G-Resources Group Limited — Share Issue/Capital Change 2000

Feb 11, 2000

Listed Company Information

CHUNG HWA DEV<1051>-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. CHUNG HWA DEVELOPMENT HOLDINGS LIMITED (incorporated in Bermuda with limited liability) SHEUNG HAI DEVELOPMENTS LIMITED (incorporated in British Virgin Islands with limited liability) JOINT ANNOUNCEMENT TERMINATION OF THE HEADS OF AGREEMENT ALLOTMENT OF 504,505,807 SHARES TO YAMAICHI SUBSCRIPTION OF 5,500,000,000 NEW SHARES AT HK$0.01 EACH BY SHEUNG HAI DEVELOPMENTS LIMITED A COMPANY WHOLLY OWNED BY MR. WONG KAM FU, NELSON PLACEMENT OF 2,500,000,000 NEW SHARES AT HK$0.01 EACH FURTHER PLACEMENT OF 2,000,000,000 NEW SHARES AT HK$0.01 EACH AND THE WHITEWASH WAIVER Financial Adviser to Sheung Hai Developments Limited and the Company Yu Ming Investment Management Limited Further to the teletext of the Company dated 20th December, 1999 in connection with the Heads of Agreement, the board of Directors announces that it has resolved to terminate the Heads of Agreement on 21st January, 2000. On 29th December, 1999, the Company agreed to allot 504,505,807 new Shares at HK$0.10 per Share to Yamaichi in full discharge of all obligations of the Group under the JV Agreement and as full and final settlement of the put option in connection with the JV Agreement. The board of Directors also announces that the Company entered into the Agreement with the Subscriber on 22nd January, 2000 to subscribe for the 5,500,000,000 Subscription Shares at HK$0.01 per share for cash. The total consideration for the Subscription Shares will be HK$55 million. Pursuant also to the Agreement, the Company granted an option to the Subscriber to subscribe for the Option Shares at HK$0.01 per share during the Option Period. The Company has appointed Yu Ming to place the 2,500,000,000 Placing Shares at HK$0.01 per share to professional investors upon Completion of the Agreement. On completion of the Agreement, the Subscriber will hold more than 35 per cent. of the enlarged issued share capital of the Company. Under the Code, upon completion of the Agreement, the Subscriber and parties acting in concert with it would be obligated to make a general offer to purchase all the shares of the Company other than those held by the Subscriber and parties acting in concert with it. An application will be made by the Subscriber to the Executive for the whitewash waiver which may or may not be granted by the Executive. If the whitewash waiver is not granted by the Executive, the Subscriber will not proceed with the subscription of the Subscription Shares. The white-wash waiver will be subject to approval by the Independent Shareholders by way of a poll in a special general meeting to be held by the Company. The Subscriber is a company wholly owned by Mr. Wong Kam Fu, Nelson who is independent from, not connected with and not acting in concert with the substantial shareholders, chief executive and Directors of the Company and all its subsidiaries and all their respective associates. On 3rd February, 2000, the Company appointed Kingston as its placing agent for a further placement of the 2,000,000,000 Additional Placing Shares at HK$0.01 per share on a best effort basis upon completion of the Agreement. In order to facilitate the financial restructuring proposal, the Company will conduct the Capital Reduction to reduce the paid up share capital of the Company by reducing the par value of the existing issued Shares from HK$0.10 to HK$0.005 per share. The Company also proposes to conduct the Capital Consolidation to consolidate every two issued Shares of HK$0.005 each, after the completion of the Capital Reduction, into one share of HK$0.01 each. Both the Capital Reduction and the Capital Consolidation will be subject to approval by the Shareholders. Investors are reminded that the proposed financial restructuring may or may not proceed to conclusion and are therefore advised to exercise extreme caution in dealing in the Shares. At the request of the Company, trading in the Shares on the Stock Exchange was suspended since 10:00 a.m. on 20th December, 1999 and will be resumed on 11th February, 2000. Termination of Heads of Agreement The board of Directors announces that the Company entered into the Heads of Agreement and a supplemental agreement with True Gold Industries Limited on 18th December, 1999 and 6th January, 2000 respectively in relation to a proposed financial restructuring of the Group. The Heads of Agreement are subject to certain conditions including, inter alias, (i) a formal agreement being signed by all parties concerned by 31st January, 2000 and (ii) within 30 days from the date of the Heads of Agreement, the Stock Exchange confirming in writing that it will not treat the Company upon completion of the formal agreement as a new applicant for listing. On 17th January, 2000, the Stock Exchange confirmed in writing that upon completion of the proposed financial restructuring, the Company will be treated as a new listing applicant. Therefore, the said condition precedent was not satisfied and the Heads of Agreement lapsed on 21st January, 2000. Allotment of Shares to Yamaichi On 23rd May, 1996, the Company entered into a JV Agreement with Yamaichi and the transactions contemplated under the JV Agreement were treated as a major transaction. Pursuant to the JV Agreement, a put option was granted to Yamaichi for their HK$38 million investment in CHF&B. Under the put option, Yamaichi is entitled to dispose of the investment in CHF&B to the Company in exchange for Shares. The exercise price of the put option is at 95 per cent. of the lesser of (i) the average closing price of the Share for the period of seven days ended 23rd May, 1996; and (ii) the average closing price of the Shares for the period of seven days ended on the date of which a notice is served by Yamaichi to exercise the put option. The put option is exercisable for a period of one year commencing from 23rd May, 1999. With a view to avoid uncertainties over the Company's capital structure arising from the future price based conversion mechanism of the put option, the Company has been negotiating with Yamaichi since mid 1998. The Directors are of the view that if the put option remained unsettled, it might eventually become a major obstacle for any rescue plan for the Company. However, based on the average closing price of approximately HK$0.05415 of the Shares for the period of seven days ended 20th December, 1999, the date on which the Company applied for suspension of trading of the Share, the exercise price of the put option will be below par value of the Shares and 701,754,386 new Shares will have to be issued, which represent approximately 27.8 per cent. of the existing issued share capital of the Company and exceed the general mandate for the Company to issue 20 per cent. new Shares. On 29th December, 1999, the Company agreed to allot 504,505,807 new Shares at par value, which is HK$0.10, to Yamaichi in full discharge of all obligations of the Group under the JV Agreement and as full and final settlement of the put option. The new Shares allotted represent 20.0 per cent. of the existing share capital of the Company and approximately 16.7 per cent. of the share capital as enlarged by the issue of such Shares. The Shares issued under such settlement will be subject to a nine-month moratorium commencing from 1st January, 2000. The Shares will be subject to the following restrictions of orderly disposal thereafter: 1. up to 50 per cent. of the Shares may be disposed of 9during the three-month period after the moratorium; 2. up to 75 per cent. of the Shares may be disposed of in following three-month period; and 3. all restrictions will be uplifted thereafter. The effects of the moratorium will continue to be applicable to the new Shares to be issued by the Company in exchange for the shares issued under the put option after the Capital Reduction and Capital Consolidation. The issue of the shares to Yamaichi will be subject to the granting of the listing of and the permission to deal in the shares by the Stock Exchange. The Stock Exchange granted on a conditional basis the listing of and the permission to deal in the shares to be issued to Yamaichi on 1st February, 2000. The permission is conditional on: 1. a letter from the registrar of the Shareholders confirming the proper allotment and issue of the shares and due despatch of the relevant share certificates to Yamaichi; and 2. the receipt by the Stock Exchange of the Form F prior to the commencement of dealings in the shares. In the Company's unaudited final results for the year ended 31st March, 1999 released on 30th August, 1999, only HK$38 million provision has been made for the redemption of the put option. Therefore, the Company will incur an additional loss of approximately HK$12 million for the year ending 31st March, 2000 as a result of the settlement of the put option. However, since the put option is to be settled by issue of new Shares, the net deficit of the Group will be reduced by approximately HK$50.5 million upon completion of such settlement arrangement. Capital Reduction and Capital Consolidation In order to facilitate the financial restructuring proposal, the Company will conduct the Capital Reduction to reduce the paid up share capital of the Company by reducing the par value of the existing issued Shares from HK$0.10 to HK$0.005 per share. The Company also proposes to conduct the Capital Consolidation to consolidate every two issued Shares of HK$0.005 each, after the completion of the Capital Reduction, into one share of HK$0.01 each. Both the Capital Reduction and the Capital Consolidation will be subject to approval by the Shareholders. Subscription of Shares by the Subscriber The board of Directors announces that the Company entered into a conditional subscription agreement with the Subscriber and Mr. Kwok Ying Chuen, Martin on 22nd January, 2000. The Agreement Pursuant to the Agreement, 1. the Subscriber will subscribe for the 5,500,000,000 Subscription Shares at HK$0.01 per share for cash. The total consideration for the Subscription Shares will be HK$55 million; 2. the Company has appointed Yu Ming as its placing manager to place the 2,500,000,000 Placing Shares at HK$0.01 per share to professional investors on a best effort basis upon completion of the Agreement; and 3. the Company has granted an option to the Subscriber to subscribe for the Option Shares, which is 20 per cent. of the issued share capital of the Company as at the close of business on the Completion Date as enlarged by the shares to be issued to the Creditors and Yamaichi, the Subscription Shares, the Placing Shares and the Additional Placing Shares to be issued under the further placement by Kingston as described hereunder, at HK$0.01 per share during the Option Period. Assuming the Placing Shares and the Additional Placing Shares are fully subscribed, the number of the Option Shares will be approximately 2,605 million. The Placing Shares and the Additional Placing Shares are expected to be placed on or before Completion. If the Placing Shares and the Additional Placing Shares are not subscribed in full, the balance of the Placing Shares and the Additional Placing Shares not subscribed will not