RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Transcription

1 CONTROLLING SHAREHOLDERS OF OUR COMPANY Immediately following completion of the Capitalisation Issue and the [REDACTED] (assuming that the [REDACTED] is not exercised and without taking into account Shares which may be allotted and issued pursuant to the exercise of any options which may be granted under the Share Option Scheme), Dr. Fan and Ms. Xu (spouse of Dr. Fan) will, together via GDH Group, indirectly and beneficially be interested in approximately [REDACTED]% of the issued share capital of our Company. As such, Dr. Fan, Ms. Xu and GDH Group as a group and each of Dr. Fan, Ms. Xu and GDH Group on an individual basis will continue to be our Controlling Shareholders upon [REDACTED]. GDH Group is an investment holding company owned as to 80% by Dr. Fan and 20% by Ms. Xu, and as at the Latest Practicable Date, it had not commenced any substantial business activities apart from being as an investment holding company. For further biographical information of our Controlling Shareholders, Dr. Fan and Ms. Xu, please refer to the section headed Directors and senior management Executive Directors in this document. Our Controlling Shareholders, as a group, are subject to the lock-up requirements pursuant to Rule 13.16A of the GEM Listing Rules after the [REDACTED]. For further details, please refer to the section headed [REDACTED] Undertakings pursuant to the GEM Listing Rules Undertakings by the Controlling Shareholders in this document. INDEPENDENCE OF OUR GROUP Having considered the following factors, our Directors believe that our Group is capable of carrying on our Group s business independently from our Controlling Shareholders and their respective close associates (other than our Group) after the [REDACTED]. Management independence The Board comprises two executive Directors, namely Dr. Fan and Ms. Xu, and three independent non-executive Directors namely Dr. Wang Guiguo, Mr. Chan Wing Tak Kevin and Dr. Chan Yee Wah. Dr. Fan is the sole director of GDH Group which is the Controlling Shareholder and the investment vehicle of Dr. Fan and Ms. Xu in holding the Shares. Save as disclosed above, none of our Directors or senior management serves any executive or management role in our corporate Controlling Shareholder. 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 duties as a Director and his/her personal interest. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between our Group and our Directors or their respective close associates, the interested Director(s) shall abstain from voting at the relevant meetings of the Board in respect of such transactions and shall not be counted in the quorum. The three independent non-executive Directors will also bring independent advice to the decision-making process of the Board. 145

2 In addition, our senior management, Mr. Kwong Chi Wing and Ms. Zhou Guoping, are independent from our Controlling Shareholders. The responsibilities of the senior management of our Group include dealing with operational and financial matters, making general capital expenditure decisions and the daily implementation of the business strategy of our Group. This ensures the independence of the daily management and operations of our Group. Further details of our senior management are set out in the section Directors and senior management in this document. In addition, our Controlling Shareholders and their respective close associates are not interested in any other business which competes or may compete, either directly or indirectly, with the business of our Group as at the Latest Practicable Date. Therefore, there is no competition that would adversely affect the management independence of our Group. Save for Dr. Fan and Ms. Xu, none of our other Directors and members of our senior management holds any directorship or senior management role in the members of the Excluded Business (as defined in the paragraph headed Interests of Controlling Shareholders in other business in this section below). Dr. Fan and Ms. Xu are the directors for certain members of the Excluded Business. However, it is expected that they will allocate substantially all of their working time in the operations of our Group upon [REDACTED] considering that the business nature of the members of the Excluded Business is investment holding and/or properties leasing. In the event that each of Dr. Fan and Ms. Xu is required to absent himself/herself from any board meeting on any matter which may give rise to a potential conflict of interest with the Excluded Business, our remaining Directors will have sufficient expertise and experience to fully consider any such matter. Notwithstanding the directorships of Dr. Fan and Ms. Xu in certain members of the Excluded Business, our Directors, including the independent non-executive Directors, are of the view that our Board is able to manage our business on a full time basis independently from the Excluded Business for the following reasons: (a) (b) (c) none of the business undertaken or carried on by the Excluded Business competes with our core business (as demonstrated in the paragraph headed Interests of Controlling Shareholders in other business in this section below), and there are adequate corporate governance measures in place to manage the existing and potential conflicts of interest. Therefore, the dual roles assumed by Dr. Fan and Ms. Xu will not affect the requisite degree of impartiality for them to act as our executive Directors in discharging their fiduciary duties owed to our Company; we have three independent non-executive Directors, and certain matters of our Group, including matters referred to in the Deed of Non-Competition, details of which are set out in the paragraph headed Non-Competition undertakings in this section below, must always be referred to the independent non-executive Directors for review. This helps to enhance the independence of our management from that of the Excluded Business; in the event of a conflict of interest, Dr. Fan and Ms. Xu will abstain from voting, will not be present at the relevant Board meetings and will be excluded from deliberation by our Board. Hence, Dr. Fan and Ms. Xu would not be able to influence our Board in making decisions on matters in which they are, or may be, interested. We are of a view that all of our Directors, including the independent non-executive Directors, have the requisite 146

