FRONTIER SERVICES GROUP LIMITED 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 Bermuda with limited liability)
(Stock Code: 00500) CONNECTED TRANSACTION ACQUISITION OF A LOGISTICS COMPANY AND CERTAIN TRUCKING VEHICLES IN THE DEMOCRATIC REPUBLIC OF THE CONGO
On 11 March 2015:
(i) FSL (a wholly-owned subsidiary of the Company) and the Seller entered into the Share Purchase Agreement pursuant to which FSL agreed to acquire the Sale Shares, representing the entire issued share capital of the Target for a consideration of US$250,000 (equivalent to approximately HK$1.95 million); and
(ii) FSG Vehicles (a wholly-owned subsidiary of the Company) and the Seller entered into the Asset Purchase Agreement pursuant to which FSG Vehicles agreed to acquire the Sale Assets (including all rights of the Seller in any leases of the Sale Assets) for a consideration of US$1,050,000 (equivalent to approximately HK$8.19 million).
The Seller is 49% beneficially owned by Mr. Erik D. Prince, an executive Director and the Chairman of the Board. Mr. Prince is a Connected Person of the Company and the Seller (as an Associate of Mr. Prince) is also a Connected Person of the Company under Chapter 14A of the Listing Rules. Therefore, the transactions contemplated under the Share Purchase Agreement and the Asset Purchase Agreement in aggregate constitute a connected transaction for the Company and are subject to the reporting and announcement requirements but exempt from the circular and shareholders' approval requirements under Chapter 14A of the Listing Rules.
* For identification purpose only
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INTRODUCTION
With reference to the Company's announcement dated 5 February 2015 regarding the execution of a non-legally binding letter of intent with the Seller in respect of the possible acquisitions of the Target and the Sale Assets, on 11 March 2015:
(i) FSL (a wholly-owned subsidiary of the Company) and the Seller entered into the Share Purchase Agreement pursuant to which FSL agreed to acquire the Sale Shares, representing the entire issued share capital of the Target for a consideration of US$250,000 (equivalent to approximately HK$1.95 million); and
(ii) FSG Vehicles (a wholly-owned subsidiary of the Company) and the Seller entered into the Asset Purchase Agreement pursuant to which FSG Vehicles agreed to acquire the Sale Assets (including all rights of the Seller in any leases of the Sale Assets) for a consideration of US$1,050,000 (equivalent to approximately HK$8.19 million).
The Seller, a company incorporated in the Cayman Islands, is principally engaged in investment and operating activities in the DRC. It is 49% beneficially owned by Mr. Erik D. Prince ("Mr. Prince"), an executive Director and the Chairman of the Board, through FRG Partners I Master Fund LP ("FRG"), a pooled investment fund engaged in natural resource and other investment in Africa. The remainder of the beneficial ownership of FRG is held by parties unconnected to Mr. Prince. Mr. Prince is not a director of the Seller or the Target.
The principal terms of the Share Purchase Agreement are set out below: Date : 11 March 2015
Parties : (i) FSL (a wholly-owned subsidiary of the Company) (ii) the Seller
Assets to be acquired : The Sale Shares (representing the entire issued share capital of the
Target).
Upon completion of the Share Acquisition, the Target will become a wholly-owned subsidiary of the Company.
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Consideration : The consideration shall be US$250,000 (equivalent to approximately HK$1.95 million). Subject to the fulfillment (or waiver as applicable) of all conditions precedent to the Share Purchase Agreement, the consideration shall be paid by FSL in cash to the account specified by the Seller on the Share Acquisition Completion Date.
The consideration was determined after arm's length negotiation between FSL and the Seller taking into account the Target's existing customer base and future prospects as a duly organized and operating trucking logistics company in the DRC.
Conditions precedent : The completion of the Share Acquisition is conditional upon the
Seller having procured (unless waived by FSL) that:
(i) the transfer of the Sale Shares be approved by the relevant governmental body in the DRC, and FSL be registered as the holder of the Sale Shares in the register of members, or the like, of the Target;
(ii) the signatory rights for the Target's bank account be amended as stipulated in the Share Purchase Agreement;
(iii) completion of a settlement agreement with certain former employees of the Target in respect of an ongoing litigation claim (details of which are set out below under item (iii) of the section headed "Seller's warranties") and all employee liens have been removed;
(iv) a legal opinion in a form acceptable to FSL be executed by a law firm in the DRC;
(v) a di re c t or 's c e rt i fi c a t e i n t he fo rm a t t a c h e d t o t he Sh a re Purchase Agreement certifying that the representations and warranties of the Target as set out in the Share Purchase Agreement are true and correct, and that the Target does not have any material liabilities that have not been disclosed to FSL, be executed by a director of the Seller;
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(vi) a deed of sale of the Sale Shares in the form attached to the
Share Purchase Agreement be executed;
(vii) general assembly, cessation, and statue resolutions approving t h e Sh a r e Pu r c h a se Ag r e e m e n t a n d t h e t r a n sa c t i o n s contemplated thereunder in a form compliant with the laws of the DRC be executed; and
(viii) Mr. Uldarico Ard Peregrino Jr, Chief of Staff of Frontier Services Group East Africa Limited, a wholly-owned subsidiary of the Company, be appointed as an additional Gerant (which has the customary powers of a general manager and director under the laws of the DRC).
