Dadi International Group Limited — M&A Activity 2003

Sep 11, 2003

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.

==> picture [105 x 37] intentionally omitted <==

Right Opportune Limited Milkyway Image Holdings Limited 銀河映像控股有限公司 *

(Incorporated in the British Virgin Islands (incorporated in the Cayman Islands with limited liability) with limited liability)

JOINT ANNOUNCEMENT

(1) Acquisition of Shares in Milkyway Image Holdings Limited

by Right Opportune Limited and

(2) Possible mandatory conditional cash offers by

Kingston Securities Limited

on behalf of

Right Opportune Limited

for all the issued Shares in Milkyway Image Holdings Limited

(other than those already owned or agreed to be acquired by Right Opportune Limited and parties acting in concert with it) and all outstanding Options of

Milkyway Image Holdings Limited

FINANCIAL ADVISER TO RIGHT OPPORTUNE LIMITED

Kingston Corporate Finance Limited

INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT BOARD COMMITTEE OF MILKYWAY IMAGE HOLDINGS LIMITED

The respective boards of directors of Right Opportune and Milkyway Image announce that on 28th August 2003, Right Opportune entered into the Sale and Purchase Agreement with the Vendor, pursuant to which Right Opportune agreed to purchase and the Vendor agreed to sell 285,600,000 Shares for a consideration of HK$7.14 million (equivalent to HK$0.025 per Share). The Sale Shares represent approximately 45.54 % of the issued share capital of Milkyway Image as at the date of this announcement.

Completion will take place on the third business day after the conditions of the Sale and Purchase Agreement have been fulfilled or waived, which is expected to be on or about 18th September 2003. Further announcement will be made after the Completion. After the Completion, Right Opportune and parties acting in concert with it will own in aggregate 285,600,000 Shares, representing approximately 45.54 % of the issued share capital of Milkyway Image as at the date of this announcement and will be required under Rule

1

26.1 of the Takeovers Code to make mandatory conditional cash offers for all the issued Shares not already owned and/or agreed to be acquired by it and parties acting in concert with it and all the outstanding Options. The principal terms of the Offers are set out under the section headed “Possible mandatory conditional cash offers” below. The Share Offer is entirely financed by the Take Up Agreement. Kingston Corporate Finance and Kingston Securities are satisfied that there are sufficient financial resources available to Right Opportune to satisfy the amount of funds required for the acquisition of the Sale Shares and to meet the full acceptance of the Offers.

On 28th August 2003, Right Opportune, Bluebell and Kingston Securities have entered into the Take Up Agreement, pursuant to which, Bluebell shall purchase up to 10% of the issued share capital of Milkyway Image, which shall be not less than 62,720,000 Shares and not more than 64,400,000 Shares, first tendered and accepted under the Share Offer at HK$0.025 per Share and Kingston Securities shall procure placees (who shall be independent investors not connected with Milkyway Image, its directors, chief executive, substantial shareholders or management shareholders or any of its subsidiaries or any of their respective associates) for, or failing which Kingston Securities to purchase, the balance of the Shares tendered and accepted under the Share Offer which have not been purchased by Bluebell. Kingston Securities shall pay for the Shares tendered and accepted under the Share Offer in accordance with its obligation under the Take Up Agreement within seven days of the later of the date of the Offers become, or are declared, unconditional and the date of receipt of a valid and completed form of acceptance of the Share Offer. The placing of the Shares tendered and accepted under the Share Offer by Kingston Securities will only be completed and the share certificates for such Shares will only be delivered to the placees after the close of the Offers. Pursuant to the Take Up Agreement, Kingston Securities has undertaken that it shall procure purchasers for the excess number of Shares tendered and accepted under the Share Offer (if made) within the period of one month (or such extension as may be granted by the Stock Exchange) commencing from the date of the close of the Offers in the event that the aggregate of the Shares tendered and accepted under the Share Offer together with the Sale Shares shall exceed 75% of the issued share capital of Milkyway Image on the date of the close of the Offers. An application to the Executive for consent under Rule 21.2 of the Takeovers Code will be made by Kingston Corporate Finance.

Within 21 days after the date of this announcement or such later date as the Executive may approve, Right Opportune is required to despatch the offer document containing the conditions and terms of the Offers, the form of acceptance and transfer of the Shares to the shareholders of Milkyway Image as well as the form of acceptance of the outstanding Options to the Optionholder. Milkyway Image will establish an independent board committee to advise the independent shareholders of Milkyway Image. Platinum has been appointed as the independent financial adviser to advise the independent board committee of Milkyway Image in respect of the Offers. Milkyway Image will send the offeree document in relation to the Offers to the shareholders of Milkyway Image and the Optionholder in accordance with the Takeovers Code. Right Opportune and Milkyway Image will use all reasonable endeavours to combine the aforesaid offeree document with Right Opportune’s offer document so that a composite offer document can be posted.

The Offers will only be made if the Sale and Purchase Agreement is completed. Completion is conditional upon the fulfillment of certain conditions. As Completion and the Offers may or may not proceed, the shareholders of Milkyway Image and investors should exercise caution in dealings in the Shares.

