RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Immediately after completion of the Capitalisation Issue and the Global Offering (without taking into account any Shares which may be allotted and issued upon any exercise of the Over–allotment Option or options which have been or may be granted under the Share Option Scheme), the total issued shares of our Company will be owned as to 63.75% by Ever Winning Investment (which is wholly and beneficially owned by Mr. Lau Yu Leung), as to 3.75% by Ever Forever Investment (which is wholly and beneficially owned by Mr. Lau Yu Leung’s spouse, Madam Tong Hung Sum), as to 3.75% by Ever Miracle Investment (which is wholly and beneficially owned by Mr. Lau Tak Fung Wallace), and as to 3.75% by Ever Glorious Investment (which is wholly and beneficially owned by Mr. Lau Tak Kee Henry). Mr. Lau Yu Leung, his spouse Madam Tong Hung Sum, Ever Winning Investment and Ever Forever Investment will be our Controlling Shareholders upon Listing as defined under the Listing Rules. Ever Winning Investment and Ever Forever Investment are investment holding companies. COMPANIES OWNED BY CONTROLLING SHAREHOLDERS BUT NOT INCLUDED IN OUR GROUP As at the Latest Practicable Date, our Controlling Shareholders had interests in certain companies that did not form part of our Group (the “Lau’s Controlled Companies”). Such businesses include property investment and barge services. The details of their major businesses are set out below. China-HK Shipping China-HK Shipping is a company incorporated in Hong Kong on 1 November 1999. As at the Latest Practicable Date, China-HK Shipping was owned as to 52.5% by Mr. Lau Yu Leung and as to 47.5% by other Independent Third Parties. The principal business of China-HK Shipping is barge services. During the Track Record Period, Ever Harvest Marine Transport Limited, Best Base Logistics Limited and Ever Harvest Harbour Transportation Limited chartered their self-owned barges to China-HK Shipping which has in turn provided barge services as midstream operator within Hong Kong waters (collectively, the “Barge Services”) comprising handling and storage of containers, lifting and shafting, and other handling services to our Group. We will continue to engage China-HK Shipping to provide to us the aforesaid services. After the Listing, transactions between our Group and China-HK Shipping will constitute connected transactions of our Company under the Listing Rules. Please refer to the section headed “Connected Transactions” in this prospectus for details of such services. Ever Harvest Marine Transport Limited (永豐海運有限公司) Ever Harvest Marine Transport Limited is a company incorporated in Hong Kong on 16 July 2013. As at the Latest Practicable Date, Ever Harvest Marine Transport Limited was owned as to 50% by Mr. Lau Yu Leung and as to 50% Madam Tong Hung Sum, the spouse of Mr. Lau Yu Leung. The principal business of Ever Harvest Marine Transport Limited is to provide barges for hire and transportation service. During the Track Record Period, Ever Harvest Marine Transport Limited chartered its selfowned barge to China-HK Shipping in order to provide Barge Services to our Group. Our Group did not enter into any material transaction with Ever Harvest Marine Transport Limited during the Track Record Period. 159
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Best Base Logistics Limited (德基物流有限公司) Best Base Logistics Limited is a company incorporated in Hong Kong on 2 June 2008. As at the Latest Practicable Date, Best Base Logistics Limited was owned as to 55% by Mr. Lau Yu Leung and as to 45% by other Independent Third Parties. The principal business of Best Base Logistics Limited is to provide barges for hire and transportation service. During the Track Record Period, Best Base Logistics Limited chartered its self-owned barge to China-HK Shipping in order to provide Barge Services to our Group. Our Group did not enter into any transaction with Best Base Logistics Limited during the Track Record Period. Ever Harvest Harbour Transportation Limited (永豐港口運輸有限公司) Ever Harvest Harbour Transportation Limited is a company incorporated in Hong Kong on 17 June 2015. As at the Latest Practicable Date, Ever Harvest Harbour Transportation Limited was owned as to 50% by Mr. Lau Yu Leung and as to 50% by Madam Tong Hung Sum, the spouse of Mr. Lau Yu Leung. The principal business of Ever Harvest Harbour Transportation Limited is to provide barges for hire and transportation service. During the Track Record Period, Ever Harvest Harbour Transportation Limited chartered its self-owned barge to China-HK Shipping in order to provide Barge Services to our Group. Our Group did not enter into any transaction with Ever Harvest Harbour Transportation Limited during the Track Record