the product of: (X) 10% of the normalised EBIT under the audited financial statements of the Target Group Companies for the year ending 31 December 2022, multiplied by (Y) 10, subject to adjustment as provided in the Agreement.

The Tranche 3 consideration shall be paid to the Sellers in cash on the Tranche 3 Closing Date.

Tranche 4

The total consideration for the Tranche 4 Target Shares is an amount equal to the product of: (X) the normalised EBIT under the audited financial statements of the Target Group Companies for the year ending 31 December 2023, multiplied by (Y) 10 times the percentage of the Tranche 4 Target Shares relative to the total Target Shares, subject to adjustment as provided in the Agreement.

The Tranche 4 consideration shall be paid to the Sellers in cash on the Tranche 4 Closing Date.

Notwithstanding the above, the total consideration for all of the Target Shares shall not exceed USD240,000,000.

1. Basis of determination of the consideration

The consideration for the acquisition of the Target Shares under the Agreement was determined after arm’s length negotiations between the Buyer and the Sellers with reference to the normalised EBIT of the Target Company as at the financial year end immediately prior to the relevant Closing.

1. Conditions precedent

The obligations of the Buyer and the Sellers to effect each Closing shall be subject to certain conditions, unless waived in writing by each of them, including but not limited to:

• (i) at the relevant Closing, (a) no law or order shall have been enacted, entered, issued, promulgated or enforced by any governmental entity that prohibits any of the transactions contemplated by the Transaction Agreements; and (b) no action shall have been commenced or threatened in writing by any governmental entity or claim made against the Buyer, any Target Group Company or the Sellers that seeks to prohibit or enjoin the transactions contemplated by the Transaction Agreements;

• (ii) for the Tranche 1 Closing only, the filings of the Buyer and the Sellers pursuant to the HSR Act, if applicable, shall have been made and the applicable waiting period and any extensions thereof shall have expired or been terminated; and

• (iii) for the Tranche 1 Closing only, with respect to each key personnel as provided in the Agreement, (a) the Buyer shall have received an executed key personnel agreement that is in full force and effect through the Tranche 1 Closing; and (b) such key personnel shall not have terminated his/her engagement with the relevant Target Group Company or expressed an intention or interest (whether formally or informally) in, or taken action toward terminating his/her engagement with the relevant Target Group Company at or prior to the Tranche 1 Closing, or with the Buyer or its relevant subsidiary following the Tranche 1 Closing.

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Conditions to the obligation of the Buyer

The obligation of the Buyer to effect each Closing shall be subject to the following conditions, except waived in writing by the Buyer:

• (i) the representations and warranties given by the Sellers in respect of the relevant Tranche shall be true and correct in all respects as of such Closing and (in respect of the Tranche 1 Closing only) the date of the Agreement;

• (ii) the Target Company and the Sellers shall have performed in all material respects the obligations and complied with the covenants set forth in the Agreement at or prior to the applicable Closing;

• (iii) the Sellers shall have delivered to the Buyer all requisite documents for the relevant Closing;

• (iv) the Target Company shall have obtained all requisite approvals or consents as set out in the Agreement;

• (v) the terms of the non‐competition and non‐solicitation agreement between the Sellers and the Buyer shall be in full force and effect and no party to such agreement shall have terminated or rescinded the agreement as of the relevant Closing; and

• (vi) there shall not have been or arisen any event or condition that has had, or would reasonably be expected to have a material adverse effect on the results, operations or financial condition of the Target Group Companies taken as a whole.

Conditions to the obligation of the Sellers

The obligation of the Sellers to effect the Tranche 1 Closing shall be subject to the following conditions, except waived in writing by the Sellers:

• (i) the representations and warranties given by the Buyer in respect of each Tranche shall be true and correct in all respects as of the date of the Agreement and the Tranche 1 Closing; and

• (ii) the Buyer shall have performed in all material respects the obligations and complied with the covenants set forth in the Agreement at or prior to the Tranche 1 Closing.

• Indemnification, representations and warranties

The Agreement contains indemnification, representations and warranties which are usual and customary for a transaction of this nature and scale.

1. Termination

The Agreement may be terminated at any time before the completion of the sale and purchase of all of the Target Shares by:

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• (i) mutual consent;

• (ii) the Sellers or the Buyer at any time after 31 March 2022 (or such other date as agreed between the Buyer and the Sellers, the “ Outside Date ”), if the Tranche 1 Closing shall not have occurred by such date;

• (iii) the Sellers giving written notice to the Buyer, if any condition to the obligation of the Sellers to effect the Tranche 1 Closing shall have become incapable of satisfaction prior to the Outside Date;

• (iv) the Buyer giving written notice to the Sellers, if any condition to the obligation of the Buyer to effect the Tranche 1 Closing shall have become incapable of satisfaction prior to the Outside Date;

• (v) the Sellers or the Buyer, if any court of competent jurisdiction shall have issued an order permanently restraining the transactions contemplated by the Agreement;

• (vi) the Sellers or the Buyer, if a material adverse effect (as defined in the Agreement) shall occur that has not, or by its terms cannot be, cured within 30 days after written notice of such material adverse effect; and

• (vii) the Sellers or the Buyer, if the Buyer and the Sellers have not agreed to and finalised the terms of the shareholders’ agreement to be entered between the Buyer and the Sellers within 45 days (or such other period as agreed between the parties) following the date of the Agreement.

