Matrix Holdings Limited — M&A Activity 2000

Jul 4, 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.

MATRIX HOLDINGS LIMITED SUNCORP INVESTMENTS

GROUP LIMITED

(Incorporated in Bermuda (Incorporated in the British Virgin Islands

with limited liability) with limited liability)

JOINT ANNOUNCEMENT

POSSIBLE UNCONDITIONAL CASH OFFER

BY DELOITTE & TOUCHE CORPORATE FINANCE LIMITED

ON BEHALF OF SUNCORP INVESTMENTS GROUP LIMITED

FOR ALL THE ISSUED SHARES OF

MATRIX HOLDINGS LIMITED

OTHER THAN SHARES ALREADY OWNED OR AGREED TO BE ACQUIRED BY

SUNCORP INVESTMENTS GROUP LIMITED

OR PARTIES ACTING IN CONCERT WITH IT

On 30 June 2000, Suncorp entered into a conditional agreement with MRL, Best Fortune, Mr. Wong and Oilpro, pursuant to which Suncorp will acquire 92,990,200 Shares at HK$0.2365 per Share and Convertible Loan Stock with an aggregate value of HK$40,653,624 at HK$0.2365 per Conversion Share.

Upon Completion, Suncorp and parties acting in concert with it will be interested in an aggregate of 92,990,200 Shares, representing approximately 64.26% of the issued ordinary share capital of the Company.

Upon Completion, an unconditional cash offer will be made by Deloitte & Touche on behalf of Suncorp to acquire all the issued Shares other than Shares already owned or agreed to be acquired by Suncorp or parties acting in concert with it at HK$0.2365 per Share. The terms of the possible Offer are set out under the heading "Possible Unconditional Cash Offer".

Shareholders should be aware that the Agreement is conditional upon a number of conditions as set out under the section headed "Conditions of the Agreement" and may or may not proceed. The Offer will be made only if Completion occurs. Shareholders of the Company and investors are urged to exercise caution when dealing in the Shares of the Company.

Trading in the Shares of the Company on the Stock Exchange was suspended at the request of the Company with effect from 10:00 a.m. on 3 July 2000 pending release of this announcement. Application has been made by the Company for the resumption of trading in the Shares of the Company with effect from 10:00 a.m. on 4 July 2000.

THE AGREEMENT

Date of the Agreement

30 June 2000

Parties

Vendors:

(i) MRL;

(i) Best Fortune;

(ii) Mr. Wong; and

(iii) Oilpro.

Purchaser: Suncorp

Suncorp is independent of the directors, chief executive and substantial shareholders of the Company or any of its subsidiaries or their respective Associates.

Shares and Convertible Loan Stock to be acquired

Suncorp will acquire 85,528,000 Shares from MRL, 7,450,000 Shares from Best Fortune and 12,200 Shares from Mr. Wong. Following Completion, Suncorp will own 92,990,200 Shares, representing approximately 64.26% of the existing issued share capital of the Company.

On 29 June 2000, Suncorp completed its acquisition of Convertible Loan Stock with an aggregate value of HK$3,346,376 from Emirates Bank International PJSC. Pursuant to the Agreement, Suncorp will acquire Convertible Loan Stock with an aggregate value of HK$30,000,000 from MRL and of HK$10,653,624 from Oilpro. Following Completion, Suncorp will own all outstanding Convertible Loan Stock with an aggregate value of HK$44,000,000. Based on the conversion price of HK$0.10 per Share, 440,000,000 new Shares will be issued to Suncorp upon full conversion of the Convertible Loan Stock. Upon Completion and conversion of the Convertible Loan Stock in full, Suncorp will own 532,990,200 Shares, representing approximately 91.15% of the issued share capital of the Company on a fully diluted basis as enlarged by the full conversion of the Convertible Loan Stock.

