AV Concept Holdings Limited — M&A Activity 2000

Mar 31, 2000

Listed Company Information

AV CONCEPT HOLD<0595> - Announcement & Resumption The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. AV CONCEPT HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) Discloseable Transaction Establishment of and acquisition of further interests in Guangzhou Thinker E-Commerce Co., Ltd. Grant of option for the subscription of new shares in AV Concept Holdings Limited On 28 March 2000, AVT entered into the JV Contract for the establishment of Thinker and the Transfer Contract for the acquisition of the Further Rights. Pursuant to the JV Contract, AVT has agreed to inject a cash amount of HK$15,000,000 as part of the registered capital of Thinker and will be entitled to share 15% of the after-tax profits of Thinker. In the event that the board of directors of Thinker considers that Thinker requires further working capital within a period of 2 years from the date of establishment of Thinker, AVT is required to inject not more than HK$15,000,000 as additional registered capital. Pursuant to the Transfer Contract, AVT has agreed to purchase the Further Rights from eCom. The consideration payable under the Transfer Contract comprises HK$10,000,000 in cash and the Consideration Shares. Upon completion of the Transfer Contract, AVT will be entitled to share 35% of the after-tax profits of Thinker. Thinker will be primarily engaged in the electronic on-line security payment gateway business in the PRC. In addition, on 28 March 2000 the Company entered into the Option Agreement pursuant to which the Company has granted eCom an option to subscribe for the Option Shares at a subscription price of HK$2.50 per Option Share (amounting to an aggregate subscription price of HK$37,500,000) within 12 months from the date of the Option Agreement. The JV Contract and the Transfer Contract constitute a discloseable transaction for the Company under the Listing Rules. The JV Contract is subject to, amongst other things, the relevant PRC authorities approving the JV Contract. The Transfer Contract and the Option Agreement are conditional upon, amongst other things, the Shareholders approving the issue of the Consideration Shares and the Option Shares (as the case may be) at a general meeting. A circular containing details of the JV Contract, the Transfer Contract and the Option Agreement together with a notice convening an extraordinary general meeting of the Company to approve the issue of the Consideration Shares and the Option Shares will be sent to the Shareholders as soon as practicable. Trading in the Shares was suspended at the request of the Company with effect from 10:00 a.m. on 29 March 2000 pending the release of this announcement. Application has been made to the Stock Exchange for resumption of trading in the Shares with effect from 10:00 a.m. on 31 March 2000. Shareholders and investors are reminded to exercise caution when dealing in the Shares. JV CONTRACT DATED 28 MARCH 2000 Parties AVT GTCT eCom GTCT is owned by the union of employees of GTCT and by certain individuals who are senior management of GTCT. eCom is owned as to 95% by THL (which in turn is owned by two senior management staff of GTCT who are also shareholders of GTCT) and as to 5% by LDL (which in turn is wholly-owned by an independent third party). Each of GTCT, eCom and their respective shareholders is independent of and not associated with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or any of their respective associates (as defined in the Listing Rules). Business scope of Thinker The business scope of Thinker comprises the development and provision of technologies and software relating to e-commerce and system integration and the provision of related after-sales technological and consultation services. More specifically, Thinker will be primarily engaged in the electronic on-line security payment gateway business in the PRC. Capital and profit sharing ratio The initial registered capital of Thinker is HK$25,000,000 which may be increased to not more than HK$40,000,000 within a period of 2 years from the date of establishment of Thinker depending on the working capital requirement of Thinker. Party Assets/capital to be injected and services to be provided Profit sharing ratio GTCT - inject technologies and provide services related to electronic on-line trading and payment system 20% - grant to Thinker a 30-year right to use the Thinker EC21 e-commerce solution system (including the SecurePay payment system) and any enhanced versions (the "System") (being an exclusive right to use such for the first 2 years subject to rights already granted to other parties) - grant to Thinker a 2-year exclusive right of global distribution of the System subject to rights already granted to other parties - grant to Thinker a 30-year right to incorporate the trademark into new trademarks (such as ) to be registered by Thinker AVT - inject HK$15,000,000 as part of the initial registered capital 15% - inject not more than HK$15,000,000 as additional registered capital within a period of 2 years (will become 35% upon completion of the Transfer Contract as described below) from the date of establishment of Thinker in the event that the board of directors of Thinker considers that Thinker requires further working capital eCom - inject HK$10,000,000 