SANDMARTIN INTERNATIONAL HOLDINGS LIMITED 
By 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.
FORMATION OF A JOINT VENTURE COMPANY, MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF A COMPANY AND MAJOR DEEMED DISPOSAL OF A SUBSIDIARY
The Board is pleased to announce that after trading hours on 2 December 2013, the Company and Whayu entered into the JV Agreement pursuant to which the parties agreed to establish the JV Company as an investment holding company for two companies whose principal businesses are to design, manufacture and distribute satellite television antenna, low noise block and accessories.
Pursuant to the terms of the JV Agreement, the Company will contribute PBI and Whayu will contribute SKS into the JV Company.
As the JV Company will only have minimal capital at the time of its establishment, the formation of the JV Company will not constitute a notifiable transaction for the Company. The contribution by the Company of PBI to the JV Company constitutes a deemed disposal of a subsidiary by the Company and the JV Company receiving SKS from Whayu as its contribution to the JV Company constitutes an acquisition by the JV Company under Chapter
14 of the Listing Rules.
As one of the applicable percentage ratios for the acquisition of SKS exceeded 25% but are less than 100%, the acquisition of SKS constitutes a major transaction for the Company, and the injection of PBI into the JV Company constitutes a major deemed disposal of a subsidiary for the Company under Rule 14.29 of the Listing Rules. The Transactions are subject to the reporting, announcement and Shareholders' approval requirements as set out in the Listing Rules.
A circular containing, among other things, details of the Transactions and the notice of convening the SGM to approve the Transactions, will be dispatched to the Shareholders on or before 31 December 2013.
The Board is pleased to announce that the Company and Whayu have entered into the JV Agreement on 2 December 2013, pursuant to which the JV Partners will establish the JV Company as an investment holding company to hold the 100% equity interests of SKS and PBI (wholly-owned subsidiaries of Whayu and the Company respectively).
After the establishment of the JV Company, each of the Company and Whayu will subscribe for shares in the JV Company (the "Subscription") by the injection of their respective 100% equity interest in PBI and SKS. It is expected that the JV Company will be majority owned by the Company and upon completion of the formation of the JV Company and the Subscription, the JV Company will be a non-wholly owned subsidiary of the Company; and PBI and SKS will become wholly owned subsidiaries of the JV Company and indirect non- wholly owned subsidiaries of the Company. PBI will continue to be accounted for as a subsidiary of the Company.
As at the date of this announcement, PBI is legally and beneficially owned as to 100% by the Company and SKS is legally and beneficially owned as to 100% by Whayu. To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, SKS and Whayu are independent of and not connected with the Company and its connected persons.
PRINCIPAL TERMS OF THE JV AGREEMENTDate: 2 December 2013
Parties: the Company; and
Whayu
Scope of businessThe JV Company and its subsidiaries will engage in the design, development, production and distribution of satellite low noise blocks ("LNB") and related equipment and accessories.
