Kerry Properties Limited — M&A Activity 2005

Jan 24, 2005

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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website: www.kerryprops.com (Stock Code: 00683)

MAJOR TRANSACTION SECOND CLOSING

The Board is pleased to announce that Second Closing took place on 13 January 2005. All Second Closing Conditions had been satisfied except three Second Closing Conditions as disclosed below. As a result of Second Closing and upon concluding the registration procedures with the relevant PRC industry and commerce registration authority, the Company will indirectly hold 70% of Eas PRC and the remaining 30% will be held by Huatong. The Company has also decided to consolidate Eas PRC as its subsidiary with effect from the First Closing i.e. 31 December 2004.

Reference is made to the Company’s announcement dated 24 September 2004 relating to the proposed acquisition by Kerry Logistics from Huatong of the Treasure Lake Shares and the Eas PRC Shares in accordance with the terms and conditions of the Sale and Purchase Agreement (the “ First Announcement ”), the Company’s announcements dated 18 October 2004 and 15 December 2004 both relating to a time extension for despatch of the circular (the “ Circular ”), the Company’s announcement dated 28 December 2004 relating to shareholders’ approval, differences detected during due diligence and audit and despatch of the Circular and the Company’s announcement dated 4 January 2005 in relation to the First Closing. Unless the context otherwise requires, terms defined in the First Announcement shall have the same meanings when used in this announcement.

The Board is pleased to announce that Second Closing took place on 13 January 2005. All Second Closing Conditions had been satisfied except the following:

• (i) the condition (“ Second Closing Condition I ”) that requires any First Closing Condition waived by Kerry Logistics (if such condition is conditionally waived, any relevant conditions attaching to such waiver) being fulfilled;

• (ii) the condition (“ Second Closing Condition II ”) that requires the legal opinion addressed to Huatong and copied to Kerry Logistics by Huatong’s PRC legal advisor in form and substance satisfactory to Kerry Logistics to confirm, inter alia, that the Restructuring has been legally and validly completed in accordance with all relevant PRC laws and regulations; and

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• (iii) the condition (“ Second Closing Condition III ”) that requires the auditors of Kerry Logistics to issue to Kerry Logistics and Huatong a statement relating to, inter alia, the NAV of Eas PRC (the “ NAV Statement ”).

In relation to Second Closing Condition I, as announced by the Company on 4 January 2005, Kerry Logistics waived the First Closing Condition relating to the execution of documents to confirm the beneficial ownership of Eas PRC in four companies on the basis that this should be done on or after the Second Closing. The requirement attaching to that waiver has not yet been satisfied at the Second Closing with respect to one out of the four companies, but it is a term of the waiver of the relevant First Closing Condition that the requirement may be satisfied after the Second Closing. The total asset value attributable to the equity interest of Eas PRC in that company represents less than 1.5% of the total asset value of the Eas PRC Group as at 30 June 2004 based on the Accountants’ Report of the Eas PRC Group set out in Appendix III to the Circular.

Second Closing Condition I has therefore been waived to allow the Second Closing to take place on terms that Eas PRC be compensated by Huatong for any related economic loss that Eas PRC may suffer as a result of Huatong failing to discharge its obligation to procure the execution of documents to confirm the beneficial ownership of Eas PRC in the company aforementioned.

By way of background to the waiver of Second Closing Condition II and Second Closing Condition III, Kerry Logistics has moved forward the Second Closing because the most fundamental Second Closing Condition about approval by relevant PRC authorities to the transfer of the Eas PRC Shares has already been satisfied. As disclosed in the Circular, the Ministry of Commerce of the PRC approved such transfer on 6 December 2004 and the Company intends the Second Closing to take place as soon as possible after the First Closing, subject to satisfaction and/or waiver of all other relevant Second Closing Conditions. Kerry Logistics considers that the Second Closing should be brought forward as the intention all along is to acquire 70% of the Eas PRC Group. The transaction had been structured with two closings (and on the basis that the First Closing would basically be unwound if the Second Closing could not take place) because it was contemplated then that a lot more time would potentially be needed to obtain approval from relevant PRC authorities to the transfer of the Eas PRC Shares at the Second Closing.

Against such background and in relation to Second Closing Condition II:

• (i) Huatong’s PRC legal advisers have confirmed that the Restructuring has been completed in accordance with the terms of the Restructuring Agreement, although a number of steps remain to be taken, such as the giving of notices by Eas PRC (which is already under the control of the Company) to debtors of certain debts owing to the Eas PRC Group and completion of registration procedures (which, as confirmed by Huatong’s legal advisers, will be done in accordance with normal administrative procedures).

• (ii) As the Second Closing has been brought forward, there is insufficient time for such remaining steps in relation to the implementation of the carve out to be undertaken, such as the giving of notices by Eas PRC to debtors of certain debts owing to the Eas PRC Group and completion of registration procedures.