Trading in the Shares on GEM was suspended with effect from 9:30 a.m. on 29th August 2003 pending the release of this announcement. Application has been made by Milkyway Image for the resumption of trading in the Shares on GEM with effect from 9:30 a.m. on 11th September 2003.

2

THE SALE AND PURCHASE AGREEMENT

Date: 28th August 2003

Vendor:

Pearl Rider Overseas Limited, which is wholly owned by Sliver Seal Finance Limited as trustee for and on behalf of The To Kei Fung Family Unit Trust, all units of which are beneficially owned as to 99.99% by The To Kei Fung Family Trust and 0.01% by Ms. Wong Po Ling, Paulina (the spouse of Mr. To).

Purchaser: Right Opportune, which is independent of and not connected with Milkyway Image, the directors, chief executive, substantial shareholders or management shareholders of Milkyway Image and the Vendor or any of their respective subsidiaries, or an associate of any of them. As at the date of this announcement, Right Opportune is not acting in concert with any shareholders of Milkyway Image as defined in the Takeovers Code. Save for acquaintance between Mr. Law and Mr. To, Right Opportune and Mr. Law have no pre-existing relationship with the Vendor and Mr. To. Mr. To first acquainted with Mr. Law on social occasion.

Guarantor for the Vendor: Mr. To

Pursuant to the Sale and Purchase Agreement, Mr. To has unconditionally and irrevocably undertaken to Right Opportune to procure the due and punctual performance by the Vendor of its obligations expressed to be imposed on or assumed by it under the Sale and Purchase Agreement and has undertaken to indemnify and keep effectively indemnified Right Opportune against all liabilities, losses, damages, costs and expenses stipulated under the Sale and Purchase Agreement or otherwise which Right Opportune may suffer or incur in connection with any default or delay on the part of the Vendor in the performance of any such obligations.

Sale Shares

285,600,000 Shares, representing approximately 45.54 % of the issued share capital of Milkyway Image as at the date of this announcement. The Sale Shares will be acquired by Right Opportune free from all claims, charges, liens, encumbrances, equities and other third parties rights.

Consideration

HK$7.14 million (equivalent to HK$0.025 per Share), which was negotiated and determined on arm’s length basis with reference to the audited consolidated net asset value of Milkyway Image as shown in the audited consolidated financial statements of the Group made up to 31st March 2003.

The purchase price of HK$0.025 per Share represents (i) a discount of approximately 40.5 % to the closing price of HK$0.042 per Share as quoted on GEM on 28th August 2003, being the last trading day prior to the suspension of trading in the Shares on 29th August 2003; (ii) a discount of approximately 31.5 % to the average closing price of approximately HK$0.0365 per Share as quoted on GEM for the last 10 consecutive trading days up to and including 28th August 2003; and a discount of approximately 24.9% to the audited net asset value per Share of approximately HK$0.0333 as at 31st March 2003 based on the audited consolidated financial statements of the Group made up to 31st March 2003.

3

Conditions

The Sale and Purchase Agreement is conditional upon:

• (i) trading in the Shares on GEM not being suspended for a period of more than three consecutive trading days save for any suspension for the purposes of clearing any announcement and circular in relation to the sale and purchase of the Sale Shares and/or the Offers by the regulatory authorities;

• (ii) trading in the Shares on GEM not being revoked or withdrawn at any time prior to Completion;

• (iii) there being no indication from the Stock Exchange or the SFC that listing of the Shares will be suspended, revoked or withdrawn at any time after Completion, whether in connection with any of the transactions contemplated by the Sale and Purchase Agreement or otherwise;

• (iv) completion of the due diligence review to be conducted pursuant to the Sale and Purchase Agreement and the results of such due diligence review are to the reasonable satisfaction of Right Opportune and have not revealed or disclosed any matter, fact or circumstance which constitutes or is likely to constitute any breach of any of the warranties or other provisions of the Sale and Purchase Agreement by the Vendor or Mr. To;

• (v) the representations and warranties set out in the Sale and Purchase Agreement, including, among other things, representations and warranties on the Vendor’s titles in the Sale Shares and the authority of the Vendor for the entering into of the Sale and Purchase Agreement, remaining true and accurate in all respects; and

• (vi) all necessary consents and approvals as may be required in respect of the sale of the Sale Shares and the transactions contemplated under the Sale and Purchase Agreement having been obtained by the Vendor and Mr. To.

Completion of the Sale and Purchase Agreement

Completion will take place on the third business day after the conditions referred to in the paragraph headed “Conditions” in the section headed “The Sale and Purchase Agreement” in this announcement being fulfilled or otherwise waived. Completion is expected to take place on or about 18th September 2003.

The Consideration will be paid in cash by Right Opportune to the Vendor upon Completion and Mr. Law has undertaken to earmark an amount of not less than the Consideration in his bank deposit to satisfy the payment of the Consideration.

