G-Resources Group Limited — Share Issue/Capital Change 2002

Jul 12, 2002

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.

Credit Card DNA Security System (Holdings) Limited

信用卡防系統(控股)有限公司*

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION

The Directors are pleased to announce that Star Cyber DNA, a wholly owned subsidiary of the Company, has, on 10 July 2002, entered into a conditional agreement with W-Phone pursuant to which:

(a) Star Cyber DNA has agreed with W-Phone to subscribe for 422,222 new Series C1 Preference Shares, representing about 2.53% of its existing issued share capital and about 2.47% of its issued share capital as enlarged by these new shares, for a total consideration of US$633,333 (equivalent to about HK$4,939,997) to be satisfied by Star Cyber DNA procuring the Company to issue to W-Phone 38,000,000 Consideration Shares, credited as fully paid at HK$0.13 each (representing a premium of about 36.84% to the closing price of the Shares of HK$0.095 on 9 July 2002). Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Consideration Shares is HK$3.61 million;

(b) in consideration of Star Cyber DNA subscribing for new Series C1 Preference Shares under the Subscription Agreement, W-Phone granted the Option to Star Cyber DNA, exercisable by Star Cyber DNA at any time during the Option Period (in whole or in part), to require W-Phone to issue to Star Cyber DNA the Option Shares, representing about 11.60% of the issued share capital of W-Phone as enlarged by the Subscription Shares and the Option Shares. The consideration for the acquisition of the Option Shares is an amount of US$3,366,667.5 (equivalent to about HK$26.26 million) to be satisfied by Star Cyber DNA procuring the Company to issue to W-Phone an equivalent value of Shares, credited as fully paid at the issue price of HK$0.13 per Share (representing a premium of about 36.84% to the closing price of the Shares of HK$0.095 on 9 July 2002). Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Shares that fall to be issued on exercise in full of the Option is HK$19.19 million; and

(c) W-Phone has agreed to enter into the Registration Rights Agreement with Star Cyber DNA on Completion whereby W-Phone shall provide for the rights of Star Cyber DNA to receive financial information concerning W-Phone and registration of Common Stock issued upon conversion of Series C1 Preference Shares then held by Star Cyber DNA.

The Consideration Shares represent approximately 0.745% of the existing issued share capital of the Company as at the date hereof and approximately 0.740% of the issued share capital of the Company, as enlarged by the issue of the Consideration Shares.

The Shares to be issued on exercise of the Option by Star Cyber DNA represents approximately 3.93% of the issued share capital of the Company as enlarged by the Consideration Shares and approximately 3.78% of the issued share capital of the Company as enlarged by the Consideration Shares and Shares issued pursuant to the exercise of the Option.

The subscription of the Subscription Shares constitutes a discloseable transaction for the Company under the Listing Rules. A circular of the Company, containing details of the Subscription Agreement and information on the Company and W-Phone, will be despatched to shareholders of the Company as soon as practicable. A further announcement will be made if the Company exercises the Option and the Company will comply with its obligations under the Listing Rules at the time of exercising the Option.

Trading in the Shares on the Stock Exchange was suspended at the request of the Company with effect from 9:30 a.m. on 10 July 2002 pending the release of this announcement. Application has been made for a resumption of trading in the Shares on the Stock Exchange with effect from 9:30 a.m. on 12 July 2002.

SUBSCRIPTION AGREEMENT

Date

10 July 2002

Parties

Issuer:	W-Phone, a company incorporated in the state of Delaware in the United States of America which is not connected with any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or their respective associates (as defined in the Listing Rules)
Subscriber:	Star Cyber DNA, a wholly owned subsidiary of the Company

Assets to be acquired and option granted

Pursuant to the Subscription Agreement, W-Phone will issue the Subscription Shares to Star Cyber DNA on the terms and conditions in the Subscription Agreement. The Subscription Shares represent about 2.53% of the existing issued share capital of W-Phone and about 2.47% of the issued share capital of W-Phone as enlarged by the Subscription Shares.

