Glorious Sun Enterprises Limited — M&A Activity 2001

Aug 6, 2001

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.

GLORIOUS SUN ENTERPRISES LIMITED

(Incorporated in Bermuda with limited liability)

CONNECTED TRANSACTION

On 3 August 2001, the Vendor, a wholly-owned subsidiary of the Company, has entered into the Agreement with the Purchaser whereby the Vendor will sell to the Purchaser the entire issued share capital of Old Garage at a consideration of A$2 (equivalent to approximately HK$8.1). On or before the Completion, the Shareholder's Loan will also be assigned to the Purchaser, on a dollar for dollar basis, for a cash consideration of A$7,000,000 (equivalent to approximately HK$28,350,000). Furthermore, the Vendor will procure that all intellectual properties and trade marks (whether registered or pending) under the "Old Garage" brand will be transferred to the Purchaser within six months from the Completion. Old Garage Group is engaged in the business of trading and retailing casual wear in Australia. The transaction constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules. The aggregate consideration does not exceed 3 per cent. of the Company's consolidated net tangible assets and the transaction is accordingly disclosed in this announcement pursuant to Rule 14.25(1) of the Listing Rules and will be disclosed in the Company's next published annual report and accounts.

1. Date of the Agreement

3 August 2001

2. Parties

(1) the Vendor; and

(2) the Purchaser

3. Assets realised under the Agreement

(1) Sale Shares : 4,400,002 shares of A$1.00 each in the share capital of Old Garage, being the entire issued share capital of Old Garage;

(2) Shareholder's Loan : the shareholder's loan in an aggregate amount of A$7,000,000 (equivalent to approximately HK$28,350,000) being owed by Old Garage to the Group; and

(3) the intellectual properties and trade marks (whether registered or pending) under the "Old Garage" brand.

4. Conditions precedent of the Agreement

The Completion is conditional upon:-

(i) the Vendor and the Purchaser entering into such agreement and do all such things for the purpose of effecting the assignment of the Shareholder's Loan to the Purchaser; and

(ii) the approval of the Stock Exchange or relevant regulatory bodies being obtained.

5. Consideration

The consideration for the sale of the Sale Shares, the assignment of the Shareholder's Loan and the transfer of all intellectual properties and trade marks (whether pending or registered) under the "Old Garage" brand name is an aggregate of A$7,000,002 (equivalent to approximately HK$28,350,008.1).

The consideration was arrived at arm's length negotiations between the Vendor and the Purchaser and with reference to the unaudited deficit of the Old Garage Group as at 30 June 2001 (being the amount of A$8,449,000 (equivalent to approximately HK$34,218,450)) and the investment cost of the Group in the Old Garage Group (being the amount of A$11,400,000 (equivalent to approximately HK$46,170,000)).

Old Garage made a loss of A$6,994,776 (equivalent to approximately HK$28,328,842.8) for year 2000/2001. The total consideration of A$7,000,002 represents a premium of approximately 137 per cent. to the group net assets of Old Garage as at 30 June 2001, on the basis that loans advanced to the Old Garage Group were to be treated as equity. The valuation report prepared by the Valuer values the Old Garage Group between A$5,770,000 (equivalent to approximately HK$23,368,500) and A$6,590,000 (equivalent to approximately HK$26,689,500), and the A$7,000,002 (equivalent to approximately HK$28,350,008.1) total consideration represents a premium of approximately 21 per cent. and 6 per cent. to such low and high valuation range, respectively. The Group's profit on this transaction is approximately A$4,050,000 (equivalent to approximately HK$16,402,500).

The Board, including the independent non-executive directors of the Company, is of the view that the transaction is fair and reasonable insofar as the independent shareholders of the Company are concerned and is in the interest of the Company and its shareholders as a whole.

6. Completion

The Completion of the Agreement is anticipated to be on 15 August 2001.

7. Purpose of the transaction

The Group is principally engaged in the retailing, export and production of casual wear.