4

POSSIBLE MANDATORY CONDITIONAL CASH OFFERS

As at the date of this announcement and save for the shareholding interests to be bought and sold under the Sale and Purchase Agreement, Right Opportune and parties acting in concert with it do not have any shareholding interests in Milkyway Image.

Immediately following the Completion, Right Opportune and parties acting in concert with it (including Bluebell) will own in aggregate 285,600,000 Shares, representing approximately 45.54 % of the issued share capital of Milkyway Image as at the date of this announcement. Under Rule 26.1 of the Takeovers Code, Right Opportune is required to make a mandatory conditional cash offer for all the issued Shares not already owned and/or agreed to be acquired by it or parties acting in concert with it. Under Rule 13 of the Takeovers Code, Right Opportune is also required to make a comparable offer for all the outstanding Options as part of the Offers.

As at the date of this announcement, Milkyway Image has 627,200,000 Shares in issue and 16,800,000 outstanding Options entitling the holders thereof to subscribe for an aggregate of 16,800,000 Shares at an exercise price of HK$0.01 per Share. Accordingly, apart from the aforesaid 285,600,000 Shares, the remaining 341,600,000 Shares (assuming the Options granted have not been exercised prior to the close of the Offers) or 358,400,000 Shares (assuming the Options granted have been fully exercised) will be subject to the Share Offer and the 16,800,000 outstanding Options (if not exercised) will be subject to the Option Offer.

Save for the outstanding Options disclosed above, there are no outstanding warrants, options or securities convertible into Shares as at the date of this announcement.

Within 21 days after the date of this announcement or such later date as the Executive may approve, Right Opportune is required to despatch the offer document containing the conditions and terms of the Offers, the form of acceptance and transfer of the Shares to the shareholders of Milkyway Image as well as the form of acceptance of the outstanding Options to the Optionholder.

Milkyway Image will establish an independent board committee to advise the independent shareholders of Milkyway Image. Platinum has been appointed as the independent financial adviser to advise the independent board committee of Milkyway Image in respect of the Offers. Milkyway Image will send the offeree document in relation to the Offers to the shareholders of Milkyway Image and the Optionholder in accordance with the Takeovers Code. Right Opporture and Milkyway Image will use all reasonable endeavours to combine the aforesaid offeree document with Right Opportune’s offer document so that a composite offer document can be posted.

Principal terms of the Offers

Subject to and conditional upon Completion, Kingston Securities, on behalf of Right Opportune, will make mandatory conditional cash offers for all the issued Shares (other than those already owned or agreed to be acquired by Right Opportune and/or parties acting in concert with it) and all the outstanding Options on the following basis:

The Share Offer

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.025 in cash

5

The Offer Price is the same price as that paid by Right Opportune for the Sale Shares under the Sale and Purchase Agreement.

The Option Offer

For each outstanding Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

HK$0.015 in cash

As at the date of this announcement, there are 16,800,000 outstanding Options granted to Mr. Ding Yuin Shan, a member of the senior management of the Group, entitling him to subscribe for a maximum of 16,800,000 Shares at an exercise price of HK$0.01 per Share under the Pre-IPO Option Share Scheme. Subject to and conditional upon Completion, Right Opportune is required under the Takeovers Code to make a comparable offer for all the Options as part of the Offers. Right Opportune offers to pay the Optionholder in cash on the basis set out above in respect of every Option held by him in consideration of the surrender by the Optionholder of all his rights in respect of such Options. The Optionholder has not given any undertaking to accept or not to accept the Option Offer.

Save for the Options granted to the Optionholder, there is no outstanding options, warrants or securities convertible into Shares as at the date of this announcement.

Comparison of value

The offer price of HK$0.025 per Share is the same as the price paid by Right Opportune to the Vendor for each Sale Share under the Sale and Purchase Agreement. The offer price of HK$0.025 per Share represents:

• (a) a discount of approximately 40.5 % to the closing price of HK$0.042 per Share as quoted on GEM on 28th August 2003, being the last trading day prior to the suspension of trading in the Shares on 29th August 2003;

• (b) a discount of approximately 31.5 % to the average closing price of approximately HK$0.0365 per Share as quoted on GEM for the last 10 consecutive trading days up to and including 28th August 2003; and

• (c) a discount of approximately 24.9 % to the audited net asset value per Share of about HK$0.0333 as at 31st March 2003 based on the audited consolidated financial statements of the Group made up to 31st March 2003.

Total consideration

As at the date of this announcement, there are 627,200,000 Shares in issue and 16,800,000 outstanding Options. Assuming there will not be any change in the issued share capital of Milkyway Image by the exercise of the Options, at a price of HK$0.025 per Share, the entire issued share capital of Milkyway Image is valued at approximately HK$15.68 million under the Share Offer and all the Shares subject to the Share Offer, if made, are valued at approximately HK$8.54 million. Assuming all the 16,800,000 outstanding Options as described above are tendered, at a price of HK$0.015 per Option, the amount payable by Right Opportune under the Option Offer, if made, will be approximately HK$0.25 million.