3 qualifications, integrity and experience to maintain an effective board and observe their fiduciary duties in the event of a conflict of interest. Please refer to the section headed Directors and senior management of this document for a summary of the relevant experience and qualifications of each of our Directors; and (d) our daily operations will be managed by the members of our senior management, none of whom holds any senior managerial position or directorship position in the members of the Excluded Business. Financial independence We have our own independent financial system and we make financial decisions according to our business needs. We also have our own internal control and accounting systems and accounting and finance department to perform independent treasury function for cash receipts and payments and independent accounting and reporting functions. We are able to obtain financing from third parties or from our internally generated funds without reliance on our Controlling Shareholders. All outstanding loans or borrowings from our Controlling Shareholders and/or any of their respective close associates and associates will be fully settled before the [REDACTED]. All our bank borrowings that are secured and guaranteed by our Controlling Shareholders and/or any of their respective close associates and associates will be released and replaced by a corporate guarantee provided by our Group upon [REDACTED]. Our Directors believe that we are able to maintain financial independence from our Controlling Shareholders and/or their respective close associates, associates and deemed connected persons after the [REDACTED]. Operational independence Our operations are independent of and not connected with any of our Controlling Shareholders and their respective close associates and/or associates. Despite the fact that we will continue to have non-exempt continuing connected transactions with each of S&F Enterprises, Shanghai Super Apparel, Shanghai Shenjie and Dr. Fan after [REDACTED], particulars of which are set out in the section headed Connected transactions in this document, our Directors consider that the operations of our Group do not rely on and can operate independently from our Controlling Shareholders or any of their respective close associates and/or associates since: (a) our operating subsidiaries have obtained all material licences that are necessary for their operations in their own names; (b) our senior management is independent from our Controlling Shareholders. For details, see the paragraph headed Independence of our Group Management independence in this section; (c) we have our own divisional and functional teams and facilities for each of our operating business segments, and each division has a clear delineation of duties and functions as determined by our Board to promote efficiency, effectiveness and quality in the development of our businesses; 147

4 (d) properties in close vicinity comparable to those which we have been leasing from S&F Enterprises, Shanghai Super Apparel, Shanghai Shenjie and Dr. Fan (details of which are set out in the section headed Connected transactions in this document) with similar rental are available in the market and the Tenancy Agreements that we entered into with the said entities/person(s) are on normal commercial terms and in the ordinary course of business of our Group; (e) we have not shared our operational resources, such as suppliers, customers, marketing sales and general administration resources with our Controlling Shareholders and/or their respective close associates and/or associates; (f) we have independent access to our suppliers and customers and none of our Controlling Shareholders and their respective close associates are suppliers or customers of our Group; and (g) our Company has established corporate governance procedures in safeguarding the interests of our Shareholders and preventing the Directors from furthering their own interests at the expense of our Group s interests. For details, see the paragraph headed Corporate governance measures in this section. Independence of major suppliers Our Directors confirm that none of our Controlling Shareholders, our Directors and their respective close associates have any relationship with or have any interests in the top five suppliers of our Group (other than the business contacts in the ordinary and usual course of business of our Group) during the Track Record Period. Independence of major customers Our Directors confirm that none of our Controlling Shareholders, our Directors and their respective close associates have any relationship with or have any interests in the top five customers of our Group (other than the business contacts in the ordinary and usual course of business of our Group) during the Track Record Period. Having considered the aforesaid factors, our Directors are satisfied that they are able to perform their roles in our Company independently, and our Directors are of the view that our Group is capable of managing our business independently from our Controlling Shareholders and their respective close associates. 148

