Shanghai Electric Group Company Limited (SEHK:2727) (SEG) entered into merger agreement to acquire an additional 40.5% stake in Shanghai Prime Machinery Company Limited (SEHK:2345) (SPM) from Zhou Zhiyan and other investors for HKD 1.1 billion on October 15, 2020. Under the terms of the transaction, SEG will acquire 698.9 million SPM H shares for HKD 1.6 per share (cancellation price) in cash. SEG shall, no later than seven business days after the satisfaction (or waiver, if applicable) of the conditions, pay the cancellation price to all SPM H shareholders. SEG will not increase the cancellation price and SEG does not reserve the right to do so. Zhou Zhiyan will sell 0.16 million SPM H shares and other investors will sell 698.75 million SPM H shares. SEG will assume all assets, liabilities, interests, businesses, employees, contracts and all other rights and obligations of SPM and SPM will be eventually deregistered and dissolved. The payment of the cancellation price will be financed by internal resources and/or external financing of the SEG Group. Shanghai Electric Hongkong Co. Limited, wholly owned subsidiary of SEG, as lender entered into a facility letter for HKD 1.16 billion bridge loan facility, having a term of nine months. SEG does not intend to introduce any major changes to the existing business of SPM (including any redeployment of fixed assets of SPM). Post transaction, SPM will be merged and absorbed into SEG, with the SEG as the surviving entity. SEG does not intend to make any significant changes to the continued employment of the employees of SPM Group. Following completion of the Merger, the employment contracts of all employees of SPM will continue with SEG as the surviving entity.

The transaction is subject to approval from the National Development and Reform Commission of the People's Republic of China, the Ministry of Commerce of the People's Republic of China, the State Administration of Foreign Exchange of the People's Republic of China, or their respective local authorities or authorized entities, other applicable governmental approvals, passing of special resolution(s) by a majority of not less than two-thirds of the votes cast by way of poll by the SPM shareholders, approval by SPM H Shareholders with at least 75% of votes, approval by independent SEG Shareholders, State-owned Assets Supervision and Administration Commission of the State Council of People's Republic of China. On October 15, 2020, the transaction was approved by the Board of Directors of SPM. The SPM Board has established the Independent Board Committee consisting of the Non-Executive Director of SPM being Dong Yeshun and all of the independent Non-Executive Directors of SPM, being Ling Hong, Chan Oi Fat and Sun Zechang to advise the independent SPM H shareholders. The SEG Board believes that the terms of the agreement are on normal commercial terms, fair and reasonable and in the interests of SEG and the shareholders of SEG as a whole. As of November 3, 2020, composite document will be dispatched from November 5, 2020 to not later than the date which is seven days following the satisfaction of pre conditions. As of November 25, 2020, the transaction was dually passed by the shareholders of Shanghai Electric Group. As of December 4, 2020, the pre-condition, being the filing, registration or approval, as applicable, with PRC government and/or regulatory authorities including without limitation (i) the National Development and Reform Commission of the PRC; (ii) the Ministry of Commerce of the PRC and (iii) the State Administration of Foreign Exchange of the PRC, or their respective local authorities or authorized entities, and such other applicable governmental approvals has been fulfilled. The SPM board (excluding the members of Independent Board Committee) is of the view that the terms of the agreement are fair and reasonable and in the interests of SPM and the SPM Shareholders as a whole. Therefore, the SPM Board recommends that the SPM Shareholders vote in favour of the transaction. Somerley Capital Limited advised Independent Board Committee of SPM to recommend the independent SPM H shareholders to vote in favour of the transaction. The extra ordinary general meeting of shareholders of SPM and the SPM H Shareholders' meeting is to be held on January 11, 2021. As on January 11, 2021, SPM H Shareholders approved this transaction. As on January 20, 2021, all of the Implementation Conditions under the Merger Agreement have been fulfilled and Merger has become unconditional. Shanghai Electric Group Company Limited and SPM have each notified their respective creditors and made a public announcement of the Merger creditors may request the Offeror and SPM to pay off their respective indebtedness or provide guarantees within 30 days after the receipt of notice by the creditors or 45 days after the issue of announcement to creditors. The long stop date for the transaction is June 3, 2021. BNP Paribas Securities (Asia) Limited acted as the financial advisor for SEG. Xiang, Tianning of Clifford Chance LLP (Beijing) and Clifford Chance, Hong Kong acted as legal advisor to Shanghai Electric Group Company Limited (SEHK:2727) in the transaction. Grandall acted as legal advisor in the transaction. Somerley Capital Limited acted as financial advisor to Independent Board Committee of SPM.