Hony Media Group — M&A Activity 2004

Jul 8, 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.

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China Strategic Holdings Limited 中策集團有限公司

(Incorporated in Hong Kong with limited liability)

(stock code: 235)

VERY SUBSTANTIAL ACQUISITION

On 16th June, 2004, Manwide, an indirect non wholly owned subsidiary of the Company, entered into the Agreement, as a purchaser, with the Vendor, as a seller, in relation to the proposed acquisition of the Properties for a total consideration of RMB450 million in cash of which RMB70 million will be funded by the internal resources of the Group and the remaining RMB380 million by the Loan. Details of the Agreement are set out below.

The Acquisition constitutes a very substantial acquisition of the Company under the Listing Rules and is subject to the approval by the Shareholders at the Extraordinary General Meeting. A circular containing, among other things, details of the Agreement, a notice of the Extraordinary General Meeting and the form of proxy to be used at the Extraordinary General Meeting will be despatched to the Shareholders as soon as practicable.

Trading in the Shares on the Stock Exchange was suspended from 9:45 a.m. on 17th June, 2004 pending the release of this announcement. Application has been made to the Stock Exchange for resumption of trading in the Shares with effect from 9:30 a.m. on 8th July, 2004.

AGREEMENT DATED 16TH JUNE, 2004

Parties

• Vendor : 上海久盛投資有限公司 (Shanghai Jiu Sheng Investment Company Limited), a company established in the PRC. To the best knowledge, information and belief of the Directors and after making all reasonable enquiries, as at the date of this announcement, the Vendor and its beneficial owner are independent of and not connected with the directors, substantial shareholders or the chief executive of the Company or any of its subsidiaries or any of their respective associates.

• Purchaser : Manwide Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, is a wholly owned subsidiary of China Enterprises. China Enterprises, a non wholly owned subsidiary of the Company, incorporated in Bermuda with limited liability, the shares of which are traded on the OTC Bulletin Board in the United States of America.

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Assets to be acquired

Pursuant to the Agreement, Manwide has agreed to acquire and the Vendor has agreed to dispose of, subject to the terms and conditions of the Agreement, a parcel of land situated at Nos. 219 and 229, Jiang Ning Road, Jing An District, Shanghai, the PRC and the Building being erected thereon which comprises two levels of underground carparks and a 24-storey building. The total gross floor area of the Land and the Building are estimated at approximately 5,493.5 sq. meters and approximately 37,060.43 sq. meters respectively. It is intended that the 1st to 4th floors of the Building will be used for commercial purpose and the remaining 20 stories, from the 5th to 24th floors, will be developed into service apartments.

According to the Agreement, the Properties will be transferred to Manwide free from all encumbrances. At present, the Properties are subject to two mortgages totaling RMB340 million. The Vendor has undertaken to Manwide to discharge the Properties from these two mortgages before the transfer of the ownership of the Properties to Manwide.

Consideration

The consideration for the Acquisition is RMB450 million. The Consideration was arrived at after arm’s length negotiations between Manwide and the Vendor with reference to recent comparable transactions and an indicative valuation based on a preliminary valuation conducted by DTZ Debenham Tie Leung Limited, a firm of professional property surveyors, on the Properties. The Directors consider that the consideration is fair and reasonable.

The Consideration will be settled as follows:

• (i) RMB50 million in cash, which was paid on the date of the Agreement out from internal resources of the Group to the Vendor as deposit. The Deposit is to be applied to settle part of the Consideration upon signing of the Shanghai Commodity Property Sale Contract;

• (ii) RMB380 million, which will be payable upon the grant and drawdown of the Loan, is more particularly described below; and

• (iii) the remaining RMB20 million in cash, which will be financed by internal resources of the Group, will become payable within three Banking Days after the day on which the transfer of the ownership of the Properties from the Vendor to Manwide is duly completed.

Under the Agreement, the Vendor is required to procure Manwide in obtaining a loan of RMB380 million to be granted by PRC banks or financial institutions and secured by the Properties with a repayment term of not less than three years and an annual interest rate of not more than 110% of the basic lending rate quoted from bank/ financial institution on the date the loan is drawn down.

Conditions

The Agreement will take effect once it becomes unconditional. The Agreement will become unconditional subject to, among other things, the followings:

• (i) the Shareholders having approved the transactions contemplated under the Agreement at the Extraordinary General Meeting;

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• (ii) the Vendor and Manwide having obtained all necessary internal approvals including approvals from their respective boards of directors and shareholders in respect of the entering into the Agreement and the transactions contemplated thereunder;

• (iii) all the ancillary documents to the Agreements including, among other things, specifications of quality and standard of the Building, having been duly executed;

• (iv) the Vendor having provided written evidence confirming that the Vendor has paid all interest due and has not violated any terms of the relevant loan agreements with its existing mortgagee banks; and

• (v) the Vendor having obtained consents from its existing mortgagee banks for the Vendor’s entering into the Agreement and the transactions contemplated thereunder.