5 INTERESTS OF CONTROLLING SHAREHOLDERS IN OTHER BUSINESS During the Track Record Period and up to the Latest Practicable Date, our Controlling Shareholders and their respective close associates were interested in the following companies and business (the Excluded Business ): 1. S&F Enterprises S&F Enterprises is a company incorporated in Hong Kong with limited liability on 11 January 1996 and is owned by Dr. Fan as to 80% and Ms. Xu as to 20%. Before commencement of the Track Record Period, the principal business of S&F Enterprises was trading of leather materials and products. It has ceased all its business operations since During the Track Record Period, S&F Enterprises was an investment holding company (save for certain minimal management, administrative services and sales support provided to us) holding (i) our PRC operating subsidiaries, namely Yancheng Zhuojie and Binhai Zhuojie; (ii) the excluded companies in the PRC, namely Shanghai Super Apparel, Shanghai Shenjie, Jiangsu Chengjie Property Company Limited* ( ) and Shanghai Longjingda Clothes Manufacturing Company Limited* ( ); and (iii) certain properties in Hong Kong which are leased to Global Development and Shanghai Fei Da (further details of which are set out in the section headed Connected transactions in this document). 2. Shanghai Super Apparel Shanghai Super Apparel is a company established in the PRC with limited liability on 22 May 2003 and is wholly owned by S&F Enterprises. The principal business of Shanghai Super Apparel was manufacturing, processing and trading of technical and functional outerwear. Subsequent to the business transfer as one of the Reorganisation steps as set out in the section headed History, Reorganisation and corporate structure in this document, where the principal business of Shanghai Super Apparel (including the transfer of all existing employees of Shanghai Super Apparel that are related to the garment business) and the assets and liabilities owned or held as security by Shanghai Super Apparel and utilised in its business (including but not limited to all machineries and equipment related to the garment business but except for the (i) Laogang Properties which our Group plans to phase out the use of it gradually and (ii) trademarks (which have been transferred to Andi Weite as part of the Reorganisation)) were transferred to Shanghai Gaojie, Shanghai Super Apparel became an investment holding company primarily holding the Laogang Properties where part of it is leased to Shanghai Gaojie. For further details, please refer to the section headed Connected transactions in this document. 3. Shanghai Shenjie Shanghai Shenjie is a company established in the PRC with limited liability on 14 August 2003 and is wholly owned by S&F Enterprises. Prior to July 2018, the principal business of Shanghai Shenjie was manufacturing of footwear, leather materials and products and leasing of the Caojing Properties to Shanghai Gaojie. It ceased all business in manufacturing thereafter, and merely engaged in the leasing of the Caojing Properties as at the Latest Practicable Date. For further details, please refer to the section headed Connected transactions in this document. 149

