CGN Mining Company Limited — Capital/Financing Update 2004

Feb 16, 2004

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.

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(Incorporated in the Cayman Islands with limited liability)

PLACING OF EXISTING SHARES AND SUBSCRIPTION OF NEW SHARES

Placing Agent

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KINGSWAY FINANCIAL SERVICES GROUP LIMITED

Financial Advisor

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KINGSWAY CAPITAL LIMITED

The Placing and Subscription Agreement was entered into on 12 February 2004, pursuant to which the Placing Agent has agreed to place, on a fully underwritten basis, 100,000,000 Placing Shares (subject to the Over-allocation Option) held by the Vendor to independent third parties who are independent of and not connected and not acting in concert with the directors, chief executive or substantial shareholders of the Company or its subsidiaries, or any of their respective associates at HK$0.72 per Placing Share.

The Vendor has granted the Over-allocation Option to the Placing Agent to require the Vendor during the Option Period to place, on a best effort basis, up to an aggregate of 70,000,000 Shares at the Placing Price. The Company has been informed by the Vendor that the Placing Agent had, on the date of this announcement, exercised the Over-allocation Option in full.

Pursuant to the Placing and Subscription Agreement, the Vendor has conditionally agreed to subscribe for the Subscription Shares (the number of which is equivalent to the Placing Shares) at HK$0.72 per Subscription Share. The Subscription is subject to various conditions set out below under the heading “Conditions of the Subscription”.

Both the price per Placing Share and the price per Subscription Share are identical, and represent (i) a discount of approximately 8.86% to the closing price of HK$0.79 per Share as quoted on the Stock Exchange on 12 February 2004, being the last trading day of the Shares immediately prior to the date of this announcement, and (ii) a discount of approximately 13.04% to the average closing price of approximately HK$0.828 per Share as quoted on the Stock Exchange for the last ten trading days of the Shares up to and including 12 February 2004.

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As the Over-allocation Option has been exercised in full, the Placing Shares to be placed by the Vendor will be 170,000,000 Shares, represent approximately 12.86% of the existing issued share capital of the Company and approximately 11.39% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. The Placing will reduce the shareholding of the Vendor and parties acting in concert with it from about 62.79% to approximately 49.93% of the existing issued share capital of the Company. The Subscription will then increase the shareholding of the Vendor and parties acting in concert with it to approximately 55.63% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares.

The Subscription Shares will be allotted and issued pursuant to the general mandate granted to the Directors at the extraordinary general meeting of the Company held on 23 July 2003.

On the basis that the Over-allocation Option is exercised in full, the net proceeds from the Subscription are estimated to be approximately HK$119 million. The Company intends to use the proceeds (i) as to approximately HK$48 million to finance two new sale and distribution projects committed in respect of imported pharmaceutical products from Europe; (ii) as to approximately HK$22 million to finance a new sale and distribution project in respect of health supplement products; (iii) as to approximately HK$18 million for a research and development project of Sublingual Erythropoietin (EPO) Tablet; (iv) as to approximately HK$16 million for installation of production lines for new pharmaceutical projects in Wuhan City, the People’s Republic of China; and (v) the balance of approximately HK$15 million for general working capital of the Group.

The obligations of the Placing Agent under the Placing and Subscription Agreement are subject to termination by it if certain events arise prior to 5:00 p.m. on the business day immediately preceding the completion date of the Placing. Such events are set out below under the heading “Termination”.

Trading in the Shares was suspended at 9:30 a.m. on 13 February 2004 at the request of the Company pending release of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 9:30 a.m. on 16 February 2004.

The Placing and Subscription Agreement dated 12 February 2004 was entered into between the Company, the Vendor and the Placing Agent.

1. THE PLACING

Vendor:

Perfect Develop Holding Inc., a company holding approximately 48.71% interest in the existing issued share capital of the Company. The issued share capital of the Vendor is beneficially owned as to 49% by Mr Tao Lung, 33% by Mr Ko Sai Ying Thomas, 12% by Mr Liu Jin James and 6% by Mr Au Yeung Ping Yuen Terence (collectively, the “ Vendor Shareholders ”), all of whom are executive Directors.

In addition to their interest in the Vendor, each of the Vendor Shareholders is the registered owner of certain Shares, the number and percentage of shareholding of which are set out below:

Vendor Shareholders	Number of Shares	Shareholding
Mr Tao Lung	110,891,648	8.39%
Mr Ko Sai Ying Thomas	52,103,991	3.94%
Mr Liu Jin James	14,630,400	1.11%
Mr Au Yeung Ping Yuen Terence	8,516,248	0.64%
	186,142,287	14.08%

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The Vendor and the Vendor Shareholders are together interested in approximately 62.79% of the existing issued share capital of the Company.