Period. Eternity Hong Kong Investment Limited (恒和香港投資有限公司) Eternity Hong Kong Investment Limited is a company incorporated in Hong Kong on 24 May 2011. As at the Latest Practicable Date, Eternity Hong Kong Investment Limited was owned as to 50% by Mr. Lau Yu Leung and as to 50% by Madam Tong Hung Sum, the spouse of Mr. Lau Yu Leung. The principal business of Eternity Hong Kong Investment Limited is property investment. During the Track Record Period, Eternity Hong Kong Investment Limited has leased office premises in Hong Kong to our Group. We will continue to rent from Eternity Hong Kong Investment Limited the Hong Kong office premises. After the Listing, transactions between our Group and Eternity Hong Kong Investment Limited will constitute connected transactions of our Company under the Listing Rules. Please refer to the section headed “Connected Transactions” in this prospectus for details. China-HK Shipping, Ever Harvest Marine Transport Limited, Best Base Logistics Limited and Ever Harvest Harbour Transportation Limited are collectively called “Barge Services Companies” and the size of such business is much smaller than that of our Group. We confirm that the Barge Services Companies did not materially breach any relevant laws, rules or regulations during the Track Record Period and up to the Latest Practicable Date. It is not the intention of our Directors to exclude the Barge Services Companies which recorded losses attributable to the Controlling Shareholders of approximately HK$201,000, HK$916,000 and HK$376,000 in 2013, 2014 and 2015, respectively, in order to enable our Company to meet the basic listing qualification requirements or to enhance our Group’s apparent attractiveness. Our Directors believe that even if the Barge Services Companies had been included in our Group, we would still have been able to comply with the profit test requirement under Rule 8.05(1)(a) of the Listing Rules. Our Group has no present intention to inject the Lau’s Controlled Companies into our Group because each of them is not engaged in the core business of our Group. In particular, the Barge Services will not be included in our Group primarily because it is clearly delineated from our Sea Freight Services, which are analysed below. 160
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Comparison of Our Group/Sea Freight Services and Barge Services Companies/Barge Services The details of the differences between our Group/Sea Freight Services and the Barge Services Companies/Barge Services are set out below:
(1)
Service Types
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
Feeder shipping services, carrier owned container services and sea freight forwarding agency services.
China-HK Shipping’s main service is to charter barges from Ever Harvest Marine Transport Limited, Best Base Logistics Limited, and Ever Harvest Harbour Transportation Limited, in order to provide the Barge Services. Ever Harvest Marine Transport Limited, Best Base Logistics Limited, and Ever Harvest Harbour Transportation Limited’s main business is to provide self-owned barges for hire and transportation service.
161
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(2)
Differences in licensing requirements
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
Feeder shipping services generally require no licence on the part of our Group. However, our Group shall rely on licences obtained by operators of feeder vessels (i.e. licences issued by PRC authorities).
The Barge Services require operating licence, certificate of survey, and certificate of training for crane operators.
Carrier owned container services also generally require no licence from our Group. However, our Group shall rely on licences obtained by operators of feeder vessels (i.e. licences issued by PRC authorities). Sea freight forwarding agency services requires various licences issued by the PRC authorities. Also, Sea Freight Services require licences in Hong Kong for carrying various types of regulated goods, such as dutiable commodities, controlled chemicals and textile. (3)
Place of services
Cross-border service between Mainland China and Hong Kong.
162
Within Hong Kong waters only, no cross-border service out of Hong Kong is conducted.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(4)
Ship ownership and difference in vessels specifications and operations
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
Our Group uses four feeder vessels registered in the Mainland China under Usage Priority Agreements, and charters other feeder vessels (registered in the Mainland China) from other PRC ship owning companies.
Each of Ever Harvest Marine Transport Limited, Best Base Logistics Limited, Ever Harvest Harbour Transportation Limited owns one barge registered in Hong Kong.
