G-Resources Group Limited — Capital/Financing Update 2004

Apr 14, 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.

This announcement is for information purposes only and does not constitute an invitation or offer to acquire purchase or subscribe for any securities.

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CREDIT CARD DNA SECURITY SYSTEM (HOLDINGS) LIMITED 信用卡防盜系統（控股）有限公司[*]

(Incorporated in Bermuda with limited liability)

Stock code: 1051

Advised by

MAJOR AND CONNECTED TRANSACTION

Proposed acquisition of a 70 per cent interest in Ming Yuen Assets Limited

SUMMARY

On 6 April, 2004, Credit Card DNA Security System (Holdings) Limited (the “Company”) and Mr. Wong Kam Fu (“Mr. Wong”) entered into the Sale and Purchase Agreement under which the Company has agreed to acquire from Mr. Wong a 70 per cent interest in Ming Yuen Assets Limited (“Ming Yuen”). The aggregate consideration is HK$83 million which will be satisfied as to HK$14 million by the Company assuming the obligations and liabilities of a debt of HK$14 million owed to Ming Yuen by Mr. Wong; and as to HK$69 million by the issue to Mr. Wong of a convertible loan note in the Company, the terms of which are summarised below.

Mr. Wong is the chairman and an executive director of the Company. He is also a director and the controlling shareholder of Ming Yuen, which is a private company that owns certain patented technologies relating to a security system used in non-cash transactions.

Completion of the Sale and Purchase Agreement is conditional upon the fulfilment or wavier of the conditions as set out below, and shall take place on the date following three business days after the fulfilment or wavier of the conditions (or such later date as the parties thereto may agree in writing).

As Mr. Wong is a connected person of the Company, under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”), the proposed acquisition of a 70 per cent interest in Ming Yuen by the Company constitutes a major and connected transaction of the Company under the Listing Rules and is conditional upon approval by the independent shareholders, voting by way of poll, at a special general meeting of the Company.

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A circular of the Company containing, amongst other things, details of the Sale and Purchase Agreement, a valuation report of Ming Yuen, an advice from an independent financial adviser and a recommendation from the independent committee of the board of the Company, together with a notice convening a special general meeting will be despatched to the shareholders of the Company as soon as practicable.

Altus Capital Limited has been appointed as the independent financial adviser to advise the independent committee of the board of the Company in relation to the Sale and Purchase Agreement.

Trading in the ordinary shares in the Company was suspended at the request of the Company with effect from 9:30 a.m. on 7 April, 2004 pending the release of this announcement. Application has been made to The Stock Exchange of Hong Kong Limited for a resumption of trading in the shares in the Company with effect from 9:30 a.m. on 14 April, 2004.

Shareholders should note that completion of the Sale and Purchase Agreement is conditional. Shareholders of the Company and the investing public should exercise caution when dealing in the shares in the Company.

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Date: 6 April, 2004

Parties: the Company as the purchaser and Mr. Wong as the vendor

Terms:

Subject to the fulfilment or waiver of the conditions to the Sale and Purchase Agreement, the Company agreed to acquire from Mr. Wong seven existing shares of US$1.00 each in Ming Yuen, representing 70 per cent equity interest in the issued share capital of Ming Yuen.

Consideration:

HK$83 million payable by the Company and which will be satisfied in the following manners:

• a. as to HK$14 million to be satisfied by the Company assuming the obligations and liabilities of a debt of HK$14 million owing to Ming Yuen by Mr. Wong repayable on demand; and

• b. as to HK$69 million by the issuance to Alpha Logistics Group Limited, a company wholly-owned by Mr. Wong, of a convertible loan note for the principal amount of HK$69 million in the Company, the terms of which are summarised below.

The consideration of HK$83 million was determined with reference to the fair market value of the entire interest of Ming Yuen as at 6 April, 2004, as valued by LCH (Asia-Pacific) Surveyors Limited.

The consideration of HK$83 million represents a discount of approximately 7.4 per cent to the fair market value of the entire equity interest of Ming Yuen attributable to the 70 per cent interest in Ming Yuen of HK$128 million, based on the valuation report prepared by LCH (Asia-Pacific) Surveyors Limited as mentioned above.

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Terms of the convertible loan note in the Company

• Duration: Three years from the issue of the convertible loan note on completion of the Sale and Purchase Agreement.

