Jiangsu Ding Xuan Contractual Arrangements

Collectively, the exclusive business cooperation agreement, the exclusive option agreement, the equity pledge agreement, the power of attorney and the consent letter of spouse, entered into among (i) 江蘇頤澤生物科技有限公司 (Jiangsu Yi Ze Biotechnology Company Limited#) (“Jiangsu Yi Ze”), a company established in the PRC, a wholly owned subsidiary of SCI Therapeutics Limited, a company incorporated in Hong Kong under limited liabilities, being owned as to (a) 80% by CRMI Medical Bio-Tech Limited, formerly known as Enlighten On Enterprise Limited, a company incorporated in the British Virgin Islands with limited liability, an indirect wholly owned subsidiary of the Company, and (b) 20% by Mr. Shi Yufang respectively as at the date of this report), (ii) 江蘇鼎鉉生物科技 有限公司 (Jiangsu Ding Xuan Biotechnology Company Limited#) (“Jiangsu Ding Xuan”), a limited liability company established in the PRC to engage in the business of providing services and equipment for human cell and stem cell related clinical applications in the PRC, including but not limited to the R&D on human stem cell technologies and equipment for human stem cell processing and for trading of its related equipment), the then (iii) registered shareholders of Jiangsu Ding Xuan and their spouses (if any).

Particulars and main business of the operating entity

At the date of this report, Jiangsu Ding Xuan is currently owned by Ms. Xu Jie as to 50% and Mr. Dai Lifeng as to 50% (hereinafter collectively referred to as the “Jiangsu Ding Xuan Shareholders”). Jiangsu Ding Xuan is controlled by the Group through Jiangsu Yi Ze by way of Jiangsu Ding Xuan Contractual Arrangements pursuant to which Jiangsu Yi Ze controls Jiangsu Ding Xuan.

Jiangsu Ding Xuan is established to engage in the business of providing services and equipment for human cell and stem cell related clinical applications in the PRC, including but not limited to the R&D on human stem cell technologies and equipment for human stem cell processing and for trading of its related equipment.

Major terms of the Jiangsu Ding Xuan Contractual Arrangements

  • Irrevocable power of attorney

    Parties:

    Jiangsu Ding Xuan Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the contracts under Jiangsu Ding Xuan Contractual Arrangements including their respective supplemental agreements (“Jiangsu Ding Xuan Main Obligations”) have been terminated or discharged in full.

    Main Subject:

    Jiangsu Ding Xuan Shareholders shall, among other things, irrevocably authorise Jiangsu Yi Ze and its respective successors to act on their behalf on all matters in relation to their equity interests in Jiangsu Ding Xuan, including attending shareholders’ meeting, signing minutes of shareholders’ meeting and shareholders’ resolutions, exercising their full shareholder’s rights under the articles of association of Jiangsu Ding Xuan and applicable PRC laws and regulations, including but not limited to shareholders’ voting right, appointment of the legal representative, director, supervisor and senior management of Jiangsu Ding Xuan, filing documents with the relevant governmental authorities or regulatory bodies, acquisition and disposition of the equity interest of Jiangsu Ding Xuan held by Jiangsu Ding Xuan Shareholders or making decision on the liquidation of Jiangsu Ding Xuan and the formulation of the profit sharing plans of Jiangsu Ding Xuan, provided that the exercise of the power(s) of attorney shall not cause breach to the Jiangsu Ding Xuan Contractual Arrangements.

  • Exclusive business cooperation agreement

    Parties:

    (i) Jiangsu Yi Ze
    (ii) Jiangsu Ding Xuan

    Terms:

    The exclusive business cooperation agreement commences from 1 August 2016 and is effective perpetually, unless otherwise terminated in accordance with its terms.

    Main Subject:

    Jiangsu Ding Xuan should appoint Jiangsu Yi Ze as exclusive service provider for its business operations, including but not limited to, technical R&D, technical support, technical consultation, technical training and other management and corporate consultation services.

  • Exclusive option agreement

    Parties:

    (i) Jiangsu Yi Ze
    (ii) Jiangsu Ding Xuan Shareholders
    (iii) Jiangsu Ding Xuan

    Terms:

    The exclusive option agreement commences from 1 August 2016 and is effective until all the shares of Jiangsu Ding Xuan have been transferred from the Jiangsu Ding Xuan Shareholders to Jiangsu Yi Ze and/or any person(s) designated by Jiangsu Yi Ze.

    Main Subject:

    Jiangsu Ding Xuan Shareholders and Jiangsu Ding Xuan irrevocably agreed, to the extent permitted under the laws of the PRC, to transfer to Jiangsu Yi Ze and/or any person(s) designated by Jiangsu Yi Ze at any time and from time to time, all or part of their equity interests in Jiangsu Ding Xuan, or all or part of the assets of Jiangsu Ding Xuan.

    Jiangsu Yi Ze may exercise its rights under the paragraph above at any time and in any manner at its sole discretion as permitted under the laws of the PRC. The exercise price of each of the rights under the paragraph above shall be the lowest price permitted under the laws of the PRC, subject to any other price as required by the PRC government authorities. Upon Jiangsu Ding Xuan and/or Jiangsu Ding Xuan Shareholders receive(s) the said consideration, they unconditionally transfer the said consideration to Jiangsu Yi Ze or any person(s) designated by Jiangsu Yi Ze.

    Jiangsu Ding Xuan Shareholders and Jiangsu Ding Xuan jointly and/ or severally undertake that, among other things, without having obtained the prior written consent from Jiangsu Yi Ze, they will not (i) amend the articles of association of Jiangsu Ding Xuan; (ii) increase or decrease the registered capital of Jiangsu Ding Xuan; (iii) dispose of, transfer, mortgage, create any security interest or third party rights in its equity interests in Jiangsu Ding Xuan; (iv) appoint any director(s) or executive director(s) of Jiangsu Ding Xuan; and (v) pay dividends in any manners. Jiangsu Ding Xuan Shareholders further undertake that, without having obtained the written consent from Jiangsu Yi Ze, they and their respective related persons will not engage in any business which is in competition with the businesses of Jiangsu Ding Xuan.