Old Garage Group is engaged in the business of trading and retailing casual wear in Australia for approximately one year and has 11 retail outlets in Australia.

The operating environment in Australia has been negatively affected by a number of factors, such as the depreciation of Australian dollars against Hong Kong dollars resulting in a significant increase in the cost of importing merchandise and the imposition of the goods and services tax levy dampening the consumer market and affecting the Group's operating margin. Old Garage, founded by the Group in April 2000 as a new start-up in Australia, performed far below the management's expectation.

The Board believes in order to turn around Old Garage, further funding is necessary, the result of which would have impact on the Company's earnings and shareholder value. In order to achieve certain critical mass in the Australian marketplace, Old Garage will be required to borrow additional shareholder's loans (or bank loans guaranteed by the Group) to fund expansion over the next 24 months. The Board considers that effort should be undertaken to close down non-performing stores and to streamline its operation. After due and careful consideration, the Board believes the disposal of Old Garage under the Agreement represents the best option for the Company under the circumstance. This disposal option allows the Company to disengage and realise its investment in Old Garage and to better focus its resources on other investments which would generate a better or more ascertainable return on shareholders' equity.

The Board is of the view that the disposal of Old Garage will also better allow the Company to focus its business and expertise on the export, retail and production of casual wear, wearing apparel and products manufactured by the Group under other established brand in Australia, New Zealand and the People's Republic of China.

8. Use of proceeds

The proceeds of the disposal of Old Garage Group will be used as general working capital of the Group.

9. Connected transaction implications

As the Purchaser is indirectly owned as to 75 per cent. by the existing substantial shareholders and directors of the Company (namely, Messrs. Charles Yeung and Yeung Chun Fan), the Agreement constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules. The aggregate consideration does not exceed 3 per cent. of the Company's consolidated net tangible assets and the transaction is accordingly disclosed in this announcement pursuant to Rule 14.25(1) of the Listing Rules and will be disclosed in the Company's next published annual report and accounts.

10. Definitions

"Agreement" a conditional agreement dated 3 August 2001 entered into between the Vendor and the Purchaser

"Board" The board of directors of the Company

"Company" Glorious Sun Enterprises Limited, the shares of which are listed on the Stock Exchange, is a company incorporated in Bermuda and the holding company of the Vendor

"Completion" the completion of the Agreement

"Group" the Company and its subsidiaries

"Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange

"Old Garage" Old Garage Pty Ltd., a company incorporated in the State of Victoria, Australia and a wholly owned subsidiary of the Vendor

"Old Garage Group" Old Garage and its subsidiaries

"Purchaser" Garage International LLC, a company incorporated in the United States of America and an associate of the connected persons to the Group

"Sale Shares" the 4,400,002 shares of A$1.00 each in the share capital of Old Garage, being the entire issued share capital of Old Garage

"Shareholder's Loan" the shareholder's loan in an aggregate amount of A$7,000,000 being owed by Old Garage to the Group

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"substantial shareholder" as defined in the Listing Rules

"Valuer" William Buck Financial Services (Vic) Pty Ltd., one of the top ten accounting and business consulting firms in Australia and its financial services include business reviews, strategy, advice and valuations, an independent third party not connected with the Company, Old Garage, the directors, chief executives or substantial shareholders of the Company, Old Garage or any of their respective subsidiaries or the associates of each of them, being appointed to advise on an appropriate sale value of Old Garage Group

"Vendor" Glorious Sun (Australia) Pty Ltd., a company incorporated in the State of Victoria, Australia and a wholly-owned subsidiary of the Company

"A$" Australian dollars, the legal currency of Australia

In this announcement, for reference only and unless specified, the translation of Australian dollar ("A$") into Hong Kong dollars ("HK$") is based on the exchange rate of A$1.00=HK$4.05.

By Order of the Board

Liu Cheung Yuen

Company Secretary

Hong Kong, 3 August, 2001

"Please also refer to the published version of this announcement in the Hong Kong i-mail"