In consideration of Star Cyber DNA agreeing to subscribe for the Subscription Shares pursuant to the terms of the Subscription Agreement, W-Phone has, pursuant to the Subscription Agreement, granted to Star Cyber DNA the Option, exercisable by Star Cyber DNA at any time during the Option Period (in whole or in part), to require W-Phone to issue to Star Cyber DNA the Option Shares, representing about 11.60% of the entire issued share capital of W-Phone after Completion and exercise in full of the Option by Star Cyber DNA.

Series C1 Preference Shares

The Subscription Shares and the Option Shares will be issued with the following principal rights and restrictions:

(a) The Series C1 Preference Shares will confer upon its holder the right to receive, out of funds legally available therefor, dividends at an annual rate equal to US$0.12 (equivalent to about HK$0.936) (as adjusted for combinations, consolidations, subdivisions or stock splits with respect to such shares) for each issued Series C1 Preference Share, payable when and if declared by the board of W-Phone, in preference and priority to the payment of dividends on any shares of Common Stock.

(b) Each Series C1 Preference Share will be convertible into such number of fully-paid and non-assessable shares of Common Stock as is determined by dividing the original issue price of the Series C1 Preference Share, being US$1.50 (equivalent to about HK$11.7), by the then applicable conversion price for such Series C1 Preference Share, being initially US$1.50.

(c) Each Series C1 Preference Share will automatically be converted into shares of Common Stock at the then effective applicable conversion price upon the earlier of:

(i) the listing of W-Phone on a stock exchange in the United States of America; and

(ii) the written consent of a majority of shareholders of Series C1 Preference Shares.

(d) In the event of any liquidation, dissolution, or winding up of W-Phone, whether voluntary or not, or the sale, lease, assignment, transfer, conveyance or disposal of all or substantially all of the assets of W-Phone, or the acquisition of W-Phone by another entity by means of consolidation, corporate reorganizations or merger, or other transaction or series of related transactions in which more than 50% of the outstanding voting power of W-Phone is disposed of, distributions to holders of Series C1 Preference Shares will be made in the following manner:

(i) the amount of US$1.50 (equivalent to about HK$11.7) (as adjusted for combinations, consolidations, subdivisions, or stock splits with respect to such shares) for each Series C1 Preference Share then held by such holder, plus an amount equal to all declared but unpaid dividends on such Series C1 Preference Shares;

(ii) if the assets and funds available to be distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of W-Phone legally available for distribution to such holders shall be distributed rateably based on the total preferential amount due to each such holder;

(iii) after payment has been made to the holders of Preferred Stock of the full amounts to which they are entitled, the remaining assets of W-Phone available for distribution shall be distributed rateably among the holders of Common Stock.

(e) A holder of the Series C1 Preference Shares is entitled to attend or vote at any general meetings of W-Phone and the holder of Series C1 Preference Shares shall be entitled to the number of votes equal to the number of shares of Common Stock into which such Series C1 Preference Shares could be converted.

(f) The holders of Series C1 Preference Shares, voting as a single class, shall be entitled to elect two members to the board of directors of W-Phone.

(g) All Common Stock to be issued on conversion of the Series C1 Preference Shares will be issued free from all claims, charges, lien, encumbrances and equities and be identical and will rank pari passu in all respects with the Common Stock then in issue.

(h) The Series C1 Preference Shares may not be transferred unless all applicable laws, rules and regulations of the United States of America have been complied with.

Assuming that all of the Subscription Shares and Option Shares respectively are converted at the initial conversion price of US$1.50 per Series C1 Preference Share (equivalent to about HK$11.7), a total of 2,666,667 shares of Common Stock will fall to be issued, representing about 15.98% of the existing issued share capital of W-Phone and about 13.78% of its issued share capital as enlarged by the issue of these shares of Common Stock.