  • Equity pledge agreement

    Parties:

    (i) Jiangsu Yi Ze
    (ii) Jiangsu Ding Xuan Shareholders
    (iii) Jiangsu Ding Xuan

    Terms:

    Effective from the registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce until all the obligations of Jiangsu Ding Xuan Shareholders and Jiangsu Ding Xuan (including but not limited to Jiangsu Ding Xuan Main Obligations) are satisfied or discharged in full. The registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce has been completed.

    Main Subject:

    Jiangsu Ding Xuan Shareholders pledged all equity interests in Jiangsu Ding Xuan legally held by Jiangsu Ding Xuan Shareholders (including present or future registered capital and their rights and benefits, whether through increase of capital and/or transfer of equity interest) to Jiangsu Yi Ze.

  • Consent letters of spouse

    Parties:

    The spouses of Jiangsu Ding Xuan Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the Jiangsu Ding Xuan Main Obligations are satisfied or discharged in full.

    Main Subject:

    The spouses of Jiangsu Ding Xuan Shareholders unconditionally agreed to the Jiangsu Ding Xuan Contractual Arrangements.

    The spouses of Jiangsu Ding Xuan Shareholders undertake and declare that the equity respectively owned by Jiangsu Ding Xuan Shareholders in Jiangsu Ding Xuan contemplated on Jiangsu Ding Xuan Contractual Arrangements shall be Jiangsu Ding Xuan Shareholders’ personal property respectively; and further, the said spouses undertake that they shall not take any act that causes or will cause any conflict and/or impediment to the Jiangsu Ding Xuan Contractual Arrangements.

Reason for using the Jiangsu Ding Xuan Contractual Arrangements and the significance to the Group

As advised by the legal adviser of the Company, the principal business of Jiangsu Ding Xuan involves technology for human stem cell research & development and applications which is regarded as prohibited business for foreign entity under the PRC Law. As such, the Group cannot acquire the equity interest in Jiangsu Ding Xuan at that time. Having regard to such foreign investment restrictions, the Jiangsu Ding Xuan Contractual Arrangements were designed to provide Jiangsu Yi Ze and, thus the Group, with effective control over the financial and operational policies of Jiangsu Ding Xuan and (to the extent permitted by PRC laws and regulations) the right to acquire the equity interest in Jiangsu Ding Xuan.

Revenue and assets subject to the Jiangsu Ding Xuan Contractual Arrangements

The revenue, net loss and total assets subject to the Jiangsu Ding Xuan Contractual Arrangements are set out as follows:

Year ended
30 April 2017
(HK$’000)
Revenue
Net loss 2,876
Total assets 9.281

For the year ended 30 April 2017, the revenue and net loss subject to Jiangsu Ding Xuan Contractual Arrangements amounted to nil and approximately 1.44% of the revenue and net loss of the Group respectively. As at 30 April 2017, the total assets subject to Jiangsu Ding Xuan Contractual Arrangements amounted to approximately 0.32% of the total assets of the Group.

Material changes

Save as disclosed in this report, there has not been any material changes in Jiangsu Ding Xuan Contractual Arrangements and/or the circumstances under which they were adopted.

Unwinding of Jiangsu Ding Xuan Contractual Arrangements

Up to the date of this report, there has not been any unwinding of any Jiangsu Ding Xuan Contractual Arrangements, nor has there been any failure to unwind any Jiangsu Ding Xuan Contractual Arrangements when the restrictions that led to the adoption of the Jiangsu Ding Xuan Contractual Arrangements are removed.


Risks associated with the Jiangsu Ding Xuan Contractual Arrangements and actions taken by the Company to mitigate the risks

The Group does not have any direct equity ownership in Jiangsu Ding Xuan and has relied on the Jiangsu Ding Xuan Contractual Arrangements, as the case may be, to control, operate, and be entitled to the economic benefits and risks arising from the respective businesses of Jiangsu Ding Xuan in the PRC. However, there are risks involved with the operations of Jiangsu Yi Ze under the Jiangsu Ding Xuan Contractual Arrangements, as the case may be.

  • There is no assurance that the Jiangsu Ding Xuan Contractual Arrangements could comply with future changes in the regulatory requirements in the PRC and the PRC government may determine that the Jiangsu Ding Xuan Contractual Arrangements do not comply with applicable regulations

    Current PRC laws and regulations prohibit foreign ownership of companies engage in the businesses concerning technology for research & development and applications of human stem cells, gene diagnose and therapy. The businesses of Jiangsu Ding Xuan are regarded as design and manufacturing of preclinical cell and stem cell related equipment which involves in technology for human stem cell research & development and applications, in addition to providing contract research services. The Company is a company incorporated under the laws of the Cayman Islands. Jiangsu Yi Ze may not engage in the businesses concerning technology for human stem cell research & development and applications in the PRC under current PRC laws. As a result, the Group will have to conduct the business of Jiangsu Ding Xuan in the PRC through the Jiangsu Ding Xuan Contractual Arrangements.

    Despite the fact that there is no indication that the Jiangsu Ding Xuan Contractual Arrangements will be interfered or objected by any PRC regulatory authorities, to the best knowledge of the Directors, there is a possibility that the Ministry of Commerce and other competent authorities may have different opinions on the interpretation of the relevant regulations and would not agree that the Jiangsu Ding Xuan Contractual Arrangements comply with the current PRC laws, regulations or rules or those that may be adopted in future, and the authorities may deny the validity, effectiveness and enforceability of the Jiangsu Ding Xuan Contractual Arrangements.

    If the authorities may deny the validity, effectiveness and enforceability of any of the Jiangsu Ding Xuan Contractual Arrangements, it could have a material adverse impact on the Group’s businesses, financial condition and results of operations.