• Conversion: The noteholder has the right on any business day to convert all or part of the principal amount of the convertible loan note, representing HK$300,000 or an integral multiple thereof, into shares in the Company, at HK$0.08 per share (subject to adjustment), at any time, after the date of issue of the convertible loan note but prior to the maturity of the convertible loan note. If the Company shall default in making payment in full in respect of the convertible loan note on the maturity date, the conversion right will continue to be exercisable up to and including the date upon which the full amount of the principal moneys payable has been duly received by the noteholder. Provided that for so long as there is principal amount of the convertible loan note outstanding as at the maturity date, the Company may require conversion of the outstanding principal amount of the convertible loan note into shares in the Company, at HK$0.08 per share (subject to adjustment), at any time on or after the maturity date.

• Redemption: The Company may redeem all or part of the outstanding principal amount of the convertible loan note at any time prior to its maturity.

• Transfer: No assignment of transfer, in whole or in part, of the convertible loan note may be made unless with prior written consent of the Company.

• Interest: The convertible loan note bears interest at a rate of 2 per cent per annum, payable semiannually in arrears.

• Repayment: The principal amount outstanding under the convertible loan note shall be repaid in full by the Company to the noteholder on the maturity date, being the date falling three years from the date of issue of the convertible loan note on completion of the Sale and Purchase Agreement.

Comparisons of the conversion price to the market price

The conversion price of the convertible loan note is HK0.08 per share, which represents:

• a premium of approximately 12.7 per cent to the closing price of HK$0.071 per share of the Company as quoted on the Stock Exchange on 6 April, 2004, being the last day of trading in the shares prior to suspension of trading;

• a premium of approximately 6.7 per cent to the average closing price of approximately HK$0.075 per share of the Company as quoted on the Stock Exchange for the last 5 trading days up to and including 6 April, 2004; and

• a premium of approximately 2.6 per cent to the average closing price of approximately HK$0.078 per share of the Company as quoted on the Stock Exchange for the last 10 trading days up to and including 6 April, 2004.

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Conditions Precedent

Completion of the Sale and Purchase Agreement is conditional upon, amongst other things, the fulfilment or waiver of the following conditions on or before 12:00 noon on 31 May 2004 (or such other date as the Company may agree in writing):

• (i) the Company having completed its due diligence in respect of Ming Yuen and being, in its absolute opinion, satisfied with the results such due diligence review in all respects and a written notice to that effect having been given to Mr. Wong;

• (ii) where necessary, the independent shareholders of the Company having passed the necessary resolutions to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at a special general meeting of the Company;

• (iii)the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, such shares in the Company which may fall to be issued pursuant to the exercise of the convertible loan note;

• (iv) there being no material deviation between the unaudited management accounts of Ming Yuen for the nine months ended 31 March, 2004 and such accounts being reviewed in accordance with applicable audit procedures in Hong Kong, which in the reasonable opinion of the Company is material and adverse in all aspects; and

• (v) where necessary, all approvals from government and regulatory authorities for the transactions contemplated under the Sale and Purchase Agreement being obtained.

Information on the shares to be issued under the convertible loan note

Upon full conversion of the convertible loan note at the initial conversion price of HK$0.08 per share, the noteholder will be issued 862,500,000 new shares in the Company, representing approximately 9.0 per cent of the existing issued share capital of the Company. The shares to be issued under the convertible loan note, upon conversion, will be issued as fully paid shall rank pari passu in all respects with the shares in the Company in issue at the date of issue of the conversion shares. The Company will make an application to the Stock Exchange for the listing of, and permission to deal in, the conversion shares to be issued upon conversion of the convertible loan notes.

Completion

Completion shall take place on a date following three business days after the fulfilment or waiver of the conditions to the Sale and Purchase Agreement (or such later date as the parties thereto may agree in writing).

As at the date of this announcement, the Company owns 30 per cent of the issued share capital of Ming Yuen. Following completion of the Sale and Purchase Agreement, the Company will own the entire issued share capital of Ming Yuen.

Information on the Company

The Company and its subsidiaries are principally engaged in the provision of credit card security services, provision of financial information through internet and mobile phones and investments in high-tech related businesses.

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Information on Ming Yuen

Ming Yuen is a private company limited by shares incorporated in the British Virgin Islands on 12 February, 2002. As at the date of this announcement, Ming Yuen has an authorised share capital of US$50,000 consisting of 50,000 shares of US$1.00 each and an issued share capital of US$10.00 consisting of 10 fully paid share of US$1.00 each. As at the date of this announcement, Mr. Wong and Mr. Wong Hoi Keung, both of whom are directors of the Company, are the two directors of Ming Yuen.

