First Tractor : CONNECTED TRANSACTION (in PDF)

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(a joint stock company incorporated in The People's Republic of China with limited liability)

CONNECTED TRANSACTION

In order to newly construct a digitalized smart driving cab factory (the "Factory Construction"), the Company has already entrusted Weixin Tender Company to conduct an open tender in relation to the Construction Project and has also issued the letters of acceptance to China Automotive and SCIVIC. The bidding price for the said open tender was RMB175,626,400. Detailed terms and conditions in relation to the First General Contracting of the Construction Project will be finalized in the future general contracting agreement.

Being part of the Factory Construction, the Company has also entrusted Weixin Tender Company to conduct an open tender in relation to the general contracting of the Painting Line Project. After completion of the evaluation procedures, China Automotive and China United were preliminarily selected as the first candidate of successful bidder and the second candidate of successful bidder for this open tender, respectively. However, should either China Automotive or China United eventually be selected as the successful bidder, the transaction to be entered into between the Company and the successful bidder will become a connected transaction of the Company, which will be subject to the Independent Shareholders' approval. In the circumstances, before issuing letter of acceptance to China Automotive or China United and entering into the proposed Second General Contracting Agreement, the Company proposes to seek Independent Shareholders' approval at the EGM for the Second General Contracting Agreement and the transaction contemplated thereunder.

As at the date of this announcement, both of China Automotive and China United are wholly-owned by Sinomach, which is the ultimate controlling shareholder of the Company, therefore they are regarded as connected persons of the Company. Pursuant to Chapter 14A of the Listing Rules, the transaction contemplated under the proposed Second General Contracting Agreement will constitute a connected transaction of the Company.

Pursuant to Rule 14A.81 of the Listing Rules, the transaction contemplated under the proposed Second General Contracting Agreement should be aggregated with the transaction under the First General Contracting. Since the expected applicable percentage ratios (after aggregation) will be more than 5%, the transaction contemplated under the proposed Second General Contracting Agreement is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.

As additional time will be required for the preparation and finalization of certain information to be contained in the circular, it is expected that the circular containing, among other things, (i) details of the proposed Second General Contracting Agreement, (ii) a letter of recommendation from the Independent Board Committee, (iii) a letter of advice from the Independent Financial Adviser, and (iv) a notice of the EGM, will be despatched to the Shareholders on or before 3 February 2017.

INTRODUCTION

References is made to the Company's indicative announcement dated 15 December 2016 regarding the result of open tender and connected transaction.

In order to newly construct the Factory Construction, the Company has already entrusted Weixin Tender Company to conduct an open tender in relation to the Construction Project and has also issued the letters of acceptance to China Automotive and SCIVIC. The bidding price for the said open tender was RMB175,626,400. Detailed terms and conditions in relation to the First General Contracting of the Construction Project will be finalized in the future general contracting agreement.

Being part of the Factory Construction, the Company has also entrusted Weixin Tender Company to conduct an open tender in relation to the general contracting of the Painting Line Project. After completion of the evaluation procedures, China Automotive and China United were preliminarily selected as the first candidate of successful bidder and the second candidate of successful bidder for this open tender, respectively. However, should either China Automotive or China United eventually be selected as the successful bidder, the transaction to be entered into between the Company and the successful bidder will become a connected transaction of the Company, which will be subject to the Independent Shareholders' approval. In the circumstances, before issuing letter of acceptance to China Automotive or China United and entering into the proposed Second General Contracting Agreement, the Company proposes to seek Independent Shareholders' approval at the EGM for the Second General Contracting Agreement and the transaction contemplated thereunder.

Set out below is a summary of the principal terms of the proposed Second General Contracting Agreement:

SECOND GENERAL CONTRACTING AGREEMENT Expected parties: (1) The Company; and

(2) Either China Automotive or China United, as the general contractor

Term

The conditions for the completion and acceptance of the Painting Line Project shall be fulfilled before 15 February 2018.

Scope of contracting

Pursuant to the proposed Second General Contracting Agreement, either China Automotive or China United will act as the general contractor for the Painting Line Project. The general contractor will, in accordance with the Company's requests, be responsible for the design, manufacturing, installation, testing, completion and acceptance, delivery and quality warranty of the Painting Line Project.

Consideration

The consideration under the proposed Second General Contracting Agreement will be the bidding price offered by the successful bidder at the open tender for the Painting Line Project, which will be not more than RMB75,000,000 (equivalent to approximately HK$84,750,000).

The consideration shall be settled by the Company out of its internal resources and in the form of commercial acceptance bill(s) in the following manner:

1. 20% of the consideration, being prepayment, shall be paid upon signing of the Second General Contracting Agreement;

2. 10% of the consideration shall be paid after the entire set of design documents has been provided by the general contractor and such proposal has been agreed on;

3. 20% of the consideration shall be paid after the major equipment and materials have arrived at the factory;

4. 10% of the consideration shall be paid after completion of installation of equipment and trial run;

5. 15% of the consideration shall be paid after completion of linkage testing and after commencement of trial production;

6. 15% of the consideration shall be paid after completion and acceptance of the Painting Line Project, and upon signing of the completion and acceptance report between the parties; and

7. 10% of the consideration, being amount of quality warranty, shall be paid within 12 months from acceptance of the Painting Line Project.

Other terms of the proposed Second General Contracting Agreement

According to the terms and conditions of the proposed Second General Contracting Agreement, the general contractor may sub-contract the construction work of the Painting Line Project to other parties upon obtaining consent from the Company. All sub-contracting projects shall not affect the obligations and duties of the general contractor under the proposed Second General Contracting Agreement. The general contractor shall be responsible for supervising and managing the process, quality and progress of the construction work conducted by the sub-contractors, and fully responsible for the sub-contractors' responsibilities under the proposed Second General Contracting Agreement. The general contractor shall also be responsible for organizing all the materials held by the sub-contractors at the completion of the Painting Line Project.

REASONS FOR ENTERING INTO THE PROPOSED SECOND GENERAL CONTRACTING AGREEMENT

China Automotive has been awarded by the State twenty-nine Grade A certificates in respect of engineering investigation, design, consultation, manufacturing, supervision and environment assessment, etc.. China Automotive is one of the largest industrial design institutes of large machinery in the PRC and one of the largest engineering companies in the machinery industry in the PRC with most of Grade A certificates.

China United is one of the earliest large-scale comprehensive design organizations established in the PRC, which is principally engaged in more than 20 industries including machinery industry, various industrial businesses, power industry, construction industry and municipal industry. China United is also one of the earliest enterprises which were awarded the State comprehensive Grade A certificate in respect of engineering design.

In order to conduct the Factory Construction, the Company proposes to implement the Painting Line Project and has entrusted Weixin Tender Company to conduct an open tender. In view of their above experience and qualification, China Automotive and China United were preliminarily selected as the first candidate of successful bidder and the second candidate of successful bidder for the open tender of the Painting Line