6 4. Jiangsu Chengjie Property Company Limited* ( ) ( Jiangsu Chengjie ) Jiangsu Chengjie is a company established in the PRC with limited liability on 8 February 2010 and was owned as to 50% by Shanghai Shenjie where the remaining 50% was held by an Independent Third Party as at the Latest Practicable Date. During the Track Record Period and as at the Latest Practicable Date, it had no business operation and was an investment holding company holding certain real properties in the PRC. 5. Shanghai Longjingda Clothes Manufacturing Company Limited* ( ) ( Shanghai Longjingda ) Shanghai Longjingda is a company established in the PRC with limited liability on 23 June 1998 and was owned as to 60% by S&F Enterprises where the remaining 40% was held by Independent Third Parties as at the Latest Practicable Date. Prior to 2008, its principal business was manufacturing and trading of garments. Since 2008, it ceased all such business activities and has been principally engaging in the business of properties leasing. Our Directors consider that there is a clear delineation of our businesses compared with the Excluded Business for the following reasons: Name of company Reason(s) for exclusion S&F Enterprises It has ceased all businesses since 2015 and has been an investment holding company during the Track Record Period and up to the Latest Practicable Date. Upon completion of the Reorganisation, all of its PRC subsidiaries that engage in our core business had been transferred (either by way of share or equity transfer or business transfer) to our Group and the business of its remaining PRC subsidiaries (namely Shanghai Super Apparel, Shanghai Shenjie, Jiangsu Chengjie and Shanghai Longjingda, the reasons for exclusion from our Group of which are set out in this section below) are unrelated to, and not in competition (directly or indirectly) with, the core business of our Group. During the Track Record Period, Global Development and Shanghai Fei Da leased certain properties in Hong Kong primarily for office use from S&F Enterprises and our Group intends to continue leasing these properties from S&F Enterprises upon [REDACTED]. Such transactions will constitute continuing connected transactions for our Company under the GEM Listing Rules upon [REDACTED]. Please refer to the section headed Connected transactions in this document for details. 150

7 Name of company Shanghai Super Apparel Reason(s) for exclusion Upon completion of the transfer of all its trademarks to Andi Weite and transfer of its principal business to Shanghai Gaojie as part of the Reorganisation (details of which are set out in the section headed History, Reorganisation and corporate structure Reorganisation ), Shanghai Super Apparel ceased to engage in any business activities and became an investment holding company holding the Laogang Properties. Part of the Laogang Properties were used by Shanghai Super Apparel as one of our Group s production facilities in the PRC during the Track Record Period. The following sets out the reasons for us to diminish our operations in the production facility in Laogang Properties and to shift our operations by phase to our other existing production facilities in Yancheng and Binhai as well as the new production facility to be built in Hekou, Yunnan: (i) the labour costs in Shanghai have been increasing in recent years, and hence phasing out our operation in Laogang Properties and relocating the same to Hekou, Yunnan could lower our direct production costs; (ii) pursuant to the Policy on the Compensation for Relocation due to Land Reduction in Laogang town, Pudong New District ( ) adopted by the Leading Group for Land Reduction in Laogang Town, Pudong New District, Shanghai City ( ) in 2015, it is encouraged to reduce the use of land in Laogang Town, Pudong New District as a matter of urban planning and certain policies have been formulated to compensate the occupiers of the land should they be required for relocation. In view of this, our Group anticipates there is a possibility that we might be required to relocate our production facility in Laogang to elsewhere by the local government in the foreseeable future; and 151

8 Name of company Reason(s) for exclusion (iii) we have entered into an investment agreement with Hekou Cross-border Economic Cooperation Zone Management Committee ( ) in the PRC and we intended to set up a new production facility in Hekou, Yunnan, the PRC with the support of the local governmental authority in Yunnan (further details of which are set out in the section headed Business Production expansion plan in this document). Upon completion of the Reorganisation, our Group intends to continue leasing the Laogang Leased Premises (being part of the Laogang Properties only) from Shanghai Super Apparel to ensure our smooth operations during the transition period. We have been gradually scaling down the use of the Laogang Properties and have as at the Latest Practicable Date closed one production line in the Laogang Properties. Such tenancy entered into by our Group with Shanghai Super Apparel will constitute continuing connected transactions of our Company under the GEM Listing Rules. Please refer to the section headed Connected transactions in this document for further details. We also intend to shift the remaining productions in the Laogang Leased Premises to our new production facility in Hekou, Yunnan upon completion of its construction. It is expected that all of our Group s operations in the Laogang Properties will cease completely in or around 2022, upon which we will not lease or use any part of the Laogang Properties. Shanghai Shenjie It has ceased all manufacturing business since July 2018 and merely engaged in the leasing of the Caojing Properties as at the Latest Practicable Date. As such, it is unrelated to the core business of our Group. During the Track Record Period, our Group, via Shanghai Super Apparel, leased certain parts of the property of Shanghai Shenjie in Caojing Town, Jinshan District, Shanghai, the PRC for industrial use to cope with our production need. As the utilisation rates of our existing production facilities have been high and might not be able to support our continual growth and it is expected that our new Yunnan production facility will only commence operating in 2019, we intend to continue using the Caojing Properties by way of leasing upon [REDACTED]. 152