The feeder vessels are divided into two categories, V-shaped hull (for coastal transport) and round bottom hull (for river trade).
Barges are flat-bottomed vessels which render them unsuitable for travelling on choppy waters; so the use is limited to operations within harbour or river trade.
Feeder vessels are selfpropelling without the use of tug boat, but do not have cranes for lifting.
Barges are not self-propelling and require tug boat for motoring. Barges contain cranes/lifting appliance for lifting purpose.
The operator of feeder vessels is called captain.
The operator of barges is called crane operator.
163
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(5)
Employees
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
There are many employees divided into different teams. As at the Latest Practicable Date, our Group has 271 employees.
China-HK Shipping has a simple structure with a few employees. As at the Latest Practicable Date, it has 4 employees.
There is no overlap of employees between the business of our Group and those related to the Barge Services.
Ever Harvest Marine Transport Limited, Best Base Logistics Limited, Ever Harvest Harbour Transportation Limited each has no employee. The barges were managed by crew outsourced to independent subcontractors.
(6)
Customers
The customers are mainly international container lines companies, large PRC or Hong Kong based corporations or manufacturers, trading companies as well as sole proprietorship. For further details, please see the section headed “Business – Customers” in this prospectus. There is no overlap of customers between the business of our Group and those related to the Barge Services.
164
The customers comprise our Group and other independent local shipping companies/warehouses.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(7)
Suppliers
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
The suppliers of Ever Harvest and Xiamen Harvest are mainly bunker suppliers; barge services providers; terminal handling services providers; vessel owners and international container lines companies which act as our suppliers in our sea freight forwarding agency services. For further details, please see the section headed “Business – Suppliers” in this prospectus.
The suppliers are supplier of crane parts and local repairers.
There is no overlap of major suppliers between the business of our Group and those related to the Barge Services.
165
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
(8)
Pricing
Our Group/ Sea Freight Services
Barge Services Companies/ Barge Services
Our Group charges in accordance with a number of factors including :
China-HK Shipping charges on a per container basis with a number of factors including:
(a) a broad range of economic indicators; (b) relevant information from trade fairs and our sales teams; (c) prevailing market rates offered by other sea freight forwarding services providers; (d) cost analysis including potential increases in wages, bunker charges, fees and locations; and (e) our determination of a reasonable profit margin.
(a) price offered by competitors; (b) cost of sales (see paragraph (9) below); (c) the level of acceptance of the current market price for the specific type or similar type of services; (d) the seasonal factor; and (e) the potential for future business from a particular customer.
For further details, please see the section headed “Business – Sales and Marketing - Our pricing” in this prospectus. (9)
Main operating costs and financial resources
Our Group’s main operating costs are freight charges, terminal handling charges, bunker charges, vessel rental charges, and barge charges.
The main operating costs are lubricating oil, depreciation, consumable e.g. wire and other crane parts, subcontractor’s fees, repair and maintenance of the ship.
Our Directors confirm that, having made all reasonable enquiries and to the best of their knowledge and belief, there are more than 200 barge service operators in Hong Kong and there are alternative barge services providers at comparable service quality, price and terms that we can engage for our operation. Accordingly, our Directors consider that there is a clear delineation between the business of the Lau’s Controlled Companies and that of our Group, and the Lau’s Controlled Companies do not and will not pose any direct or indirect competition with our Group.
