Deson Development International Holdings Limited — M&A Activity 2000

Jun 2, 2000

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.

迪臣發展國際集團有限公司

(Incorporated in Bermuda with limited liability)

Discloseable Transactions

(I) Acquisition of Shares in Yew Siang Limited

and

(II) Disposal of Shares in Goodville Developments Limited

Acquisition of Shares in Yew Siang

Deson, through its wholly-owned subsidiary, Deson Ventures, has agreed to acquire the entire issued share capital of Yew Siang from independent third parties at an aggregate consideration of US$8 million (approximately HK$61,840,000).

Disposal of Shares in Goodville

Deson's wholly-owned subsidiary, Gainford, has agreed to sell to an independent third party the entire issued share capital of Goodville and the Goodville Shareholders' Loan at a consideration of US$8 million (approximately HK$61,840,000).

General

The Acquisition and the Disposal in aggregate constitute a discloseable transaction under the Listing Rules. The Company will send to its shareholders a circular for further information of respectively the Acquisition and the Disposal shortly.

I. The Acquisition Agreement dated 31st May, 2000.

Parties

Vendors : Twelve independent third parties, being the current shareholders of Yew Siang

The Vendors are not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any associates of any of them (as the term is defined in the Listing Rules).

Purchaser : Deson Ventures, a wholly-owned subsidiary of Deson.

The Shares acquired pursuant to the Acquisition comprise:

1,170,000 issued shares of US$10.00 each in the capital of Yew Siang which constitute its entire issued share capital.

Yew Siang is an investment holding company incorporated on 18th August, 1992 in the British Virgin Islands whose principal asset is its ownership of the entire issued equity interest in Hua Sheng. Upon completion of the Acquisition, Yew Siang will become a wholly-owned subsidiary of Deson and its board of directors will be appointed by Deson in replacement of the current one.

Hua Sheng, which has been wholly owned by Yew Siang since its establishment on 18th February, 1993, is a wholly-foreign owned enterprise established in the PRC. Its main business is property investment in the PRC.

The principal asset of Hua Sheng is its ownership of the entire interest in the Lung Hua Land, located at Tsu Hui District, Shanghai, which Hua Sheng acquired from the Land Administration Bureau in Shanghai on 18th February, 1993. Hua Sheng has the land use rights to the Lung Hua Land for a term of 70 years from 18th February, 1993 to 17th February, 2063. The Lung Hua Land is designated for residential use by the relevant government title documents dated 14th April, 1993, the land measures 35,235 sq. metres which for the time being is a vacant piece of land as the current shareholders of Yew Siang have not agreed at a plan as to the development of the land. Deson intends to retain the Lung Hua Land upon completion of the Acquisition as long term investment and will commence development of the land before December, 2000 by construction of residential premises thereon. Development cost of the Lung Hua Land is expected to be not more than RMB3,500 per sq. metre.

The plot ratio in relation to the development of the Lung Hua Land is 1.4 and the prescribed percentage for coverage of the land by constructed premises is not more than 30%, whereas the prescribed percentage for landscape coverage of the land is not less than 30%.

Consideration for the Acquisition

The aggregate consideration for the Acquisition is US$8 million (approximately HK$61,840,000), payable in cash. The consideration was agreed at after arm's length negotiations which was determined with reference to the costs incurred by Hua Sheng on the Lung Hua Land. The consideration represents a premium of 22% to the costs incurred on the Lung Hua Land of US$6,536,688 (approximately HK$50,528,598), such premium is considered by the Directors to be fair and reasonable considering the residential market potential in Shanghai.

The consolidated net shareholders' equity of Yew Siang Group (based on the unaudited consolidated management accounts thereof as at 31st December, 1999) is US$6,833,825 (approximately HK$52,825,467).

The unaudited consolidated net loss before and after taxation and extraordinary items of Yew Siang Group for the financial year ended 31st December, 1999 was approximately US$162,112 (approximately HK$1,253,126), and which for the financial year ended 31st December, 1998 was approximately US$32,094 (approximately HK$248,087).

