Beijing Yunji Technology Co., Ltd. — M&A Activity 2000

Feb 11, 2000

Listed Company Information

CHEONG MING<1196> - Announcement & Resumption of Trading 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. CHEONG MING HOLDINGS LIMITED (incorporated in Bermuda with limited liability) PROPOSED DISCLOSEABLE and connected TRANSACTION, AND PROPOSED DECLARATION OF SPECIAL DIVIDEND -The Company has entered into the Shares Swap Agreement on 9th February, 2000 with Sega.com for a shares swap of the Company's new shares for shares in Sega.com PC, presently a wholly-owned subsidiary of Sega.com. -Sega.com PC owns (if Restructuring has been completed) or will own all the fixed assets, goodwill, ongoing business, highly skilled and trained workforce, know-how and other intellectual property rights related to the development and operation of the PC internet on-line computer games business carried on under the internet domain named "http: www.heat.net". -Subject to and immediately following completion of the Shares Swap Agreement, the Company will hold 6.8% of the issued shares of Sega.com PC and Sega.com will hold approximately 32.97% of the Company's enlarged issued share capital. -The Shares Swap Agreement is conditional. Subject to the Shares Swap Agreement becoming unconditional and the shares swap being completed, the directors proposes to declare a special dividend of HK$0.10 per share of the Company to its existing shareholders. -Trading in the shares of the Company was suspended at the request of the Company with effect from 10:23 a.m. on 31st January, 2000. Application has been made to the Stock Exchange for resumption in trading in the shares of the Company with effect from 10.00 a.m. on 11th February, 2000. -The Shares Swap Agreement constitutes discloseable and connected transaction of the Company under the Listing Rules. An independent financial adviser will be appointed to advise the independent board committee on the terms of the Shares Swap Agreement. A circular containing, inter alia, details of the Shares Swap Agreement, the letter from the independent financial adviser together with a notice of the SGM will be despatched to the shareholders of the Company as soon as practicable. Shares Swap agreement dated 9th February, 2000 (the "Shares Swap Agreement") Parties (1) Cheong Ming Holdings Limited (the "Company") (2) Sega.com Inc. ("Sega.com"), a company incorporated in Delaware, the United States of America ("USA") and which is an independent third party not connected with the chief executive, substantial shareholders or directors of the Company or any of its subsidiaries or any of their respective associates. Sega.com is owned as to approximately 52% by Sega Enterprises Ltd., a company organised under the laws of Japan. Sega Enterprises Ltd. is one of the largest electronic gaming software and hardware companies in the world and is listed on the Tokyo Stock Exchange. Since 1995, Sega Enterprises Ltd. has committed substantial resources in the USA to develop content and technology for internet online computer games business through its affiliated companies, SegaSoft, Inc. and its successor, SegaSoft Networks, Inc. ("Network"). Both SegaSoft, Inc. and Network were incorporated in Delaware, the USA. Network operates/operated (if Restructuring has been completed) an internet on-line computer games business ("Business") carried on under the domain named http: www.heat.net ("Heat.net"). The Business operates an advanced server co-location network with 80 game servers located in 15 metropolitan areas in USA. It is proposed that prior to completion of the shares swap which is more particularly described below, Sega.com and Network will have implemented an internal restructuring ("Restructuring") pursuant to which Network will transfer all the fixed assets, goodwill, ongoing business, highly skilled and trained workforce, know-how and other intellectual property rights related to the development and operation of the Business to Sega.com PC Networks, Inc. ("Sega.com PC"), a wholly-owned subsidiary of Sega.com incorporated in Delaware, the USA on 28th January, 2000. Shares swap Subject to completion of the Restructuring, the Company proposes to acquire from Sega.com shares in Sega.com PC representing 6.8% of the then issued share capital of Sega.com PC (the "Sale Shares"). The Sale Shares are valued at approximately HK$137 million on the basis referred to below. In return, the Company will issue 160,000,000 shares of HK$0.1 each ("New Shares") at a price of HK$0.8566 per New Share to Sega.com. The New Shares represent approximately 49.2% of the existing issued share capital of the Company or approximately 32.97% of the issued share capital of the Company as enlarged by the New Shares. The New Shares will rank pari passu in all respects with the existing shares of the Company, save for the proposed Special Dividend described below. Basis of shares swap Heat.net, the network operated under the Business, was launched on 9th October, 1997 and is the flagship on-line computer games network of Network with computer games geared at multi-player computer game players. Heat.net had about 2.4 million members in January 2000. In accordance with the PC Data Online Reports, an independent publisher on internet data, Heat.net had 477,000 unique visitors and 18,963,000 monthly page views for the month of December 1999. It was also ranked by Nielsen Net Ratings, an independent provider of internet audience measurement service in USA, as the numbered 5 "stickiest site" in the USA, with the average time spent by visitors being 1 hour 48 minutes