166
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS INDEPENDENCE OF MANAGEMENT, FINANCING AND OPERATION Having taken into account of the following factors, our Directors are satisfied that our Group can carry on its business independently of our Controlling Shareholders following the Listing: Non-competition Although there are certain businesses owned by our Controlling Shareholders as mentioned above in this section, none of our Controlling Shareholders or Directors has any interest in a business which competes or is likely to compete, either directly or indirectly, with our Group’s business. In addition, each of our Controlling Shareholders has executed the Deed of Non-Competition in favor of our Group. For details, please refer to the paragraph headed “Deed of Non-Competition” in this section below. Management independence Our Group’s management and operational decisions are made by our Board and a team of senior management. Our Board consists of seven members, comprising three executive Directors, one nonexecutive Director and three independent non-executive Directors. Our Company and the Lau’s Controlled Companies have board of directors that function independently of each other. The following table sets out the details of the position of our Directors and our senior management team within our Company and the Lau’s Controlled Companies as at the Latest Practicable Date: Position within the Lau’s Controlled Companies
Name
Position within our Company
Mr. Lau Yu Leung
Chairman and executive Director
Non-executive Director of all Lau’s Controlled Companies
Madam Tong Hung Sum
Non-executive Director
Director of certain Lau’s Controlled Companies
Mr. Lau Tak Fung Wallace
Chief Executive Officer and executive Director
Nil
Mr. Lau Tak Kee Henry
Executive Director
Nil
Mr. Lo Wan Sing Vincent
Independent non-executive Director
Nil
Mr. Lam Lo
Independent non-executive Director
Nil
Mr. Lee Ka Lun
Independent non-executive Director
Nil
Ms. Lau Mei Ting
Financial Controller and Company Secretary
Nil
Ms. Tse Yin Wan
Deputy General Manager
Nil
167
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Save as disclosed above, none of our Directors or members of the senior management holds any directorship or senior management position in the Lau’s Controlled Companies. Our executive Directors do not hold any executive role in any of the Lau’s Controlled Companies. Our Company’s management team is different from those of the Lau’s Controlled Companies. Therefore, there are sufficient nonoverlapping Directors who are not executive management of the Lau’s Controlled Companies and have relevant experience to ensure the proper functioning of our Board. Although Madam Tong Hung Sum holds various executive positions such as director in certain companies owned by her, Madam Tong Hung Sum, as a non-executive Director, is not in charge of our Group’s day-to-day operations. Despite the interest of our Controlling Shareholders in certain businesses outside our Group and overlapping directors as disclosed above, we consider that our Board will function independently from our Controlling Shareholders because: (a)
each of our Directors is aware of his/her fiduciary duties as a Director which requires, among other things, that he/she acts for the benefit and in the best interests of our Company and does not allow any conflict between his/her duties as a Director and his/her personal interests;
(b)
in the event that there is a potential conflict of interests arising out of any transaction to be entered into between our Group and our Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant Board meetings of our Company in respect of such transactions and shall not be counted in the quorum;
(c)
our Board comprises seven Directors and three of them are independent non-executive Directors who represent more than one-third of the members of our Board which is in line with the requirement as set out in the Listing Rules;
(d)
our independent non-executive Directors will bring independent judgement to the decision making process of our Board; and
(e)
our senior management team possesses in-depth experience and understanding of the industry in which our Group is engaged.
Operational independence Our Group has an independent work force to carry out our operation and has not shared its operation team with our Controlling Shareholders’ businesses outside our Group. Although during the Track Record Period, there have been certain transactions between us and our related parties, details of which are set out in note 25 to the Accountants’ Report, the text of which is set out in Appendix I to this prospectus, our Directors have confirmed that these related party transactions (which were trade-related) were conducted in the ordinary course of business and on normal commercial terms. Save as disclosed in the section headed “Connected Transactions” in this prospectus, none of the historical related party transactions with the connected persons as defined in the Listing Rules are expected to be non-exempt continuing connected transactions after the Listing. 168