Sale price and payment terms

The consideration of HK$21,992,182 for the Sale Shares was calculated on the basis of the sale price of HK$0.2365 per Share, which was determined after arm's length negotiations. The sale price of HK$0.2365 per Share represents a discount of about 37.76% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 30 June 2000, being the last trading day prior to suspension of trading in the Shares pending the release of this announcement, and a discount of about 39.82% to the average closing price of HK$0.393 per Share over the 20 trading days up to and including 30 June 2000. The sale price of HK$0.2365 per Share of the Group represents a premium of 12.62% to the proforma unaudited consolidated net assets per Share upon completion of the Restructuring of HK$0.21 (as disclosed in the Restructuring Circular) and a premium of 81.92% to the proforma unaudited consolidated net assets per Share of the Group upon completion of the Restructuring and upon issuance of the Conversion Shares of HK$0.12 (as disclosed in the Restructuring Circular).

The consideration of HK$96,145,821 for the Sale Convertible Loan Stock was calculated on the basis of HK$0.2365 per Conversion Share, which was determined after arm's length negotiations. The sale price of HK$0.2365 per Conversion Share is equal to the sale price of the Sale Shares.

The aggregate consideration for the Sale Shares and the Sale Convertible Loan Stock of approximately HK$118,138,003 will be paid in cash on Completion.

Conditions of the Agreement

The sale and purchase of the Sale Shares and the Sale Convertible Loan Stock is conditional upon the following conditions:

(i) notwithstanding any matter which is disclosed in the Disclosure Letter, Suncorp being satisfied as a result of its legal and financial due diligence investigation on the Group which will be conducted by Suncorp during a 14 calendar day period commencing from the date of the Agreement, as to the Management Accounts and that the Net Asset Value of the Group (on a fully diluted basis assuming conversion of the Convertible Loan Stock in full) is not less than HK$77 million and that Group has good title to the assets as stated in Appendix II of the Restructuring Circular;

(ii) each of the Vendors having complied fully with their obligations specified in the Agreement;

(iii) the Warranties given by the Vendors contained in the Agreement having remained true and accurate in all material respects and not misleading in any material respect at all times from the date of the Agreement up to and including the Completion Date;

(iv) all necessary regulatory consents being granted with respect to the transactions contemplated under the Agreement; and

1. the current listing of the Shares not having been withdrawn, the Shares continuing to be traded on the Stock Exchange prior to the Completion Date (save for any temporary suspension pending any announcement in connection with the Agreement) and the Stock Exchange not having indicated that they will object to such listing of the Shares on the Stock Exchange.

Suncorp may waive all or any of the conditions (except condition (v)) set out above.

Completion

Completion will take place on the Completion Date when all conditions of the Agreement have been fulfilled and / or waived. It is expected that the Completion Date will be on or before 4 September 2000. In the event that the above conditions of the Agreement are not fulfilled or waived by Suncorp before 31 August 2000, the Agreement will lapse. An announcement will be made as to whether the Agreement has been completed or has lapsed

SHAREHOLDING STRUCTURE

As at the date of this announcement, there are 144,720,000 Shares in issue, MRL, Best Fortune and Mr. Wong own a total of 92,990,200 Shares, representing approximately 64.26% of the issued share capital of the Company.

As at the date of this announcement, the Company has Convertible Loan Stock with an aggregate value of HK$44,000,000 outstanding. On 29 June 2000, Suncorp purchased Convertible Loan Stock with an aggregate value of HK$3,346,376 from Emirates Bank International PJSC. As at the date of this announcement, MRL and Oilpro hold the remaining Convertible Loan Stock with an aggregate value of HK$40,653,624. Upon Completion, all the Convertible Loan Stock will be held by Suncorp.

Set out below is a table showing the existing shareholding structure, the shareholding structure upon Completion, and the shareholding structure upon Completion and upon full conversion of the Convertible Loan Stock.