• Profit guarantee and share pledge

In connection with the Agreement, the Sellers and the Buyer will on or prior to the Tranche 1 Closing enter into the PGA, the principal terms of which are set out below.

Profit guarantee

Pursuant to the PGA, the Sellers shall guarantee to the Buyer that the annual average normalised EBIT of the Target Group Companies for the two financial years ending 31 December 2022 and 2023 (the “ EBIT Assessment Period ”), as determined by reference to the audited financial statements of the Target Group Companies for the corresponding periods (the “ 2022/23 EBIT ”), shall be no less than USD11,000,000.

If the 2022/23 EBIT falls below USD11,000,000, the EBIT Assessment Period shall be extended automatically by one year to cover the three financial years ending 31 December 2022, 2023 and 2024 (the “ New EBIT Assessment Period ”), and the Sellers shall guarantee to the Buyer that the annual average normalised EBIT of the Target Group Companies for the New EBIT Assessment Period, as determined by reference to the audited financial statements of the Target Group Companies for the corresponding periods (the “ 2022/24 EBIT ”), shall be no less than USD11,000,000.

If the 2022/24 EBIT falls below USD11,000,000 (such shortfall is referred to as the “ EBIT Shortfall ”), then each Seller shall transfer to the Buyer such number of Pledged Target Shares as determined by the following formula (the “ PG Obligations ”):

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𝐵𝐵 (𝐷𝐷) x (A) x �𝐶𝐶�

Number of Pledged Target Shares to be = transferred to the Buyer by each Seller

• A = with respect to each Seller, the fraction having a numerator equal to such number representing the Seller’s portion of the Pledged Target Shares, and having a denominator equal to the aggregate number of the Pledged Target Shares

B = 90% x EBIT Shortfall x 10

C = 2022/24 EBIT x 10

D = total number of outstanding issued capital stock of the Target Company as at 31 December 2024

In the case that there are no Released Shares, if (B/C) is more than 0.05, then (B/C) shall be deemed to be 0.05 in the above formula.

In the case that there are Released Shares, if (B/C) is more than 0.025, then (B/C) shall be deemed to be 0.025 in the above formula.

For the avoidance of doubt, the foregoing profit guarantees do not represent the expected level of future profits of the Target Company, nor do they constitute a profit forecast under Rule 14.61 of the Listing Rules.

Share pledge

Each Seller shall pledge and grant to the Buyer a first priority security interest in and lien on his portion of the Pledged Target Shares, so as to secure the performance of the PG Obligations and all other obligations existing under the PGA.

INFORMATION RELATING TO THE GROUP, THE SELLERS AND THE TARGET COMPANY

Information about the Group

The Group’s core business encompasses integrated logistics, international freight forwarding and supply chain solutions. With headquarters in Hong Kong, the Group has a far‐reaching global network that stretches across six continents, and includes one of the largest distribution network and hub operations in Greater China and the ASEAN region.

Information about the Sellers

The Sellers are Robert Chin Yang Wang and Andy Hsien Cheng Wang who, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, are third parties independent of the Company and its connected persons.

Pursuant to the Agreement, each of the Sellers will enter into a key personnel agreement with the Target Company prior to the Tranche 1 Closing and will continue to be a member of the senior management of the Target Group Companies.

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Information about the Target Company

The Target Company principally engages in international freight forwarding and logistics services.

A summary of the consolidated financial information of the Target Company for the two years ended 30 June 2020 and 2021 is as follows:‐

	For the year ended	For the year ended
	30 June 2020	30 June 2021
	(audited)	(audited)
	USD’000	USD’000
Net profit before taxation	7,970	48,861
Net profit after taxation	5,658	35,274

The consolidated net tangible asset value of the Target Company as at 30 June 2021 is USD62,635,000.

Upon all Closings, the Target Company will become an indirect wholly‐owned subsidiary of the Group.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

The Group and the Target Company both have extensive experience in the international freight forwarding and logistics business. The Directors believe that the Transactions will allow the Group and the Target Company to integrate businesses, thereby creating synergy between, minimising administrative costs of and bringing efficiencies of scale to their non‐vessel operating common carriers (NVOCC) operations. In turn, the Transactions will enable the Group to deliver enhanced customer service capability and efficiencies, and allow it to compete with global peers who have recently adopted forward integration.

The Directors (including the independent non‐executive Directors) are of the view that the terms of the Agreement, including the consideration, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

None of the Directors has a material interest in the Transactions, nor was any of the Directors required to abstain from voting on the Board resolution approving the Transactions under the Bye‐laws.

