ICO Group Limited - M&A Activity 2000

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.

Jackin International Holdings Limited

輝影國際集團有限公司

(Incorporated in Bermuda with limited liability)

Proposed acquisition of Fortune Luck Development Ltd.

and

Proposed issue of Convertible Notes

Financial adviser to Jackin International Holdings Limited

On 8 November 2000, the Company entered into the S&P Agreement with the Vendors pursuant to which the Company would acquire the entire issued share capital of Fortune Luck. The total consideration payable under the S&P Agreement is HK$47,031,725. The consideration is to be satisfied as to HK$7,431,725 in cash and the balance by the issue of the Convertible Notes at face value.

The Convertible Notes will be issued pursuant to the general mandate granted to the Directors at the annual general meeting of the Company held on 13 June 2000.

The S&P Agreement and the issue of the Convertible Notes are subject to the satisfaction of a number of conditions and accordingly, they may or may not proceed. Investors should exercise caution when dealing in the Shares.

Trading of Shares on the Stock Exchange was suspended with effect from 10:00 a.m. on Wednesday, 8 November 2000 at the request of the Company pending the issuance of this announcement. The Company has made an application to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange with effect from 10:00 a.m. on Thursday, 9 November 2000.

THE S&P AGREEMENT

Date

8 November 2000

Parties

Purchaser: The Company

Percentage of interest in the

capital of Fortune Luck

Vendors: Mr. K. L. Chiu ("Mr. Chiu") 75%

BVI2 25%

Guarantors: Mr. Chiu, Mr. X.G. Xu ("Mr. Xu") and Mr. J.F. Jiang ("Mr. Jiang")

Mr. Xu and Mr. Jiang are the beneficial owners of BVI2. The Vendors and the Guarantors are independent third parties unconnected with the Directors, chief executive, substantial shareholders of the Company or its subsidiaries and their respective associates.

Assets to be acquired

The entire issued share capital of Fortune Luck.

Consideration

The total consideration payable under the S&P Agreement is HK$47,031,725 and was determined on the basis of arm's length negotiation between the Company and the Vendors having regard to (1) the profit guarantees given by the Vendors as described below, (2) the International Manufacturer's Agreement (as defined below) held by Fortune Luck and (3) the Transfer of the Distribution Network (as defined below). The consideration is to be satisfied as to HK$7,431,725 in cash and the balance by the issue of the Convertible Notes at face value.

Under the S&P Agreement, BVI1, a company beneficially owned by Mr. Chiu will receive HK$3.2 million in cash and a Convertible Note with a principal amount of HK$32.7 million; and BVI2 will receive HK$4,231,725 in cash and three Convertible Notes each with a principal amount of HK$2.3million.

Principal terms of the Convertible Notes to be received by the Vendors

Common terms of the Convertible Notes to be received by the Vendors are summarised below:-

Interest rate: Non-interest bearing

Maturity Date: Third anniversary from the date of issue

Conversion Price: HK$0.55 per Share

Transferability: Transferable only with the prior consent of the Company and in the case of transfer to connected persons of the Company (as defined in the Listing Rules), it will require the consent of the Company

The Company undertakes to the Stock Exchange that after the issue of the Convertible Notes, it will disclose to the Stock Exchange any dealings by any of the substantial shareholders and Directors or their respective associates from time to time in the Convertible Notes immediately upon the Company becoming aware of such dealings.

Convertible Note to be received by BVI1

The principal amount of the Convertible Note to be received by BVI1 under the S&P Agreement is HK$32.7 million.

The Convertible Note is convertible in part or in whole into new Shares at any time during the period commencing 18 months from the date of issue up to but excluding the Maturity Date. To the extent that the Convertible Note has not been previously converted, the Convertible Note will be redeemed on the Maturity Date at the then outstanding principal amount provided that the Company has the option to call on the holder to convert the then outstanding Convertible Note on the same date wholly into Shares.

Convertible Notes to be received by BVI2

Under the S&P Agreement, BVI2 will receive three Convertible Notes, each having a principal amount of HK$2.3 million.

The three Convertible Notes are convertible in part or in whole into new Shares at any time during the period commencing 12, 24 and 33 months from the date of issue respectively up to but excluding the Maturity Date. To the extent that the three Convertible Notes have not been previously converted, the Convertible Notes will be redeemed on the Maturity Date at the then outstanding principal amounts.

The Convertible Notes will be issued pursuant to the general mandate granted to the Directors at the annual general meeting of the Company held on 13 June 2000 (the "General Mandate"). The new Shares converted from the Convertible Notes shall, when allotted and issued, rank pari passu in all respects with all the other Shares in issue on the date of conversion.