Payment term

Deson Ventures paid an initial cash deposit of US$0.4 million (approximately HK$3,092,000) in aggregate upon signing of the Acquisition Agreement.

The balance of US$7.6 million (approximately HK$58,748,000) in aggregate will be payable in cash upon completion of the Acquisition.

The Group will finance the Acquisition from internal resources.

Conditions to completion

Completion of the Acquisition is conditional upon, inter alia, the followings having been fulfilled prior to Completion:-

(a) resignation of the current legal person representative and all of the two current directors of Hua Sheng;

(b) two persons nominated by Deson Ventures be appointed as directors of Hua Sheng, one of them be also appointed as Hua Sheng's legal person representative;

(c) the matters referred to in (a) and (b) above be approved in a board meeting of each of Yew Siang and Hua Sheng;

(d) approval having been obtained from the Industry and Trade Administration Bureau in Shanghai for the change of the legal representative and directors mentioned in (a) and (b) above; and

(e) approval having been obtained from the relevant regulatory authority in Shanghai for extension of time in relation to completion of development of the Lung Hua Land which, according to the original conditions set out by the relevant authority, must have been substantially developed by 31st December, 2000.

Completion

Completion is to take place on 31st August, 2000 or such other date as the parties may agree.

II. Disposal Agreement dated 31st May, 2000

Parties

Vendor : Gainford, a wholly-owned subsidiary of the Company.

Purchaser : An independent third party

The Purchaser is not connected with any of the directors, chief executive, substantial shareholders of the Company or any of its subsidiaries or any associates of any of them (as the term is defined in the Listing Rules). The Purchaser is currently the legal person representative of Hua Sheng.

The Shares to be sold pursuant to the Disposal comprise:

100 issued share of US$1.00 each in the capital of Goodville which constitute its entire issued share capital.

Goodville is an investment holding company incorporated on 3rd July, 1998 in the British Virgin Islands whose principal asset is its beneficial interest in the entire issued share capital of Sky Chain.

Sky Chain is a private limited company incorporated in Hong Kong on 5th June, 1998 and its main business is property investment in the PRC.

The principal asset of Sky Chain is the Sky Chain Property which the Group acquired from Crawley Assets on 22nd July, 1999 at a consideration of US$7,280,968 (approximately HK$56,281,880) (which acquisition was announced by Deson on 9th July, 1999). Part of the Sky Chain Property comprising 2 complete floors of the property and another 6 units are currently leased to independent third party tenants at an aggregate monthly rent of RMB108,024 (approximately HK$100,022), the other parts remain vacant premises.

Consideration for the Disposal

The consideration for the Disposal is US$8 million (approximately HK$61,840,000), payable in cash. The consideration was agreed at after arm's length negotiations and was determined with reference to the costs incurred by Sky Chain on the Sky Chain Property. The consideration represents a premium of 9% to the costs incurred on Sky Chain Property of approximately US$7,329,759 (approximately HK$56,659,035) which premium represents the amount of return to the Sky Chain Property which is considered by the Directors to be fair and reasonable. The Goodville Shareholders' Loan, in the amount of HK$60,721,452 as at 31st March, 2000, will, as part of the Disposal, be assigned to the Purchaser upon completion of the Disposal.

The consolidated net shareholders' deficit of Goodville Group (based on its audited accounts as at 31st March, 2000) is HK$4,062,417.

The audited consolidated net loss before and after taxation and extraordinary items of Goodville Group for the financial year ended 31st March, 2000 was HK$4,063,190.

Payment term

The Purchaser will pay initial cash deposit of US$0.4 million (approximately HK$3,092,000) within 7 days after the signing of the Disposal Agreement.

The balance of US$7.6 million (approximately HK$58,748,000) will be payable in cash within 7 days after the completion of the Disposal.

The proceeds from the Disposal will be used to provide additional working capital for Deson and to finance the Acquisition.

Completion

Completion of the Disposal will take place on 31st August, 2000 or such other date as the parties may agree.