be issued. The Subscription Price The subscription price of HK$0.01 per share for the Subscription Shares, the Option Shares and the Placing Shares represents (i) a discount of approximately 90.2 per cent. to the closing price of HK$0.102 on 17th December, 1999, the date immediately before the suspension of trading in the shares of the Company, as adjusted for the Capital Reduction and the Capital Consolidation as described below; and (ii) a discount of approximately 91.4 per cent. to the average closing price of approximately HK$0.1158 for the period of 10 days ended 17th December, 1999 as adjusted for the Capital Reduction and the Capital Consolidation. As at 30th November, 1999, the unaudited net deficit of the Company was approximately HK$122.8 million or approximately HK$0.10 per share as adjusted for the Capital Reduction and the Capital Consolidation. The subscription price of HK$0.01 per share will therefore represent a premium of approximately HK$0.11 per share over the net deficit per share of approximately HK$0.10 as at 30th November, 1999, as adjusted for the Capital Reduction and the Capital Consolidation. The subscription price was arrived at after arms' length negotiation between the Company and the Subscriber. The Subscriber The Subscriber is a company wholly owned by Mr. Wong Kam Fu, Nelson who is independent from, not connected with and not acting in concert with the substantial shareholders, chief executive and Directors of the Company and all its subsidiaries and all their respective associates. Mr. Wong Kam Fu, Nelson and all his associates have never dealt in the Shares and is currently interested in no Shares. Conditions Precedent Completion of the Agreement will be conditional upon the satisfaction of the following conditions: 1. the Stock Exchange having granted the listing of, and the permission to deal in, the Subscription Shares, the Placing Shares, the Option Shares, the shares of the Company to be issued to the Creditors and all shares of the Company in issue immediately after the completion of the Capital Reduction and the Capital Consolidation; 2. an ordinary resolution having been passed by the Shareholders to approve: a. the terms and conditions of the Agreement; b. the maximum number of Directors to be altered from 6 to 15; and c. the allotment and issue of the Subscription Shares, the Placing Shares, the Option Shares and all shares of the Company to be issued to the Creditors; 3. the whitewash waiver having been approved by the Independent Shareholders by way of a poll in a special general meeting to be held by the Company; 4. necessary resolutions having been passed by the Shareholders to approve the Capital Reduction and the Capital Consolidation, all necessary court and other approvals having been obtained and the completion of the Capital Reduction and the Capital Consolidation; 5. the Executive having granted the white-wash waiver waiving any obligation on the part of the Subscriber and parties acting in concert with it to make a general offer under Rule 26 of the Code as a result of the issue of the Subscription Shares contemplated under the Agreement; 6. the Subscriber having been satisfied with the results of a financial due diligence review (which will be conducted and prepared by Deloitte & Touche Corporate Finance Limited) within 90 days from the date of the Agreement showing that: a. the total liabilities, whether actual or contingent, of the Group are no more than HK$285,000,000 as at 31st December, 1999; b. the total liabilities, whether actual or contingent, of the Company are no more than HK$215,000,000 as at 31st December, 1999; and c. the total liabilities of the Company under or in respect of any guarantee, indemnity, counter-security or other assurance against financial loss given in respect of any indebtedness of the Group Companies and the associated companies of the Company (whether or not secured by or benefiting from any charge or other encumbrance on any property or asset of the Company and has not been reflected in 5b above) are no more than HK$10,000,000 as at 31st December, 1999; 7. the Bermuda Monetary Authority, if required, having approved the issue and the free transferability of the Subscription Shares, the Option Shares and the Placing Shares pursuant to the Agreement and all consents, authorizations and approvals required under Bermuda law to implement the Capital Reduction and the Capital Consolidation having been obtained; 8. the Company not being considered by the Stock Exchange as an applicant for new listing as a result of or in connection with the transactions contemplated in the Agreement; 9. trading in the Shares on the Stock Exchange not being suspended for more than ten consecutive trading days following the signing of the Agreement; 10. the Creditors entering into formal agreement(s) to, amongst others, accept the full and final satisfaction of all indebtedness in the manner as set out hereunder; 11. contemporaneously with the signing of the Agreement, the Company having executed a mandate letter with Yu Ming appointing it as the placing agent to implement the Placing on a best effort basis; 12. evidence satisfactory to the Subscriber having been provided to it showing the completion of the settlement of the dispute between the Company and Yamaichi; and 13. no order having been made or petition having been presented or resolution having been passed or proceeding having been instituted or any other step or action having been taken for the liquidation, winding up or dissolution of the Company or any such step or action being threatened against the Company. The Company has executed on 22nd