Registration Rights Agreement

Pursuant to the terms of the Subscription Agreement, on Completion, W-Phone will enter into the Registration Rights Agreement with Star Cyber DNA whereby W-Phone will provide for the rights of Star Cyber DNA to receive financial information concerning W-Phone and the registration of Common Stock issued upon conversion of the Series C1 Preference Shares then held by Star Cyber DNA in the event of a listing of W-Phone on a stock exchange in the United States of America in order for Star Cyber DNA to transfer its shareholding in W-Phone in accordance with the laws, rules and regulations governing the transfer of shares in the United States of America.

Consideration

The consideration for the issue of the Subscription Shares was determined after arm’s length negotiations between the parties by reference to the issue price for each Series C1 Preference Share presently in issue (i.e. US$1.50, equivalent to about HK$11.7) which was determined by the management of W-Phone to be the fair market value for such shares after having made comparisons to other private companies in the United States of America engaging in businesses of a nature similar to those of W-Phone. Such issue price of US$1.50 is equal to the initial conversion price at which each Series C1 Preference Share is convertible into shares of Common Stock and such issue price is applicable to all Series C1 Preference Shares previously issued by W-Phone and those to be issued to Star Cyber DNA under the Subscription Agreement. If W-Phone issues further Series C1 Preference Shares in the future at an issue price less than US$1.50 per Series C1 Preference Share, a corresponding adjustment will be made to lower the conversion price under the Series C1 Preference Shares such that, on conversion, a greater amount of shares of Common Stock will be issued to the converting holder of the Series C1 Preference Shares.

Although no separate independent valuation of W-Phone was performed, the Board believes that the management and founders of W-Phone have the necessary expertise to operate and expand W-Phone’s businesses, particularly in the PRC and Taiwan markets, and the Group could, through its investment in W-Phone, establish a strategic alliance with W-Phone and explore means by which they could cooperate in future business development. In view of this and the reasons described in the section headed “Reasons for the transactions” below, the Board is of the view that the issue price of US$1.50 per Subscription Share and all other terms of the Subscription Agreement are fair and reasonable and in the interest of the Company and its shareholders as a whole.

Based on an issue price of US$1.50, the total consideration for the Subscription Shares is a sum of US$633,333 (equivalent to about HK$4,939,997) to be satisfied by the Company issuing to W-Phone 38,000,000 Consideration Shares at HK$0.13 each. Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Consideration Shares is HK$3.61 million. The Consideration Shares represent about 0.745% of the Company’s existing issued share capital and about 0.740% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares.

Assuming that the Option is exercised in full, the total consideration payable by Star Cyber DNA for the acquisition of the Option Shares is a sum of US$3,366,667.5 (equivalent to about HK$26.26 million and equivalent to US$1.50 per Option Share which is the same as the issue price per Subscription Share) and was determined after arm’s length negotiations between the parties. Having regard to the reasons described above, the Board is of the view that the issue price of US$1.50 per Option Share is fair and reasonable. Such consideration will be satisfied, on completion of the issue of the Option Shares, by the Company issuing 202,000,000 Shares at the issue price of HK$0.13 per Share. Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Shares that fall to be issued on exercise in full of the Option is HK$19.19 million. In the event of an exercise in full of the Option, such Shares together with the Consideration Shares represent about 4.7% of the Company’s existing issued share capital and about 4.5% of its issued share capital as enlarged by the issue of these Shares.

The issue price of HK$0.13 per Share represents a premium of about 36.84% to the closing price of the Shares of HK$0.095 as quoted on the Stock Exchange on 9 July 2002, being the trading day immediately preceding the date of the Subscription Agreement, and a premium of about 19.27% to the average closing price per Share of HK$0.109 quoted on the Stock Exchange for the 10 trading days up to and including 9 July 2002.