From the date of its incorporation up to the date of this announcement, Ming Yuen has not commenced any business operation. Currently, its only business activity is acting as a holding company of two patents covering certain technologies in connection with a security system for non-cash transactions with respect to the territories of Hong Kong and the PRC. The Hong Kong and PRC patents were filed on 30 June, 1994 and 19 May, 1994, respectively, and both patents will expire in 2014. Mr. Wong invented this security system with which holders of debit/credit card (including banking cards) can prevent other people from using their cards for payment without their authorisation. Each cardholder can give authorisation to a transaction by transmitting a secret code number known to the cardholder only through his or her mobile phone. Ming Yuen recorded an unaudited net loss of HK$5,070 from the date of incorporation on 12 February, 2002 to 30 June, 2002, an unaudited net income of HK$122 for the year ended 30 June, 2003 and an unaudited net loss of HK$36,273 for the nine months ended 31 March, 2004.

The unaudited balance sheet of Ming Yuen as at 31 March, 2004 recorded total asset value of approximately HK$30 million, which comprised accounts receivable of approximately HK$0.4 million, promissory note receivable from the Company of HK$16 million, and amounts due from Mr. Wong of HK$14 million. The unaudited balance sheet of Ming Yuen as at 31 March, 2004, recorded total liabilities of approximately HK$0.5 million.

Under the subscription agreement dated 26 September, 2002 between Ming Yuen, Mr. Wong and the Company, a promissory note issued by the Company to Ming Yuen in the principal amount of HK$30 million was to be repaid on 17 May, 2004. On 15 June, 2003, the parties to the agreement have agreed to extend the maturity date of the promissory note to 17 September, 2004. As of the date of this announcement, the Company has paid, in aggregate, $14 million to Ming Yuen.

REASONS FOR THE PROPOSED TRANSACTIONS

Following completion of the acquisition of a 30 per cent interest in Ming Yuen on 18th November, 2002, the Company had been actively marketing the patented technologies licensed by Ming Yuen in developing its credit card security business in Hong Kong and the PRC. Business, implementation and trials of the systems by the partner banks are becoming more mature though the overall business results is below the Company’s expectation. However, further investigation by the project committee of the Company has revealed that other than the required implementation of the banks’ system to match the configuration of DNA system requirements, additional and supplemental DNA services to cover all other major electronic banking systems requested by partner banks were attributable factors causing the delay of the results. With the accomplishment of the implementation of the partner banks’ systems, more proactive sales and marketing campaign, the directors of the Company are encouraged by the promising future of these technologies especially by the potential results led by the savings of a 15 per cent royalty fee on gross revenue previously paid to Ming Yuen under the patent license agreement as announced by the Company on 3 October, 2002. Since entering into the patent license agreement on 26 September, 2002, the Company has continued development of its credit card security business and provided limited trials of the system

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which resulted in approximately HK$32,000 in royalties paid to Ming Yuen up to 31 March, 2004. However upon the full launch of the Company’s credit card security service, it is expected that the future savings on royalties may be significant. Also subsequent to the introduction of the vital strategic partner which is a subsidiary of The Capital Group, the directors of the Company are confident that the expansion of business particularly in the PRC is foreseeable and within the expectation of the board. The Capital Group is a state-owned limited liability company, which is the holding company of Beijing Capital Land Ltd., the shares of which are listed on the Main Board of the Stock Exchange. As stated in the interim results of the Company for the six months ended 31 December, 2003, the Capital Group is one of the largest enterprises in Beijing and maintains a very good relationship with financial institutions including the four major banks in the PRC. With a view to benefiting from the anticipated growth potential from the exclusive use of the patented technologies in Hong Kong and the PRC, the board of directors of the Company believe that it is now the right opportunity to acquire full control of the patented technologies. The board of directors of the Company believes that the proposed acquisition under the Sale and Purchase Agreement is fair and reasonable and is in the best interest of the Company and its shareholders as a whole.

IMPLICATION UNDER THE LISTING RULES

Major and connected transaction

Under the Listing Rules, the proposed acquisition of a 70 per cent interest in Ming Yuen from Mr. Wong by the Company constitutes a major transaction of the Company and is therefore subject to the approval of the independent shareholders at a special general meeting of the Company.

As Mr. Wong is the chairman and an executive director of the Company as well as the controlling shareholder of Ming Yuen, Mr. Wong is a connected person of the Company within the meaning of the Listing Rules. Accordingly, the proposed acquisition of an interest in Ming Yuen also constitutes a connected transaction of the Company and is subject to the approval of the independent shareholders, voting by way of poll, at a special general meeting of the Company.