January, 2000 the mandate letter to appoint Yu Ming as the placing manager to implement the Placing to place the 2,500,000,000 Placing Shares at HK$0.01 per share on a best effort basis as referred to in condition 10 above. The Placing Shares, if fully subscribed, represent (i) approximately 198.2 per cent. of the existing issued share capital as adjusted for the Capital Consolidation and the Capital Reduction; (ii) approximately 82.7 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors; and (iii) approximately 19.2 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors and after the Completion and assuming full subscription of the Placing Shares and the Additional Placing Shares. The Subscriber has the sole discretion to waive any of the conditions as stated above. In the event that the above conditions are not fulfilled, unless waived by the Subscriber, on or before 30th June, 2000 or such later date as the parties hereto may from time to time agree in writing, the Agreement shall terminate, be null and void and of no further effect. No party to the Agreement shall have any liability to any other party, save in respect of any prior breaches of the terms of the Agreement which result in the Conditions not being fulfilled. As at the date of this announcement, condition 9 as mentioned above has been breached and the Subscriber has waived this condition. Settlement with Creditors Pursuant to the Agreement, the Company will agree with all Creditors with collateral to secure their indebtedness on the value of such collateral and such Creditors should agree to continue the existing financial arrangement with the Company for an amount equivalent to the value of the collateral as agreed by both parties for a period of not less than 12 months after the completion of the Agreement at the existing contractual rate of interest. The Company and the Creditors have agreed to use 31st July, 1999 as the cut-off date for the calculation of outstanding indebtedness after arms' length negotiation. The total amount of secured indebtedness as at 31st July, 1999 was approximately HK$102 million and the aggregate net book value of all the collaterals as at 30th November, 1999 was approximately HK$45 million. Therefore, the unsecured portion of the secured indebtedness will be approximately HK$57 million. As at 31st July, 1999, the total unsecured indebtedness of the Company was approximately HK$94 million. HK$ million Secured indebtedness as at 31st July, 1999 102 Net book value of all the collaterals as at 30th November, 1999 45 ---- Unsecured portion of the secured indebtedness as at 31st July, 1999 57 Unsecured indebtedness as at 31st July, 1999 94 --- Aggregate of unsecured portion 151 of the secured indebtedness and unsecured indebtedness The unsecured portion of the secured indebtedness as at 31st July, 1999 and the other unsecured indebtedness as at 31st July, 1999 aggregated to approximately HK$151 million and will be settled by: 1. HK$7.5 million cash, coming from part of the proceeds from the subscription of the Subscription Shares, to be distributed to the Creditors on a pro rata basis, which represents approximately 5.0 per cent. of the total unsecured indebtedness of the Company; and 2. the issuance of new shares of the Company after the completion of the Capital Reduction and Capital Consolidation at HK$0.01 per share, the value of which will represent 10 per cent. of the aggregate of the total unsecured indebtedness and the unsecured portion of the secured indebtedness of the Company, which is approximately HK$15.1 million. Accordingly, the total number of new shares to be issued will be approximately 1,510,000,000. The number of new shares to be issued to the Creditors represent (i) approximately 119.7 per cent. of the existing issued share capital as adjusted for the Capital Consolidation; (ii) approximately 49.8 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors; and (iii) approximately 11.6 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors, after the Completion and assuming full subscription of the Placing Shares and the Additional Placing Shares. The disposal of the new shares to be issued to the Creditors will be subject to the following restrictions: 1. no share should be disposed of during the six-month period from the completion of the Agreement; 2. up to 50 per cent. of the shares issued may be disposed of in the three-month period after the moratorium; 3. up to 75 per cent. of the shares allotted may be disposed of in following three-month period; and 4. all restrictions will be uplifted thereafter. The above settlement arrangements will be subject to, inter alias, the Creditors waiving the remaining balance of the indebtedness due from the Company. On 28th January, 2000, the Subscriber and the Company agreed to waive the restrictions 2 and 3 listed above. Therefore, the disposal of the new shares to be issued to the Creditors will only be subject to the restriction that no share should be disposed of during the six-month period from the completion of the Agreement. As at the date of this announcement, Creditors representing approximately 67 per cent. of the total indebtedness have agreed in writing in principle to the above settlement arrangements. Further Placement by Kingston The Company entered into a mandate letter on 3rd February, 2000 to appoint Kingston as its placing agent for a further placement of the 2,000,000,000 Additional Placing Shares at HK$0.01 per share on a best effort basis upon completion of the Agreement. If the Additional Placing Shares are not subscribed in full, the balance of the Additional Placing Shares not subscribed