None of the conditions above is waivable. Upon fulfillment of all the above conditions, the Agreement will become unconditional. If the conditions set out above are not fulfilled on or before 31st December, 2004, the Agreement will lapse and the Vendor shall return the Deposit, together with interest accrued therefrom calculated at the bank lending rate, to Manwide within five Banking Days from the date on which the Agreement lapses.

Development of the Properties

The Vendor agrees to procure completion of the Development within 180 days after the signing of the Agreement, that is on or before 13th December, 2004. The completion is also subject to Manwide having satisfied that the Building is completed in compliance with the specification on the quality and standard of the Building under the Agreement. In the event that the completion of the Development does not take place as agreed, Manwide has the right, by giving a written notice to the Vendor, to:—

• (i) terminate the Agreement and demand for refund of the Deposit together with the interest accrued therefrom calculated from the payment date of the Deposit to the date on which the Deposit is refunded at the bank lending rate within seven days from the date of such written notice of termination;

• (ii) extend the completion day of the Development to any day at Manwide’s discretion and, in such circumstance, the Vendor will have to pay Manwide a fine of RMB200,000 per day calculated from the commencement date of and up to the last date of such extended period. The accumulated fine will be deducted from the Consideration. In the event that Development cannot be completed at the extended date of completion, Manwide has the right to further extend the completion day or to exercise its rights under all paragraphs of this section including this paragraph;

• (iii) takeover the Development and require the Vendor to settle all outstanding amounts incurred before Manwide’s takeover of the Development;

• (iv) acquire 51% of the total gross floor area of the Properties and select any floors of the Properties at the sole discretion of Manwide with a consideration of RMB70 million; or

• (v) extend the completion day of the Development up to the actual completion of the Development, in such circumstance, the Vendor will be subject to a fine of RMB200,000 per day up to the actual date of completion of the Development. The accumulated fine will be used to the off against the Consideration.

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Completion

The completion of the Acquisition is subject to fulfillment of the following terms:—

• (i) the Vendor having obtained the Certificate specifying the use of the Land and the Building, the gross floor area of the Land and the Building, and that all units as set out in the floor plan of the Building are subject to rights of strata sale;

• (ii) the Vendor having obtained an approval from the Shanghai Planning Committee that the use of the Properties is for both commercial and residential purposes and that all relevant fees and charges arising from the sale of the Land payable to the relevant authorities including the Land Bureau of Shanghai having been settled in full;

• (iii) the Vendor having provided Manwide with a guarantee from a third party (in form and substance which is to the satisfaction of Manwide, together with all evidence confirming the capacity of such third party to act as a guarantor) that the Properties are not subject to encumbrances of any kinds, otherwise such guarantor together with the Vendor are obliged to settle all such encumbrances in full and pay to Manwide any damages it may suffer;

• (iv) the Vendor and Manwide having agreed on the specification of installation, fixture and furniture and other internal decoration of the Properties;

• (v) the Vendor having procured all the contractors engaged in the Development to enter into agreements with Manwide to bind the contractors with obligations to Manwide to rectify all the defects of the Properties which may arise after completion of the Development in accordance with the terms of the Agreement; and

• (vi) the Vendor having procured the granting of the Loan to Manwide at the time or after the ownership of the Properties is transferred from the Vendor to Manwide.

All the above conditions shall be fulfilled on or before 1st June, 2005. Within ten working days after fulfillment of all the above terms, the Vendor and Manwide will execute the Shanghai Commodity Property Sale Contract and other procedures necessary to effect the transfer of the ownership of the Properties.

Provided that if the conditions are not fulfilled on or before 1st June, 2005, Manwide shall agree to a further extension of not less than 60 days without imposing any fine on the Vendor. If the conditions are not fulfilled on the extended period, Manwide shall be entitled to terminate the Agreement and the Vendor shall refund the Deposit to Manwide together with an interest calculated from the payment date of such RMB50 million until the date of repayment at the bank lending rate.

Other principal terms of the Agreement

Set out below are other principal terms of the Agreement:—

• (1) Pre-sale of the Properties

• (i) on the basis that Manwide will acquire the whole of the Properties, Manwide has the discretion to conduct pre-sale of the whole or part of the Properties before the ownership of the Properties is transferred to Manwide;

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• (ii) the Vendor undertakes and guarantees to obtain a Permit for pre-sale of Commercial Properties within 150 days from the date of the Agreement; and

• (iii) the Vendor should assist Manwide in the pre-sale of the Properties so long the pre-sale activities to be conducted by Manwide are permissible under the Agreement.