  • The Jiangsu Ding Xuan Contractual Arrangements may not be as effective in providing control over and entitlement to the economic interests in the Project Company (namely “Jiangsu Ding Xuan as the case may be”) as direct ownership

    The Jiangsu Ding Xuan Contractual Arrangements may not be as effective in providing the Group with control over and entitlement to the economic interests in the Project Company as direct ownership. If Jiangsu Yi Ze had direct ownership of Jiangsu Ding Xuan, Jiangsu Yi Ze would be able to directly exercise its rights as a shareholder to effect changes in the board of directors of Jiangsu Ding Xuan. However, under the Jiangsu Ding Xuan Contractual Arrangements, Jiangsu Yi Ze can only look to and rely on Jiangsu Ding Xuan and the Jiangsu Ding Xuan Shareholders to perform their contractual obligations under the Jiangsu Ding Xuan Contractual Arrangements such that Jiangsu Yi Ze can exercise effective control over Jiangsu Ding Xuan. The Jiangsu Ding Xuan Shareholders may not act in the best interests of Jiangsu Ding Xuan or may not perform its/their obligations under the Jiangsu Ding Xuan Contractual Arrangements, and in that case, Jiangsu Yi Ze may replace the Jiangsu Ding Xuan Shareholders by its other nominees pursuant to the Jiangsu Ding Xuan Contractual Arrangements. However, if any dispute relating to the Jiangsu Ding Xuan Contractual Arrangements remains unresolved, Jiangsu Yi Ze will have to enforce its rights under the Jiangsu Ding Xuan Contractual Arrangements and seek to interpret the terms of the Jiangsu Ding Xuan Contractual Arrangements in accordance with the PRC laws and will be subject to uncertainties in the PRC legal system.

    Since the legal environment in the PRC is different from that in Hong Kong and other jurisdictions, the uncertainties in the PRC legal system could limit the ability of the Group to enforce the Jiangsu Ding Xuan Contractual Arrangements. There is no assurance that such arbitration result will be in favour of the Group and/or that there will not be any difficulties in enforcing any arbitral awards granted, including specific performance or injunctive relief and claiming damages by the Group. As the Group may not be able to obtain sufficient remedies in a timely manner, its ability to exert effective control over Jiangsu Ding Xuan and the conduct of the businesses concerning technology for human stem cell research & development and applications could be materially and adversely affected, and may disrupt the business of the Group and have a material adverse impact on Group’s business, prospects and results of operation.

  • Potential conflicts of interest among Jiangsu Yi Ze, Jiangsu Ding Xuan, the Jiangsu Ding Xuan Shareholders may exist

    Jiangsu Yi Ze shall rely on the Jiangsu Ding Xuan Contractual Arrangements to exercise control over and to draw the economic benefits from Jiangsu Ding Xuan. Jiangsu Yi Ze may not be able to provide sufficient incentives to the Jiangsu Ding Xuan Shareholders for the purpose of encouraging them to act in the best interests of Jiangsu Yi Ze, other than stipulating the relevant obligations in the Jiangsu Ding Xuan Contractual Arrangements. The Jiangsu Ding Xuan Shareholders may breach the Jiangsu Ding Xuan Contractual Arrangements in the event of conflicts of interest or deterioration of its/their relationship with Jiangsu Yi Ze, the results of which may have a material adverse impact on Jiangsu Yi Ze’s business, prospects and results of operation.

    It is not assured that if conflicts arise, the Jiangsu Ding Xuan Shareholders will act in the best interests of Jiangsu Yi Ze or that the conflicts will be resolved in favour of Jiangsu Yi Ze. If any of the Jiangsu Ding Xuan Shareholders fails to perform its obligations under the respective Jiangsu Ding Xuan Contractual Arrangements, Jiangsu Yi Ze may have to rely on legal remedies under the PRC laws through legal proceedings, which may be expensive, time-consuming and disruptive to Jiangsu Yi Ze’s operations and will be subject to uncertainties as stated above.

  • The Jiangsu Ding Xuan Contractual Arrangements may be subject to scrutiny of the PRC tax authorities and additional tax may be imposed

    Jiangsu Ding Xuan Contractual Arrangements may be subject to scrutiny of the PRC tax authorities and additional tax may be imposed on the Jiangsu Yi Ze, as the case may be. Jiangsu Yi Ze, as the case may be, may face adverse tax consequences if the PRC tax authorities determine that the Jiangsu Ding Xuan Contractual Arrangements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that the Jiangsu Ding Xuan Contractual Arrangements were not entered into on an arm’s length basis, they may adjust the income and expenses of Jiangsu Yi Ze, as the case may be, for the PRC tax purposes, which could result in higher tax liabilities on Jiangsu Yi Ze, as the case may be.

    The operation results of Jiangsu Yi Ze, as the case may be, may be materially and adversely affected if the tax liabilities of Jiangsu Yi Ze, Jiangsu Ding Xuan increase significantly or if they are required to pay interest on late payments.

  • Ability to acquire the entire equity interests in or assets of the Project Company

    Jiangsu Yi Ze’s ability to acquire the entire equity interests in or assets of Jiangsu Ding Xuan may be subject to various limitations and substantial costs. In case Jiangsu Yi Ze exercises its options to acquire all or part of the equity interests and/or assets of Jiangsu Ding Xuan under the relevant exclusive option agreement, the acquisition of the entire equity interests in or the assets of Jiangsu Ding Xuan may only be conducted to the extent as permitted by the applicable PRC laws and will be subject to necessary approvals and relevant procedures under applicable PRC laws. In addition, the abovementioned acquisitions may be subject to a minimum price limitation (such as an appraised value for the entire equity interests in or all assets of Jiangsu Ding Xuan) or other limitations as imposed by applicable PRC laws. Further, a substantial amount of other costs (if any), expenses and time may be involved in transferring the ownership of Jiangsu Ding Xuan, which may have a material adverse impact on Jiangsu Yi Ze’s businesses, prospects and results of operation.

AK Suzhou Contractual Arrangements

In April and August 2015, the Group completed the respective acquisitions of Tianjin Weikai and AK Suzhou through contractual arrangements. Save as disclosed in this report, there have been no changes to such Contractual Arrangements since the respective completion dates.