will not be issued. The Additional Placing Shares, if fully subscribed, represent (i) approximately 158.5 per cent. of the existing issued share capital as adjusted for the Capital Consolidation and the Capital Reduction; (ii) approximately 66.1 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors; and (iii) approximately 15.4 per cent. of the share capital as enlarged by the new shares to be issued to Yamaichi and the Creditors and after the Completion and assuming full subscription of the Placing Shares and the Additional Placing Shares. Shareholdings The total number of existing shares in issue is 2,522,529,039. Having taken into account the 504,505,807 Shares to be issued to Yamaichi, the total number of issued shares before the subscription of the Subscription Shares, the Option Shares, the Placing Shares and the Additional Placing Shares will be 3,027,034,846. After the Capital Reduction and the Capital Consolidation, the total number of issued shares will become, 1,513,517,423. The following tables demonstrate the changes in shareholdings upon the issue of shares to Yamaichi and the Creditors, the issue of the Subscription Shares, the Placing Shares and the Additional Placing Shares, assuming full subscription of the Placing Shares and the Additional Placing Shares, and the Option Shares, assuming full exercise of the Option by the Subscriber. A. Existing shareholding structure (before the Capital Reduction and the Capital Consolidation) Number of Shares Held Percentage Holdings (million) Shimada Limited 327 13.0 China Prospect 80 3.1 Brightline Futures 320 12.7 Public 1,796 71.2 ----- ----- Total 2,523 100.0 B. Shareholding structure as adjusted by the issue of Shares to Yamaichi and after the Capital Reduction and the Capital Consolidation Number of Shares Held Percentage Holdings (million) Shimada Limited 164 10.8 China Prospect 40 2.6 Brightline Futures 160 10.6 Yamaichi 252 16.7 Public 898 59.3 Total 1,514 100.0 C. Shareholding structure as adjusted by the issue of Shares to Yamaichi and after the Capital Reduction, the Capital Consolidation and the issue of new Shares to the Creditors Number of Shares Held Percentage Holdings (million) Shimada Limited 164 5.4 China Prospect 40 1.3 Brightline Futures 160 5.3 Yamaichi 252 8.4 Creditors (Note) 1,510 49.8 Public 898 29.8 ----- ----- Total 3,024 100.0 Note: Upon completion of the issue of new shares to the Creditors, no individual Creditor, together with its associates and parties acting in concert with it, will hold 35 per cent. or more of the total number of shares then in issue. Moreover, the issue of new shares to the Creditors will complete simultaneously with the subscription of the Subscription Shares by the Subscriber. Therefore, none of the Creditors will be a substantial shareholder of the Company after the Completion and none of them will be required to make a general offer for the shares of the Company under the Code. D. Shareholding structure as adjusted by the issue of Shares to Yamaichi and after the Capital Reduction, the Capital Consolidation and the subscription of the Subscription Shares by the Subscriber but before the issue of the Placing Shares and the Additional Placing Shares and the exercise of the Option to subscribe for the Option Shares Number of Shares Held Percentage Holdings (million) Shimada Limited 164 1.9 China Prospect 40 0.5 Brightline Futures 160 1.9 Yamaichi 252 3.0 Creditors 1,510 17.6 Subscriber 5,500 64.6 Public 898 10.5 ----- ----- Total 8,524 100.0 E. Shareholding structure as adjusted by the issue of Shares to Yamaichi and after the Capital Reduction, the Capital Consolidation, the subscription of the Subscription Shares by the Subscriber and the issue of the Placing Shares and the Additional Placing Shares, assuming the Placing Shares and the Additional Placing Shares are fully subscribed, but before the exercise of the Option by the Subscriber to subscribe for the Option Shares Number of Shares Held Percentage Holdings (million) Shimada Limited 164 1.3 China Prospect 40 0.3 Brightline Futures 160 1.2 Yamaichi 252 1.9 Creditors 1,510 11.6 Subscriber (Note) 5,500 42.2 Placees 4,500 34.6 Public 898 6.9 ------ ----- Total 13,024 100.0 Note: Please refer to the section "The Whitewash Waiver" below. F. Shareholding Structure as adjusted by the issuance of Shares to Yamaichi and after the Capital Reduction, the Capital Consolidation and the subscription of the Subscription Shares by the Subscriber and the issue of the Placing Shares and the Additional Placing Shares, assuming the Placing Shares and the Additional Placing Shares are fully subscribed, and full exercise of the Option by the Subscriber to subscribe the Option Shares (Assuming the Placing Shares and the Additional Placing Shares are fully subscribed, the number of the Option Shares will be approximately 2,605 million.) Number of Shares Held Percentage Holdings (million) Shimada Limited 164 1.0 China Prospect 40 0.3 Brightline Futures 160 1.0 Yamaichi 252 1.6 Creditors 1,510 9.7 Subscriber 8,105 51.9 Placees 4,500 28.8 Public 898 5.7 ----- ---- Total 15,629 100.0 As listed in table E above, after the issue of Shares to Yamaichi, the Capital Reduction, the Capital Consolidation, the subscription of the Subscription Shares by the Subscriber and the issue of the Placing Shares and the Additional Placing Shares, assuming the Placing Shares and the Additional Placing Shares are fully subscribed, but before the exercise of the Option by the Subscriber to subscribe for the Option Shares, the Subscriber will hold approximately 42.2 per cent. of the share capital then in issue. Should the Subscriber exercise the Option