Abstention from voting

Mr. Wong and his associates, holds approximately 23.3 per cent of the issued share capital of the Company. Mr. Wong and his associates will abstain from voting on the Sale and Purchase Agreement at a special general meeting of the Company.

IMPLICATIONS UNDER THE HONG KONG CODE ON TAKEOVERS AND MERGERS

Mr. Wong and parties acting in concert with him currently own approximately 23.2 per cent of the issued share capital of the Company, and outstanding share options for 100,000,000 shares in the Company, representing approximately 1.0 per cent of the existing issued share capital. Assuming the convertible loan notes and share options held by Mr. Wong, and parties acting in concert with him, are converted and exercised, respectively, in full into shares in the Company, Mr. Wong and parties acting in concert with him will own approximately 30.3 per cent of the enlarged issued share capital of the Company. Mr. Wong has informed the Company that he will comply with the Hong Kong Code on Takeovers and Mergers should he be obliged, upon conversion of the convertible loan notes in full and exercise of the share options, to extend a general offer for the securities in the Company not owned by him and parties acting in concert with him.

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Assuming there is no change in shareholding after the date of this announcement, the shareholding structure of the Company immediately prior to completion, after completion, after conversion of the convertible loan note, and after exercise of share options by Mr. Wong is approximately as follows:

							After completion
							and upon full
					After completion		conversion of
					and upon full		the convertible
	Immediately				conversion of		loan note
	prior to		After		the convertible		and exercise
	completion		completion		loan note		of share options
	Number of shares		Number of shares		Number of shares		Number of shares
Mr. Wong_(Note a)_	2,212,991,543	23.2%	2,212,991,543	23.2%	3,075,491,543	29.6%	3,175,491,543	30.3%
The Hong Kong Beijing Finance and
Investment Limited	1,020,000,000	10.7%	1,020,000,000	10.7%	1,020,000,000	9.8%	1,020,000,000	9.7%
Mr. Lam Ching Kui_(Note b)_	1,015,186,000	10.7%	1,015,186,000	10.7%	1,015,186,000	9.8%	1,015,186,000	9.7%
Public	5,283,622,622	55.4%	5,283,622,622	55.4%	5,283,622,622	50.8%	5,283,622,622	50.3%
	9,531,800,165	100.0%	9,531,800,165	100.0%	10,394,300,165	100.0%	10,494,300,165	100.0%

Note:

• a. Of the interests of Mr. Wong, 2,178,516,543 shares in the Company are held by Sheung Hai Developments Limited (“Sheung Hai”), 5,475,000 shares in the Company are held by Super Biotech Enterprises Limited (“Super Biotech”), and 29,000,000 shares are held by Mr. Wong personally. Both Sheung Hai and Super Biotech are wholly owned by Mr. Wong,.

• b. Of the interests of Mr. Lam Ching Kui (“Mr. Lam”), 265,178,000 shares in the Company are held by Chinese Success Limited (“Chinese Success”), and 750,008,000 shares are held by Mr. Lam personally. Chinese Success is wholly owned by Mr. Lam.

GENERAL

As at the date of this announcement, the executive directors of the Company are Mr. Wong Kam Fu, Mr. Song Xiao Hai, Mr. Wong Hoi Keung, Mr. Wang Zhao Bin and Mr. Lew Mon Hung. The independent non-executive directors of the Company are Ms. Ha Ping and Mr. Cheng Kong Ming.

A circular of the Company containing, amongst other things, details of the Sale and Purchase Agreement, a valuation report of Ming Yuen, an advice from an independent financial adviser and a recommendation from the independent committee of the board of the Company together with a notice convening a special general meeting of the Company will be despatched to the shareholders of the Company as soon as practicable.

Altus Capital Limited has been appointed as the independent financial adviser to advise the independent committee of the board of the Company in relation to the Sale and Purchase Agreement.

Trading in the ordinary shares in the Company was suspended at the request of the Company with effect from 9:30 a.m. on 7 April, 2004 pending the release of this announcement. Application has been made to the Stock Exchange for a resumption of trading in the Shares with effect from 9:30 a.m. on 14 April, 2004.

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Shareholders should note that completion of the Sale and Purchase Agreement is conditional. Shareholders of the Company and the investing public should exercise caution when dealing in the shares in the Company.

By order of the board of CREDIT CARD DNA SECURITY SYSTEM (HOLDINGS) LIMITED Wong Hoi Keung Managing Director

13 April, 2004, Hong Kong

• For identification only

“Please also refer to the published version of this announcement in The Standard”

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