• (2) Management of the Properties

• (i) the Vendor undertakes that, notwithstanding that Manwide may acquire the whole or part of the Properties as agreed under the Agreement, Manwide or any party it may appoint will have the management right of the entire Properties.

• (ii) Manwide is entitled to, from the date the ownership of the Properties is transferred, assume its right to manage the Properties and to take charge of all matters in this respect including marketing and promotion, leasing, entering into tenancy agreements, etc.; and

• (iii) in the event that Manwide or any party Manwide may appoint, encounters difficulties in carrying out its rights to manage the Properties temporarily, the Vendor should provide all necessary assistance to preserve Manwide’s right in respect of the Properties management.

• (3) Change of use of the Properties

It is one of the conditions for completion of the Acquisition that the Vendor obtains approval for the change of use of the Properties from commercial to both commercial and residential purposes. Should the Vendor fail to obtain the approval for the change of the use of the Properties within 150 days from the date of the Agreement, Manwide is entitled to either:

• (i) continue to proceed with the Agreement in accordance with the existing terms and conditions; or

• (ii) to acquire the 1st to 7th floors and the 23rd floor together with the two levels of the underground carparks of the Properties for a consideration of RMB70 million.

In the event that Manwide opts to acquire part of the Properties as specified in paragraph (3)(ii) above under the section headed “Other principal terms of the Agreement, the condition (iii) as set out above under the section headed “Completion” together with the following revised conditions of completion should be fulfilled within 30 days after Manwide notifying the Vendor in writing its intention to acquire part of the Properties.

The revised conditions of completion are :

• (a) the Vendor having obtained the Certificate specifying the partitioning, the number of units and the gross floor area of each floor which will enable Manwide to obtain separate ownership certificates in respect of those part of the Properties which Manwide is acquiring;

• (b) the Vendor having paid all the government fee for obtaining the Land which will enable Manwide to obtain separate ownership certificates specifying those part of the Properties which Manwide is acquiring is for sale;

• (c) the Vendor having settled all the existing mortgages and is able to transfer those part of the Properties which Manwide is acquiring free from encumbrances;

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• (d) the Vendor and Manwide having agreed on the specification of installation, fixture and furniture and other internal decoration of those part of the Properties which Manwide is acquiring; and

• (e) the Vendor having procured all the contactors engaged in the Development to enter into agreements with Manwide to bind the contractors with obligations to Manwide to rectify all the defects (which may arise after completion of the Development) of those part of the Properties which Manwide is acquiring in accordance with the terms of the Agreement.

If these conditions are not satisfied within 30 days from the date of notice, the Vendor is required to pay Manwide a daily fine calculated based on 0.05% of RMB50 million until all the conditions are fulfilled.

Within 10 working days from the date on which all the conditions are fulfilled, the Vendor and Manwide should execute the Shanghai Commodity Property Sale Contract to effect the transfer of the ownership of the Properties. The Vendor and Manwide should also enter into an agreement setting out, among other things, their respective rights on the common areas of the Properties including but not limited to the rights to use and the benefit arises from the advertising installations, the naming right of the Properties, etc.

• (4) Right to Assign

Manwide shall be entitled to set up a foreign-owned entity in Shanghai to assume all rights and obligations of Manwide under the Agreement.

REASONS FOR THE ACQUISITION

The Company is an investment holding company. Through its subsidiaries and associates, the Company is engaged in the manufacturing of batteries, investment in infrastructure projects, manufacturing and marketing of tires, and the business of providing package tour, travel, hotel operation and other related services.

China Enterprises is owned as to 55.2% effective equity interest and as to 88.8% effective voting interest by the Company. It is an investment holding company and has substantial interests in investment companies, the subsidiaries of which are principally engaged in the manufacturing and marketing of tires in the PRC and other countries aboard and the business of providing package tour, travel, hotel operation and other related services. In 2003, China Enterprises disposed of its controlling interest in two tire manufacturing operations in the PRC, which details are set out in the circulars of the Company dated 30th January, 2003 and 9th July, 2003. After reducing its involvement in the manufacturing and sale of tires, the board of China Enterprises has been actively seeking appropriate investment opportunities.

According to the statistic released by Shanghai Tourism Planning Committee, up to March 2004, approximately 820,000 tourists had visited in Shanghai, representing an increase of approximately 5.86% as compared to the same period in 2003. With the increasing number of international events, e.g. the Formula 1 racing and other international exhibitions and conferences being held in Shanghai every year, China Enterprises is confident that the demand for accommodation will continue to increase. On these bases, the Directors are optimistic that the Acquisition could broaden the sources of income for China Enterprises and strengthen its asset base. In view of the above, the Directors consider that the Acquisition is beneficial to China Enterprises, the Company and the Shareholders as a whole.