6

Right Opportune, Bluebell and Kingston Securities entered into the Take Up Agreement on 28th August 2003 and pursuant to which, Bluebell shall purchase up to 10% of the issued share capital of Milkyway Image, which shall be not less than 62,720,000 Shares and not more than 64,400,000 Shares, first tendered and accepted pursuant to the Share Offer at HK$0.025 per Share and Kingston Securities shall procure placees (who shall be independent investors not connected with Milkyway Image, directors, chief executive, substantial shareholders or management shareholders of Milkyway Image or any of its subsidiaries or any of their respective associates) for, or failing which Kingston Securities to purchase, the balance of the Shares tendered and accepted under the Share Offer which have not been purchased by Bluebell at HK$0.025 per Share. Kingston Securities shall pay for the Shares tendered and accepted under the Share Offer in accordance with its obligations under the Take Up Agreement within seven days of the later of the date of the Offers become, or are declared, unconditional and the date of receipt of a valid and completed form of acceptance of the Share Offer. As such, the Share Offer is entirely financed by the Take Up Agreement. The placing of the Shares tendered and accepted under the Share Offer by Kingston Securities will only be completed and the share certificates for such Shares will only be delivered to the placees after the close of the Offers. An application to the Executive for consent under Rule 21.2 of the Takeovers Code (restrictions on dealing during the offer) will be made by Kingston Corporate Finance.

Ms. Teng Chia Lin, Chialina, the sole beneficial owner of Bluebell, has undertaken to earmark an amount of not less than HK$1.61 million in her bank deposit to fulfill the payment obligation of Bluebell under the Take Up Agreement. Kingston Corporate Finance and Kingston Securities are satisfied that there are sufficient financial resources available to Right Opportune to satisfy the amount of funds required for the acquisition of the Sale Shares and to meet the full acceptance of the Offers.

Pursuant to the Take Up Agreement, Kingston Securities has undertaken that it shall procure purchasers for the excess number of Shares tendered and accepted under the Share Offer (if made) within the period of one month (or such extension as may be granted by the Stock Exchange) commencing from the date of the close of the Offers in the event that the aggregate of the Shares tendered and accepted under the Share Offer together with the Sale Shares shall exceed 75% of the issued share capital of Milkyway Image on the date of the close of the Offers.

The obligations of Bluebell and Kingston Securities under the Take Up Agreement are conditional upon the fulfillment of the following conditions:

• (i) the Offers become, or are declared, unconditional; and

• (ii) the consent or waiver (if any) of the Executive in relation to the transactions contemplated under the Take Up Agreement having been obtained.

Conditions of the Offers

The Offers will only be made if the Sale and Purchase Agreement is completed and, if made, will be subject to Right Opportune receiving acceptances in respect of Shares, which together with Shares already held or agreed to be acquired by it and parties acting in concert with it before or during the Offers, will result in Right Opportune and parties acting in concert with it holding more than 50 % of the voting rights of Milkyway Image.

Right Opportune does not intend to extend the period of the Offers if the acceptance conditions above are not fulfilled by the first closing date of the Offers, which is expected to be on or about 21st October 2003 or such later date as the Executive may approve, but reserves the right to do so.

7

Effect of accepting the Offers

By accepting the Share Offer, shareholders of Milkyway Image will sell their Shares and all rights attached to them, including the rights to receive all dividends and distribution declared, made or paid on or after the posting of the offer document, which is expected to be on or about 30th September 2003 or such later date as the Executive may approve. By accepting the Option Offer, the Optionholder will surrender and give up the subscription rights attaching to the Options.

Stamp duty

Stamp duty arising in connection with acceptance of the Share Offer amounting to HK$1.00 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptances will be deducted from the amount payable to shareholders of Milkyway Image who accept the Share Offer. Right Opportune will then pay the stamp duty deducted to the stamp duty office.

INFORMATION ON MILKYWAY IMAGE

Milkyway Image was listed on the GEM on 26th August 2002. The Group is principally engaged in the provision of film production services for film companies in Hong Kong.

Prior to Completion, Milkyway Image’s major shareholder was the Vendor, which held approximately 45.54 % of the issued share capital in Milkyway Image. The Vendor is wholly owned by Sliver Seal Finance Limited as trustee for and on behalf of The To Kei Fung Family Unit Trust, the units of which are beneficially owned as to 99.99% by The To Kei Fung Family Trust and 0.01% by Ms. Wong Po Ling, Paulina (the spouse of Mr. To). Mr. To is the founder, chairman and executive director of Milkyway Image. He is deemed as controlling shareholder of Milkyway Image under the Takeovers Code.