Collectively, the exclusive business cooperation agreement, the exclusive option agreement, the equity pledge agreement, the power of attorney and the consent letter of spouse, entered into among (i) AK Subsidiary (蘇州博凱生物技術諮詢服務有限責任公司 (Suzhou Bo Kai Biomedical Consultation Service Ltd.#)), a company established in the PRC, an indirect wholly owned subsidiary of Frame Sharp Limited (a company incorporated in the British Virgin Islands, being owned as to (a) 70% by CRMI Medical Bio-Tech Limited (“CRMI Medical”), formerly known as Enlighten On Enterprise Limited, a company incorporated in the British Virgin Islands with limited liability, an indirect wholly owned subsidiary of the Company, and (b) 30% by Remed Tiger Limited (“Remed Tiger”), a company incorporated in the Republic of Seychelles, being owned as to 100% by Mr. Zhang Xumao) respectively as at the date of this report), (ii) AK Suzhou (奧 凱(蘇州)生物技術有限公司 (AK (Suzhou) Biomedical Ltd.#), a limited liability company established in the PRC to engage in the business of providing services and equipment for human cell and stem cell related clinical applications in the PRC, including but not limited to the R&D on human stem cell technologies and equipment for human stem cell processing and for trading of its related equipment), the then (iii) registered shareholders of AK Suzhou and their spouses (if any).

Particulars and main business of the operating entity

At the date of this report, AK Suzhou is currently owned as to 30% by Ms. Cui Keyan and as to 70% by Mr. Dai Yumin (the former executive Director of the Company, which had resigned from his directorship of the Company with effect from 30 April 2016) (hereinafter collectively referred to as the “Suzhou Biomedical Shareholders”). AK Suzhou is controlled by the Group through AK Subsidiary by way of AK Suzhou Contractual Arrangements pursuant to which AK Subsidiary controls AK Suzhou.

AK Suzhou is established to engage in the business of providing services and equipment for human cell and stem cell related clinical applications in the PRC, including but not limited to the R&D on human stem cell technologies and equipment for human stem cell processing and for trading of its related equipment.

Major terms of the AK Suzhou Contractual Arrangements

  • Irrevocable power of attorney

    Parties:

    Suzhou Biomedical Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the contracts under AK Suzhou Contractual Arrangements including their respective supplemental agreements (“AK Suzhou Main Obligations”) have been terminated or discharged in full.

    Main Subject:

    Suzhou Biomedical Shareholders shall, among other things, irrevocably authorise AK Subsidiary and its respective successors to act on their behalf on all matters in relation to their equity interests in AK Suzhou, including attending shareholders’ meeting, signing minutes of shareholders’ meeting and shareholders’ resolutions, exercising their full shareholder’s rights under the articles of association of AK Suzhou and applicable PRC laws and regulations, including but not limited to shareholders’ voting right, appointment of the legal representative, director, supervisor and senior management of AK Suzhou, filing documents with the relevant governmental authorities or regulatory bodies, acquisition and disposition of the equity interest of AK Suzhou held by Suzhou Biomedical Shareholders or making decision on the liquidation of AK Suzhou and the formulation of the profit sharing plans of AK Suzhou, provided that the exercise of the power(s) of attorney shall not cause breach to the AK Suzhou Contractual Arrangements.

  • Exclusive business cooperation agreement

    Parties:

    (i) AK Subsidiary
    (ii) AK Suzhou

    Terms:

    10 years commencing from 7 August 2015. The exclusive business cooperation agreement will be automatically extended for another 10 years if AK Subsidiary has no intention to terminate upon its expiry. The said automatic 10-year extension will continue until AK Subsidiary gives confirmation regarding the termination of the term.

    Main Subject:

    AK Suzhou should appoint AK Subsidiary as exclusive service provider for its business operations, including but not limited to, technical R&D, technical support, technical consultation, technical training and other management and corporate consultation services.

  • Exclusive option agreements

    Parties:

    (i) AK Subsidiary
    (ii) Suzhou Biomedical Shareholders
    (iii) AK Suzhou

    Terms:

    10 years commencing from the date of the respective exclusive option agreements. The exclusive option agreement will be automatically extended for another 10 years if AK Subsidiary has no intention to terminate upon its expiry. The said automatic 10-year extension will continue until AK Subsidiary gives confirmation regarding the termination of the term.

    Main Subject:

    Suzhou Biomedical Shareholders and AK Suzhou irrevocably agreed, to the extent permitted under the laws of the PRC, to transfer to AK Subsidiary or any person(s) designated by AK Subsidiary at any time and from time to time, all or part of their equity interests in AK Suzhou, or all or part of the assets of AK Suzhou.

    AK Subsidiary may exercise its rights under the paragraph above at any time and in any manner at its sole discretion as permitted under the laws of the PRC. The exercise price of each of the rights under the paragraph above shall be the lowest price permitted under the laws of the PRC, subject to any other price as required by the PRC government authorities. Upon AK Suzhou and/or Suzhou Biomedical Shareholders receive(s) the said consideration, they unconditionally transfer the said consideration to AK Subsidiary or any person(s) designated by AK Subsidiary.

    Suzhou Biomedical Shareholders and AK Suzhou jointly and/ or severally undertake that, among other things, without having obtained the prior written consent from AK Subsidiary, they will not (i) amend the articles of association of AK Suzhou; (ii) increase or decrease the registered capital of AK Suzhou; (iii) dispose of, transfer, mortgage, create any security interest or third party rights in its equity interests in AK Suzhou; (iv) appoint any director(s) or executive director(s) of AK Suzhou; and (v) pay dividends in any manners. Suzhou Biomedical Shareholders further undertake that, without having obtained the written consent from AK Subsidiary, they and their respective related persons will not engage in any business which is in competition with the businesses of AK Suzhou.

  • Equity pledge agreements

    Parties:

    (i) AK Subsidiary
    (ii) Suzhou Biomedical Shareholders
    (iii) AK Suzhou

    Terms:

    Effective from the registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce until all the obligations of Suzhou Biomedical Shareholders and AK Suzhou (including but not limited to AK Suzhou Main Obligations) are satisfied or discharged in full. The registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce has been completed.