Shareholding

structure upon

Completion

and upon full

Existing Shareholding conversion of the

shareholding structure Convertible

structure upon Completion Loan Stock

Number Number Number

of Shares % of Shares % of Shares %

MRL 85,528,000 59.10% - - - -

Best Fortune 7,450,000 5.15% - - - -

Mr.Wong 12,200 0.01% - - - -

92,990,200 64.26% - - - -

Suncorp - - 92,990,200 64.26% 532,990,200 91.15%

Public shareholders 51,729,800 35.74% 51,729,800 35.74% 51,729,800 8.85%

144,720,000 100.00% 144,720,000 100.00% 584,720,000 100.00%

Upon Completion and upon full conversion of the Convertible Loan Stock, less than 25% of the issued ordinary share capital of the Company will be held by the public shareholders. Suncorp will undertake to the Stock Exchange that the Company will maintain the minimum public float requirement of the Listing Rules. Such undertaking will also be given by the new directors to be appointed by the Company upon their appointment becoming effective. In the event that the Company does not comply with the minimum public float requirement of the Listing Rules, trading in the Shares may be suspended.

POSSIBLE UNCONDITIONAL CASH OFFER

The Offer

Neither Suncorp nor parties acting in concert with it is interested in any Shares as at the date of this announcement (other than pursuant to the Agreement) or had dealt in the Shares during the six month period prior to the date of this announcement. Upon Completion, Suncorp and parties acting in concert with it will be interested in 92,990,200 Shares, representing approximately 64.26% of the total issued share capital of the Company. Under Rule 26 of the Takeovers Code, Suncorp will be required to make an unconditional general offer for all the issued Shares other than Shares already owned or agreed to be acquired by Suncorp or parties acting in concert with it.

Terms of the Offer

Deloitte & Touche, on behalf of Suncorp, will make an unconditional cash offer for all the issued Shares other than Shares already owned or agreed to be acquired by Suncorp or parties acting in concert with it on the following basis:

For each Share HK$0.2365 in cash

The offer price of HK$0.2365 per Share is equal to the sale price of the Sale Shares.

Upon Completion, all the outstanding Convertible Loan Stock will be held by Suncorp. Apart from the Convertible Loan Stock, the Company has no other outstanding convertible securities, warrants, options or subscription rights in issue.

Conditions of the Offer

The making of the Offer is conditional upon Completion and Completion is subject to the "Conditions of the Agreement" set out above. If the Offer is made, it will be unconditional with respect to acceptance.

Shareholders should be aware that the Agreement is conditional upon a number of conditions as set out under the section headed "Conditions of the Agreement" and may or may not proceed. The Offer will be made only if Completion occurs. Shareholders of the Company and investors are urged to exercise caution when dealing in the Shares of the Company.

Total consideration

At present, there are 144,720,000 Shares in issue. At a price of HK$0.2365 per Share for both the Sale Shares and Offer Shares, the aggregate amount payable by Suncorp will be HK$21,992,182 and HK$12,234,098 respectively. The aggregate consideration payable by Suncorp for the Sale Convertible Loan Stock will be HK$96,145,821 upon Completion. The total consideration for all existing issued Shares and the Sale Convertible Loan Stock payable by Suncorp will be HK$130,372,101.

Deloitte & Touche is satisfied that Suncorp has sufficient financial resources to complete the purchase of the Sale Shares and the Sale Convertible Loan Stock and satisfy acceptances of the Offer in full.

Effect of accepting the Offer

By accepting the Offer, shareholders will sell their Shares and all rights attached to them, including the right to receive all dividends and distributions declared, made or paid on or after the Completion Date.

Stamp duty

Stamp duty at a rate of HK$1.125 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptance will be deducted from the amount payable to shareholders who accept the Offer.

INFORMATION ON THE GROUP

Business

The Company is incorporated in Bermuda with limited liability and its Shares have been listed on the Stock Exchange since 1994. The Company is an investment holding company and its subsidiaries are principally engaged in the manufacture and sale of gifts and novelties.