The following table sets out the shareholding structure of Milkyway Image before and immediately after the close of the Offers and the Placing subject to the Offers become, or are declared, unconditional:

					Assuming all outstanding Options	Assuming all outstanding Options	Assuming all outstanding Options
	Assuming no outstanding Options					have been exercised before
		have been	exercised			the close of	the Offers
	Before	Offers	After Offers and		Before	Offers	After Offers and
			the Placing				the Placing
	**No. of Shares **	**Approximate **	**No. of Shares Approximate **		**No. of Shares **	**Approximate **	No. of Shares Approximate
		%		%		%		%
Vendor	285,600,000	45.54	–	–	285,600,000	44.35	–	–
Right Opportune	–	–	285,600,000	45.54	–	–	285,600,000	44.35
Bluebell (Note 2)	–	–	62,720,000	10.00	–	–	64,400,000	10.00
Optionholder (Note 3)	–	–	–	–	16,800,000	2.61	–	–
Public	341,600,000	54.46	278,880,000	44.46	341,600,000	53.04	294,000,000	45.65
Total	627,200,000	100.00	627,200,000	100.00	644,000,000	100.00	644,000,000	100.00

8

Notes:

1. Assuming Kingston Securities placed out all the Shares agreed to be placed by it under the Take Up Agreement.

2. Assuming at least 10% of the issued share capital of Milkyway Image has been tendered and accepted under the Share Offer.

3. Assuming the Optionholder has exercised all outstanding Options and accepted the Share Offer.

Based on the Group’s audited consolidated financial results, it recorded profit before tax of approximately HK$3.48 million, HK$8.19 million and HK$3.32 million respectively for the three financial years ended 31st March 2003. Over the same periods, Milkyway Image recorded profit after tax of approximately HK$3.48 million, HK$7.66 million and HK$2.53 million respectively. Milkyway Image has net assets of approximately HK$20.91 million as at 31st March 2003. As stated in Milkyway Image’s first quarterly report for the three months ended 30th June 2003, it recorded an unaudited consolidated loss before and after tax of approximately HK$3.58 million. Milkyway Image has a market capitalisation of approximately HK$26.34 million based on its closing price of HK$0.042 per Share as quoted on GEM on 28th August 2003. Right Opportune will not pass any debts or liabilities to Milkyway Image.

INFORMATION ON RIGHT OPPORTUNE AND ITS INTENTION REGARDING MILKYWAY IMAGE

Right Opportune is an investment holding company incorporated in the British Virgin Islands on 10th June 2003 and is beneficially and wholly owned by Mr. Law. Mr. Law is also the sole director of Right Opportune. Save for the entering into of the Sale and Purchase Agreement, Right Opportune has not conducted any business since its incorporation and does not have any material assets.

As the date of the Sale and Purchase Agreement, neither Right Opportune nor the parties acting in concert with it owned any Shares in Milkyway Image. Save for the entering into of the Sale and Purchase Agreement and the Take Up Agreement, none of Right Opportune and parties acting in concert with it has dealt in any Shares during the period commencing on the date falling six months prior to the date of the Sale and Purchase Agreement and up to the date of this announcement.

Following the Completion and the close of the Offers, Right Opportune intends to continue the existing businesses of the Group. Right Opportune currently has no intention to re-deploy the employees or to dispose of or re-deploy the assets of the Group other than in the its ordinary course of business. Right Opportune also intends to continue to implement the business objectives and apply the listing proceeds in the manner as set out in the Prospectus. Currently, Right Opportune has no intention to inject any assets or businesses into Milkyway Image. The Group will have sufficient level of operations to warrant the continued listing of the Shares under Rule 17.26 of the GEM Listing Rules. Should there be any proposed material change to the general character or nature of the business of the Group, Milkyway Image will comply with Rule 17.25 of the GEM Listing Rules.

Except Mr. To, all existing executive directors of Milkyway Image, namely Mr. Ng Hung Keung, and Ms. Chan Dao Ho, will resign and such resignation will take effect on the first closing date of the Offers or the date when the Offers become, or are declared unconditional, whichever is the later, subject to full compliance with Rule 7 of the Takeovers Code. It is intended by Right Opportune that the existing independent non-executive directors of Milkyway Image, namely Ms. Ho Mei Yee and Mr. Tam Kwok Fai, Jasper will remain as the independent

9

non-executive directors. Notwithstanding the above arrangement, Milkyway Image will fully comply with Rule 5.05 and 5.14 of the GEM Listing Rules from time to time.

Right Opportune intends to nominate two executive directors to the board of directors of Milkyway Image and such appointment will not take effect earlier than the date of the posting of the offer document subject to compliance with the Takeovers Code. The brief details of the proposed executive directors of Milkyway Image to be nominated by Right Opportune are set out in the section headed “Proposed change of board composition of Milkyway Image” below.

Right Opportune also intends that Mr. Siu Yun Tang (“Mr. Siu”) will remain as the company secretary and qualified accountant of Milkyway Image and the authorised representative of Milkyway Image will be changed to Mr. Siu and Mr. Law.

Save as the introduction of two new executive directors to the board of directors of Milkyway Image, Right Opportune has no plan to substantially change the senior management of the Group and all resigning executive directors will remain as senior management of the Group. As such, the sole director of Right Opportune believes that their resignation will not affect Milkyway Image in fulfilling the business objectives as stated in the Prospectus. The sole director of Right Opportune believes that the proposed change in the board composition of Milkyway Image will not have any adverse and material impact on the business operation of the Group.