    Main Subject:

    Suzhou Biomedical Shareholders pledged all equity interests in AK Suzhou legally held by Suzhou Biomedical Shareholders (including present or future registered capital and their rights and benefits, whether through increase of capital and/or transfer of equity interest) to AK Subsidiary.

  • Consent letter of spouse

    Parties:

    The spouses of Suzhou Biomedical Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the AK Suzhou Main Obligations are satisfied or discharged in ful

    Main Subject:

    The spouses of Suzhou Biomedical Shareholders unconditionally agreed to the AK Suzhou Contractual Arrangements.

    The spouses of Suzhou Biomedical Shareholders undertake and declare that the equity respectively owned by Suzhou Biomedical Shareholders in AK Suzhou contemplated on AK Suzhou Contractual Arrangements shall be Suzhou Biomedical Shareholders’ personal property respectively; and further, the said spouses undertake that they shall not take any act that causes or will cause any conflict and/or impediment to the AK Suzhou Contractual Arrangements.

Reason for using the AK Suzhou Contractual Arrangements and the significance to the Group

As advised by the legal adviser of the Company, the principal business of AK Suzhou involves technology for human stem cell research & development and applications which is regarded as prohibited business for foreign entity under the PRC Law. As such, the Group cannot acquire the equity interest in AK Suzhou at that time. Having regard to such foreign investment restrictions, the AK Suzhou Contractual Arrangements were designed to provide AK Subsidiary and, thus the Group, with effective control over the financial and operational policies of AK Suzhou and (to the extent permitted by PRC laws and regulations) the right to acquire the equity interest in AK Suzhou.

Revenue and assets subject to the AK Suzhou Contractual Arrangements

The revenue, net loss and total assets subject to the AK Suzhou Contractual Arrangements are set out as follows:

Year ended
30 April 2017
(HK$’000))
Year ended
30 April 2016
(HK$’000))
Revenue 247 55
Net loss 8,612 3,318
Total assets 73,901 64,707

For the year ended 30 April 2017, the revenue and net loss subject to AK Suzhou Contractual Arrangements amounted to approximately 0.07% and 4.32% of the revenue and net loss of the Group respectively. As at 30 April 2017, the total assets subject to AK Suzhou Contractual Arrangements amounted to approximately 2.56% of the total assets of the Group.

For the year ended 30 April 2016, the revenue and net loss subject to AK Suzhou Contractual Arrangements amounted to approximately 0.20% and 1.71% of the revenue and net loss of the Group respectively. As at 30 April 2017, the total assets subject to AK Suzhou Contractual Arrangements amounted to approximately 2.23% of the total assets of the Group.

Material changes

Save as disclosed in this report, there has not been any material changes in AK Suzhou Contractual Arrangements and/or the circumstances under which they were adopted.

Unwinding of AK Suzhou Contractual Arrangements

Up to the date of this report, there has not been any unwinding of any AK Suzhou Contractual Arrangements, nor has there been any failure to unwind any AK Suzhou Contractual Arrangements when the restrictions that led to the adoption of the AK Suzhou Contractual Arrangements are removed.

Tianjin Weikai Contractual Arrangements

Collectively, the exclusive business cooperation agreement, the exclusive option agreement, the equity pledge agreement, the power of attorney and the consent letter of spouse, entered into among (i) Tianjin Subsidiary (Tianjin Weisheng Biotechnology Consulting Limited, a company incorporated in the PRC with Royal Noble Development Limited as its sole shareholder (a company incorporated in Hong Kong with Passion Stream Limited as its sole shareholder, a company incorporated in the British Virgin Islands, being owned as to 70% and 30% by the CRMI Medical and Remed Tiger respectively)), (ii) Tianjin Weikai ( 天津衛凱生物工程有限公司 (Tianjin Weikai Bioeng Ltd.#), a company incorporated in the PRC to engage in the business of designs and manufacturing of pre-clinical cell and stem cell related equipment, especially in 3D cell culture bio-reactors and their related consumables, as well as providing CRO services i.e. contract research services which mainly include drug screening, drug efficacy, toxicity assays in the drug development services to local institutions and hospitals), the then (iii) registered shareholders of Tianjin Weikai and their spouses (if any).

Particulars and main business of the operating entity

At the date of this report, Tianjin Weikai is currently owned as to 30% by Mr. Cui Zhanyong and as to 70% by Mr. Dai Yumin (hereinafter collectively referred to as the “Tianjin Weikai Shareholders”). Tianjin Weikai is controlled by the Group through Tianjin Subsidiary by way of Tianjin Weikai Contractual Arrangements pursuant to which Tianjin Subsidiary controls Tianjin Weikai.

Tianjin Weikai engages in the business of design and manufacturing of pre-clinical cell and stem cell related equipment, especially in 3D cell culture bio-reactors and their related consumables as well as providing CRO services.

Major terms of the Tianjin Weikai Contractual Arrangements

  • Irrevocable Power(s) of Attorney

    Parties:

    Tianjin Weikai Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the contracts under Tianjin Weikai Contractual Arrangements including their respective supplemental agreements (“Tianjin Weikai Main Obligations”) are satisfied or discharged in full.

    Main Subject:

    Tianjin Weikai Shareholders shall, among other things, irrevocably authorise any representative and its respective successors appointed by Tianjin Subsidiary to act on their behalf all matters in relation to its equity interests in Tianjin Weikai, including attending shareholders’ meeting, signing minutes of shareholders’ meeting and shareholders’ resolutions, exercising their full shareholder’s rights under the articles of association of Tianjin Weikai and applicable PRC laws and regulations, including but not limited to shareholders’ voting right, appointment of the legal representative, director, supervisor and senior management of Tianjin Weikai, filing documents with the relevant governmental authorities or regulatory bodies, acquisition and disposition of the shareholdings of Tianjin Weikai held by Tianjin Weikai Shareholders or making decision on the liquidation of Tianjin Weikai and the formulation of the profit sharing plans of Tianjin Weikai, provided that the exercise of the power(s) of attorney shall not cause to breach the Tianjin Weikai Contractual Arrangements.

