Scud : DISCLOSEABLE TRANSACTION FORMATION OF JOINT VENTURE

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SCUD GROUP LIMITED

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01399)

DISCLOSEABLE TRANSACTION

FORMATION OF JOINT VENTURE

JOINT VENTURE AGREEMENT

On 17 June 2019 (after trading hours), Prime Power (an indirect wholly-owned subsidiary of the Company) entered into the Joint Venture Agreement with Veken New Energy, Insight Technology and the JV Co, pursuant to which the JV Partners agreed to form a joint venture by subscribing for shares in the JV Co. and the JV Group shall engage primarily in the provision of mobile phone battery cell and power bank assembly service in India. Prime Power, Veken New Energy and Insight Technology will own 50%, 30% and 20% of the total issued share capital of the JV Co respectively immediately upon completion of the share subscription in full.

Under the Joint Venture Agreement, the JV Partners shall contribute in aggregate HK$50,000,000 in cash into the JV Co as the subscription price for shares in the JV Co in proportion to their proposed respective shareholdings. The subscription price of HK$25,000,000 payable by Prime Power will be funded by internal resources of the Group.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios in respect of the subscription price payable by Prime Power to the JV Co pursuant to the Joint Venture Agreement is more than 5% but less than 25%, the entering into of the Joint Venture Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

* For identification purpose only

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JOINT VENTURE AGREEMENT

On 17 June 2019 (after trading hours), Prime Power (an indirect wholly-owned subsidiary of the Company) entered into the Joint Venture Agreement with Veken New Energy, Insight Technology and the JV Co in connection with the formation of a joint venture.

A summary of the principal terms of the Joint Venture Agreement is set out as follows:

Date:	17 June 2019 (after trading hours)
Parties:	(i)	Prime Power
	(ii)	Veken New Energy
	(iii)	Insight Technology
	(iv)	The JV Co
Subject matter:	The JV Partners agreed to form a joint venture by subscribing for
	shares in the JV Co.
Business scope:	The JV Group shall engage primarily in the provision of mobile
	phone battery cell and power bank assembly service in India.

Prime Power and Veken New Energy shall develop and maintain well-known mobile phone brands as customers, arrange factory inspection by customers, introduce customer orders, inject essential skills and technologies for cell assembly as well as assist in obtaining required certifications and qualifications for the JV Group.

Insight Technology shall assist the JV Group in operating and managing assembly factory(ies) set up by the JV Group in India, including but not limited to formulating organizational structure of such factory(ies), recruitment, dealing with India customs and governmental authorities, accepting customer orders, cell assembly and shipping, and generally assist Prime Power and Veken New Energy in matters relating to operation and management of the assembly factory(ies), recruitment and dealing with local governmental authorities and developing the business of the JV Group.

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Ownership structure:	Prime Power,	Veken New Energy and	Insight Technology	shall
	subscribe for 3,000, 1,800 and 1,199 shares in the JV Co
	respectively upon payment of the first tranche of their respective
	subscription price to the JV Co as further particularised below.
	Insight Technology is an existing and the sole shareholder of the JV
	Co holding 1 share of the JV Co as at the date of this
	announcement.
	Prime Power, Veken New Energy and Insight Technology will own
	50%, 30% and 20% of the total issued share capital of the JV Co
	respectively immediately upon completion of the share subscription
	in full.
	In the event a shareholder of the JV Co proposes to sell any of its
	shareholding in the JV Co, the other shareholders of the JV Co
	shall have the first right to purchase such shares prior to any third
	party. If the other shareholders of the JV Co do not exercise such
	right and such shares are sold to any third party, such new
	shareholder of the JV Co shall agree to the bound by the Joint
	Venture Agreement.
Capital commitment:	The	JV Partners shall contribute in aggregate HK$50,000,000 in
	cash into the JV Co as the subscription price for shares in the JV
	Co in proportion to their proposed respective shareholdings and
	according to the following schedule:
	(i)	Within 30 days after the signing of the Joint Venture
		Agreement or such other date as the JV Partners may agree
		otherwise (subject to all approvals, permits, licenses and
		authorisations having been obtained (or waived, as the case
		may be) in relation to the subscription monies payable to the
		JV Co), Prime Power, Veken New Energy and Insight
		Technology shall pay to the	JV Co HK$9,000,000,
		HK$5,400,000 and HK$3,600,000 respectively, upon which
		the shares in the JV Co to be subscribed by the JV Partners
		shall be allotted and issued to the JV Partners;
	(ii)	Within 30 days after completion of the subscription of shares
		in the JV Co by the JV Partners and the appointment of the
		directors of the JV Co as further particularised below or such
		other date as the JV Partners may agree otherwise, Prime
		Power, Veken New Energy and Insight Technology shall pay
		to the	JV Co HK$6,000,000, HK$3,600,000	and
		HK$2,400,000 respectively; and