The new Shares which fall to be issued assuming full conversion of the Convertible Notes will represent around 19.98% of the issued share capital of the Company as at the date of passing the resolution for the General Mandate, and around 16.72% of its issued share capital as enlarged by the issue of new Shares assuming full conversion of the Convertible Notes.

Conversion price

The conversion price per Share of HK$0.55 for the Convertible Notes represents:

‧ a discount of around 9.8% to the closing price of HK$0.61 per Share as quoted on the Stock Exchange on 7 November 2000 (the last trading day immediately before the suspension of trading of the Shares on 8 November 2000); and

‧ a premium of around 1.6% to the average closing price of HK$0.5415 per Share as quoted on the Stock Exchange for the last ten trading days up to and including 7 November 2000.

Conditions of the S&P Agreement

Completion of the S&P Agreement is conditional upon certain conditions occurring before 28 December 2000 or such later date as shall be agreed by the parties to the S&P Agreement including, among others, the following:

the receipt of the approval of the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the new Shares which fall to be issued upon the conversion of the Convertible Notes;
the International Manufacturer's Agreement being, and continuing to be, in full force and effect notwithstanding Completion;
a new company having been duly established under the laws of the PRC, with Jackin WFOE holding 80% of the equity interest and Mr. Xu and Mr. Jiang each holding 10% of the equity interest ("PRC Newco"), and a business license having been issued by the relevant PRC authorities to PRC Newco for the operation of the business(es) as set out in the JV Contract (as defined below);
if required, the Bermuda Monetary Authority granting the permission for the issue of the Convertible Notes and the new Shares falling to be issued upon the conversion of the Convertible Notes;
the receipt by the Company of a legal opinion from a reputable firm of PRC lawyers regarding, inter alia, (a) the due incorporation and good standing of PRC Newco, (b) the validity of the joint venture contract ("JV Contract") to be entered into by Jackin WFOE with Mr. Xu and Mr. Jiang for the establishment of PRC Newco and its articles of association and (c) the due execution by, and enforceability of, other ancillary documents;
all necessary consents being granted by third parties (including governmental or official authorities) and no statute, regulation or decision which would prohibit, restrict or materially delay the sale and purchase of shares in Fortune Luck having been proposed, enacted or taken by any governmental or official authority.

Profit guarantees

Fortune Luck Profit Guarantee

In consideration of the Company entering into the S&P Agreement, BVI1 and Mr. Chiu jointly and severally warrant and guarantee with the Company that the audited net profit after tax of Fortune Luck for the year ending 31 December 2001 shall not be less than HK$6,000,000 (the "Fortune Luck Profit Guarantee").

BVI1 and Mr. Chiu jointly and severally undertake to pay the Company an amount equal to a multiple of 4.5 times of the shortfall in the event that Fortune Luck fails to fulfil the Fortune Luck Profit Guarantee, subject to a maximum of HK$27 million. Furthermore, each of BVI1 and Mr. Chiu irrevocably and unconditionally authorises the Company to apply any amounts due to it from BVI1 and/or Mr. Chiu as a result of a breach or default of the Fortune Luck Profit Guarantee in or towards satisfaction of any sum then due from the Company to BVI1 under the relevant Convertible Note.

Combined Profit Guarantee

In consideration of the Company entering into the S&P Agreement, BVI2 and its beneficial owners jointly and severally warrant and guarantee with the Company that the aggregate of the audited net profit after tax of the PRC Newco and Jackin Advanced for the year ending 31 December 2001 shall not be less than RMB 6,000,000 (the "Combined Profit Guarantee").

BVI2 and its beneficial owners jointly and severally undertake to pay the Company the shortfall on a dollar for dollar basis in the event that PRC Newco and Jackin Advanced fail to fulfil the Combined Profit Guarantee. Furthermore, each of BVI2 and its beneficial owners irrevocably and unconditionally authorises the Company to apply any amounts due to it from BVI2 and/or its beneficial owners as a result of a breach or default of the Combined Profit Guarantee in or towards satisfaction of any sum then due from the Company to BVI2 under the relevant Convertible Notes.

Completion of the S&P Agreement

The S&P Agreement shall terminate if the conditions thereto are not fulfilled or waived prior to 28 December 2000 or such later date as the parties to the S&P Agreement may agree in writing.

Completion of the S&P Agreement is expected to take place on the third business day after all the conditions of the S&P Agreement (save for those specified therein) are fulfilled or, as the case may be, waived.

Information on Fortune Luck

Fortune Luck was incorporated on 9 February 1996 in BVI and is an investment holding company. The sole assets of Fortune Luck is an agreement with an international consumer and industrial electronic equipment manufacturer (the "International Manufacturer") for the sale and promotion of its data media products (the "International Manufacturer's Agreement"). The International Manufacturer's Agreement is for a term of three years commencing 1 November 2000 and thereafter will automatically be extended on a yearly basis.