  • Exclusive business cooperation agreement

    Parties:

    (i) Tianjin Subsidiary
    (ii) Tianjin Weikai

    Terms:

    10 years commencing from 17 April 2015. The exclusive business cooperation agreement will be automatically extended for another 10 years if Tianjin Subsidiary has no intention to terminate upon its expiry. The said automatic 10-year extension will continue until Tianjin Subsidiary gives confirmation regarding the termination of the term.

    Main Subject:

    Tianjin Weikai should appoint Tianjin Subsidiary as service provider for its business operations, including but not limited to, technical R&D, technical support, technical consultation, technical training and other management and corporate consultation services.

  • Exclusive option agreements

    Parties:

    (i) Tianjin Subsidiary
    (ii) Tianjin Weikai Shareholders
    (iii) Tianjin Weikai

    Terms:

    10 years commencing from the date of the respective exclusive option agreements. The exclusive option agreement will be automatically extended for another 10 years if Tianjin Subsidiary has no intention to terminate upon its expiry. The said automatic 10-year extension will continue until Tianjin Subsidiary gives confirmation regarding the termination of the term.

    Main Subject:

    Tianjin Weikai Shareholders and Tianjin Weikai shall irrevocably agree, to the extent permitted under the laws of the PRC, to transfer to Tianjin Subsidiary or any person(s) designated by Tianjin Subsidiary at any time and from time to time, all or part of its equity interests in Tianjin Weikai, or all or part of the assets of Tianjin Weikai.

    Tianjin Subsidiary may exercise its rights under the paragraph above at any time and in any manner at its sole discretion as permitted under the laws of the PRC. The exercise price of each of the rights under the paragraph above shall be the lowest price permitted under the laws of the PRC, subject to any other price as required by the PRC government authorities. Upon Tianjin Weikai and/or Tianjin Weikai Shareholders receive(s) the said consideration, they unconditionally transfer the said consideration to Tianjin Subsidiary or any person(s) designated by Tianjin Subsidiary.

    Tianjin Weikai Shareholders and Tianjin Weikai jointly and/or severally undertake that, among other things, without having obtained the written consent from Tianjin Subsidiary, they will not (i) amend the articles of association of Tianjin Weikai; (ii) increase or decrease the registered capital of Tianjin Weikai; (iii) dispose of, transfer, mortgage, create any security interest or third party rights in its equity interests in Tianjin Weikai; (iv) appoint any director(s) or executive director(s) of Tianjin Weikai; (v) pay dividends in any manners. Tianjin Weikai Shareholders further undertake that, without having obtained the written consent from Tianjin Subsidiary, they and their respective related persons will not engage in any business which is in competition with the businesses of Tianjin Weikai.

  • Equity pledge agreement

    Parties:

    (i) Tianjin Subsidiary
    (ii) Tianjin Weikai Shareholders
    (iii) Tianjin Weikai

    Terms:

    Effective from the registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce until all the obligations of Tianjin Weikai Shareholders and Tianjin Weikai (including but not limited to Tianjin Weikai Main Obligations) are satisfied or discharged in full. The registration of the pledged equity interests under the equity pledge agreement at the relevant PRC administration for industry and commerce has been completed.

    Main Subject:

    Tianjin Weikai Shareholders pledged all equity interests in Tianjin Weikai held by Tianjin Weikai Shareholders (including present or future registered capital and their rights and benefits, whether through increase of capital and/or transfer of equity interest) to Tianjin Subsidiary.

  • Consent letter of spouse

    Parties:

    The spouses of Tianjin Weikai Shareholders

    Terms:

    An indefinite term upon execution and shall continue to be valid until the Tianjin Weikai Main Obligations are satisfied or discharged in full.

    Main Subject:

    The spouses of Tianjin Weikai Shareholders shall unconditionally agree to the Tianjin Weikai Contractual Arrangements.

    The spouses of Tianjin Weikai Shareholders undertake and declare that the equity respectively owned by Tianjin Weikai Shareholders in Tianjin Weikai contemplated on the Tianjin Weikai Contractual Arrangements shall be Tianjin Weikai Shareholders’ personal property respectively; and further, the said spouses undertake that they shall not take any act that causes or will cause any conflict and/or impediment to the Tianjin Weikai Contractual Arrangements.

Reason for using the Tianjin Weikai Contractual Arrangements and the significance to the Group

As advised by the legal adviser of the Company, the principal business of AK Suzhou which involves technology for human stem cell research & development and applications is regarded as prohibited business for foreign entity under the PRC Law. As such, the Group cannot acquire the equity interest in Tianjin Weikai at that time. Having regard to such foreign investment restrictions, the Tianjin Weikai Contractual Arrangements were designed to provide Tianjin Subsidiary and, thus the Group, with effective control over the financial and operational policies of Tianjin Weikai and (to the extent permitted by PRC laws and regulations) the right to acquire the equity interest in Tianjin Weikai.

Revenue and assets subject to the Tianjin Weikai Contractual Arrangements

The revenue, net loss and total assets subject to the Tianjin Weikai Contractual Arrangements are set out as follows:

Year ended
30 April 2017
(HK$’000))
Year ended
30 April 2016
(HK$’000))
Revenue 2,149 1,266
Net loss 5,583 6,506
Total assets 107,254 114,011

For the year ended 30 April 2017, the revenue and net loss subject to Tianjin Weikai Contractual Arrangements amounted to approximately 0.60% and 2.80% of the revenue and net loss of the Group respectively. As at 30 April 2017, the total assets subject to Tianjin Weikai Contractual Arrangements amounted to approximately 3.71% of the total assets of the Group.

For the year ended 30 April 2016, the revenue and net loss subject to Tianjin Weikai Contractual Arrangements amounted to approximately 4.56% and 3.34% of the revenue and net loss of the Group respectively. As at 30 April 2016, the total assets subject to Tianjin Weikai Contractual Arrangements amounted to approximately 3.93% of the total assets of the Group.

Material changes

Save as disclosed in this report, there has not been any material changes in Tianjin Weikai Contractual Arrangements and/or the circumstances under which they were adopted.