9 Name of company Reason(s) for exclusion After [REDACTED], the leasing of the Caojing Properties by our Group from Shanghai Shenjie will constitute continuing connected transactions for our Company under the GEM Listing Rules. Please refer to the section headed Connected transactions in this document for details. Jiangsu Chengjie Shanghai Longjingda It had no business operation and was an investment holding company holding real properties in the PRC during the Track Record Period and as at the Latest Practicable Date, and hence is unrelated to the core business of our Group. It was principally engaged in the business of properties leasing during the Track Record Period and up to the Latest Practicable Date, and hence is unrelated to the core business of our Group. Accordingly, our Directors believe that the Excluded Business are not related to the core business of our Group and there is no competition between our Group s core business and the Excluded Business, and as such our Directors believe that it is not in the best interests of our Company and our Shareholders to include any of the Excluded Business into our Group. RULE OF THE GEM LISTING RULES Each of our Controlling Shareholders, our Directors, our substantial Shareholders and their respective close associates do not have any interest in a business (including the Excluded Business) apart from our Group s business which competes and is likely to compete, directly or indirectly, with our Group s business and would require disclosure under Rule of the GEM Listing Rules. To ensure that competition will not exist in the future, our Controlling Shareholders [have entered] into a Deed of Non-Competition with us to the effect that each of them will not, and will procure each of their respective close associates not to, directly or indirectly participate in, or hold any right or interest or otherwise be involved in any business which may be in competition with our businesses. Please refer to the paragraph headed Non-competition undertaking in this section below for details. NON-COMPETITION UNDERTAKING Dr. Fan, Ms. Xu and GDH Group (each the Obligor and collectively the Obligors ) entered into a Deed of Non-Competition dated [ ] in favour of our Company (for itself and as trustee for our subsidiaries). Pursuant to the Deed of Non-Competition, each of the Obligors has irrevocably and unconditionally undertaken to our Company (for itself and for the benefit of our subsidiaries) that, save and except as disclosed in this document, during the period that the Deed of Non-Competition remains effective, he/she/it shall not, and shall procure that his/her/its close associates (other than any member of our Group) not to carry on or be engaged, concerned or interested, or otherwise be involved, directly or indirectly, in any business in competition with or likely to be in competition with the existing business of any member of our Group and any business of our Group may engage in from time to time within Hong Kong and such other parts of the world where any member of our Group 153