Restructuring

In order to resolve the financial difficulties faced by the Group since 1998, the Company entered into settlement deeds with MRL, Oilpro, financial creditors and the liquidators of a former subsidiary and a subscription agreement with MRL in December 1999. The principal financial effects of the restructuring ("Restructuring") under these agreements were to reduce the current liabilities and indebtedness of the Group and strengthen its capital base with the issue of new Shares and Convertible Loan Stock. Details of the Restructuring were disclosed in the Restructuring Circular. The Restructuring was completed on 30 April 2000. Upon completion of the Restructuring, the Group received equity and debt capital of HK$54 million and MRL (87.5% owned by Oilpro) became the controlling shareholder of the Company.

Financial information

The auditors' reports for the Company's financial statements for the two years ended 31 December 1998 and 1999 contain qualification regarding the fact that certain accounting records and supporting documentation in respect of the two financial years had been mislaid. The following table sets out a summary of the audited consolidated results of the Company for the two years ended 31 December 1998 and 1999.

1999 1998

HK$'000 HK$'000

Turnover 1,717 285,474

Loss for the year (60,079 ) (311,120 )

Loss per Share (13.43 cents ) (69.57 cents )

As at 31 December 1999, the audited consolidated net liabilities of the Company was HK$164,610,000. The proforma unaudited consolidated net tangible assets of the Group upon completion of the Restructuring as disclosed in the Restructuring Circular was HK$29,831,000.

INFORMATION ON SUNCORP AND MR. CHENG

Suncorp is an investment holding company incorporated in the British Virgin Islands with limited liability on 3 Feburary 1999. Suncorp is 100% beneficially owned by Mr. Cheng, who is the sole director of Suncorp. It is the intention of Mr. Cheng that Suncorp will only invest in the Company and will not be engaged in other business activities.

Mr. Cheng is a Hong Kong based businessman and has more than twenty years experience in manufacturing, property development and investment. Since the mid 1980s, he has held a substantial beneficial interest in, and is an executive director of, Keyhinge Industrial Company Limited which, together with its Associates, are engaged in the manufacture and sale of premium toy with factories in China and Vietnam, and since 1993, have become one of the major suppliers to the McDonald's restaurant chain worldwide for premium toy items. Mr. Cheng is also engaged in property development and investment in Sydney, Australia.

With his substantial experience in manufacturing, Mr. Cheng intends that he will use his expertise and experience to assist the Group to further improve the returns of its manufacturing operation. Suncorp and Mr. Cheng have undertaken that Suncorp, Mr. Cheng and their associates are not and will not be engaged in any business that will compete with the businesses of the Group.

Suncorp and Mr. Cheng and their respective Associates and concert parties have no plan to inject any of their assets in the Company, although they will look for new business opportunities in the Group's ordinary course of business. The Stock Exchange states that, if the Company remains a listed company on the Stock Exchange, any future injection of assets into or disposals of assets by the Company will be subject to the provisions of the Listing Rules. Pursuant to the Listing Rules, the Stock Exchange has the discretion to require the Company to issue a circular to the shareholders where any acquisition or disposal by the Group, irrespective of the size of such acquisition or disposal, in particular where such acquisition or disposal, represents a departure from the principal activities of the Group. The Stock Exchange also has the power, pursuant to the Listing Rules, to aggregate a series of acquisitions which may, in any event, result in the Company being treated as a new applicant for listing and subject to the requirements for new applicants as set out in the Listing Rules. In the event that they inject assets in the Company, Suncorp and Mr. Cheng will ensure that the relevant disclosure and / or approval requirements under the Listing Rules will be complied with.

It is the intention of Suncorp and Mr. Cheng that the listing of the Company will be maintained on the Stock Exchange after the closing of the Offer. Suncorp is aware that the Company's public float may be below 25% of its issued share capital following the close of the Offer and it will undertake to the Stock Exchange that appropriate steps will be taken to ensure that sufficient public float exists for the Shares. If the Stock Exchange believes a false market exists or may exist in the Shares or there are too few Shares in public hands, it will consider exercising its discretion to suspend trading in the Shares to maintain an orderly market.

Both Suncorp and Mr. Cheng have no prior business relationships with the Group. Mr. Cheng is independent of the directors, chief executive and substantial shareholders of the Company or any of its subsidiaries or any of their respective Associates.