Number of Placing Shares:

The Placing Agent has agreed to procure on a fully underwritten basis placees for, or failing which itself to purchase, initially a total of 100,000,000 Shares owned by the Vendor, representing approximately 7.56% of the existing issued share capital of 1,322,156,127 Shares as at the date of this announcement or approximately 7.03% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares pursuant to the Subscription.

The Vendor has granted the Over-allocation Option to the Placing Agent to require the Vendor during the Option Period to place, on a best effort basis, up to an aggregate of 70,000,000 Shares at the Placing Price. The Company has been informed by the Vendor that the Placing Agent had, on the date of this announcement, exercised the Over-allocation Option in full.

On the basis that the Over-allocation Option is exercised in full, the Placing Shares represent approximately 12.86% of the existing issued share capital as at the date of this announcement or approximately 11.39% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares pursuant to the Subscription.

Placees:

Six or more independent private individual and institutional investors who are independent of and not connected nor acting in concert with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or associated companies, or any of their respective associates, or the Vendor or the Vendor Shareholders or parties acting in concert with any of them.

Placing price:

HK$0.72 per Placing Share.

This price was agreed after arm’s length negotiations between the Vendor, the Placing Agent and the Company with reference to the recent market prices of the Shares. This price represents (i) a discount of approximately 8.86% to the closing price of HK$0.79 per Share on 12 February 2004, being the last trading day of the Shares immediately prior to the date of this announcement ; and (ii) a discount of approximately 13.04% to the average closing price of approximately HK$0.828 per Share as quoted on the Stock Exchange from 30 January 2004 to 12 February 2004, both dates inclusive, being the last ten trading days of the Shares immediately prior to the date of this announcement.

Placing Agent:

Kingsway Financial Services Group Limited.

Independence of placees and placing agent:

The placees and (where applicable) their beneficial owners will be, and the Placing Agent is, independent of and not connected nor acting in concert with the Vendor or the Vendor Shareholders or any persons acting in concert with any one of them. The placees and (where applicable) their ultimate beneficial owners and the Placing Agent are also independent of and not connected nor acting in concert with any of the directors, chief executive, substantial shareholders of the Company or any of its subsidiaries or any of their associates.

So far as the Directors are aware, Kingsway Lion Spur Technology Limited and Kingsway Fund Management Limited, both being the subsidiaries of the Placing Agent’s holding company, will be the placees under the Placing. Kingsway Lion Spur Technology Limited and Kingsway Fund Management Limited will be placed with 14 million and 11 million Shares respectively, representing approximately 8.2% and 6.5% respectively of the total number of the Placing

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Shares. Save as aforesaid and so far as the Directors are aware, the other placees are independent of and not connected with the Placing Agent.

To the best knowledge of the Directors, none of the placees will become substantial Shareholders (as defined in the Listing Rules) immediately following the Placing.

Completion of the Placing:

Under the Placing and Subscription Agreement, the Placing is agreed to be completed on the second business day immediately after the date of publication of this Announcement, being 18 February 2004, or such other time as the Vendor and the Placing Agent shall agree.

Rights of the Placing Shares:

The Placing Shares will be sold by the Vendor free of liens, charges, encumbrances and any third party right and together with all rights attaching thereto at the date of the Placing and Subscription Agreement.

2. THE SUBSCRIPTION

Subscriber: the Vendor

Number of Subscription Shares:

The Company will allot and issue and the Vendor will subscribe for initially a total of 100,000,000 new Shares, representing approximately 7.56% of the existing issued share capital of the Company as at the date of this announcement or approximately 7.03% of the issued share capital as enlarged by the allotment and issue of the Subscription Shares pursuant to the Subscription.

The Vendor has also undertaken to subscribe for such number of additional Shares equal to the number of the Over-allocation Shares sold by the Vendor pursuant to the exercise of the Overallocation Option at the Placing Price. As the Over-allocation Option has been exercised in full, the Subscription Shares represent approximately 12.86% of the existing issued share capital as at the date of this announcement or approximately 11.39% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares pursuant to the Subscription.

Subscription price:

HK$0.72 per Subscription Share, which is the equivalent of the price per Placing Share.

Mandate to allot and issue new Shares:

The Subscription Shares will be allotted and issued pursuant to the general mandate granted to the Directors by a resolution of the Shareholders passed at the extraordinary general meeting of the Company held on 23 July 2003. The Company has not exercised the power to allot and issue any new Shares pursuant to such mandate prior to the Placing and the Subscription.