Seller's warranties : The Share Purchase Agreement contains warranties given by the
Seller including (among others) the following:
(i) that all taxes applicable to the Target have been paid and (so far as the Seller is aware) no event has occurred which could give rise to any claims against the Target for unpaid taxes;
(ii) that the Target has all Licences in full force and effect and the Seller is not aware of anything which might prejudice the continuation of any of those Licences or result in any of those Licences being modified, cancelled, revoked or suspended; and
(iii) that to the Seller's knowledge, except for a legal claim by c e r t a i n f o r m e r e m p l oy e e s fo r se v e r a n c e p a y i n r e l a t i o n t o their departure and termination from the Target which is in the process of being settled for US$100,000 (equivalent to approximately HK$780,000) in aggregate, the Target is not engaged in any litigation or criminal proceedings and is not aware of any circumstance likely to give rise to such litigation or criminal proceedings.
Claims for breach of warranty or for indemnification under the Share Purchase Agreement are subject to certain threshold requirements under the Share Purchase Agreement and the total liability of the Seller shall not exceed the consideration for the Share Acquisition.
Completion : Com pl e t i on of t he Sha re Ac qui sit i on i s e xpec t e d t o t a ke pl a ce together with the Asset Acquisition on a date agreed by FSL and the Seller following satisfaction of the conditions stated above (unless waived by FSL).
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The principal terms of the Asset Purchase Agreement are set out below: Date : 11 March 2015
Parties : (i) FSG Vehicles (a wholly-owned subsidiary of the Company) (ii) the Seller
Assets to be acquired : The Sale Assets (including all rights of the Seller in any leases of the Sale Assets) comprise: five (5) Volvo trucks, six (6) Qingdao O.B.T Co., Ltd trailers, three (3) Zhejiang Goodsense Forklift Co., Ltd forklifts and one (1) Qingdao O.B.T Co., Ltd forklift, with age ranging from 2 to 3 years old.
Assumed liabilities : FSG Vehicles shall assume only those liabilities and obligations relating to the Sale Assets that arise after the completion of the Asset Acquisition.
Consideration : The cons ideration for the A ss et A cquisition is U S$1,050,000 (equivalent to approximately HK$8.19 million).
The consideration was determined after arm's length negotiation between the parties taking into account the age, model and condition of each of the Sale Assets, and comparable market valuations.
Representations and
warranties of the Seller
: The Asset Purchase Agreement contains representations and wa rr a n t i e s gi ve n by t h e Se l l e r i nc l udi n g (a m ong ot he rs) t he following:
(i) the Seller has good and valid title to all of the Sale Assets free and clear of any encumbrances; and
(ii) the Sale Assets are purchased by FSG Vehicles on an "as is" basis and the Seller expressly represents and warrants that the Sale Assets are in good working order, normal wear and tear excepted, and the Seller has not received notice that any of the Sale Assets is in violation of any existing law or order of any governmental authority.
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Indemnification : Subject to the threshold limitations under the A sset Purchase Agreement, each party shall indemnify and hold harmless the other party from and against any and all losses that may be paid, suffered or incurred by the other party that arise out of or result from any inaccuracy in or any breach of any representation and warranty made by it under the Asset Purchase Agreement, and any failure by it to perform or fulfill any of its covenants or agreements required to be performed by it under the Asset Purchase Agreement and the maximum liability of the Seller shall not exceed the consideration for the Asset Acquisition in the aggregate.
Completion : The completion of the Asset Acquisition is conditional upon the completion of the Share Acquisition. The Company expects that the completion of both transactions will take place simultaneously.
The Target was incorporated in the DRC in 2012 and is principally involved in the provision of transport logistics services. The Target leases and operates the Sale Assets owned by the Seller. The Target's operation is based in Kinshasa, the capital of the DRC, and its customer base includes established freight forwarders and logistics and shipping companies. Based on the unaudited management accounts of the Target for the years ended 31 December 2013 and 2014 provided by the Seller, the Target recorded unaudited net loss and net profit of approximately US$1.07 million (equivalent to approximately HK$8.35 million) and US$1.66 million (equivalent to approximately HK$12.95 million), respectively. The net profit for the year ended 31 December 2014 was stated after crediting a waiver of shareholders' loans amounting to a total of approximately US$1.74 million (equivalent to approximately HK$13.57 million). At 31 December 2014, the Target had unaudited shareholders' deficit of US$8,234 (equivalent to HK$64,225).