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Having considered that (i) we have established our own organisational structure comprising individual departments, each with specific areas of responsibilities; (ii) our Group does not share our operational resources, such as customers, marketing, sale and general administration resources with our Controlling Shareholders and/or their associates, our Directors consider that our Group can operate independently from our Controlling Shareholders from the operational perspective. In relation to the continuing connected transactions on provision of the barge services by ChinaHK Shipping, our Group is free to choose either loading containers directly at the terminals or by using barge services provided by other independent barge service providers. In determining whether our Group chooses to load containers directly at the terminal versus using barge services, we generally consider factors such as costs saving, time saving and terminal size. For further details, please see the section headed “Business – Our Business – 1. Feeder shipping services – Arrangement Stage” in this prospectus. By contrast, our Group does not arrange loading by using barge services in the PRC. This is mainly due to the fact that in general, berthing fee per vessel in the PRC is far lower than that in Hong Kong. During each year of the Track Record Period, out of the total container loading (in terms of TEUs) of our Group, loading by using barge services only accounted for approximately 26.6%, 24.8% and 21.6% in 2013, 2014 and 2015 respectively. During the Track Record Period, all barge services were arranged by China-HK Shipping which in turn chartered the barges from other Lau’s Controlled Companies and Independent Third Parties. The barge charges were not significant to the Group and only accounted for around 5.0%, 5.0% and 5.8% of the total costs of services of our Group in 2013, 2014 and 2015 respectively. Further, of the total costs of services in relation to barges chartered by China-HK Shipping, the barges owned by independent third parties accounted for around 71%, 66% and 58% in 2013, 2014 and 2015 respectively. China-HK Shipping also provided barge services to other Independent Third Parties, but our Group is their major customers accounting for around 85.5%, 73.0% and 83.1% of its total revenue in 2013, 2014 and 2015 respectively. Further, China-HK Shipping was owned as to 47.5% by independent third parties. In view of the above, our Directors are of the view that our Group do not rely on the barge services provided by China-HK Shipping, and the using of barge services do not affect the operational independence of our Group. Financial independence Our Directors are of the view that our Group does not unduly rely on the advances from our Controlling Shareholders for its business operations. As at 31 December 2015, none of the debts was guaranteed by our Controlling Shareholders and no amounts were owed to our Controlling Shareholders and their respective close associates. Subsequent to the Track Record Period, Ever Harvest has been granted a bank facility of HK$30 million which was guaranteed by Mr. Lau Yu Leung and such guarantee is expected to be discharged prior to the Listing. As at the Latest Practicable Date, no borrowing from such bank facility has occurred.
169
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Our Directors believe that our Group will be capable of obtaining financing from external sources without reliance on our Controlling Shareholders upon Listing. Furthermore, our Group has its own finance department and has established its own financial accounting system independent of our Controlling Shareholders. Our Group has its own bank accounts, makes its tax registrations and has employed a sufficient number of financial accounting and treasury personnel. Accordingly, our Directors consider that our Group is capable of operating independently of our Controlling Shareholders from a financial perspective. COMPETING INTERESTS Save as disclosed in this prospectus, each of our Controlling Shareholders and our Directors confirms that he/it does not have any interests in any business, apart from the business of our Group, which competes or is likely to compete, directly or indirectly, with the business of our Group, which would require disclosure under Rule 8.10 of the Listing Rules. DEED OF NON-COMPETITION Our Company entered into the Deed of Non-Competition with the Controlling Shareholders on 10 June 2016, under which the Controlling Shareholders agreed not to, and to procure their subsidiaries (other than our Group) and their close associates not to compete, either directly or indirectly, with our principal business, namely the Sea Freight Services, and granted to our Group the option for new business opportunities, the option for acquisitions and pre-emptive rights. Our Controlling Shareholders have irrevocably undertaken in the Deed of Non-Competition that, during the term of the Deed of Non-Competition, they will not, and will also procure their subsidiaries (other than our Group) and their close associates not to, alone or with any other entity, in any form, directly or indirectly, engage in, participate in, assist or support a third party to engage in or participate in any business that competes, or is likely to compete, directly or indirectly with our principal business. The foregoing restrictions are subject to the fact that our Company may waive certain new business opportunities pursuant to the terms and conditions under the Deed of Non-Competition. The foregoing restrictions do not apply to (1) the purchase by our Controlling Shareholders, their subsidiaries or close associates for investment purpose of not more than 10% equity interest in other listed companies whose business competes or is likely to compete with our principal business; or (2) the holding by our Controlling Shareholders, their subsidiaries or close associates of not more than 10% equity interest in other companies whose business competes or is likely to compete with our principal business, as a result of a debt restructuring of such companies (collectively referred to as “Investment Companies” for scenarios (1) and (2)). For the avoidance of doubt, the exceptions above do not apply to such Investment Companies which our Controlling Shareholders, their subsidiaries or close associates are able to control their respective board of directors notwithstanding the fact that not more than 10% of the equity interests of such Investment Companies are being held by our Controlling Shareholders, their subsidiaries or close associates.