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EXTRAORDINARY GENERAL MEETING

The Agreement is subject to, among other things, the approval by the Shareholders at the Extraordinary General Meeting. A circular containing further information, including property valuation on the Properties, on the Acquisition, the notice of the Extraordinary General Meeting and the form of proxy for use at the Extraordinary General Meeting will be despatched to Shareholders as soon as practicable.

To the best knowledge, information and belief of the Directors and after making all reasonable enquiries, as at the date of this announcement, no Shareholders is required to abstain from voting at the Extraordinary General Meeting for the Shareholders to consider and, if thought fit, approve the Acquisition.

SUSPENSION AND RESUMPTION OF TRADING IN THE SHARES

The Company requested for suspension of trading in the Shares on the Stock Exchange from 9:45 a.m. on 17th June, 2004 pending release of this announcement before receiving all the ancillary documents to the Agreement, which formed part of the Agreement and contain substantial information on China Enterprises’ rights and obligations under the Agreement that is needed to be included in this announcement. The delay in the release of this announcement was due partly to the unexpected delay in receiving all the ancillary documents to the Agreement and partly to the prolonged period of time in obtaining consent from the Vendor’s board of directors in releasing information relating to the Agreement to third parties.

Application has been made to the Stock Exchange for resumption of trading in the Shares with effect from 9:30 a.m. on 8th July, 2004.

TERMS USED IN THIS ANNOUNCEMENT

“Acquisition”	the proposed acquisition of the interest in the Properties by Manwide
“Agreement”	the sale and purchase agreement dated 16th June, 2004 entered into
	between Manwide and the Vendor in relation to the Acquisition
“associates”	has the meaning ascribed thereto under the Listing Rules
“Board”	the board of Directors
“Building”	the 24-storey building being erected upon the Land together with the 2
	levels of underground carparks, which are of a total gross floor area of
	approximately 37,060.43 sq. meters
“Banking Day”	the day on which banks in the PRC open for business
“Certificate”	the land use rights certificate in respect of the Land and the ownership
	certificate in respect of the Building
“China Enterprises”	China Enterprises Limited, a company incorporated in Bermuda with
	limited liability whose shares are traded on the OTC Bulletin Board in
	the United States of America
“Company”	China Strategic Holdings Limited, a company incorporated in Hong Kong
	with limited liability whose shares are listed on the Stock Exchange

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“Consideration”	RMB450 million, being the consideration payable by Manwide to the
	Vendor for the Acquisition
“Deposit”	RMB50 million, which was paid by Manwide to the Vendor under the
	Agreement
“Development”	the construction and development of the Properties
“Director(s)”	the director(s) of the Company
“Extraordinary General Meeting”	an extraordinary general meeting of the Company to be convened and
	held for the Shareholders to consider and, if thought fit, to approve the
	transactions contemplated under the Agreement
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Jiu Sheng” or “Vendor”	上海久盛投資有限公司(Shanghai Jiu Sheng Investment Company
	Limited), a company established in the PRC
“Land”	a parcel of land situated at Nos. 219 and 229, Jiang Ning Road, Jing An
	District, Shanghai, the PRC, has a total gross floor area of approximately
	5,493.5 sq. meters
“Loan”	loan of RMB380 million to be granted by PRC banks or financial
	institutions and secured by the Properties with a repayment term of not
	less than three years and an annual interest rate of not more than 110% of
	the basic lending rate quoted from bank/financial institution on the date
	the loan is drawn down
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Manwide”	Manwide Holdings Limited, a company incorporated in the British Virgin
	Islands with limited liability, a wholly owned subsidiary of China
	Enterprises
“Properties”	the Land and the Building
“PRC”	The People’s Republic of China
“Shanghai Commodity Property	the agreement in the form of Shanghai Commodity Property Sale contract
Sale Contract”	to be signed by the Vendor and Manwide upon completion of the
	Acquisition for the purpose of transferring ownership of the Properties
“Share(s)”	share of HK$0.1 each in the share capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

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“HK$”

Hong Kong dollars

“RMB”

Renminbi, the official currency of the PRC

“sq. meters”

square meters

By Order of the Board of China Strategic Holdings Limited Dr. Chan Kwok Keung, Charles Chairman

Hong Kong, 7th July, 2004

As at the date of this announcement, the board of directors of the Company comprises Dr. Chan Kwok Keung, Charles, Dr. Yap, Allan, Mr. Li Wa Kin, Ms. Chau Mei Wah, Rosanna, Ms. Chan Ling, Eva as executive directors, Mr. Chan Kwok Hung and Mr. Lui Siu Tsuen, Richard as alternate directors to Dr. Chan Kwok Keung, Charles and Dr. Yap, Allan respectively and Mr. David Edwin Bussmann and Ms. Fung Wan Yiu, Agnes as independent non-executive directors.

Please also refer to the published version of this announcement in the China Daily.

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