Unwinding of Tianjin Weikai Contractual Arrangements

Up to the date of this report, there has not been any unwinding of any Tianjin Weikai Contractual Arrangements, nor has there been any failure to unwind any Tianjin Weikai Contractual Arrangements when the restrictions that led to the adoption of the Tianjin Weikai Contractual Arrangements are removed.

Risks associated with the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements and actions taken by the Company to mitigate the risks

The Group does not have any direct equity ownership in AK Suzhou and/or Tianjin Weikai and has relied on the AK Suzhou Contractual Arrangements and/or Tianjin Weikai Contractual Arrangements, as the case may be, to control, operate, and be entitled to the economic benefits and risks arising from the respective businesses of AK Suzhou and/or Tianjin Weikai in the PRC. However, there are risks involved with the operations of AK Subsidiary and/or Tianjin Subsidiary under the AK Suzhou Contractual Arrangements and/or Tianjin Weikai Contractual Arrangements, as the case may be.

  • There is no assurance that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements could comply with future changes in the regulatory requirements in the PRC and the PRC government may determine that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements do not comply with applicable regulations

    Current PRC laws and regulations prohibit foreign ownership of companies engage in the businesses concerning technology for research & development and applications of human stem cells, gene diagnose and therapy. The businesses of AK Suzhou and Tianjin Weikai are regarded as design and manufacturing of pre- clinical cell and stem cell related equipment which involves in technology for human stem cell research & development and applications, in addition to providing contract research services.

    The Company is a company incorporated under the laws of the Cayman Islands. AK Subsidiary and Tianjin Subsidiary may not engage in the businesses concerning technology for human stem cell research & development and applications in the PRC under current PRC laws. As a result, the Group will have to conduct the business of AK Suzhou and Tianjin Weikai in the PRC through the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements respectively.

    Despite the fact that there is no indication that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements will be interfered or objected by any PRC regulatory authorities, to the best knowledge of the Directors, there is a possibility that the Ministry of Commerce and other competent authorities may have different opinions on the interpretation of the relevant regulations and would not agree that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements comply with the current PRC laws, regulations or rules or those that may be adopted in future, and the authorities may deny the validity, effectiveness and enforceability of the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements.

    If the authorities may deny the validity, effectiveness and enforceability of any of the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements, it could have a material adverse impact on the Group’s businesses, financial condition and results of operations.

  • The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements may not be as effective in providing control over and entitlement to the economic interests in the Project Company (“either AK Suzhou or Tianjin Weikai or both as the case may be”) as direct ownership

    The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements may not be as effective in providing the Group with control over and entitlement to the economic interests in the Project Company as direct ownership. If AK Subsidiary had direct ownership of AK Suzhou, AK Subsidiary would be able to directly exercise its rights as a shareholder to effect changes in the board of directors of AK Suzhou. However, under the AK Suzhou Contractual Arrangements, AK Subsidiary can only look to and rely on AK Suzhou and the Suzhou Biomedical Shareholders to perform their contractual obligations under the AK Suzhou Contractual Arrangements such that AK Subsidiary can exercise effective control over AK Suzhou. The Suzhou Biomedical Shareholders may not act in the best interests of AK Suzhou or may not perform its/their obligations under the AK Suzhou Contractual Arrangements, and in that case, AK Subsidiary may replace the Suzhou Biomedical Shareholders by its other nominees pursuant to the AK Suzhou Contractual Arrangements. However, if any dispute relating to the AK Suzhou Contractual Arrangements remains unresolved, AK Subsidiary will have to enforce its rights under the AK Suzhou Contractual Arrangements and seek to interpret the terms of the AK Suzhou Contractual Arrangements in accordance with the PRC laws and will be subject to uncertainties in the PRC legal system.

    It will be the same situation for the Tianjin Weikai Contractual Arrangements. If Tianjin Subsidiary had direct ownership of Tianjin Weikai, Tianjin Subsidiary would be able to directly exercise its rights as a shareholder to effect changes in the board of directors of Tianjin Weikai. However, under the Tianjin Weikai Contractual Arrangements, Tianjin Subsidiary can only look to and rely on Tianjin Weikai and the Tianjin Weikai Shareholders to perform their contractual obligations under the Tianjin Weikai Contractual Arrangements such that Tianjin Subsidiary can exercise effective control over Tianjin Weikai. The Tianjin Weikai Shareholders may not act in the best interests of Tianjin Weikai or may not perform its/their obligations under the Tianjin Weikai Contractual Arrangements, and in that case, Tianjin Subsidiary may replace the Tianjin Weikai Shareholders by its other nominees pursuant to the Tianjin Weikai Contractual Arrangements. However, if any dispute relating to the Tianjin Weikai Contractual Arrangements remains unresolved, Tianjin Subsidiary will have to enforce its rights under the Tianjin Weikai Contractual Arrangements and seek to interpret the terms of the Tianjin Weikai Contractual Arrangements in accordance with the PRC laws and will be subject to uncertainties in the PRC legal system.

    The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements are governed by the PRC laws. When a dispute arises under any of the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements, the relevant parties thereto shall settle the dispute through negotiation in an amicable manner. In case the dispute is not resolved, the parties to the dispute may have to rely on legal remedies under the PRC laws. The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements provided that dispute will be submitted to the China International Economic and Trade Arbitration Commission for arbitration to be conducted in Beijing. The decision of such arbitration is final and binding on the parties to the dispute.

    Since the legal environment in the PRC is different from that in Hong Kong and other jurisdictions, the uncertainties in the PRC legal system could limit the ability of the Group to enforce the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements. There is no assurance that such arbitration result will be in favour of the Group and/or that there will not be any difficulties in enforcing any arbitral awards granted, including specific performance or injunctive relief and claiming damages by the Group. As the Group may not be able to obtain sufficient remedies in a timely manner, its ability to exert effective control over AK Suzhou and/or Tianjin Weikai and the conduct of the businesses concerning technology for human stem cell research & development and applications could be materially and adversely affected, and may disrupt the business of the Group and have a material adverse impact on Group’s business, prospects and results of operation.