after the Completion as to increase its interest in the Company by more than 5 per cent. from its lowest percentage holding during the twelve-month period ending on the date of such exercise of the Option as shown in table F above, the Subscriber will be required to make a general offer for all the Shares not held by it under rule 26.1 of the Code, subject to the final outcome of the whitewash waiver. Change of Name Upon completion of the Agreement, the name of the Company is intended to be changed to Star Cyberpower Holdings Limited. The change of name is to reflect the future intention of the Company to diversify its business into high tech businesses. The change of name will be subject to Shareholders approval. Change of Directors Upon completion of the Agreement, Mr. Cham Wai Ho, Anthony and Mr. Xie Jing, Jeffery, both non-executive directors of the Company, and Mr. Lo Kwok Hung, John, the secretary of the Company, will resign from all their offices with all the companies in the Group. Mr. Li Chi Yung, Mr. Cheung Yu Shum, Jenkin and Mr. Kwok Ying Chuen, Martin will continue to be Directors of the Company. The Company will procure a board resolution for the Subscriber to nominate not more than 5 persons as Directors, including Mr. Wong Kam Fu, Nelson who is independent from, not connected with and not acting in concert with the substantial shareholders, chief executive and Directors of the Company and all its subsidiaries and all their respective associates. The Whitewash Waiver On completion of the Agreement, the Subscriber will hold more than 35 per cent. of the enlarged issued share capital of the Company. Under the Code, upon completion of the Agreement, the Subscriber and parties acting in concert with it would be obligated to make a general offer to purchase all the shares of the Company other than those held by the Subscriber and parties acting in concert with it. An application will be made by the Subscriber to the Executive for the whitewash waiver which may or may not be granted by the Executive. If the whitewash waiver is not granted by the Executive, the Subscriber will not proceed with the subscription of the Subscription Shares. The white-wash waiver will be subject to approval by the Independent Shareholders by way of a poll in a special general meeting to be held by the Company. According to the Code, the Subscriber will be precluded from acquiring additional voting rights in the Company for the 12 month period immediately following Completion, unless such further acquisition is authorized by way of a separate vote of the Independent Shareholders. If such authorization is not obtained, the Subscriber shall be deemed to have a lowest percentage holding equal to the greater of (i) 35 per cent. and (ii) the percentage holding that is five per cent. less than the percentage holding of the Subscriber immediately following Completion. Therefore, any further acquisition of Shares by the Subscriber is subject to the 5 per cent. creeper rule of the Code. In order for the Subscriber to exercise the Option in full, a separate resolution will be proposed at the special general meeting of the Company for the Independent Shareholders to approve the subscription of the Option Shares. Financial Resources of the Subscriber Yu Ming, the financial advisor of the Subscriber, confirmed that, based on the information provided by the Subscriber and its financial institution, it is satisfied that the Subscriber has sufficient financial resources for the completion of the Agreement. Use of Proceeds The net proceeds of approximately HK$97 million from the Subscription Shares, the Placing Shares and the Additional Placing Shares will be applied as to (i) HK$7.5 million towards partial settlement of the Creditors; and (ii) the balance of approximately HK$89.5 million towards general working capital of the Company to continue and for further development of its existing businesses and to diversify into high tech businesses in the future. However, the Directors confirm that the Company is not presently engaged in any negotiation in relation to the acquisition of any high tech business. Reasons for the Restructuring The principal activities of the Group are investment holding, provision of corporate management services, manufacture and distribution of food and beverage products, supply of entertainment programs to cable television channels in the PRC, and investment and financial services. The Company was in serious financial difficulties before the proposed financial restructuring. The settlement proposal with the Creditors will eliminate the liabilities of the Company. The subscription for cash of the Subscription Shares by the Subscriber will raise general working capital to continue and for further development of the existing businesses of the Company. Mr. Wong Kam Fu, Nelson will use his well-established connections in the PRC to assist the Group to maintain and expand its existing businesses. Moreover, the introduction of Mr. Wong Kam Fu, Nelson who has extensive experiences in developing telecommunications and internet businesses will be beneficial for the Company to explore the possibility of development or investment in internet related businesses. The Company has no intention to change its existing businesses and no assets are intended to be injected by the Subscriber into the Company. It is also the intention of the Company to diversify into high tech businesses. However, the Directors confirm that the Company is not presently engaged in any negotiation in relation to the acquisition of any high tech business. Any future injections or disposals of assets will be subject to the provisions of the Listing Rules. The Stock Exchange has the discretion to require the Company 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 the Company. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in the Company being treated as if it were a new listing applicant. Current Financial Position of the Group The Group had an unaudited net deficit of approximately HK$122.8 million or approximately HK$0.10 per share as adjusted for the Capital Reduction and the Capital Consolidation as at 30th November, 1999. Its unaudited total consolidated liabilities as at 30th November, 1999 amounted to approximately HK$272.4 million. Out of the HK$272.4 million of total liabilities, Creditors for approximately HK$75.1 million in value have issued demand letters and Creditors for approximately HK$98.5 million in value have initiated tribunal/court actions, out of which Creditors for approximately HK$8.4 million in value have obtained judgement in their favour. Assuming that the Creditors are settled in the way as set out in this announcement, the pro forma net asset value of the Company afterCompletion is set out below for reference: HK$ million Net deficit as at 30th November, 1999 (122.8 ) Allotment of Shares to Yamaichi 50.5 Subscription of Shares by the Subscriber 55.0 Capitalization and waiver of debts due to the Creditors 154.8 Unaudited proforma net asset value upon Completion 137.5 Issue of Placing Shares and Additional Placing Shares 45.0 Issue of Option Shares 26.0 Unaudited proforma net asset value assuming placing by Yu Ming and Kingston is completed in full and the Option is exercised in full 208.5 ----- The above figures are subject to changes and depend on a number of factors including the outcome of the negotiation with the Creditors and property revaluation. The release of this announcement does not in any way indicate that the proposed financial restructuring of the Group will be successfully implemented and completed. Pledge of Shares Held by Mr. Kwok Ying Chuen, Martin The Company was advised by Mr. Kwok Ying Chuen, Martin, the chairman and a substantial shareholder of the Company who is presently, through Shimada Limited, a company wholly-owned by Mr. Kwok Ying Chuen, Martin, beneficially interested in approximately 327 million Shares, representing approximately 13.0 per cent. of the existing share capital of the Company before the Capital Reduction and the Capital Consolidation, that all the Shares beneficially held by him was pledged to financial institutions for facilities for him. As at the date of this announcement, such Shares are registered under the name of Shimada Limited. However, the Company was further advised by Mr. Kwok Ying Chuen, Martin that such facilities are presently in default and the Shares pledged may be foreclosed by the financial institutions at any time. Mr. Kwok Ying Chuen, Martin has therefore no control over his Shares. Investors are therefore advised to exercise extreme caution in dealing in the Shares. General Investors are reminded that the proposed financial restructuring may or may not proceed to conclusion and are therefore advised to exercise extreme caution in dealing in the Shares. It is the intention of the future directors of the Company to maintain the listing of the Shares on the Stock Exchange after Completion. Accordingly, the board of directors of the Company upon Completion and the Company will jointly and severally undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists for the Shares. The Stock Exchange has stated that it will closely monitor trading in the Shares if less than 25 per cent. of the Shares are held by the public. The future directors of the Company are aware of the possibility of the Company's public float falling below 25 per cent. immediately after Completion and will address this issue accordingly. The Stock Exchange will also closely monitor all future acquisitions or disposals of assets by the Company. The Stock Exchange has the discretion to require the Company 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 the Company. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in the Company being treated as if it were a new listing applicant. If the Stock Exchange believes that: 1. a false market exists or may exist in the shares; or 2. there are too few shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend trading in the Shares. An independent board committee will be formed to advise the Independent Shareholders. An independent financial advisor will be appointed to advise the independent board committee in relation to the whitewash waiver. A circular containing, inter alia, further details of the Agreement, the whitewash waiver, the letter from the independent board committee, the letter from the independent financial adviser and the notice of the special general meeting, will be despatched to the Shareholders as soon as practicable. Further announcement will be made on the despatch of the circular. At the request of the Company, trading of its shares on the Stock Exchange was suspended since 10:00 a.m. on 20th December, 1999 and will be resumed at 10:00 a.m. on 11th February, 2000. Definitions "Additional Placing Shares" 2,000,000,000 shares of HK$0.01 each in the Company to be placed by Kingston on a best effort basis following completion of the Capital Reduction, the Capital Consolidation and the Agreement "Agreement" the conditional subscription agreement dated 22nd January, 2000 "Business Day" a day (other than a Saturday) on which banks are generally open for business in Hong Kong "Brightline Futures" Brightline Futures Company Limited, a substantial shareholder