As disclosed in the Prospectus, Mr. To has unconditionally and irrevocably undertaken to Milkyway Image that he will not at any time during which Milkyway Image is listed on GEM and as long as he and/or his associates hold, whether individually or altogether, 10% of more direct or indirect interest of Milkyway Image, or he is a director of Milkyway Image, directly or indirectly carry on, participate in or be engaged, concerned or interested in any business which competes or may compete with the business of the Group from time to time including in the provision of film director, producer and/or consultant services to companies whose business shall compete, or may compete, from time to time with any members of the Group. Such non-competition undertaking given by Mr. To in favour of Milkyway Image will remain in force after Completion and the close of the Offers so long as Milkyway Image is listed on GEM and Mr. To remains a director of Milkyway Image.

As disclosed in the Prospectus, Mr. Lau Tak Wah Andy (“Mr. Lau”) has undertaken to use his reasonable endeavours to grant a first right of refusal to Milkyway Image in respect of any film project to be invested by him and/or his associates. Mr. Lau has also undertaken to Milkyway Image that in the event Mr. Lau considers appropriate to outsource the production of films for which he and/or his associates is the sole producer, priority will be given to the Group if the terms of engagement offered by the Group are comparable with those offered by other film production companies. It was provided that the above undertakings given by Mr. Lau in favour of Milkyway Image would cease to have effect on the date on which (i) Milkyway Image ceases to be listed on GEM; or (ii) the Group ceases to engage in film production business; or (iii) Mr. Lau and his associates as a group cease to be a substantial shareholder of Milkyway Image. To the best knowledge of the directors of Milkyway Image, Mr. Lau and his associates as a group are currently the beneficial owner of 59,500,000 Shares, representing approximately 9.49% of the issued share capital of Milkyway Image as at the date of this announcement and the dilution in the shareholding of Mr. Lau in Milkyway Image was due to the exercise of options under the Pre-IPO Share Option Scheme. As such, the undertakings given by Mr. Lau to Milkyway Image has already ceased to have effect on the date on which Mr. Lau and his associates as a group ceased to be a substantial shareholder of Milkyway Image for the purpose of the GEM Listing Rules.

10

INFORMATION ON BLUEBELL AND ITS INTENTION REGARDING MILKYWAY IMAGE

Bluebell is an investment holding company incorporated in the British Virgin Islands on 11th August 2003 and is wholly and beneficially owned by Ms Teng Chia Lin, Chialina, the spouse of Mr. Law. Save for the entering into of the Take Up Agreement, Bluebell has not conducted any business since its incorporation. Bluebell entered into the Take Up Agreement with the intention to hold up to 10% of the issued share capital of Milkyway Image as long-term investment. Bluebell is not entitled to nominate any person to the board of directors of Milkyway Image.

MAINTAINING THE LISTING STATUS OF MILKYWAY IMAGE

Right Opportune intends that Milkyway Image will remain listed on GEM after Completion and the close of the Offers. Each of Right Opportune and the new directors to be appointed to the board of Milkyway Image has undertaken to the Stock Exchange to take appropriate steps as soon as possible following the close of the Offers to ensure that not less than 25 % of the issued Shares will be held by the public.

Pursuant to the Take Up Agreement, Kingston Securities shall procure placees (who shall be independent investors not connected with Milkyway Image, the directors, chief executive, substantial shareholders or management shareholders of Milkyway Image or any of its subsidiaries or any of their respective associates) for, or failing which Kingston Securities shall purchase, the balance of the Shares tendered and accepted under the Share Offer which have not been purchased by Bluebell at HK$0.025 per Share. Pursuant to the Take Up Agreement, Kingston Securities has undertaken that it shall procure purchasers for the excess number of Shares tendered and accepted under the Share Offer (if made) within the period of one month (or such extension as may be granted by the Stock Exchange) commencing from the date of the close of the Offers in the event that the aggregate of the Shares tendered and accepted under the Share Offer together with the Sale Shares shall exceed 75% of the issued share capital of Milkyway Image on the date of the close of the Offers. An application to the Executive for consent under Rule 21.2 of the Takeovers Code (restrictions on dealing during the offer) will be made by Kingston Corporate Finance.

Kingston Securities, being a party acting in concert with Right Opportune, is a licensed corporation to carry on business in types 1, 4, 6, 7 and 9 regulated activities (dealing in securities, advising on securities and corporate finance, providing automated trading services and asset management) under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and is an independent third party not connected with or acting in concert with any of the directors, chief executive, substantial shareholders or management shareholders of Milkyway Image or any of its subsidiaries or any of their respective associates.

If the Stock Exchange believes that (i) a false market exists or may exist in the Shares; or (ii) there are too few Shares in public hands to maintain an orderly market, then it will consider exercising its discretion to suspend trading in the Shares. In this connection, it should be noted that upon the close of the Offers, there may be insufficient public float for the Shares and therefore trading in the Shares may be suspended until a sufficient level of public float is attained.