for April through September 1999. The Business owns over 160 popular games titles, including top titles such as 10Six, Quake II, Kingpin, Unreal Tournament, Quake, Warcraft II, Sattlezone, Command & Conquer. The Business is operated/used to be operated (if Restructuring has been completed) under Network. Based on the accounts of Network as at 31st March, 1999 (on audited basis) and 31st December, 1999 (on unaudited basis), the net assets of the Business as at 31st March, 1999 and 31st December, 1999 were US$17.2 million (approximately HK$133.3 million) and US$10.3 million (approximately HK$79.8 million) respectively. Based on the audited accounts of Networks for the year ended 31st March, 1998 and 1999 respectively, the losses after taxation of the Business were US$45.8 million (approximately HK$354.9 million) on turnover of US$11.5 million (approximately HK$89.1 million) and US$38.4 million (approximately HK$297.6 million) on turnover of US$13.6 million (approximately HK$105.4 million) respectively. The losses were largely attributable to the expenses on product development and sales and marketing. All the costs related to the development of and research on the Business have been accounted for by Network as expenses as and when they were incurred. The terms of the Shares Swap Agreement have been arrived at after arm's length negotiation between the parties. The value of the Sale Shares has been calculated based on Sega.com's and its affiliates' pro forma total investment cost in the Business in the amount of not less than US$195 million (approximately HK$1,511 million) as at completion of the Shares Swap Agreement, plus a 33% premium on US$195 million. The premium was arrived at after arm's length negotiation. Pursuant to the Restructuring, Network will transfer/has transferred (if Restructuring has been completed), inter alia, fixed assets comprising principally computer hardware and software, servers and ancillary computer equipment for the operation of the Business with a book value of about US$6.5 million (approximately HK$50.4 million) and inject cash of about US$13.5 million (approximately HK$104.6 million) into Sega.com PC so that upon completion of the Restructuring, Sega.com PC will have net tangible assets of not less than US$20 million (approximately HK$155 million) and no bank borrowings or borrowings from Sega.com or its affiliates. The goodwill, ongoing business, highly skilled and trained workforce, know-how and other intellectual property rights related to the development and operation of the Business will also be transferred to Sega.com PC. Save for the aforesaid, Sega.com has no intention to inject any assets into Sega.com PC. The directors of the Company consider that the cost plus premium in fact has only reflected a small part of the value of Heat.net and it has not taken into account of the full value attributable to cost of capital, the intellectual property rights which are recorded at nil value in the accounts, the goodwill and the membership. Despite the fact that the Business was loss making in the last two financial years, the directors of the Company are optimistic about the future performance of the Business taking into consideration the increasing popularity of internet. The issue price of HK$0.8566 per New Share was agreed with reference to the currently estimated net asset value of HK$0.8566 per share of the Company and 325,350,000 shares in issue, after netting off the special dividend of HK$0.10 per share described below. The issue price represents a discount of approximately 11.7% to the last closing price of the share of HK$0.97 immediately before suspension in trading and a premium of approximately 21.7% over the 10 days average price of HK$0.704 per Share ended on the last trading day of 31st January, 2000. Conditions of the Shares Swap Agreement Completion of the transactions contemplated under the Shares Swap Agreement is conditional on the other conditions as follows: (a) the Restructuring having been completed and a set of the documents in relation to the Restructuring having been delivered to the Company, accompanied by a legal opinion from a US firm of attorneys confirming completion of the Restructuring; (b) the shareholders of the Company (and the Bermuda Monetary Authority, if required) approving the Shares Swap Agreement including the allotment of the New Shares; (c) The Stock Exchange of Hong Kong Limited ("Stock Exchange") giving its approval to the listing of the New Shares either unconditionally or without attaching any unusual terms; (d) the Securities and Futures Commission ("SFC") confirming that the transactions contemplated by the Shares Swap Agreement or the completion thereof will not result in an obligation on the part of Sega.com, Sega Enterprises Ltd, Network, Sega.com PC or parties acting in concert with any of them to make a general offer under the Hong Kong Code on Takeovers and Mergers ("Code") or no indication having been received from the SFC that a general offer under the Code will be required on the part of any of the parties abovementioned; (e) the listing status of the Company not being withdrawn or otherwise affected as a result of the transactions contemplated by the Shares Swap Agreement or the completion thereof and that there be no suspension in the trading of the shares of the Company on the Stock Exchange for any consecutive periods of more than five business days except any suspension agreed between the parties in writing or in relation to any announcements regarding the transactions contemplated under the Shares Swap Agreement; and (f) there