as part of the initial registered capital 65% - provide market development and staff training services outside the PRC (will become 45% upon completion of the Transfer Contract as described below) Conditions The fulfilment of the obligations under the JV Contract by the parties thereto is subject to: (a) the relevant authorities in the PRC approving the JV Contract and the articles of association of Thinker; (b) the relevant authorities in the PRC issuing the business licence of Thinker; and (c) the relevant authorities in the PRC approving the carrying on by Thinker of e-commerce and related businesses in the PRC. In the event that any of the above conditions is not fulfilled within 60 days from the date of the JV Contract (i.e. 27 May 2000), each of AVT and eCom shall have the right to terminate the JV Contract (which shall then cease to be of any effect) unless within 30 days after the said 60-day period either AVT or eCom agrees to waive any of the above conditions (or to postpone the deadline for fulfilment thereof). Based on the discussion with GTCT, the Directors do not expect any difficulty in obtaining all the relevant PRC approvals set out in the above conditions. Other principal terms The date of establishment of Thinker will be the date of issue of the business licence. The term of Thinker will be 30 years from the date of issue of the business licence. Based on the discussions with GTCT, the Directors expect that the business licence will be issued within April 2000. The board of directors of Thinker will comprise 5 directors, of which 2 will be nominated by GTCT, 2 by AVT and 1 by eCom. TRANSFER CONTRACT DATED 28 MARCH 2000 Parties Transferor: eCom Transferee: AVT GTCT has consented to the transfer of the Further Rights and the Company has agreed to issue the Consideration Shares. Rights to be transferred AVT has agreed to purchase the Further Rights from eCom. Upon completion of the Transfer Contract, the respective profit-sharing percentages of GTCT, AVT and eCom in Thinker will be 20%, 35% and 45%. Consideration and payment terms The consideration payable under the Transfer Contract comprises HK$10,000,000 in cash and the Consideration Shares. The cash portion shall be payable within 45 days from the date of the Transfer Contract. The Consideration Shares shall be issued to eCom within 45 days from the date of completion of the Transfer Contract or such earlier date as AVT may agree. The number of the Consideration Shares was determined on an arm's length basis taking into account, amongst other things, the market price of the Shares and movements thereof. The agreed value ascribed to the Consideration Shares was set with reference to the average closing price of approximately HK$2.500 (rounded to the nearest ten cents) per Share as quoted on the Stock Exchange for the 10 trading days up to and including 28 March 2000, thereby amounting to HK$15,000,000. The Consideration Shares represent approximately 2.94% of the existing issued share capital of the Company and approximately 2.86% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares. Conditions Completion of the Transfer Contract is conditional upon: (a) eCom, AVT and GTCT entering into a supplemental contract to amend the terms of the JV Contract and the articles of association of Thinker to ensure consistency with the terms of the Transfer Contract; (b) the relevant authorities in the PRC approving the Transfer Contract and the said supplemental contract; (c) the representations and warranties given by eCom under the Transfer Contract remaining true and accurate; and (d) the Shareholders approving the issue of the Consideration Shares at a general meeting of the Company. In the event that any of the above conditions is not fulfilled within 60 days from the date of the Transfer Contract (i.e. 27 May 2000), eCom shall refund the cash portion of the consideration to AVT and the Transfer Contract shall cease to be of any effect unless within 45 days after the said 60-day period AVT agrees to waive any of the above conditions (or to postpone the deadline for fulfilment thereof). OPTION AGREEMENT DATED 28 MARCH 2000 Parties the Company eCom Option The Company has granted eCom an option to subscribe for the Option Shares at a subscription price of HK$2.50 per Option Share (amounting to an aggregate subscription price of HK$37,500,000) within 12 months from the date of the Option Agreement. The Option Shares represent approximately 7.35% of the existing issued share capital of the Company. Based on the existing issued share capital of the Company and assuming completion of the Transfer Contract, eCom will upon the issue of the Option Shares become interested in approximately 9.33% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Option Shares. The Company has no present intention to nominate any representative from eCom to the board of Directors. Subscription price The subscription price of approximately HK$2.50 per Option Share represents a discount of approximately 13.79% to the closing price of HK$2.900 per Share as quoted on the Stock Exchange on 28 March 2000 (being the last trading day of the Shares prior to the issue of this announcement) and a discount of approximately 1.11% to the average closing price of approximately HK$2.528 per Share as quoted on the Stock Exchange for the 10 trading days up to and including 