Huanxi Media : ANNOUNCEMENT FRAMEWORK AGREEMENT IN RESPECT OF PROPOSED STRATEGIC COOPERATION BETWEEN GRACEFUL, A SUBSIDIARY OF HUANXI, AND MUBI (in PDF)

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ANNOUNCEMENT FRAMEWORK AGREEMENT IN RESPECT OF PROPOSED STRATEGIC COOPERATION BETWEEN GRACEFUL, A SUBSIDIARY OF HUANXI, AND MUBI

This announcement is made by Huanxi pursuant to Rule 13.09(2) of the Listing Rules and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

On 13 January 2016, Graceful, an indirect wholly-owned subsidiary of Huanxi, entered into a Framework Agreement with MUBI in relation to a strategic cooperation to be implemented through a series of transactions, including Graceful's (and/or its designated affiliate(s)'s) proposed strategic investment in, and joint venture with, MUBI.

Subject to the terms and conditions of the Framework Agreement, Graceful (and/or its designated affiliate(s)) will (1) make a US$10,000,000 strategic investment in MUBI by subscribing for new stock in MUBI representing 8% of the issued capital stock of MUBI; and (2) establish a joint venture with MUBI in connection with the provision of online video services including the acquisition of rights to, and distribution online of, movies and videos (through cooperation with one or more licensed platform operators) to consumers in the Greater China market which will involve (a) the contribution by Graceful of US$40,000,000 cash to the Joint Venture Entity for 70% of the issued share capital of the Joint Venture Entity; (b) the contribution by MUBI by way of license of its intellectual property into the Joint Venture Entity, for 30% of the issued share capital of the Joint Venture Entity, and (c) the provision of certain technical and operational services by MUBI to the Joint Venture Entity. A share option plan as an incentive program for the management team of the Joint Venture Entity will be established after the Closing based on mutual agreement between the parties.

* for identification purpose only

Shareholders and potential investors of Huanxi should be aware that the Proposed Transactions are subject to the satisfaction of various conditions precedent, and also to the parties agreeing on the terms of, and entering into, final Definitive Transaction Documents. There is no assurance that the Proposed Transactions will proceed or complete. The Proposed Transactions, if they should proceed and Definitive Transaction Documents are entered into, may constitute notifiable transaction(s) for Huanxi under Chapter 14 of the Listing Rules. Huanxi will comply with the disclosure and/or shareholder's approval requirements of the Listing Rules as applicable. Further announcement(s) will be made by Huanxi in accordance with the Listing Rules as and when appropriate. Shareholders and potential investors of Huanxi should therefore exercise caution when dealing in the shares of Huanxi.

This announcement is made by Huanxi pursuant to Rule 13.09(2) of the Listing Rules and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

FRAMEWORK AGREEMENT

On 13 January 2016, Graceful entered into a Framework Agreement with MUBI in relation to a strategic cooperation to be implemented through a series of transactions, including Graceful's (and/or its designated affiliate(s)'s) proposed strategic investment in, and joint venture with, MUBI as further detailed below.

Subject to the terms and conditions set forth in the Framework Agreement, Graceful (and/or its designated affiliate(s)) will (1) make a US$10,000,000 strategic investment in MUBI by the subscription of new stocks in MUBI representing 8% of the issued capital stock of MUBI (the "Strategic Investment"); and (2) establish a joint venture with MUBI in connection with the provision of online video services including the acquisition of rights to, and distribution online of, movies and videos (through cooperation with one or more licensed platform operators) to consumers in the Greater China market (the "Joint Venture") which will involve (a) the contribution by Graceful of US$40,000,000 cash to the Joint Venture Entity for 70% of the issued share capital of the Joint Venture Entity; (b) the contribution by MUBI by way of license of its intellectual property into the Joint Venture Entity, for 30% of the issued share capital of the Joint Venture Entity, and (c) the provision of certain technical and operational services by MUBI to the Joint Venture Entity. A share option plan as an incentive program for the management team of the Joint Venture Entity will be established after the Closing based on mutual agreement between the parties.

Set out below are the principal terms of the Framework Agreement.

Proposed Strategic Investment Documents

To effect the Strategic Investment, subject to the parties agreeing on the terms of the Strategic Investment Documents, each of Graceful and MUBI have agreed to enter into the Strategic Investment Documents when such documents have been agreed and finalized.

Proposed Joint Venture Documents

To effect the Joint Venture, subject to the parties agreeing on the terms of the Joint Venture Documents, each of Graceful and MUBI (and if applicable, their relevant affiliate(s)) have agreed to enter into the Joint Venture Documents when such documents have been agreed and finalized.

Proposed Joint Venture - Further Details

The Joint Venture Documents will include a shareholders' agreement to be agreed and entered into between Graceful and MUBI (and if applicable, their relevant affiliate(s)), which will provide for the following:

1. the Joint Venture Entity will have three board seats, with Graceful having two board seats and MUBI having one board seat;

   
   

2. the Joint Venture Entity will be structured to enable the Joint Venture Entity to be consolidated with Huanxi for accounting purposes;

   
   

3. the management team of the Joint Venture Entity will be appointed by Graceful in consultation with MUBI;

   
   

4. the Joint Venture Entity will be responsible for financing its business operation and expansion;

   
   

5. in the event of any future equity issuance by the Joint Venture Entity, MUBI's shareholding percentage will not be reduced below 10% unless the equity issuance meets certain specified valuation thresholds;

   
   

6. certain transfer restrictions for a period of three-year from the Closing Date in respect of MUBI's shareholding in the Joint Venture Entity; and

   
   

7. certain customary protective provisions for the minority shareholders of the Joint Venture Entity as may be agreed by the parties to the shareholders' agreement.

Due Diligence

Graceful is conducting a due diligence review of the assets, liabilities, business, operations and condition (financial, legal or otherwise) of MUBI, including a review of legal, financial, accounting, tax and regulatory matters.

Conditions Precedent

The Proposed Transactions will be subject to the satisfaction or waiver of certain closing conditions, including:

1. each of Graceful and MUBI having obtained the necessary corporate approvals to execute the Framework Agreement and the Definitive Transaction Documents;

   
   

2. Graceful being satisfied with the results of the due diligence on MUBI;

   
   

3. no governmental order or other laws, or legal restraint or prohibition, having been issued to prevent the consummation of the Proposed Transactions in any material respect;

   
   

4. each of the representations and warranties of Graceful and MUBI set forth in the Framework Agreement, and that will be contained in the Definitive Transaction Documents, being true and correct as of the Closing Date;

   
   

5. each of the Definitive Transaction Documents having been validly executed and being in full force and effect as of the Closing Date; and

   
   

6. MUBI having attended to certain specified organization-related matters including the appointment of the designee of Graceful to the board of directors of MUBI.

Longstop Date

The Framework Agreement may be terminated at any time prior to the Closing by either Graceful or MUBI, if the Closing shall not have occurred on or prior to the Longstop Date (which is 31 December 2016), provided that the Longstop Date shall be automatically extended by 60 days if all of the conditions precedent set forth above are satisfied as of 31 December 2016.

REASONS FOR, AND BENEFITS OF, THE PROPOSED TRANSACTIONS

MUBI operates a curated online video-on-demand platform available to subscribers on multiple devices and operating systems including from MUBI.com through PCs and Macs, as well as on Android and iOS mobile operating systems, Apple TV, PlayStation, Android TV, Amazon Fire TV and Chromecast. Established in 2007 and originally called "The Auteurs", the service currently focuses on international arthouse cinema. Headquartered in London, England, MUBI also has operations in San Francisco and New York, USA.