  • Potential conflicts of interest among the respective shareholders and the Project Company may exist

    1. Potential conflicts of interest among AK Subsidiary, AK Suzhou, the Suzhou Biomedical Shareholders may exist

      AK Subsidiary shall rely on the AK Suzhou Contractual Arrangements to exercise control over and to draw the economic benefits from AK Suzhou. AK Subsidiary may not be able to provide sufficient incentives to the Suzhou Biomedical Shareholders for the purpose of encouraging them to act in the best interests of AK Subsidiary, other than stipulating the relevant obligations in the AK Suzhou Contractual Arrangements. The Suzhou Biomedical Shareholders may breach the AK Suzhou Contractual Arrangements in the event of conflicts of interest or deterioration of its/their relationship with AK Subsidiary, the results of which may have a material adverse impact on AK Subsidiary’s business, prospects and results of operation.

      It is not assured that if conflicts arise, the Suzhou Biomedical Shareholders will act in the best interests of AK Subsidiary or that the conflicts will be resolved in favour of AK Subsidiary. If any of the Suzhou Biomedical Shareholders fails to perform its obligations under the respective AK Suzhou Contractual Arrangements, AK Subsidiary may have to rely on legal remedies under the PRC laws through legal proceedings, which may be expensive, time-consuming and disruptive to AK Subsidiary’s operations and will be subject to uncertainties as stated above.

    2. Potential conflicts of interest among Tianjin Subsidiary, Tianjin Weikai, the Tianjin Weikai Shareholders may exist

      Tianjin Subsidiary shall rely on the Tianjin Weikai Contractual Arrangements to exercise control over and to draw the economic benefits from Tianjin Weikai. Tianjin Subsidiary may not be able to provide sufficient incentives to the Tianjin Weikai Shareholders for the purpose of encouraging them to act in the best interests of Tianjin Subsidiary, other than stipulating the relevant obligations in the Tianjin Weikai Contractual Arrangements. The Tianjin Weikai Shareholders may breach the Tianjin Weikai Contractual Arrangements in the event of conflicts of interest or deterioration of its/their relationship with Tianjin Subsidiary, the results of which may have a material adverse impact on Tianjin Subsidiary’s business, prospects and results of operation.

      It is not assured that if conflicts arise, the Tianjin Weikai Shareholders will act in the best interests of Tianjin Subsidiary or that the conflicts will be resolved in favour of Tianjin Subsidiary. If any of the Tianjin Weikai Shareholders fails to perform its obligations under the respective Tianjin Weikai Contractual Arrangements, Tianjin Subsidiary may have to rely on legal remedies under the PRC laws through legal proceedings, which may be expensive, time-consuming and disruptive to Tianjin Subsidiary’s operations and will be subject to uncertainties as stated above.

  • The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements may be subject to scrutiny of the PRC tax authorities and additional tax may be imposed

    The AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements may be subject to scrutiny of the PRC tax authorities and additional tax may be imposed on the Tianjin Subsidiary and/or AK Subsidiary, as the case may be. Tianjin Subsidiary and/or AK Subsidiary, as the case may be, may face adverse tax consequences if the PRC tax authorities determine that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements were not entered into on an arm’s length basis, they may adjust the income and expenses of Tianjin Subsidiary and/or AK Subsidiary, as the case may be, for the PRC tax purposes, which could result in higher tax liabilities on Tianjin Subsidiary and/or AK Subsidiary, as the case may be.

    The operation results of the Tianjin Subsidiary and/or AK Subsidiary, as the case may be, may be materially and adversely affected if the tax liabilities of AK Subsidiary, Tianjin Subsidiary, Tianjin Weikai or AK Suzhou increase significantly or if they are required to pay interest on late payments.

  • Ability to acquire the entire equity interests in or assets of the Project Company

    1. AK Subsidiary’s ability to acquire the entire equity interests in or assets of AK Suzhou may be subject to various limitations and substantial costs

      In case AK Subsidiary exercises its options to acquire all or part of the equity interests and/or assets of AK Suzhou under the relevant exclusive option agreement, the acquisition of the entire equity interests in or the assets of AK Suzhou may only be conducted to the extent as permitted by the applicable PRC laws and will be subject to necessary approvals and relevant procedures under applicable PRC laws. In addition, the abovementioned acquisitions may be subject to a minimum price limitation (such as an appraised value for the entire equity interests in or all assets of AK Suzhou) or other limitations as imposed by applicable PRC laws. Further, a substantial amount of other costs (if any), expenses and time may be involved in transferring the ownership of AK Suzhou, which may have a material adverse impact on AK Subsidiary’s businesses, prospects and results of operation.

    2. Tianjin Subsidiary’s ability to acquire the entire equity interests in or assets of Tianjin Weikai may be subject to various limitations and substantial costs

      In case Tianjin Subsidiary exercises its options to acquire all or part of the equity interests and/or assets of Tianjin Weikai under the exclusive option agreement, the acquisition of the entire equity interests in or the assets of Tianjin Weikai may only be conducted to the extent as permitted by the applicable PRC laws and will be subject to necessary approvals and relevant procedures under applicable PRC laws. In addition, the abovementioned acquisitions may be subject to a minimum price limitation (such as an appraised value for the entire equity interests in or all assets of Tianjin Weikai) or other limitations as imposed by applicable PRC laws. Further, a substantial amount of other costs (if any), expenses and time may be involved in transferring the ownership of Tianjin Weikai, which may have a material adverse impact on Tianjin Subsidiary’s businesses, prospects and results of operation.

      In light of the above risks associated with the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements, the Group has adopted a set of procedures, systems and internal control measures to ensure the sound and effective operation of the Group and the implementation of the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements. Such procedures, systems and internal control measures include (i) regular discussions of matters relating to compliance and regulatory enquiries from governmental authorities, if any, by the board of directors of the Company at board meetings; and (ii) retaining legal adviser and/or other professional to assist the Group to deal with specific issues arising from the AK Suzhou Contractual Arrangements and Tianjin Weikai Contractual Arrangements, if so required.

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