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(iii) On or before a date to be agreed by the JV Partners, Prime Power, Veken New Energy and Insight Technology shall pay to the JV Co HK$10,000,000, HK$6,000,000 and

	HK$4,000,000 respectively.
	The total subscription price of HK$25,000,000 payable by Prime
	Power will be funded by internal resources of the Group.
	The total subscription price payable by Veken New Energy and
	Insight Technology is HK$15,000,000 and HK$10,000,000
	respectively.
	The total subscription price of HK$50,000,000 was determined
	after arm's length negotiation between the JV Partners based on the
	estimated initial capital and cash requirements of the JV Co taking
	into account the currently expected amount of customers' orders
	and the currently expected production capacities of the assembly
	factory(ies) of the JV Group.
Composition of the board:	Every 20% of the total issued shares held by a shareholder of the
	JV Co shall entitle such shareholder to nominate one director of the
	JV Co, and a shareholder of the JV Co shall be entitled to nominate
	one additional director of the JV Co when the percentage of the
	total issued shares held by such shareholder equals to or exceeds
	50%. The directors of the JV Co nominated by the JV Partners shall
	be appointed upon payment of the first tranche of the JV Partners'
	respective subscription price to the JV Co.
	Accordingly, Prime Power is entitled to nominate three directors
	and each of Veken New Energy and Insight Technology is entitled
	to nominate one director of the JV Co. Prime Power is also entitled
	to nominate the chairman of the board of the JV Co who, in the
	event of an equality of votes at any meeting of the board of the JV
	Co, is entitled to a second or casting vote.
	The board of the JV Co shall consist of a maximum of five
	directors. The quorum for the board meeting of the JV Co shall be
	three, with at least one director nominated by each of Prime Power,
	Veken New Energy and Insight Technology respectively.

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REASONS FOR AND BENEFITS OF ENTERING INTO THE JOINT VENTURE AGREEMENT

Leveraging on the large population and in turn the huge potential for growth of the mobile phone market in India, many customers of the Group's ODM business have been developing their presence in the Indian mobile phone market in recent years. The Directors believe that the formation of the joint venture, which is expected to set up assembly factory(ies) in India to engage primarily in the provision of mobile phone battery cell and power bank assembly service in India, will align the Group's ODM business with the needs of its customers and strengthen the competitive edge of the Group's ODM business.

The Directors are of the view that the terms of the Joint Venture Agreement are fair and reasonable and the transactions contemplated thereunder are in the interests of the Company and the shareholders of the Company as a whole.

INFORMATION ON THE GROUP

The Group's principal business is its ODM business which mainly supplies lithium battery modules to manufacturers of well-known telecommunication brands at home and abroad. For more information, please visit the Group's website at www.scudgroup.com.

INFORMATION ON VEKEN NEW ENERGY

Veken New Energy is an indirect wholly-owned subsidiary of Veken, the shares of which are listed on the Shanghai Stock Exchange. Veken New Energy's principal business is the import and export trading of lithium battery and investment. To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Veken New Energy and the ultimate beneficial owner(s) of the substantial shareholder(s) (as defined under the Listing Rules) of Veken are third parties independent of the Company and its connected persons.

INFORMATION ON INSIGHT TECHNOLOGY

Insight Technology's principal business is investment holding. To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Insight Technology and its ultimate beneficial owner are third parties independent of the Company and its connected persons.

INFORMATION ON THE JV CO

JV Co is a company incorporated in the BVI with limited liability. JV Co has not engaged in any business and has been dormant since its incorporation. As at the date of this announcement, Insight Technology is the sole shareholder of the JV Co holding one share and the ultimate beneficial owner of Insight Technology is the sole director of the JV Co. To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, the JV Co and its ultimate beneficial owner are third parties independent of the Company and its connected persons.

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