• (iii) As disclosed in the Circular, pursuant to the Restructuring Agreement, various companies, assets and liabilities that are not directly connected or have no business synergy with the logistics businesses that Kerry Logistics aims to acquire will be transferred out of the Eas PRC Group (before the Restructuring) in accordance with the terms of the Restructuring Agreement. With the exception of a vehicle related to the logistics businesses that Kerry Logistics aims to acquire, the Restructuring relates to carving out assets and liabilities from the Eas PRC Group (before the Restructuring).

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• (iv) The Restructuring Agreement contains an indemnity from Huatong in favour Eas PRC in respect of any economic loss sustained by Eas PRC on account of any assets or liabilities not being transferred in accordance with the Restructuring. Huatong’s legal advisers have confirmed that the indemnity is legally valid and enforceable.

• (v) As regards assets that have not been carved out from the Eas PRC Group (before the Restructuring) and in respect of which additional steps remain to be taken as at the Second Closing to implement the carve out, Kerry Logistics does not consider that retaining such assets within the Eas PRC Group until all remaining steps have been taken will prejudice the interests of Kerry Logistics or the Eas PRC Group. The Eas PRC Group will simply be holding such assets pending transfer out to Huatong and Eas PRC also has the benefit of an indemnity from Huatong in respect of any economic loss sustained by Eas PRC on account of any such assets not being carved out.

• (vi) As regards liabilities that have not been carved out from the Eas PRC Group (before the Restructuring) and in respect of which additional steps remain to be taken as at the Second Closing to implement the carve out, such liabilities relate to debts or accounts payable owed by the Eas PRC Group (before the Restructuring) to various third party creditors. The book value of such debts amounted to less than RMB20.5 million as at 30 November 2004 which is less than 2% of the total asset value of the Eas PRC Group as at 30 June 2004 based on the Accountants’ Report on the Eas PRC Group set out in Appendix III to the Circular. Kerry Logistics believes that Huatong and/or Eas PRC should be in a position to carve out such liabilities and, in any event, Eas PRC also has the benefit of an indemnity from Huatong in respect of any economic loss sustained by Eas PRC on account of any such liabilities not being carved out.

Kerry Logistics has therefore waived Second Closing Condition II, and Huatong’s legal advisers have issued a legal opinion confirming paragraphs (i) and (iv) above.

As regards Second Closing Condition III, as the First Closing only took place on 31 December 2004 and the Second Closing had been brought forward to 13 January 2005, there was insufficient time for the auditors of Kerry Logistics to prepare the NAV Statement.

Kerry Logistics has therefore waived Second Closing Condition III on terms that the NAV statement shall be prepared after the Second Closing. The time within which the NAV Statement should be made available remains the same as under the Sale and Purchase Agreement, that is to say, within three months from receipt of all relevant supporting documents by the auditors of Kerry Logistics. Adjustments, if any, to the Consideration, will be deducted from the distributable profits of the Eas PRC Group before the First Closing that Huatong is entitled to receive and any shortfall amount will be payable by Huatong in cash within 30 days after written demand. In addition, the waiver is on terms that Eas PRC be compensated by Huatong for any related economic loss that Eas PRC may suffer on account of Second Closing Condition III not having been satisfied. Kerry Logistics is not aware of any reasons as a result of which the NAV Statement cannot be prepared.

The Company considers that the waivers granted in respect of the relevant Second Closing Conditions as aforementioned to enable Second Closing to take place are in its interest and that such waivers do not have any material adverse implications in the context of the Acquisition taking into account the indemnities from Huatong mentioned above.

As a result of Second Closing and upon concluding the registration procedures with the relevant PRC industry and commerce registration authority, the Company will indirectly hold 70% of Eas PRC and the remaining 30% will be held by Huatong.

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The Company has also decided to consolidate Eas PRC as its subsidiary with effect from the First Closing i.e. 31 December 2004. This is because the Second Closing has already taken place (meaning that the First Closing will not be unwound) and with effect from the First Closing, Kerry Logistics has acquired management control over the board of Eas PRC as Eas HK, a wholly-owned subsidiary of Kerry Logistics after the First Closing, is entitled to nominate three directors to the board of Eas PRC whereas Huatong is only entitled to nominate two directors.

GENERAL

As at the date of this announcement, Messrs. Ang Keng Lam, Wong Siu Kong, Ho Shut Kan and Ma Wing Kai, William are executive Directors and Messrs. William Winship Flanz, Lau Ling Fai, Herald and Christopher Roger Moss, O.B.E. are independent non-executive Directors.

By Order of the Board Ang Keng Lam Chairman

Hong Kong, 21 January 2005

• For identification purpose only

“Please also refer to the published version of this announcement in South China Morning Post”

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