If Milkyway Image remains a listed company, the Stock Exchange will also closely monitor all acquisitions or disposals of assets by Milkyway Image. Under the GEM Listing Rules, the Stock Exchange has the discretion to require Milkyway Image to issue a circular to its shareholders irrespective of the size of the proposed transaction, particularly when such proposed transaction represents a departure from the principal activities of Milkyway Image. The Stock Exchange also has the power pursuant to the GEM

11

Listing Rules to aggregate a series of transactions and any such transactions may result in Milkyway Image being treated as if it were a new listing applicant and subject to the requirement for new applicants as set out in the GEM Listing Rules.

PROPOSED CHANGE OF BOARD COMPOSITION OF MILKYWAY IMAGE

Except Mr. To, all existing executive directors of Milkyway Image, namely Mr. Ng Hung Keung, and Ms. Chan Dao Ho, will resign and such resignation will take effect on the first closing date of the Offers or the date when the Offers become, or is declared unconditional, whichever is the later, subject of full compliance with Rule 7 of the Takeovers Code. It is intended by Right Opportune that the existing independent non-executive directors of Milkyway Image, namely Ms. Ho Mei Yee and Mr. Tam Kwok Fai, Jasper will remain as independent nonexecutive directors of Milkyway Image. In addition, Right Opportune intends to nominate the following persons as executive directors to the board of Milkyway Image and such appointment will not take effect earlier than the date of posting of the offer document subject to compliance with the Takeovers Code.

Set out below are the brief details of the proposed executive directors to be nominated by Right Opportune:

Mr. Law, aged 40, is currently the managing director of Yu Tai Hing Company Limited which is a wellestablished private property investment and development group in Hong Kong. Mr. Law has 14 years of experience in property investment and development. Mr. Law holds a Bachelor of Arts degree in Communications from Loyola Marymount University of Los Angeles, California in the United States of America.

Ms. Teng Chia Lin, Chialina, aged 38, is a practising dental surgeon. She graduated from Guy’s Hospital Medical & Dental School, University of London in the United Kingdom in 1989, with a Bachelor’s degree in Dental Surgery. She joined the Philip Dental Hospital in 1990, and then started her own private practice in 1991. Ms. Teng also held directorship in a number of property investment companies. She is the spouse of Mr. Law.

Although the above persons have no direct experience in engaging in the business of the Group, Mr. Law, being the managing director of Yu Tai Hing Company Limited, has extensive experience in management, business development and strategic planning and Ms. Teng has been the directors of a number of property investment companies. Both of them will be responsible for the overall strategic development, policy making and administration of the Group, while Mr. To, the remaining executive director of Milkyway Image, will be responsible for overseeing and supervising film production projects of the Group.

Save as the introduction of two new executive directors to the board of directors of Milkyway Image, Right Opportune has no plan to substantially change the senior management of the Group and all resigning executive directors of Milkyway Image will remain as senior management of the Group. The sole director of Right Opportune believes that the aforesaid proposed change in the composition of the board of directors of Milkyway Image will not have any adverse and material impact on the business operation of the Group.

12

GENERAL

Offer document and response document

Pursuant to Rule 8.2 of the Takeovers Code, within 21 days after the date of this announcement or such later date as the Executive may approve, Right Opportune is required to despatch the offer document containing the conditions and terms of the Offers, the form of acceptance and transfer of the Shares to the shareholders of Milkyway Image as well as the form of acceptance of the outstanding Options to the Optionholder. Milkyway Image will send the offeree document in relation to the Offers to the shareholders of Milkyway Image and the Optionholder in accordance with the Takeovers Code. Right Opportune and Milkyway Image will use all reasonable endeavours to combine the aforesaid offer document with Milkyway Image’s offeree document so that a composite document can be posted.

WARNING

The Offers will only be made if the Sale and Purchase Agreement is completed. Completion is conditional upon the fulfilment of certain conditions. As Completion and the Offers may or may not proceed, the shareholders of Milkyway Image and investors should exercise caution in dealings in the Shares.

Suspension and resumption of trading in Shares

Trading in the Shares on GEM was suspended with effect from 9:30 a.m. on 29th August 2003 at the request of Milkyway Image pending the release of this announcement. Application has been made by Milkyway Image for the resumption of trading in the Shares on GEM with effect from 9:30 a.m. on 11th September 2003.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise.