has not been any material breach of the Shares Swap Agreement and that the Shares Swap Agreement not having been terminated in accordance with the terms thereof. Completion of the Shares Swap Agreement will take place 3 business days after fulfillment of the above conditions but in any event not later than 30th May, 2000 or any other day as the parties thereto may agree. Reasons for the Shares Swap Agreement The Company and its subsidiaries (the "Group") are principally engaged in the printing and manufacture of packaging boxes, including accompanying brochures, manuals and catalogues. The directors of the Company ("Directors") believe that the internet business has immense commercial potential in the future, in particular, in the entertainment sector. The Directors consider that the proposed investment in Sega.com PC will provide an opportunity for the Group to diversify into internet related business, the detail plans of which will be formulated by the Directors cautiously in due course. The Directors believe that the strategic alliance with Sega.com will provide a platform for the Group to make foray into the high growth internet entertainment business. Notwithstanding the diversification into the internet field, the Group will continue to seek growth opportunities in the printing business and has no intention to dispose any material asset. Upon completion of the Shares Swap Agreement, Sega.com will nominate four representatives to the board of directors of the Company. The board of the Company currently consists of 5 executive Directors and 2 non-executive Directors. Save for the aforesaid, there will not be any changes to the board of Directors of the Company. Shareholding structure Harmony Link Corporation ("Harmony") is the controlling shareholder of the Company interested in approximately 64% of the existing issued share capital of the Company. Harmony is beneficially wholly owned by three Directors namely Messrs. Lui Shing Ming, Brian (24.13%), Lui Shing Cheong (12.88%) and Lui Shing Chung, Victor (14.59%) and a family trust (48.40%) of which the aforesaid Directors are beneficiaries. Upon the issue of the New Shares, Sega.com will be interested in approximately 32.97% of the enlarged issued share capital of the Company, Harmony's interest in the Company will be reduced to approximately 42.68%, with the public shareholding reduced to approximately 24.25%. (for the charts set out the shareholding structure of Sega.com (assuming the Restructuring had taken place) and the Company before and after completion of the Shares Swap Agreement, please refer to the press announcement today.) The SFC has indicated that Harmony and Sega.com are presumed to be parties acting in concert. The parties will make an application to the Executive to rebut the presumed association. In order to maintain the public float of the Company, the Company agrees to procure Harmony to place down such number of shares of the Company to independent third parties so as to ensure that not less than 25% of the issued share capital of the Company will be in public hands prior to completion of the Shares Swap Agreement. Harmony's interest in the Company will be further reduced to not more than 41.93% upon completion of the aforesaid placing. Declaration of special dividend and book close date Subject to the Shares Swap Agreement becoming unconditional, the Directors propose to declare a special dividend of HK$0.10 per share ("Special Dividend") to shareholders of the Company whose names appear on the register of members on the date of the special general meeting of the Company ("SGM") approving the Shares Swap Agreement and the allotment of the New Shares. To determine entitlements to the Special Dividend, the register of members of the Company will close during the period from 16th March, 2000 to 20th March, 2000, both days inclusive. In order to qualify for the Special Dividend, shareholders of the Company who are not already on the register of members are required to lodge their share certificates, together with the relevant forms of transfer, to the branch registrar of the Company in Hong Kong, Tengis Limited at 1601 Hutchison House, 10 Harcourt Road, Central, Hong Kong, no later than 4:00 p.m. on 15th March, 2000. General The Shares Swap Agreement constitutes a discloseable and connected transaction of the Company under the Rules Governing the Listing of Securities (the "Listing Rules") on the Stock Exchange. An independent financial adviser will be appointed to advise the independent board committee on the terms of the Shares Swap Agreement. A circular containing, inter alia, details of the Shares Swap Agreement, the letter from the independent financial adviser together with a notice of the SGM will be despatched to the shareholders of the Company as soon as practicable. Trading in the shares of the Company was suspended at the request of the Company with effect from 10:23 a.m. on 31st January, 2000. Application has been made to the Stock Exchange for resumption in trading in the shares of the Company will effect from 10:00 a.m. on 11th February, 2000. By Order of the Board Lui Shing Ming, Brian Deputy Chairman and Managing Director Hong Kong, 10th February, 2000 The directors of the Company jointly and severally accept full responsibility for the accuracy of information contained in this announcement and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived as after due and careful consideration and that there are no other facts not contained in this announcement, the omission of which would make any statements in this announcement misleading.