CTF Services Limited — M&A Activity 2000

Jan 3, 2000

Listed Company Information

CENTRAL CHINA<0351>-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. Central China Enterprises Limited (Incorporated in Hong Kong with limited liability) ACQUISITION OF A PRC SOFTWARE COMPANY BY THE COMPANY The directors of the Company announce that a conditional sale and purchase agreement in respect of the acquisition of the entire issued share capital of a PRC domestic company, Zhengzhou Originsoft Company Limited (``Originsoft'') was entered into on 29th December 1999 (the ``Agreement''). Pursuant to the Agreement, the consideration is RMB52,000,000 (approximately HK$48,598,130) which is to be satisfied by the issuance of a total of 140,864,147 Consideration Shares by the Company to Originsoft's two shareholders, Zhengzhou Shang Yuan Network Information Company Limited (``Shang Yuan'') and Yang Sheng Zhong respectively. Trading in the Shares on the Stock Exchange were suspended with effect from 10:00 a.m. on 29th December 1999 pending the issue of this announcement. Application has been made for the resumption of trading in the Shares with effect from 10:00 a.m. on 3rd January, 2000 THE SALE AND PURCHASE AGREEMENT 1. Parties Vendors: (1) Shang Yuan (2) Yang Sheng Zhong (together the ``Vendors'') Purchaser: Central China I.T. Limited (the ``Purchaser'') (a company incorporated in Hong Kong) 2. The Acquisition Subject to the conditions precedent (as defined hereinbelow in paragraph 5), the entire issued share capital of Originsoft will be acquired by the Purchaser, a 100% owned subsidiary of the Company, from Shang Yuan and Yang Sheng Zhong as to 99% and 1% respectively. The beneficial owners of Shang Yuan are Jiye Cheng, Yang Sheng Zhong, Li Xiao Guang, Cao Di, Zhang Yong Jian and Liu Xin Zhan, all of them are PRC residents. Subject to the approval of the Economic Development Council of Zhengzhou New and High-Tech Industries Development Zone Administration Committee, following Completion, Originsoft will be changed from a PRC domestic company to a 100% foreign owned enterprise. According to PRC legal opinion, the acquisition contemplated under the Agreement needs to be approved by the China Securities Regulatory Commission. 3. Consideration The Consideration payable by the Purchaser pursuant to the Agreement amounts to RMB52,000,000 (i.e. approximately HK$48,598,130) and has been determined on the basis of arm's length negotiations with reference to the valuation report dated 14th December 1999 with the valuation in the sum of RMB52,000,000 (approximately HK$48,598,130), prepared by an independent valuer, Sallmans (Far East) Limited. Such valuation of Originsoft is based on (1) its two existing products, namely the web server management system and website monitoring and recovering system and (2) the proposed webTV box project and Henan enterprises on-line website project. The Consideration is to be satisfied by the issue to Shang Yuan and Yang Sheng Zhong 139,455,506 and 1,408,641 Consideration Shares respectively at an issue price of HK$0.345 per share. The Consideration Shares represents approximately 8.8% of the existing issued share capital and approximately 8.1% of the then enlarged issued share capital of the Company. 4. Consideration Shares The Consideration Shares, when issued, will rank pari passu in all respect with the Shares then in issue including the right to receive any dividend declared, made or paid, on and after Completion. The issue price of HK$0.345 per Consideration Share represents (i) a discount of about 13.75% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on 28th December 1999, being the date preceding the date of the Agreement and (ii) a discount of about 0.86% to the 10 days' average closing price of HK$0.348 per Share as quoted on the Stock Exchange up to 28th December 1999. The Consideration Shares will be issued under the general mandate granted to the directors of the Company at the annual general meeting held on 28th June 1999. 5. Conditions Precedent Completion of the Agreement shall take place within 7 days upon the fulfilment of the following conditions, (a) all consents and approvals having been obtained from the relevant PRC government departments (including, the Economic Development Council of Zhengzhou New and High-Tech Industries Development Zone Administration Committee, China Securities Regulatory Commission and the State Commerce and Industries Administration Council); (b) the granting by the Listing Committee of the Stock Exchange of listing of, and permission to deal in, the Consideration Shares to be issued by the Company upon Completion; and (c) the Company's satisfaction as to the due diligence on Originsoft (which will include the financial, legal and other aspects of Originsoft). If the above conditions are not satisfied on or before 31st March 2000, the Agreement will terminate save for any antecedent breaches. 