LISTING RULES IMPLICATIONS

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

DEFINITIONS

Terms or expressions used in this announcement shall, unless the context otherwise requires, have the meanings ascribed to them below:

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• “Agreement” the stock purchase agreement entered into between the Buyer, the Sellers and the Target Company on 17 February 2022 (U.S. time) in relation to the acquisition of the Target Shares

• “Board” the board of Directors “Business Day” a day (excluding Saturday and Sunday) on which banks are generally open for the transaction of business in the State of California and Hong Kong

• “Buyer” KLN Investment (US) LLC, a limited liability company incorporated in Delaware and an indirect wholly‐owned subsidiary of the Company

• “Closings” the Tranche 1 Closing, the Tranche 2 Closing, the Tranche 3 Closing and the Tranche 4 Closing; “Closing” means any one of them

• “Company” Kerry Logistics Network Limited, incorporated in the British Virgin Islands and continued into Bermuda to become an exempted company with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 636)

• “connected has the meaning ascribed thereto under the Listing Rules person(s)”

• “Director(s)” director(s) of the Company

• “Group” the Company and its subsidiaries “HSR Act” the Hart‐Scott‐Rodino Antitrust Improvements Act of 1976, as amended “Hong Kong” Hong Kong Special Administrative Region of the People’s Republic of China “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange, as amended from time to time

• “normalised EBIT” earnings before interest and tax of the Target Group Companies during a financial year, as determined by reference to the consolidated audited financial statements of the Target Company relating to such financial year, excluding all one‐off and/or non‐recurring items and extraordinary items which do not arise out of the ordinary course of business of the Target Group Companies

• “PGA” the profit guarantee and share pledge agreement to be entered into between the Buyer and the Sellers on or prior to the Tranche 1 Closing

• “Pledged Target in relation to 10,000 Target Shares in aggregate that the Sellers held, Shares” excluding any Released Shares. The Pledged Target Shares represent in the aggregate 5% of the Target Shares

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“Released Shares” such number of Pledged Target Shares as may be released from the security to be provided by the Sellers in favour of the Buyer under the PGA on satisfaction of certain conditions

• “Sellers” Robert Chin Yang Wang and Andy Hsien Cheng Wang, who owns 154,920 Target Shares and 45,080 Target Shares, respectively

• “Shareholders” shareholders of the Company

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Target Company” Topocean Consolidation Service (Los Angeles), Inc., a California incorporated corporation

• “Target Group the Target Company and its subsidiaries Companies”

• “Target Shares” 100% of the issued and outstanding capital stock of the Target Company

• “Tranche 1 Closing” the closing of Tranche 1 in accordance with the terms of the Agreement

• “Tranche 1 Closing the third Business Day following the satisfaction or waiver of the relevant Date” conditions to the Tranche 1 Closing, or such other date as the Sellers and the Buyer may agree

• “Tranche 2 Closing the fifteenth Business Day following the later of: i) the satisfaction or Date” waiver of the relevant conditions to the closing of Tranche 2; and ii) 30 June 2022

• “Tranche 3 Closing the fifteenth Business Day following the later of: i) the satisfaction or Date” waiver of the relevant conditions to the closing of Tranche 3; and ii) the finalisation of the audited consolidated financial statements of the Target Company for the year ending 31 December 2022, or such other date as the Sellers and the Buyer may agree

• “Tranche 4 Closing the fifteenth Business Day following the later of: i) the satisfaction or Date” waiver of the relevant conditions to the closing of Tranche 4; ii) the finalisation of the audited consolidated financial statements of the Target Company for the year ending 31 December 2023, or such other date as the Sellers and the Buyer may agree; and iii) if the New EBIT Assessment Period is applicable, 31 May 2025, or such other date as the Sellers and the Buyer may agree

“Transaction the Agreement and the ancillary documents entered or to be entered into Agreements” pursuant to and in connection with the Agreement

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“Transactions” the transactions contemplated under the Agreement “U.S.” the United States of America “USD” United States dollar(s), the lawful currency of the United States of America “%” per cent

By Order of the Board Kerry Logistics Network Limited LEE Pui Nee Company Secretary

Hong Kong, 18 February 2022

As at the date of this announcement, the Directors of the Company are:

Chairman, Non‐executive Director: Mr WANG Wei

Vice Chairman, Non‐executive Director: Mr KUOK Khoon Hua

Executive Directors:

Mr MA Wing Kai William and Mr CHEUNG Ping Chuen Vicky

Non‐executive Directors:

Mr CHAN Fei, Mr HO Chit and Ms CHEN Keren

Independent Non‐executive Directors:

Dr CHEUNG Wai Man, Mr LAI Sau Cheong Simon, Mr TAN Chuen Yan Paul and Ms WONG Yu Pok Marina

This announcement is published on the websites of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and the Company (www.kln.com)

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