The Consideration Shares and all new Shares to be issued on exercise of the Option will be credited as fully paid, will rank pari passu in all respects with all Shares in issue on the respective dates of allotment, will be free from all claims, liens, charges, equities and encumbrances and third party rights of any kind and together with all rights attaching thereto from the respective dates of allotment, including the right to receive all dividends and distributions declared, made or paid on or after such dates.

The Consideration Shares and the Shares to be issued on exercise of the Option will be issued under the general mandate granted to the Directors at the special general meeting of the Company held on 19 April 2002. An application will be made to the Stock Exchange for the granting of the listing of and permission to deal in the Consideration Shares and all new Shares that may fall to be issued on exercise in full of the Option.

Conditions

Completion of the Subscription Agreement is conditional upon:

(a) the Stock Exchange granting a listing of and permission to deal in the Consideration Shares and any Shares which may fall to be issued pursuant to the exercise of the Option;

(b) if required, permission from the Bermuda Monetary Authority having been obtained in respect of the issue and free transferability of the Consideration Shares and any Shares which may fall to be issued pursuant to the exercise of the Option;

(c) if required, the shareholders of the Company passing the necessary resolutions at a special general meeting of the Company to approve the Subscription Agreement; and

(d) Star Cyber DNA being satisfied with the results of a legal and financial due diligence review to be conducted by it on W-Phone (including without limitation the receipt by it of a legal opinion (in form and substance satisfactory to it) from a legal adviser in the United States of America covering such matters as are relevant to the transactions contemplated under the Subscription Agreement as Star Cyber DNA may request).

If the conditions are not fulfilled by the date falling 60 days after the date of the Subscription Agreement (i.e. 8 September 2002) or such later date as the parties may agree, the Subscription Agreement will lapse and no party to this agreement will have any claim against the other save for any antecedent breach.

Completion

Completion of the Subscription Agreement will take place within 7 business days from the day on which the Subscription Agreement becomes unconditional (or such other day as the parties may agree).

Consultancy Agreement

Pursuant to the Subscription Agreement, W-Phone has, amongst others, represented and warranted to Star Cyber DNA that, save as disclosed in the Subscription Agreement, there are no outstanding warrants or other rights to acquire any equity securities of W-Phone. As a disclosure against this warranty of W-Phone, it was revealed to the Company in the Subscription Agreement, amongst others, that Mr. Fred Sum, an independent non-executive Director, had entered into the Consultancy Agreement with W-Phone and, in connection with consulting services to be rendered by Mr. Fred Sum, W-Phone will issue warrants to Mr. Fred Sum to purchase up to 260,000 shares of the Qualified Financing Securities at the same purchase price and upon the same terms applicable to the Qualified Financing.

W-Phone intends to conduct capital raising exercises from time to time. If the aggregate gross proceeds received by W-Phone from such a capital raising exercise exceeds US$5 million, such capital raising exercise will constitute a Qualified Financing. In the event of a successful implementation of a Qualified Financing, the warrants described above will entitle Mr. Fred Sum to purchase up to 260,000 shares of the same class and series of securities issued by W-Phone in such Qualified Financing, at the same purchase price and on the same terms applicable to such Qualified Financing.

SHAREHOLDINGS IN THE COMPANY

As at the date of this announcement, Company has 5,098,334,165 Shares in issue. The following table illustrates the changes in the Company’s shareholding structures before and after the issue of the Consideration Shares and Shares upon exercise of the Option.

	As at the date of this announcement	Approximate percentage of the issued share capital	Immediately after issue of the Consideration Shares but before issue of Shares on exercise of the Option	Approximate percentage of the issued share capital	Immediately after issue of the Consideration Shares and the Shares on exercise of the Option	Approximate percentage of the issued share capital
Sheung Hai Developments Limited	1,683,991,543	33.03%	1,683,991,543	32.78%	1,683,991,543	31.54%
Win Channel Investments Limited	1,993,192,348	39.10%	1,993,192,348	38.81%	1,993,192,348	37.34%
W-Phone	--	--	38,000,000	0.74%	240,000,000	4.50%
Public	1,421,150,274	27.87%	1,421,150,274	27.67%	1,421,150,274	26.62%
Total	5,098,334,165	100%	5,136,334,165	100%	5,338,334,165	100%

W-Phone presently does not intend to nominate any person to the Board on Completion.