170
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS New Business Opportunity Our Controlling Shareholders have undertaken in the Deed of Non-Competition that, during the term of the Deed of Non-Competition, if our Controlling Shareholders and/or their subsidiaries become aware of a business opportunity which competes, or may compete, directly or indirectly with our principal business, our Controlling Shareholders will notify our Company in writing immediately and provide to our Company all information which is reasonably necessary for our Company to consider whether or not to engage in such business opportunity (“Offer Notice”). Our Controlling Shareholders are also obliged to use their best efforts to procure that such opportunity is first offered to our Company on terms that are fair and reasonable. Our Company is entitled to decide whether or not to take up such business opportunity within 30 business days from receiving the Offer Notice (subject to our request to extend the notice period of 30 business days), subject to compliance with the applicable requirements under the Listing Rules. Our Controlling Shareholders and/or their subsidiaries will use their best efforts to procure their associates to offer to our Company an option to acquire any new business opportunity which competes, or is likely to compete, directly or indirectly with our principal business according to the terms of the Deed of Non-Competition. If our Company decides not to take up the new business opportunity for any reason or do not respond to our Controlling Shareholders and/or their subsidiaries and/or their close associates within 30 business days from receiving the Offer Notice (subject to our Company’s request to extend the notice period of 30 business days), our Company should be deemed to have decided not to take up such new business opportunity, and our Controlling Shareholders and/or their subsidiaries may operate such new business opportunity on their own. Option for Acquisitions In relation to any new business opportunity of our Controlling Shareholders referred to in the Deed of Non-Competition, which has been offered to, but has not been taken up by our Company and has been retained by our Controlling Shareholders or any of their subsidiaries (other than our Group), which competes, or may lead to competition, directly or indirectly with our principal business, our Controlling Shareholders have undertaken to grant our Company an option, which is exercisable at any time during the term of the Deed of Non-Competition, subject to applicable laws and regulations, to purchase at one or more times any equity interest, assets or other interests which form part or all of the new business as described above, or to operate the new business as described above by way of, including but not limited to, management outsourcing, lease or subcontracting. However, if a third party has the pre-emptive right, in accordance with applicable laws and regulations and/or a prior legally binding document (including but not limited to articles of association and shareholders’ agreement), the option for acquisitions shall be subject to such third party rights. In this case, our Controlling Shareholders will use their best efforts to procure the third party to waive their pre-emptive right. Our Controlling Shareholders shall procure their subsidiaries (other than our Group) and their close associates to comply with the option granted to our Company by our Controlling Shareholders above.
171
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS The consideration shall be determined following negotiation between the parties under the fair and reasonable principle based on the valuation conducted by a third party professional valuer (selected by both our Controlling Shareholders and us) and the mechanism and procedure provided by applicable laws and regulations. Our independent non-executive Directors will be responsible for reviewing, considering and deciding whether or not to take up the option. In assessing whether or not to exercise the option, our independent non-executive Directors will consider a range of factors including any feasibility study, counterparty risk, estimated profitability, our business and the legal, regulatory and contractual landscape and form their views based on the best interest of our Shareholders and our Company as a whole, and if necessary, our independent non-executive Directors will consider to engage an independent third party valuer to evaluate the business opportunity. Our independent non-executive Directors are also entitled to engage an independent financial adviser, at the cost of our Company, in connection with the exercise of the option for the business opportunity. Pre-emptive Right Our Controlling Shareholders have undertaken that, during the term of the Deed of NonCompetition, if they intend to transfer, sell, lease, license or otherwise permit to use, the Barge Services to a third party, our Controlling Shareholders or their subsidiaries shall notify our Company by written notice (“Selling Notice”) in advance. The Selling Notice shall attach the terms of the transfer, sale, lease or license and any information which may be reasonably required by our Company. Our Company shall reply to our Controlling Shareholders and/or their subsidiaries within 30 business days after receiving the Selling Notice. Our Controlling Shareholders and/or their subsidiaries have undertaken that until they receive the reply from our Company, they shall not notify any third party of the intention to transfer, sell, lease or license the business. If our Company decides not to exercise its pre-emptive right or if our Company does not reply within the agreed time period, or if our Company does not accept the terms as set out in the Selling Notice and issues to our Controlling Shareholders a written notice within the agreed time period stating acceptable conditions which, however, are not acceptable to our Controlling Shareholders or their subsidiaries following negotiation between the parties under the fair and reasonable principle, our Controlling Shareholders or their subsidiaries are entitled to transfer the business to a third party pursuant to the terms stipulated in the Selling Notice. Our Controlling Shareholders shall procure their subsidiaries (other than our Group) and their close associates to comply with the above pre-emptive right. Our independent non-executive Directors will be responsible for reviewing, considering and deciding whether or not to exercise our pre-emptive right. In assessing whether or not to exercise our pre-emptive right, our independent non-executive Directors will consider a range of factors including any feasibility study, counterparty risk, estimated profitability, our business and the legal, regulatory and contractual landscape and form their views based on the best interest of our Shareholders and our Company as a whole, and if necessary, our independent non-executive Directors will consider to engage an independent third party valuer to evaluate the business opportunity. Our independent non-executive Directors are also entitled to engage an independent financial adviser, at the cost of our Company, in connection with the exercise of our pre-emptive right.