Capital structure and injection of SKS and PBI into the JV Company
(1) The capital structure of the JV Company will be determined and agreed by the JV Partners after the formation of the JV Company. The share capital of the JV Company will consist of ordinary shares and preferred shares to be subscribed for by the JV Partners, with the preferred shares to be subscribed by Whayu;
(2) The rights and obligations of the preferred shares of the JV Company will be set out in the articles of association of the JV Company and the preferred shares subscription agreement to be entered into between the JV Company and Whayu, including but limited to the dividend right, redemption right and conversion right to the preferred shares of the JV Company. Each of the preferred shares can convert into one ordinary share of the JV Company and the preferred shares will be matured on 30 June 2015. The preferred shares will provide the flexibility to Whayu for its investment in the JV Company;
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(3) The Company will contribute its 100% equity interest in PBI as its investment in the JV Company, while Whayu will contribute its 100% equity interest in SKS as its investment in the JV Company;
(4) For the purpose of injection of PBI by the Company into the JV Company as mentioned in (3) above, the basis of valuation of PBI will be based on the net asset value of PBI as at
31 October 2013, plus a premium of NT$300 million (approximately HK$79.2 million), which represents the intangible assets and goodwill arising from the acquisition of PBI by the Company in March 2013;
(5) For the purpose of injection of SKS by Whayu into the JV Company as mentioned in (3)
above, the basis of valuation of SKS will be based on the net asset value of SKS as at 31
October 2013, plus a premium of NT$41 million (approximately HK$10.82 million) and the past due trade receivables of NT$42 million (approximately HK$11.09 million) in the books of SKS ("Pending Trade Receivables"), and deduct the intangible assets adjusted item of NT$1.38 million (approximately HK$356,000) in the books of SKS. In case the Pending Trade Receivables cannot be recovered by SKS on or before 31 December 2014, Whayu will compensate the unrecovered amount to the Company based on the Company's equity interest in the JV Company and the remaining unrecovered amount of Pending Trade Receivables, or to compensate the unrecovered amount to the JV Company at the Company's discretion;
(6) Before the injection of SKS by Whayu into the JV Company, Whayu will through capital reduction of SKS, receive a consideration of NT$60 million (approximately HK$15.84 million). Besides, the Company will assist the JV Company to apply for a bridge loan from bank solely for the redemption of the preferred shares of the JV Company to be held by Whayu;
(7) If the net asset value of SKS as at 31 October 2013 is lower than its net asset value as at
30 June 2013, but the amount is less than NT$4 million, under this situation, the JV Partners will agree that the net asset value of SKS as at 30 June 2013 will form the basis of the percentage of contribution by Whayu to the JV Company; and
(8) In the employment agreements to be entered into between the JV Company and its employees, the employment agreements may include the granting of share options of the JV Company to the employees, subject to the subscription amount shall not exceed NT$125 million (approximately HK$33 million). The Company will comply with the requirements of the Listing Rules when the JV Company adopts a share option scheme.
The board of directors of the JV Company will comprise seven directors, five of whom will be nominated by the Company and two of them by Whayu. The board of directors of the JV Company will be responsible for the management and operation of the JV Company.
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MAJOR TRASACTIONS IN RELATION TO THE INJECTION OF SKS AND PBI INTO THE JV COMPANY Deemed disposalUpon the establishment of the JV Company, each of the Company and Whayu will subscribe for shares in the JV Company by the injection of their respective 100% equity interest in PBI and SKS. It is expected that the JV Company will be majority owned by the Company and upon completion of the formation of the JV Company and the Subscription, the JV Company will be a non-wholly owned subsidiary of the Company; and PBI and SKS will become wholly owned subsidiaries of the JV Company and indirect non-wholly owned subsidiaries of the Company. PBI will change from a wholly owned subsidiary of the Company to a non- wholly owned subsidiary of the Company upon completion of its injection into the JV Company. Therefore, the injection of PBI into the JV Company constitutes a deemed disposal of a subsidiary by the Company under Rule 14.29 of the Listing Rules.
Acquisition
Whayu will inject SKS into the JV Company. As the JV Company will be majority owned by the Company, the injection of SKS into the JV Company will constitute an acquisition by the Company.
Upon completion of the Transactions, the JV Company will be a holding company for the
100% equity interests in SKS and PBI, respectively, which are engaging in the manufacturing and distribution of advanced antennas and LNB related equipment for satellite Pay TV operators. Upon Completion, the JV Company will become a non-wholly owned subsidiary of the Company; and PBI and SKS, will become indirect non wholly-owned subsidiaries of the Company.