INFORMATION ON THE COMPANY

The Company is principally engaged in the provision of credit card security services, trading of electronic products such as electronic dictionaries, provision of financial information through pagers, internet and mobile phones and investments in high-tech and bio-technology related businesses.

INFORMATION ON W-PHONE

W-Phone is a company incorporated on 5 October 1997 with limited liability in the state of Delaware of the United States of America and is engaged in the business of manufacturing and providing wireless data software infrastructure products and services of real-time and broadband solution for wireless mobile devices. The existing shareholders and directors of W-Phone are independent of and not connected with any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or their respective associates (as defined in the Listing Rules).

The board of directors of W-Phone currently consists of 5 members. As described in paragraph (f) in the section headed “Series C1 Preference Shares”, the holders of Series C1 Preference Shares, voting as a single class, will be entitled to elect two members to the board of directors of W-Phone. Following Completion but before exercise of the Option, Star Cyber DNA will be interested in about 18.58% of the Series C1 Preference Shares then in issue and, to that extent, will be entitled to participate in the election of nominees to the board of directors of W-Phone. Apart from the Subscription Shares and the Option Shares and the warrants mentioned in the section headed “Consultancy Agreement” above, W-Phone currently has other outstanding obligations to issue equity securities and may from time to time conduct capital raising exercises. Accordingly, Star Cyber DNA’s equity interest in W-Phone may be diluted as a result of any further issuance of equity securities by W-Phone.

Based on the unaudited consolidated management accounts of W-Phone, W-Phone’s unaudited consolidated net loss before tax and extraordinary items amounted to about US$12.3 million (equivalent to about HK$95.94 million) for the period from 15 October 1997, being the date of its incorporation, up to 31 March 2002. Based on W-Phone’s unaudited consolidated accounts for the year ended 31 December 2001, W-Phone’s unaudited consolidated net loss before and after tax and extraordinary items for that year amounted to about US$7.225 million (equivalent to about HK$56.36 million) and US$7.231 million (equivalent to about HK$56.40 million) respectively. Based on W-Phone’s audited accounts for the year ended 31 December 2000, the audited net loss before and after tax and extraordinary items for that year are the same and amounted to about US$3.12 million (equivalent to about HK$24.34 million). The audited consolidated net assets of W-Phone as at 31 December 2000 were approximately US$8.38 million (equivalent to about HK$65.36 million). The unaudited consolidated net assets of W-Phone as at 31 December 2001 and 31 March 2002 were approximately US$1.23 million (equivalent to about HK$9.59 million) and US$323,600 (equivalent to about HK$2.52 million) respectively.

REASONS FOR THE TRANSACTIONS

The existing shareholders and the board of W-Phone are experts in the industry of wireless software application and devices. The Board believes that they have such ability and connection to establish a solid customer base both in the markets of the PRC and Taiwan. Furthermore, the existing wireless platform established by W-Phone is useful and compatible with the Group’s core businesses in the provision of credit card security and payment authorisation services. By establishing a cooperative alliance with W-Phone, the Group can share in W-Phone’s resources and technologies in multi-messages-system which are synergistic with the Group’s existing businesses.

The Board also notes that W-Phone is currently incurring losses. However, having regard to the reasoning described above, the Board is of the view that W-Phone’s businesses have a growth potential which is expected to improve its financial performance in the longer run. The Board also believes that W-Phone’s resources and technologies in multi-messages-system are compatible with those used by the Group in its provision of credit card security and payment authorisation services. As such, the Group’s strategic alliance with W-Phone achieved through the Group’s investment in W-Phone is expected to enhance the Group’s core businesses. In view of these potential benefits to the Group, the Board is of the view that the transactions contemplated under the Subscription Agreement are fair and reasonable and in the interest of the Group and the Company’s shareholders as a whole.