Ranking:

The Subscription Shares will rank equally in all respects among themselves and with all other Shares in issue as at the date of such allotment and issue pursuant to the Placing and Subscription Agreement.

Conditions of the Subscription:

The Subscription is conditional upon:

• (i) completion of the Placing pursuant to the Placing and Subscription Agreement;

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• (ii) the Listing Committee of the Stock Exchange agreeing to grant a listing of, and permission to deal in, the Subscription Shares; and

• (iii) (if required) the Securities and Future Commission granting all waivers, approvals and/ or consents to the Vendor in connection with the Placing and Subscription.

None of the above conditions can be waived by the parties to the Placing and Subscription Agreement.

On the basis that the Over-allocation option is exercised in full, the shareholding of the Vendor and the Vendor Shareholders, being parties deemed to be acting in concert under the Code on Takeovers and Mergers, and their respective concert parties, will decrease from approximately 62.79% to approximately 49.93% immediately after completion of the Placing but before the Subscription and will increase to approximately 55.63% immediately after completion of the Subscription.

Completion of the Subscription:

The completion of the Subscription will take place on the business day next following the day on which the conditions referred to above are fulfilled (which is expected to be on or before 26 February 2004).

If the conditions are not fulfilled within the time specified above (or such later date as may be agreed by the parties), the Subscription will lapse. If the date of completion of the Subscription is to be extended beyond 26 February 2004, the Subscription will constitute a connected transaction under the Listing Rules which will require the approval of the independent Shareholders and the Company will take steps to ensure compliance with the Listing Rules. Further announcement will be made as and when appropriate.

Changes to the shareholding as a result of the Placing and the Subscription:

The shareholding of the Vendor and the Vendor Shareholders in the Company immediately before the Placing, immediately after the Placing but before the Subscription, and immediately after the Placing and the Subscription are as follows:

Existing Shareholding No. of Shares % The Vendor 643,977,902 48.71 Concert parties of the Vendor Mr Tao Lung 110,891,648 8.39 Mr Ko Sai Ying Thomas 52,103,991 3.94 Mr Liu Jin James 14,630,400 1.11 Mr Au Yeung Ping Yuen Terence 8,516,248 0.64 Vendor and its concert parties 830,120,189 62.79 Placees – – The public 492,035,938 37.21 Total 1,322,156,127 100.00	After the Placing but before the Subscription (on the basis that the Over-allocation Option is exercised in full) No. of Shares % 473,977,902 35.85 110,891,648 8.39 52,103,991 3.94 14,630,400 1.11 8,516,248 0.64 660,120,189 49.93 170,000,000 12.86 492,035,938 37.21 1,322,156,127 100.00	After the Placing and the Subscription (on the basis that the Over-allocation Option is exercised in full) No. of Shares % 643,977,902 43.16 110,891,648 7.43 52,103,991 3.49 14,630,400 0.98 8,516,248 0.57 830,120,189 55.63 170,000,000 11.39 492,035,938 32.98 1,492,156,127 100.00	After the Placing and the Subscription (on the basis that the Over-allocation Option is exercised in full) No. of Shares % 643,977,902 43.16 110,891,648 7.43 52,103,991 3.49 14,630,400 0.98 8,516,248 0.57 830,120,189 55.63 170,000,000 11.39 492,035,938 32.98 1,492,156,127 100.00
			55.63 11.39 32.98
			100.00

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Termination

The Placing Agent shall be entitled to terminate the Placing by notice to the Company and the Vendor given prior to 5:00 p.m. on the business day immediately preceding the completion date of the Placing if certain events arise. Such events include (but not limited to):

• (i) any of the undertakings, warranties or representations contained in the Placing and Subscription Agreement becomes untrue or misleading in any material respect; or

• (ii) there develops, occurs or comes into effect:

• (a) any event, development or change resulting in a material adverse change in, or which might be expected to result in a material adverse change in, political, economic, fiscal, financial, regulatory or stock market conditions in Hong Kong, the People’s Republic of China or the United States of America;

• (b) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise;

• (c) any material adverse change in conditions of local, national or international securities markets;

• (d) any new law or regulation or change in existing laws or regulations or any change in the interpretation or application thereof which will materially and adversely affect the business or the financial or trading position of the Group as a whole;

• (e) a change or development involving a prospective change of taxation or exchange control (or the implementation of exchange control) which will materially and adversely affect the business or the financial or trading position of the Group as a whole;

• (f) the instigation of any litigation or claim of material importance by any third party against any member of the Group; or

• (g) a development of an act of war or declaration of war on any state or country or jurisdiction,

and which, in the reasonable opinion of the Placing Agent is likely to be materially adverse to the Group or would materially prejudice the success of the Placing.