The JV Company will be established based on minimal capital requirement and will not constitute a notifiable transaction for the Company. The Consideration for the Company to obtain the majority shareholding of the JV Company will be by the injection of PBI into the JV Company. The Consideration of PBI is determined by the net asset value of PBI as at 31
October 2013 plus a premium of NT$300 million (approximately HK$79.2 million), being the intangible assets and goodwill arising from the acquisition of PBI by the Company in March 2013. The Consideration of SKS is determined by the net asset value of SKS as at 31
October 2013, plus a premium of NT$41 million (approximately HK$10.82 million) and the Pending Trade Receivables of NT$42 million (approximately HK$11.09 million) in the books of SKS, deduct the intangible assets adjusted item of NT$1.38 million (approximately HK$356,000) in the books of SKS and after the capital reduction of NT$60 million (approximately HK$15.84 million).
The Consideration for the Proposed Transactions was determined after arm's length negotiations between the parties with reference to net asset value of SKS and PBI as at 31
October 2013 plus their respective premiums as mentioned above. Based on the preliminary net asset values of PBI (US$4,715,000, approximately HK$36,555,000) and SKS (NT$254,603,000, approximately HK$67,215,000) as at 31 October 2013, the estimated considerations of PBI and SKS were HK$115,755,000 and HK$72,825,000 respectively.
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Conditions precedent
Completion of the Transactions is subject to, among others, the following conditions having been fulfilled within three months from the date of the JV Agreement:
(1) the entering into of the share subscription agreements between the JV Company and the
Company and between the JV Company and Whayu (including preferred shares); (2) the execution of new employment agreements with employees of the JV Company;
(3) the granting of share options to the employees of the JV Company and its subsidiaries;
and
(4) the entering into a shareholders' agreement of the JV Company between the JV Company, Whayu and the Company.
Closing will take place on the Closing Date, which shall be within four months from the date of the JV Agreement on which (1) the capital reduction of SKS of NT$60 million be completed; (2) the 100% equity interest of PBI be transferred to the JV Company; and (3) the
100% equity interest of SKS be transferred to the JV Company.
SKS was founded in 2003 and was incorporated in Taiwan. SKS became a wholly-owned subsidiary of Whayu in 2011. The principal activity of SKS is in the design and the manufacturing of LNB products and a variety of multi-purpose compound switch products. Its factory is located in Dongguan, PRC.
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Financial Information of SKS
Set out below is the unaudited financial information of SKS for the years ended 31 December
2011 and 2012 respectively and the six months ended 30 June 2013 which were prepared in accordance with the General Acceptable Accounting Principles in the Republic of China.
NT$'000 | NT$'000 | NT$'000 | |
Revenue | 1,318,906 | 966,920 | 382,499 |
Gross profit | 114,712 | 189,612 | 45,361 |
Profit (loss) before tax | 49,871 | 73,018 | (75,242) |
Profit (loss) after tax | 39,073 | 66,066 | (78,473) |
As at 30 June 2013, the net asset value of SKS was NT$270,909,000 (approximately
HK$71,520,000).
PBI was founded in 1983 and is headquartered in Atlanta, United States. It offers original equipment manufacturer ("OEM"), original design manufacturer ("ODM") and joint development manufacturer ("JDM") for both satellite television and wireless communication products, and is capable of providing complete radiofrequency ("RF") antenna design, mechanical and hardware design, extensive quality assurance product testing, manufacturing and delivery logistics. Based on the management account of PBI as at 31 October 2013 prepared in accordance with generally accepted accounting principles in the United States, the unaudited net asset value of PBI was US$4,715,000. (approximately HK$36,555,000). Following the acquisition of PBI by the Company in March 2013, PBI is currently the wholly owned subsidiary of the Company as at the date of this announcement.
REASONS FOR AND THE BENEFITS OF THE PROPOSED FORMATION OF THE JV COMPANYThe formation of JV Company is a strategic alliance between Whayu and the Company. With the efficient production facilities of SKS in the PRC and the long established distribution channels and customers' base of PBI in North America and Latin America, the proposed formation of the JV Company will build up an efficient supply chain that covers the design, manufacture and distribution of LNB products and other equipment to meet different customer demands for high-end satellite television and LNB products.