As stated above, the Sale Assets comprise five (5) Volvo trucks, six (6) Qingdao O.B.T Co., Ltd trailers, three (3) Zhejiang Goodsense Forklift Co., Ltd forklifts and one (1) Qingdao O.B.T Co., Ltd forklift, with age ranging from 2 to 3 years old. The Sale Assets had a net book value of approximately US$1.05 million (equivalent to approximately HK$8.19 million) based on the Seller's unaudited management accounts as at 31 December 2014.
The Seller has confirmed to the Company that the Seller made an initial investment of approximately US$4.5 million to acquire and/or establish (directly and/or indirectly) a 50% interest in a portfolio of companies and assets to develop a new trading and logistics business in the DRC in 2012, as part of which the Sale Assets were acquired for approximately US$1.32 million (equivalent to approximately HK$10.3 million) and the Target was established.
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The Group is principally engaged in the aviation and logistics business. The Group has been actively developing its aviation and logistics business and the Board (including the independent non- executive Directors) considers the Acquisitions to be a strategically important opportunity for the Group to establish a commercial presence in the DRC, a large and attractive market, and to expand its existing logistics business throughout Africa.
The Directors (including the independent non-executive Directors) consider that the terms of the Acquisitions are fair and reasonable, on normal commercial terms and in the interests of the Company and its shareholders as a whole.
In view of Mr. Prince's relationship with the Seller, Mr. Prince has abstained from voting on the
Board's resolution in relation to the approval of the Acquisitions.
The Seller is 49% beneficially owned by Mr. Erik D. Prince, an executive Director and the Chairman of the Board. Mr. Prince is a Connected Person of the Company and the Seller (as an Associate of Mr. Prince) is also a Connected Person of the Company under Chapter 14A of the Listing Rules. Therefore, the transactions contemplated under the Share Purchase Agreement and the Asset Purchase Agreement in aggregate constitute a connected transaction for the Company and are subject to the reporting and announcement requirements but exempt from the circular and shareholders' approval requirements under Chapter 14A of the Listing Rules.
Completion is subject to the satisfaction of the conditions precedent to the Share Acquisition, and hence the Acquisitions may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the shares of the Company. DEFINITIONS
Unless otherwise stated, the following terms shall have the following meanings in this announcement: "Acquisitions" collectively, the Share Acquisition and the Asset Acquisition
"Asset Acquisition" the acquisition of the Sale Assets by FSG Vehicles from the Seller pursuant to the terms of the Asset Purchase Agreement
"Asset Purchase Agreement" the agreement dated 11 March 2015 entered into between FSG Vehicles and the Seller in relation to the sale and purchase of the Sale Assets
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"Associate" has the meaning as ascribed to it in the Listing Rules
"Board" the board of Directors
"Company" Frontier Services Group Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange
"Connected Person" has the meaning as ascribed to it in the Listing Rules
"Director(s)" the director(s) of the Company
"DRC" the Democratic Republic of the Congo
"FSG Vehicles" FSG Vehicles Limited, a wholly-owned subsidiary of the Company
"FSL" Front ier Service s L im ite d, a wholly-owne d subsidia ry of the
Company
"Group" the Company and its subsidiaries
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong" t h e Ho n g Ko n g Sp e c i a l Ad m i n i st r a t i v e R e g i o n o f t h e Pe o p l e ' s
Republic of China
"Licences" the relevant licences of the Target including those required for operating a trucking business in the DRC from Kinshasa to Matadi, which will be current and valid in all respects at completion of the Acquisitions
"Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange
"Sale Assets" collectively, five (5) Volvo trucks, six (6) Qingdao O.B.T Co., Ltd trailers, three (3) Zhejiang Goodsense Forklift Co., Ltd forklifts and one (1) Qingdao O.B.T Co., Ltd forklift
"Sale Shares" 100 ordinary shares of nominal value US$1,000 each in the Target
"Seller" FRG Distribution and Logistics Holdings Ltd
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"Share Acquisition" the acquisition of the Sale Shares by FSL from the Seller according to the terms of the Share Purchase Agreement
"Share Acquisition
Completion Date"
the date mutually agreed by FSL and the Seller following the date on which all of the conditions precedent have been completed or waived
by FSL
"Share Purchase Agreement" the agreement dated 11 March 2015 entered into between FSL and the Seller in relation to the sale and purchase of the Sale Shares
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Target" Cheetah Logistics SARL, a private limited liability company incorporated in the DRC
"US$" United States dollars, the lawful currency of the United States of
America
By Order of the Board
Chief Executive Officer and Executive Director
Hong Kong, 11 March 2015
As at the date of this announcement, the executive Directors are Mr. Erik D. Prince (Chairman), Mr. Ko Chun Shun, Johnson (Deputy Chairman), Mr. Luo Ning (Deputy Chairman), Mr. Gregg H. Smith (Chief Executive Officer), and Mr. Hu Qinggang; and the independent non-executive Directors are Mr. Yap Fat Suan, Henry, Professor Lee Hau Leung, Mr. William J. Fallon and Dr. Harold O. Demuren.
For illustration purposes, US$ is translated into HK$ at an exchange rate of US$1.00 = HK$7.80.
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