Reasons for the Acquisition and future intention of the Company

The Group is principally engaged in the manufacture and sale of media products and provision of total fulfilment services. The Directors believe that the Acquisition will enable the Group to diversify into distribution of media products, which will complement the Group's existing businesses.

The Directors intend that the PRC Newco, Jackin Advanced and Fortune Luck will be the Group's principal subsidiaries for distribution of the International Manufacturer's data media products in the PRC including Hong Kong and Macau.

It is intended that, upon Completion, Mr. Xu and Mr. Jiang shall enter into respective service agreements with PRC Newco (collectively, the "Service Agreements") and each of them will be appointed as deputy general manager of PRC Newco for the period from 1 January 2001 up to and including 31 December 2003. Pursuant to the Service Agreements, each of Mr. Xu and Mr. Jiang undertakes not to engage in other business which is in direct competition with PRC Newco for a period commencing on the date of the Service Agreements up to 30 June 2005. Furthermore, it is intended that, upon Completion, Mr. Xu and Mr. Jiang will also be appointed as joint general managers of Jackin Advanced and Mr. Chiu will be appointed as the general manager of Fortune Luck.

It is also intended that a consultancy services contract will be entered into by PRC Newco with Jackin WFOE for the provision of consultancy services by Jackin WFOE to PRC Newco ("Consultancy Services Contract"). The Consultancy Services Contract if executed will constitute a "connected transaction" for the Company under the Listing Rules. The Company will comply with all the relevant requirements of the Listing Rules in relation to the Consultancy Services Contract, if applicable.

Old PRC Co. was established on 14 July 1998. Its principal business is distribution and sales of the International Manufacturer's data media products. In this respect, each of the Vendors undertakes that by not later than 45 days from the date of Completion, the existing distributorship and sales agreements entered into by Old PRC Co. and its existing clients and customers for the distribution and sale of the products of the International Manufacturer and other products will have been duly cancelled and new distributorship and sales agreements will have been entered into by PRC Newco with the aforesaid existing clients and customers of Old PRC Co. effective as from 1 January 2001 (the "Transfer of Distribution Network")

If the Vendors and the Guarantors are unable to fulfill their said undertakings, the three Convertible Notes with the aggregate amount of HK$6,900,000 issued to BVI2 will be cancelled and the cash consideration of HK$4,231,725 paid to BVI2 shall be returned to, and forfeited by the Company.

GENERAL

An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal, in the new Shares which fall to be issued upon conversion of the Convertible Notes. No application will be made to the Stock Exchange or other stock exchanges for the listing of the Convertible Notes.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:-

"Acquisition" the proposed acquisition of the entire issued share capital of Fortune Luck by the Company pursuant to the S&P Agreement

"associates" has the same meaning ascribed thereto under the Listing Rules

"BVI" The British Virgin Islands

"BVI1" Art-Tech Enterprises Limited, a company incorporated in the BVI as an International Business Company under the BVI International Business Companies Act (Cap 291)

"BVI2" Tak Fung Holdings Limited, a company incorporated in the BVI as an International Business Company under the BVI International Business Companies Act (Cap 291)

"Company" Jackin International Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

"Completion" completion of the S&P Agreement

"Convertible Notes" convertible notes with an aggregate principal amount of HK$39.6 million carrying rights to convert into new Shares at HK$0.55 per Share to be issued as part of the consideration for the Acquisition pursuant to the S&P Agreement

"Director(s)" director(s) of the Company

"Fortune Luck" Fortune Luck Development Ltd., a company incorporated in the BVI as an International Business Company under the BVI International Business Companies Act (Cap 291)

"Group" the Company and its subsidiaries

"Jackin Advanced" Jackin Advanced Optical Technology Limited, a company established in the BVI and a wholly owned subsidiary of the Company

"Jackin WFOE" Feitian Magnetic Information - Technology (Shenzhen) Co., Ltd., a company established under the laws of the PRC and a wholly owned subsidiary of the Company

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

"Old PRC Co." Shenzhen Xing Guang Li Electronics Co., Ltd., a company established under the laws of the PRC and owned by the beneficial owners of BVI2

"PRC" The People's Republic of China

"S&P Agreement" the agreement dated 8 November 2000 entered into amongst the Company, the Vendors and the Guarantors in relation to the Acquisition

"Share(s)" ordinary shares of HK$0.10 each in the Company's share capital

"Shareholder(s)" holder(s) of the Shares

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"Vendors" all the existing shareholders of Fortune Luck

"HK$" Hong Kong dollars, the lawful currency of Hong Kong

"RMB" Renminbi, the lawful currency of the PRC

By Order of the Board

Ho Yin King, Helena

Chairman

Hong Kong, 8 November 2000

"Please also refer to the published version of this announcement in the SCMP"

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ICO Group Limited M&A Activity 2000

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