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Following the successful integration of SKS and PBI, it is expected that the profit margin of both companies will be improved and this will equip both companies with the advance technologies capable of developing the next generation products in satellite television receiving system and LNB products.
The Directors consider that the terms and conditions of the Transactions, including the basis of determining Consideration, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.
As one of the applicable percentage ratios under the Listing Rules exceeded 25% but are less than 100%, the acquisition of SKS by the JV Company constitutes a major acquisition of the Company. For the deemed disposal of PBI, the revenue ratio is over 25% but less than 75% and therefore it should be classified as a major deemed disposal of the Company. Therefore, they are subject to reporting, announcement and Shareholders' approval requirements as set out in the Listing Rules.
GENERAL
SGM will be held to consider, and if thought fit, pass the requisite resolutions to approve the formation of the JV Company, acquisition of SKS and deemed disposal of PBI by the Company.
A circular containing, among other things, details of the Proposed Transactions and the notice of convening SGM, will be dispatched to the Shareholders. As the Company expects that it will need time to prepare the financial information to be included in the circular, it is expected that the circular will be dispatched to the Shareholders on or before 31 December
2013.
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DEFINITIONSIn this announcement, unless the context otherwise requires, the following terms have the meaning set opposite to them below:
"Board" the board of Directors;
"Company" Sandmartin International Holdings 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(s)" has the meaning ascribed to it in the Listing Rules; "Director(s)" director(s) of the Company;
"Group" the Company and its subsidiaries;
"HK$" Hong Kong dollar, the lawful currency of Hong Kong;
"Hong Kong" the Hong Kong Special Administrative Region of the
People's Republic of China;
"JV Agreement" A joint venture agreement that was entered into between
Whayu and the Company;
"JV Company" a joint venture company to be established by the Company and Whayu;
"JV Partners" the Company and Whayu;
"Listing Rules" the Rules Governing the Listing of Securities on the Stock
Exchange;
"NT$" New Taiwan dollar, the lawful currency of Taiwan
"PBI" Pro Brand International Inc., a company incorporated in the State of Georgia, the United States of America with limited liability, including its subsidiary in the United Kingdom, which is wholly owned by the Company as at the date of this announcement;
"PRC" the People's Republic of China;
"Shareholder(s)" holder(s) of ordinary share(s) having a par value of HK$0.10 each in the share capital of the Company;
"SGM" the special general meeting of the Company to be held to approve the Transactions;
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"SKS" Skstecks Inc., a company incorporated in Taiwan with limited liability, including its subsidiaries in the PRC;
"Stock Exchange" The Stock Exchange of Hong Kong Limited; "Taiwan" the Republic of China;
"Transactions" the formation of the JV Company, the acquisition of SKS and the deemed disposal of PBI by the Company;
"USD" United States Dollar, the lawful currency of the United States of America;
"Whayu" Wha Yu Industrial Co., Ltd., a company incorporated in Taiwan with limited liability, the shares of which are listed on the Taiwan Stock Exchange (Taiwan Stock code: 3419); and
"%" per cent.
In this announcement, amounts in the New Taiwan Dollars and United States Dollars have been converted into Hong Kong Dollars at the rate of NT$1.00 = HK$0.264 and US$1.00 = HK$7.753 for illustration purpose, unless otherwise stated. No representation is made that any amounts in NT$, US$ or HK$ could have been or could be converted at that rate or other rate or at all.
By Order of the Board Sandmartin International Holdings Limited Hung Tsung Chin
Chairman
Hong Kong, 2 December 2013
As at the date of this announcement, the executive directors are Mr. Hung Tsung Chin, Ms. Chen Mei Huei, Mr. Liao Wen I, Mr. Frank Karl-Heinz Fischer, Mr. Mu Yean Tung and Mr. Shou Philip Ming Yung; the independent non-executive directors are Mr. Hsu Chun Yi, Mr. Lee Chien Kuo and Mr. Han Chien Shan.
* For identification purpose only
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