In the event that the Placing Agent exercises its right to terminate the Placing and Subscription Agreement, the Placing and the Subscription will lapse and no party shall have any claim against any other parties in relation to the Placing and Subscription Agreement except for any antecedent breaches.

Reasons for the Placing and Subscription and use of proceeds:

The Directors consider that it is in the interests of the Company to raise further capital from the equity market by way of the Placing and the Subscription in order to enhance the capital base of the Company, thereby giving it greater flexibility in its funding and to increase the shareholders’ base of the Company. The Directors (including the independent non-executive Directors) consider that the terms of the Placing and Subscription Agreement were fair and reasonable and they were in the best interests of the Company, as far as the Shareholders are concerned.

On the basis that the Over-allocation Option is exercised in full, the net proceeds, after deducting related placing commission, professional fees and all related expenses which will be borne by the Company, under the Subscription are estimated to be approximately HK$119 million. The Company intends to use the proceeds (i) as to approximately HK$48 million to finance two new sale and distribution projects committed in respect of imported pharmaceutical products from Europe; (ii) as to approximately HK$22 million to finance a new sale and distribution project in respect of health supplement products; (iii) as to approximately HK$18 million for a research and development project of Sublingual Erythropoietin (EPO) Tablet; (iv) as to approximately HK$16 million for installation

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of production lines for new pharmaceutical projects in Wuhan City, the People’s Republic of China; and (v) the balance of approximately HK$15 million for general working capital of the Group.

Application for listing

Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

General information

The Group is principally engaged in the research, development, manufacture, sale and distribution of biopharmaceutical and conventional pharmaceutical products.

The Group has not conducted any fund raising activities in the past 12 months from the date of this announcement.

Trading in the Shares was suspended at 9:30 a.m. on 13 February 2004 at the request of the Company pending release of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 9:30 a.m. on 16 February 2004.

Definitions

The following defined terms are used in this announcement:

“associates”	having the meaning ascribed thereto in the Listing Rules
“Board”	the board of Directors
“Company”	Vital BioTech Holdings Limited, the shares of which are listed on the
	Stock Exchange
“Director(s)”	the director(s) of the Company
“Financial Advisor”	Kingsway Capital Limited
“Group”	the Company and its subsidiaries
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Listing Committee”	the listing committee of the Stock Exchange
“Option Period”	the period commencing from the date of the Placing and Subscription
	Agreement up to 6:00 p.m. on the date of publication of this
	Announcement
“Over-allocation Option”	the option granted by the Vendor to the Placing Agent to require the
	Vendor to place, in addition to the initial 100,000,000 Placing Shares,
	up to an aggregate of 70,000,000 Shares at the Placing Price to cover
	over-allocations in the Placing
“Over-allocation Shares”	the number of Shares to be sold by the Vendor upon the exercise of the
	Over-allocation Option
“Placing”	the placing of the Placing Shares pursuant to the terms of the Placing
	and Subscription Agreement
“Placing Agent”	Kingsway Financial Services Group Limited, a deemed licensed
	corporation under the Securities and Futures Ordinance (Chapter 571
	of the Hong Kong Laws)

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“Placing Shares” initially a total of 100,000,000 Shares together with any Over-allocation Shares upon exercise of the Over-allocation Option beneficially owned by the Vendor to be placed pursuant to the Placing and Subscription Agreement “Placing and Subscription the placing and subscription agreement dated 12 February 2004 between Agreement” the Company, the Vendor, the Financial Advisor and the Placing Agent “Share(s)” ordinary share(s) of HK$0.01 in the capital of the Company “Shareholder(s)” holder(s) of Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription” the subscription of the Subscription Shares to be subscribed for by the Vendor pursuant to the Placing and Subscription Agreement “Subscription Shares” an initial total of 100,000,000 new Shares and in the event of the Overallocation Option being exercised, together with such number of additional new Shares equal to the number of Over-allocation Shares sold by the Vendor, being the actual number of Shares placed out pursuant to the Placing and Subscription Agreement “Vendor” Perfect Develop Holding Inc., a company incorporated in the British Virgin Islands By order of the board of the Directors of Vital BioTech Holdings Limited Au Yeung Terence Ping Yuen Vice Chairman Hong Kong, 13 February 2004

“Please also refer to the published version of this announcement in China Daily”.

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