6. Other terms of the Agreement Pursuant to the terms of the Agreement each of the Vendors has also undertaken to the Purchaser that the after-tax profits, as determind in accordance with generally accepted PRC accounting standards, of Originsoft for the years ending 31st December 2000 and 2001 shall not be less than RMB2,000,000 (approximately HK$1,869,158) and RMB10,000,000 (approximately HK$9,345,794) respectively and shall indemnify the Purchaser against any shortfall thereto, as determined on a dollar to dollar basis. In addition, the Vendors have agreed to procure four key personnel of Originsoft, including Yang Sheng Zhong to enter into certain service agreements with Originsoft on or prior to Completion which shall deem to take effect from 29th December 1999 for a term of three years. 7. Information on Originsoft Originsoft is a software company, which commenced operation in November 1998. It is an internet software services provider based in Henan province PRC, specializing in the technical services relating to the design and set-up of web sites tailoring the needs of a wide range of customer. It also writes software computer programs and provides maintenance and technical services to its clients in respect of a range of computer products. The date of incorporation of Originsoft is 23rd November 1998. Based on the management account of Originsoft as at 30th November 1999, its net tangible asset value (without taking into consideration the valuation by Sallmans (Far East) Limited as mentioned above) was approximately RMB5,026,000 (approximately HK$4,697,200) as at that date and Originsoft has after-tax profits of approximately RMB26,000 (approximately HK$24,300) for the period from its date of incorporation up to 30th November 1999. In addition, Originsoft has entered into an agreement with Henan Economic and Trade Council on 22nd December 1999 for the set up and maintenance of the Henan enterprises on-line website which will be the provincial website for promoting trade and other economic activities, including e-commerce of Henan enterprises. In view of the fact that Originsoft will become a wholly foreign-owned enterprise upon Completion and in order to comply with the relevant PRC laws and regulations, Originsoft will negotiate with Henan Economic and Trade Council to vary the terms of such agreement to the effect that Originsoft will exclusively develop the necessary software and provide all related technical services and hardwares maintenance services for the Henan enterprises on-line website (``Henan Enterprises On-line Website Technical Services''). For this purpose, the Vendors have warranted to the Purchaser that the provision of computer hardwares and software development as well as related technical and maintenance services by Originsoft under the proposed Henan enterprises on-line website project with the Henan Economic and Trade Council will meet the Purchaser's requirement by the third quarter of the year 2000. Furthermore, Originsoft has signed an agreement with Henan Zhengzhou Radio and TV Information Network Co. Ltd on 1st November 1999 to appoint Originsoft to exclusively manufacture and install a TV on-line device named web TV-box and to develop the related software programe for use under an on-line internet system by existing cable TV subscribers (``Web TV Box Services''). According to PRC legal opinion, there is no restriction on enterprises with foreign investments to engage in the Henan Enterprises On-line Website Technical Services and WebTV Box Services. Accordingly, notwithstanding that Originsoft will become a wholly foreign-owned enterprise following Completion, Originsoft will be entitled to be engaged in such services. With the rapid growth in internet business and the PRC government's policy of promoting development, the directors of the Company believe that the acquisition of Originsoft will be beneficial to the Company's overall business and will result in an enhanced business portfolio of the Company. After due consideration of the valuation report, financial position and prospects of Originsoft, the directors of the Company are of the opinion that the consideration payable under the Agreement is fair and reasonable. 8. General Trading in the shares of the Company on the Stock Exchange were suspended with effect from 10:00 a.m. on 29th December 1999 pending the issue of this announcement. Application has been made for the resumption of trading in the shares of the Company with effect from 10:00 a.m. on 3rd January, 2000. As the Agreement is conditional upon obtaining all the required government approvals and consents, it may or may not proceed accordingly. Therefore, shareholders of the Company are advised to exercise caution in dealing with the Shares. In this announcement, the following expressions have the meanings set out below unless the context requires otherwise: ``Company'' Central China Enterprises Limited ``Completion'' completion of the Agreement after satisfaction of all the conditions precedent as set out in paragraph 5 herein ``Consideration Shares'' new Shares to be issued at HK$0.345 per Share as consideration under the Agreement ``PRC'' the People's Republic of China ``RMB'' the lawful currency of PRC ``Share(s)'' the share(s) of HK$0.20 each in the share capital of the Company ``Stock Exchange'' The Stock Exchange of Hong Kong Limited Conversion of Renminbi into Hong Kong dollars applied in this announcement is based on the rate of RMB1.07 to HK$1.00 By order of the Board Lam Kong Yin Patrick Director Hong Kong 30th December 1999