• “associates” has the meaning ascribed thereto in the GEM Listing Rules

• “Bluebell” Bluebell Strategic Investment Limited, a company incorporated in the British Virgin Islands and is wholly and beneficially owned by Ms. Teng Chia Lin, Chialina, the spouse of Mr. Law

• “Completion” completion of the Sale and Purchase Agreement in accordance with its terms

• “Consideration” HK$7.14 million payable for the Sale Shares under the Sale and Purchase Agreement

• “Executive” the Executive Director of the Corporate Finance Division of the SFC or any of his delegates

• “GEM” the Growth Enterprise Market of the Stock Exchange

• “GEM Listing Rules” the Rules Governing the Listing of Securities on the GEM

13

Milkyway Image and its subsidiaries

“Group”

• “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China “Kingston Corporate Kingston Corporate Finance Limited, a licensed corporation to carry on business Finance” in types 4 and 6 regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Kingston Securities” Kingston Securities Limited, a licensed corporation to carry on business in types 1, 4, 6, 7 and 9 regulated activities (dealing in securities, advising on securities and corporate finance, providing automated trading services and asset management) under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Milkyway Image” Milkyway Image Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the issued Shares of which are listed on GEM

• “Mr. Law” Mr. Law Sau Yiu, Dennis “Mr. To” Mr. To Kei Fung, the founder, chairman and executive director of Milkyway Image. He is also deemed to be the controlling shareholder of Milkyway Image under the Takeovers Code

• “Offers” the Share Offer and Option Offer “Option(s)” options(s) granted under the Pre-IPO Share Option Scheme which remain outstanding as at the date of this announcement, entitling the holder thereof to subscribe for new share(s)

• “Optionholder” Mr. Ding Yuin-Shan, holders of the 16,800,000 outstanding Options and a member of the senior management of the Group

• “Option Offer” the possible mandatory conditional cash offer for all outstanding Options to be made by Kingston Securities on behalf of Right Opportune in accordance with the Takeovers Code

• “Placing” the placing of Shares by Kingston Securities pursuant to the Take Up Agreement

• “Platinum” Platinum Securities Company Limited, a deemed licensed corporation to carry out types 1, 4, 6 and 9 regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Pre-IPO Share the share option scheme adopted by the Milkyway Image on 2nd August 2002

• Option Scheme”

• “Prospectus” the prospectus of Milkyway Image dated 13th August 2002

14

“Right Opportune” Right Opportune Limited, an investment holding company incorporated in the British Virgin Islands with limited liability, and the entire issued share capital of which is wholly and beneficially owned by Mr. Law, who is also the sole director of Right Opportune

• “Sale and Purchase the conditional sale and purchase agreement dated 28th August 2003 and entered Agreement” into among the Vendor, Mr. To and Right Opportune in relation to the sale by the Vendor and the purchase by Right Opportune of the Sale Shares

• “Sale Shares” 285,600,000 Shares to be acquired by Right Opportune pursuant to the Sale and Purchase Agreement

• “SFC” the Securities and Futures Commission of Hong Kong

• “Share(s)” share(s) of HK$0.01 each in the share capital of Milkyway Image

• “Share Offer” the possible mandatory conditional cash offer for all the issued Shares not already owned and/or agreed to be acquired by Right Opportune or parties acting in concert with it at HK$0.025 per Share to be made by Kingston Securities on behalf of Right Opportune in accordance with the Takeovers Code

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Takeovers Code” The Hong Kong Code on Takeovers and Mergers

• “Take up Agreement” the take up agreement dated 28th August 2003 and entered into among Right Opportune, Bluebell and Kingston Securities as supplemented by a supplemental agreement dated 5th September 2003 whereby, subject to the Executive’s consent under Rule 21.2 of the Takeovers Code and the Offers become or are declared unconditional, Bluebell has agreed to purchase up to 10% of the issued share capital of Milkyway Image, which shall be not less than 62,720,000 Shares and not more than 64,400,000 Shares first tendered and accepted pursuant to the Share Offer at the Offer Price and Kingston Securities agrees to procure the placing, at a placing price of HK$0.025 per Share, to independent third parties for all the remaining Shares not purchased by Bluebell of which acceptances have been tendered under the Share Offer

“Vendor” Pearl Rider Overseas Limited, a company incorporated in the British Virgin Islands and the entire issued share capital of which is owned by Sliver Seal Finance Limited as trustee for and on behalf of The To Kei Fung Family Unit Trust, all units of which are owned as to 99.99% by The To Kei Fung Family Trust and 0.01% by Ms. Wong Po Ling, Paulina (the spouse of Mr. To) and the vendor under the Sale and Purchase Agreement.

15

Hong Kong dollars, the lawful currency of Hong Kong

“HK”

“%”

per cent.

By order of the board of Right Opportune Limited Law Sau Yiu, Dennis Director

By order of the board of Milkyway Image Holdings Limited To Kei Fung Chairman

Hong Kong, 10th September 2003

The sole director of Right Opportune accepts full responsibility for the accuracy of the information contained in this announcement (other than that in relation to the Vendor, Mr. To and Milkyway Image) and confirm, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement (other that in relation to the Vendor, Mr. To and Milkyway Image) the omission of which would make any statement in this announcement misleading.

The directors of Milkyway Image jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that in relation to Right Opportune) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement (other that in relation to Right Opportune) the omission of which would make any statements in this announcement misleading.

This announcement will remain on the “Latest Company Announcements” page on the GEM website at www.hkgem.com for at least 7 days from the date of its posting.

* For identification purpose only

16