of the Company holding 320,000,000 Shares which is owned as to 60 per cent. by Mr. Wang Jie Liang on behalf of the beneficial owner, Wuhan Xinzhou Foreign Economic Trade Corporation, a state-owned enterprise established in the PRC and 40 per cent. by Truly Fortune Investment Limited, the beneficial owners of which is Ms. Li Wai Nga (a sister of Mr. Li Chi Yung, a director of the Company and China Prospect and a former shareholder of China Prospect), Mr. Chun Shue and Mr. Cao Hong Xiang (both directors of China Prospect) "Capital Consolidation" the consolidation of the issued Shares (after the completion of the Capital Reduction) from 2 shares of HK$0.005 each into one share of HK$0.01 each "Capital Reduction" the reduction of the paid up share capital of the Company by the reduction of the par value of the existing issued Shares from HK$0.10 to HK$0.005 per share "CHF&B" Chung Hwa Food & Beverages Limited, a 50 per cent. owned associated company of the Company "China Prospect" China Prospect Group (Holdings) Limited, a company holding 80,000,000 Shares which is beneficially owned by Mr. Li Sum who is deceased and Mr. Li Chi Yung who is a Director "Code" the Hong Kong Code on Takeovers and Mergers "Company" Chung Hwa Development Holdings Limited "Completion" completion of the allotment and issue of the Subscription Shares under the Agreement "Completion Date" a date falling within two Business Days after the date on which the conditions precedent for the Agreement are fulfilled, or such other date as the Company and the Subscriber may agree prior to Completion "Creditors" all the 8 secured creditors and 13 unsecured creditors of the Group "Directors" Directors of the Company "Executive" the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director "Group" the Company and its subsidiaries "Heads of Agreement" the heads of agreement and a supplemental agreement with True Gold Industries Limited dated 18th December, 1999 and 6th January, 2000 respectively in relation to a proposed financial restructuring of the Group "Hong Kong" the Hong Kong Special Administrative Region of the PRC "Independent Shareholders" all Shareholders except Mr. Kwok Ying Chuen, Martin, his associates and parties acting in concert with him who was involved in the negotiation of the Agreement "JV Agreement" the joint venture agreement related to CHF&B dated 23rd May, 1996 between the Company and Yamaichi "Kingston" Kingston Securities Limited, the placing manager for the Additional Placing Shares "Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange "Option" an option granted by the Company to the Subscriber for the subscription of all or part of the Option Shares during the Option Period "Option Period" the period commencing from the Completion Date and ending on the last Business Day of the twelve-month period from the Completion Date "Option Shares" 20 per cent. of the issued share capital of the Company as at the close of business on the Completion Date as enlarged by the Subscription Shares, the Placing Shares, the Additional Placing Shares and shares to be issued to the Creditors and Yamaichi "Placing" the placing of the Placing Shares to be conducted by the Company at a price of HK$0.01 per share following the Completion "Placing Shares" 2,500,000,000 shares of HK$0.01 each in the Company following completion of the Capital Reduction and the Capital Consolidation to be placed by Yu Ming on a best effort basis under the Placing "PRC" the People's Republic of China; "SFC" the Securities and Futures Commission "Shares" shares of HK$0.10 each in the capital of the Company "Shareholders" holders of Shares "Shimada Limited" a wholly-owned company of Mr. Kwok Ying Chuen, Martin which currently holding 327,036,984 Shares "Stock Exchange" The Stock Exchange of Hong Kong Limited "Subscriber" Sheung Hai Developments Limited, a company wholly owned by Mr. Wong Kam Fu, Nelson "Subscription Shares" 5,500,000,000 new shares of HK$0.01 each in the capital of the Company following completion of the Capital Reduction and the Capital Consolidation to be allotted and issued by the Company to the Subscriber "Yamaichi" Yamaichi Uni Ven No. 6 Investment Partnership, Yamaichi Uni Ven No. 6-S Investment Partnership, Yamaichi Uni Ven No. 7 Investment Partnership, Yamaichi Uni Ven No. 8 Investment Partnership, Asian Venture Fund Ltd., Yamaichi Asia Investment Partnership and Yamaichi Finance Co. Ltd. "Yu Ming" Yu Ming Investment Management Limited, the financial adviser to the Subscriber and the Company and the placing manager for the Placing Shares "HK$" Hong Kong dollars By Order of the Board By Order of the Board CHUNG HWA DEVELOPMENT HOLDINGS LIMITED SHEUNG HAI DEVELOPMENTS LIMITED Cheung Yu Shum, Jenkin Wong Kam Fu, Nelson Deputy Chairman and Managing Director Director Hong Kong, 10th February, 2000 The directors of the Company jointly and severally accept full responsibility for the accuracy of the information contained in this announcement, other than those relating to the Subscriber, and confirm, having made all reasonable inquiries, that to the best of their knowledge, the 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, the omission of which would make any statement in this announcement misleading. The sole director of the Subscriber accepts full responsibility for the accuracy of the information contained in this announcement, other than those relating to the Company, and confirms, having made all reasonable inquiries, that to the best of his knowledge, the 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, the omission of which would make any statement in this announcement misleading.