172
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Indemnity Each of our Controlling Shareholders has jointly and severally undertaken to indemnify and keep indemnified our Group against any damage, loss or liability suffered by our Company or any other member of our Group arising out of or in connection with any breach of our Controlling Shareholders’ undertakings and/or obligations under the Deed of Non-Competition, including any costs and expenses incurred as a result of such breach provided that the indemnity contained in the Deed of Non-Competition shall be without prejudice to any other rights and remedies our Company is entitled to in relation to any such breach, including specific performance, and all such other things and remedies are hereby expressly reserved by our Company. Our Controlling Shareholders’ Further Undertakings Each of our Controlling Shareholders has further undertaken that: (i)
it will provide all information necessary for our independent non-executive Directors to review our Controlling Shareholders’, their subsidiaries’ and their close associate(s)’ compliance with and enforcement of the Deed of Non-Competition;
(ii)
it consents to the disclosure of the decision made by our independent non-executive Directors in relation to the compliance with and enforcement of the Deed of NonCompetition in our annual report, or by way of announcement; and
(iii)
it will make a declaration to our Company and our independent non-executive Directors annually regarding its compliance with the Deed of Non-Competition for the disclosure in our annual report.
The Deed of Non-Competition will cease to have any effect on the earliest of the date on which: (a)
our Company becomes wholly-owned by any of our Controlling Shareholders and/or its/his close associates;
(b)
the aggregate beneficial shareholding (whether direct or indirect) of our Controlling Shareholders and/or its/his close associates in our Shares in issue falls below 30% of the number of Shares in issue and the relevant Controlling Shareholder shall cease to be our executive Director; or
(c)
our Shares cease to be listed on the Stock Exchange.
173
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS CORPORATE GOVERNANCE MEASURES ON CONFLICT OF INTERESTS Our Company will adopt the following corporate governance measures to manage the potential conflict of interests between us and our Controlling Shareholders, and to safeguard the interests of our Shareholders: (i)
our independent non-executive Directors will review, at least on an annual basis, compliance and enforcement of the terms of the Deed of Non-Competition;
(ii)
our Controlling Shareholders have undertaken to provide all information requested by our Company which is necessary for the annual review by our independent non-executive Directors and the enforcement of the Deed of Non-Competition;
(iii)
we will disclose any decisions on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-Competition either through our annual report or by way of announcement;
(iv)
we will disclose in the corporate governance report of our annual report on how the terms of the Deed of Non-Competition have been complied with and enforced; and
(v)
in the event that any of our Directors and/or their respective associates has material interest in any matter to be deliberated by our Board in relation to compliance and enforcement of the Deed of Non-Competition, he/she may not vote on the resolutions of our Board approving the matter and shall not be counted towards the quorum for the voting pursuant to the applicable provisions in the Articles of Association.
Our Directors consider that the above corporate governance measures are sufficient to manage any potential conflict of interests between our Controlling Shareholders and their respective associates and our Group and to protect the interests of our Shareholders, in particular, the minority Shareholders.
174