Reason for the Disposal and the Acquisition

The Acquisition enables Deson to participate in the construction, development and sale of residential premises in the PRC. In the opinion of the Directors, the demand for residential premises will remain strong in the PRC. Development cost of the Lung Hua Land is expected to be not more than RMB3,500 per sq. metre. With reference to the favourable market conditions in Shanghai, the Company considers that the Lung Hua Land is a valuable investment which will be realised by Deson in the PRC domestic market upon completion of the development. It is expected that the project would generate more promising contributions to Deson (as compared with the Sky Chain Property which are commercial/office premises) in the foreseeable prosperous residential market of the PRC.

The Disposal represents a good opportunity to Deson to realise an immediate gain from the Disposal while proceeds from the Disposal will be used to provide additional working capital for Deson and to finance the Acquisition.

General

The principal activities of the Company and its subsidiaries include (a) the construction business as a main contractor as well as contracting intelligent building engineering services mainly in Hong Kong and the PRC; (b) property investment in the PRC mainly in respect of projects for which Deson has acted as a contractor; and (c) trading and retailing of fitness, leisure and medical equipment and the provision of related installation and contracting services.

The Acquisition and the Disposal constitute a discloseable transaction for Deson under the Listing Rules. A circular containing further details of the Acquisition and the Disposal will be despatched to the shareholders of Deson as soon as possible.

By Order of the Board

Deson Development International Holdings Limited

Tjia Boen Sien

Managing Director and Deputy Chairman

Hong Kong, 31st May, 2000

Terms used in this announcement:-

"Acquisition"	the proposed acquisition of the entire issued share capital of Yew Siang by Deson Ventures pursuant to the Acquisition Agreement;

"Acquisition Agreement"	the agreement dated 31st May, 2000 in relation to the Acquisition;

"Crawley Assets"	Crawley Assets Limited, a company incorporated on 25th November, 1993 in the British Virgin Islands and an associated company of Deson;

"Deson" or "Company"	Deson Development International Holdings Limited;

"Deson Ventures"	Deson Ventures Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Deson;

"Director(s)"	director(s) of Deson;

"Disposal"	the proposed selling of the entire issued share capital of Goodville by Gainford pursuant to the Disposal Agreement;

"Disposal Agreement"	the agreement dated 31st May, 2000 in relation to the Disposal;

"Gainford"	Gainford Profits Limited, a company incorporated on 24th May, 1994 in the British Virgin Islands and a wholly owned subsidiary of Deson;

"Goodville"	Goodville Developments Limited, a company incorporated in the British Virgin Islands and wholly owned by Gainford prior to completion of the Acquisition Agreement;

"Goodville Group"	Goodville and its wholly owned subsidiary, Sky Chain;

"Goodville Shareholders' Loan"	the shareholders loan owing from Goodville to its immediate holding company, Gainford, in the aggregate amount of HK$60,721,452;

"Group"	Deson and its subsidiaries;

"Hong Kong"	The Hong Kong Special Administrative Region of the PRC;

"Hua Sheng"	Hua Sheng International Real Estate Development (Shanghai) Co., Ltd. ("華勝國際置業開發（上海）有限公司"), a wholly foreign owned enterprise established on 18th February, 1993 in the PRC, the issued equity interest in which is wholly owned by Yew Siang;

"Listing Rules"	Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

"Lung Hua Land"	The piece of land situtate at Tsu Hui District, Shanghai owned by Hua Sheng;

"PRC"	The People's Republic of China;

"Sky Chain"	Sky Chain Limited, a company incorporated on 5th June, 1998 in Hong Kong and wholly owned by Goodville;

"Sky Chain Property"	properties comprising 20th to 23rd floors measuring in total 4,643.64 sq. metres and 20 carparks measuring in total 98.4 sq. metres at Zhong Da Square, Shanghai, which is a 28 storey commercial/office complex with 2 levels of basement carparks;

"Yew Siang"	Yew Siang Limited, a company incorporated on 18th August, 1992 in the British Virgin Islands;

"Yew Siang Group"	Yew Siang and its wholly owned subsidiary, Hua Sheng;

"HK$"	Hong Kong dollars, the lawful currency of Hong Kong;

"RMB"	Renmenbi, the lawful currency of the PRC; and

"US$"	United States dollars, the lawful currency of the United States of America.