28 March 2000. Condition The Option Agreement is conditional upon the Shareholders approving the issue of the Option Shares at a general meeting of the Company and the JV Contract becoming unconditional. REASONS FOR AND BENEFITS OF THE JV CONTRACT, THE TRANSFER CONTRACT AND THE OPTION AGREEMENT The Group is principally engaged in the marketing, distribution and manufacture of electronic components and other electronic products. The internet is having a huge impact on the way businesses are being conducted worldwide. The Directors believe that the potential of e-commerce is very promising. The Directors consider that the investment in Thinker will provide the Group with an excellent opportunity to develop its internet and e-commerce business with a view to diversifying and strengthening its earnings base. The Directors believe that the strategic partnership created through the issue of the Consideration Shares and the Option Shares will be beneficial to the Group in furthering the development of its internet and e-commerce business. Should the option be exercised, the Directors intend to use the proceeds from the issue of the Option Shares as additional working capital for the Group. GENERAL The terms of the JV Contract, the Transfer Contract and the Option Agreement were negotiated on an arm's length basis. The terms of the JV Contract and the Transfer Contract were arrived at after taking into consideration, amongst other things, the technologies and services contributed by the business partners, the initial working capital requirement of Thinker and the expected benefits created through the strategic alliance with such business partners. The subscription price of the Option Shares was arrived at after taking into account the market price of the Shares and the option period. The Group intends to finance the initial capital required under the JV Contract and the cash consideration under the Transfer Contract by way of internal resources and/or borrowings and/or equity financing. The Company is considering various ways of financing including equity financing. Whilst no decision has been made at present, the Company may seek to raise finance in the near future. The JV Contract and the Transfer Contract constitute a discloseable transaction for the Company under the Listing Rules. An application will be made to the Stock Exchange for the listing of and permission to deal in the Consideration Shares and the Option Shares. A circular containing details of the JV Contract, the Transfer Contract and the Option Agreement together with a notice convening an extraordinary general meeting of the Company to approve the issue of the Consideration Shares and the Option Shares will be sent to the Shareholders as soon as practicable. SHARE TRADING Trading in the Shares was suspended at the request of the Company with effect from 10:00 a.m. on 29 March 2000 pending the release of this announcement. Application has been made to the Stock Exchange for resumption of trading in the Shares with effect from 10:00 a.m. on 31 March 2000. Shareholders and investors are reminded to exercise caution when dealing in the Shares. DEFINITIONS "AVT" AVT Holdings Limited, a company incorporated on 18 January 2000 in the British Virgin Islands with limited liability and wholly-owned by the Company "Company" AV Concept Holdings Limited "Consideration Shares" 6,000,000 new Shares to be issued by the Company as part consideration for the purchase of the Further Rights "Directors" directors of the Company "eCom" eCom International Limited, a company incorporated on 22 February 2000 in the British Virgin Islands with limited liability "Further Rights" the right to share 20% of the after-tax profits of Thinker to be transferred pursuant to the Transfer Contract "Group" the Company and its subsidiaries "GTCT" Guangzhou Thinker Communications Technology Co., Ltd., an enterprise established with limited liability under the laws and regulations of the PRC "Hong Kong" the Hong Kong Special Administrative Region of the PRC "JV Contract" the conditional agreement dated 28 March 2000 entered into between GTCT, AVT and eCom in respect of the establishment of Thinker "LDL" Lively Development Limited, a company incorporated in the British Virgin Islands with limited liability "Listing Rules" Rules Governing the Listing of Securities on the Stock Exchange "Option Agreement" the conditional Option Agreement dated 28 March 2000 entered into between the Company and eCom "Option Shares" 15,000,000 new Shares to be issued pursuant to the Option Agreement "PRC" the People's Republic of China but excluding Hong Kong for the purpose of this announcement "Shareholders" holders of Shares "Shares" ordinary shares of HK$0.10 each in the capital of the Company "Stock Exchange" The Stock Exchange of Hong Kong Limited "THL" Thinker Holdings Limited, a company incorporated on 5 January 2000 in the British Virgin Islands with limited liability "Thinker" Guangzhou Thinker E-Commerce Co., Ltd., a Chinese-foreign cooperative joint venture enterprise to be established on 20 May 1997 with limited liability under the laws and regulations of the PRC "Transfer Contract" the conditional agreement dated 28 March 2000 entered into between AVT and eCom in respect of the transfer of the Further Rights By Order of the Board So Yuk Kwan Chairman Hong Kong, 30 March 2000