10 may operate from time to time, save for the holding of not more than 5% shareholding interests (individually or with his/her/its close associates) in any company listed on a recognised stock exchange and at any time the relevant listed company shall have at least one shareholder (individually or with his/her/its close associates, if applicable) whose shareholding interests in the relevant listed company is higher than that of the relevant Obligor (individually or with his/her/its close associates). Each of the Obligors further undertakes that if he/she/it or his/her/its close associates other than any member of our Group is offered or becomes aware of any business opportunity which may compete with the business of our Group, he/she/it shall procure that his/her/its close associates to promptly notify our Group in writing and our Group shall have a right of first refusal to take up such opportunity. Our Group shall, within 30 days after receipt of the written notice (or such longer period if our Group is required to complete any approval procedures as set out under the GEM Listing Rules from time to time), notify the Obligor(s) whether our Group will exercise the right of first refusal. Our Group shall only exercise the right of first refusal upon the approval of all independent non-executive Directors who do not have any interest in such opportunity. The relevant Obligor(s) and the other conflicting Directors (if any) shall abstain from participating in and voting at and shall not be counted as quorum at all meetings of the Board where there is a conflict of interest or potential conflict of interest including but not limited to the relevant meeting of our independent non-executive Directors for considering whether or not to exercise the right of first refusal. Our Company will adopt the following procedures to monitor that the Deed of Non-Competition is being observed: (a) our independent non-executive Directors shall review on an annual basis the above undertakings from the Obligors and to evaluate the effective implementation of the Deed of Non-Competition; (b) each of the Obligors undertakes to provide any information as is reasonably required by our Group or our independent non-executive Directors, as a basis to decide whether to exercise the right of first refusal by our Company from time to time; and (c) each of the Obligors undertakes to provide all information necessary for the annual review by our independent non-executive Directors and the enforcement of the Deed of Non-Competition, and to provide an annual confirmation on the compliance of the non-competition undertaking for inclusion in the annual report of our Company. The undertakings contained in the Deed of Non-Competition are conditional upon [REDACTED] granting approval for the [REDACTED] of and permission to deal in the Shares on the Stock Exchange and all conditions precedent under the [REDACTED] having been fulfilled (or where applicable, waived) and the [REDACTED] not having been terminated in accordance with its terms. If any such condition is not fulfilled on or before the date specified in the [REDACTED] (unless such conditions are waived on or before such date) or in any event on or before the date falling 30 days after the date of this document, the Deed of Non-Competition shall lapse and cease to have any effect whatsoever and no party shall have any claim against the other under the Deed of Non-Competition. 154

11 The Deed of Non-Competition shall terminate on the date on which (i) in relation to any Obligors, when he/she/it together with his/her/its close associates, whether individually or taken together, ceases to be interested in 30% (or such other amount as may from time to time be specified in the GEM Listing Rules as being the threshold for determining a controlling shareholder of a company) or more of the entire issued share capital of our Company provided that the Deed of Non-Competition shall continue to be in full force and effect as against the other Obligors; or (ii) our Shares cease to be listed and traded on the Stock Exchange (except for temporary trading halt or suspension of trading of the Shares on the Stock Exchange due to any reason). As our Controlling Shareholders have given non-competition undertakings in favour of our Company, and other than members of our Group, none of them have interests in other businesses that compete or are likely to compete with the business of our Group, our Directors are of the view that we are capable of carrying on our business independently of our Controlling Shareholders following the [REDACTED]. CORPORATE GOVERNANCE MEASURES Our Company will adopt the following measures to strengthen its corporate governance practice and to safeguard the interests of the Shareholders: (a) the Articles provide that a Director shall not be counted in the quorum or vote on any resolution of the Board approving any contract or arrangement or other proposal in which he/she or any of his/her close associates is materially interested; (b) our independent non-executive Directors will review, on an annual basis, the compliance with the Deed of Non-Competition by our Controlling Shareholders; (c) our Controlling Shareholders undertake 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; (d) our Company will disclose decisions on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-Competition of our Controlling Shareholders in the annual reports of our Company; (e) our Controlling Shareholders will make an annual declaration on compliance with the Deed of Non-Competition in the annual report of our Company; (f) our Company has appointed Cinda International Capital Limited as the compliance adviser which shall provide our Company with professional advice and guidance in respect of compliance with the GEM Listing Rules and applicable laws; 155

12 (g) our independent non-executive Directors will be responsible for deciding whether or not to allow any Controlling Shareholder and/or his/her/its close associates to involve or participate in any business in competition with or likely to be in competition with the existing business activity of any member of our Group within Hong Kong and the PRC and such other parts of the world where any member of our Group may operate from time to time and if so, any condition to be imposed; and (h) our independent non-executive Directors may appoint independent financial adviser and other professional advisers as they consider appropriate to advise them on any matter relating to the Deed of Non-Competition or connected transaction(s) at the cost of our Company. Further, any transaction that is proposed between our Group and/or our Controlling Shareholders and their respective close associates will be required to comply with the requirements of the GEM Listing Rules, including, where appropriate, the reporting, annual review, announcement and independent shareholders approval requirements. With the corporate governance measures including the measures set out above in this paragraph, our Directors believe that the interest of our Shareholders will be protected. 156