GENERAL

The subscription of the Subscription Shares constitutes a discloseable transaction for the Company under the Listing Rules. A circular of the Company, containing details of the Subscription Agreement and information on the Company and W-Phone, will be despatched to shareholders of the Company as soon as practicable. A further announcement will be made if the Company exercises the Option and the Company will comply with its obligations under the Listing Rules at the time of exercising the Option.

Trading in the Shares on the Stock Exchange was suspended at the request of the Company with effect from 9:30 a.m. on 10 July 2002 pending the release of this announcement. Application has been made for a resumption of trading in the Shares on the Stock Exchange with effect from 9:30 a.m. on 12 July 2002.

DEFINITIONS

“Board”	the board of Directors
“Company”	Credit Card DNA Security System (Holdings) Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange
“Completion”	completion of the subscription of the Subscription Shares under the Subscription Agreement
“Common Stock”	ordinary shares of US$0.001 each in the capital of W-Phone
“Consideration Shares”	38,000,000 Shares to be issued to satisfy the consideration payable for the Subscription Shares under the Subscription Agreement
“Consultancy Agreement”	the agreement dated 1 January 2002 entered into between Mr. Fred Sum and W-Phone in connection with Mr. Fred Sum providing certain consulting services to W-Phone
“Directors”	the directors of the Company, including its independent non-executive directors
“Mr. Fred Sum”	Sum Mun Kid, Frederick, an independent non-executive Director
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock Exchange
“Option”	an option granted by W-Phone to Star Cyber DNA, exercisable at any time during the Option Period, to require W-Phone to issue to Star Cyber DNA the Option Shares
“Option Period”	the period commencing on the date of Completion and ending on the date falling twelve months after the date of Completion
“Option Shares”	2,244,445 Series C1 Preference Shares
“PRC”	the People’s Republic of China
“Preferred Stock”	preference shares of US$0.001 each in the capital of W-Phone, divided into three series namely “Series A Preference Shares” “Series B Preference Shares” and “Series C1 Preference Shares”
“Qualified Financing Securities”	the same class and series of securities issued in Qualified Financing with the same purchase price and upon the same terms applicable to the Qualifying Financing
“Qualified Financing”	the closing of a financing (other than a debt financing) undertaken by W-Phone principally for capital raising purposes in which the aggregate amount of gross proceeds received by W-Phone exceeds US$5,000,000 (equivalent to about HK$39,000,000)
“Registration Rights Agreement”	an agreement to be entered into between Star Cyber DNA and W-Phone on Completion as described in the section headed “Registration Rights Agreement” above
“Star Cyber DNA”	Star Cyber DNA Limited, a company incorporated in the British Virgin Island with limited liability, a wholly owned subsidiary of the Company
“Subscription Shares”	422,222 Series C1 Preference Shares
“Subscription Agreement”	the conditional agreement dated 10 July 2002 between Star Cyber DNA and W-Phone for the subscription of the Subscription Shares by Star Cyber DNA and grant of the Option
“Shares”	ordinary shares of HK$0.01 each in the capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Series C1 Preference Shares”	Series C1 preference shares of US$0.001 each in the capital W-Phone
“W-Phone”	W-Phone, Inc., a company incorporated in the state of Delaware in the United States of America which is not connected with any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or their respective associates (as defined in the Listing Rules)
“HK$”	Hong Kong dollars
“US$”	United States dollars

Unless otherwise stated, amounts in US$ have been translated, for illustration purpose only, into HK$ at an exchange rate of US$1 to HK$7.8.

By Order of the Board
Tam Pui Ling, ElaineCompany SecretaryHong Kong, 11 July 2002

* For identification purposes only

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