It is the intention of Suncorp and Mr. Cheng that, following Completion, the Group will remain focused on its core business of designing, manufacturing and marketing specialised gift products, Suncorp and Mr. Cheng intend that they will also assist the Group to improve the return of its manufacturing operation and strengthen its financial management. Save for the above, the directors of the Company do not anticipate any material adverse impact on the Group's business, operations and financial position.

Directors of the Company

Mr. Wong, Mr. Heng Kwoo Seng and Mr. Godfrey Mak will remain on the board of the Company whereas Mr. Low Nyap Heng, Dr. Yap Set and Mr. BL Teoh will resign from the board of the Company. Mr. Cheng, the sole shareholder and sole director of Suncorp, will be appointed as an executive director of the Company after the Offer document has been posted. It is anticipated that four to five new directors will be appointed to the board of the Company.

GENERAL

An independent board committee will be appointed to advise the independent shareholders of the Company on the terms of the Offer. An independent financial adviser will be appointed to advise the independent board committee.

Subject to Completion, a composite offer document, containing the terms of the Offer, financial information in respect of the Group, the advice of the independent board committee and the independent financial adviser, together with acceptance and transfer forms, will be sent to shareholders of the Company within 7 days from the date of Completion.

Application will be made to the Executive Director of the Corporate Finance Division of the Securities & Futures Commission for a consent under Note 2 to Rule 8.2 of the Takeovers Code to despatch the offer document on a date more than 21 days from the date of this announcement.

SUSPENSION AND RESUMPTION OF TRADING IN SHARES

Trading in the securities of the Company on the Stock Exchange was suspended at the request of the Company with effect from 10:00 a.m. on 3 July 2000 pending the release of this announcement. Application has been made by the Company for the resumption of trading in the shares of the Company with effect from 10:00 a.m. on 4 July 2000.

DEFINITIONS

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

"Agreement" the agreement for the sale and purchase of the Sale Shares and the Sale Convertible Loan Stock in the Company dated 30 June 2000 entered into among MRL, Best Fortune, Mr. Wong, Oilpro and Suncorp

"Associates" has the meaning ascribed thereto under the Listing Rules

"Best Fortune" Best Fortune Profits Limited, a company incorporated in the British Virgin Islands with limited liability and wholly owned by a discretionary trust, the eligible beneficiaries of which include Mr. Wong and his family members

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

"Completion" completion of sale and purchase of the Sale Shares and the Sale Convertible Loan Stock pursuant to the Agreement

"Completion Date" the third business day after the day on which the last of the conditions of the Completion is fulfilled (or such later date as the Vendors and Suncorp may agree in writing prior to Completion)

"Conversion Share(s)" the new Share(s) which may be issued upon conversion of the Convertible Loan Stock at a conversion price of HK$0.10 per new Share

"Convertible Loan Stock" the outstanding and unexercised 5 year, 5% unsecured, transferable, irredeemable convertible loan stock, which can be converted to new Shares at a conversion price of HK$0.10 per Share commencing from the 3rd year after the date of issue on 1 May 2000. At the end of its 5-year term, all the outstanding amount of the convertible loan stock must be converted into new Shares at a predetermined fixed price of HK$0.10 per Share

"Deloitte & Touche" Deloitte & Touche Corporate Finance Limited, an investment adviser and dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

"Disclosure Letter" the letter of 30 June 2000 from the Vendors to Suncorp modifying certain warranties given by the Vendors in the Agreement

"Group" the group of companies comprising the Company and its subsidiaries

"HK$" Hong Kong dollar(s), the lawful currency in Hong Kong

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

"Management Accounts" the unaudited consolidated balance sheet of the Group as at 31 May 2000 and the unaudited consolidated profit and loss account of the Group for the period commencing from the day immediately following 31 December 1999 to 31 May 2000

"Mr. Cheng" Mr. Cheng Yung Pun

"Mr. Wong" Mr. Wong Chak Hung, James, an executive director and chairman of the Company

"MRL" Mental Resources Limited, a company incorporated in the British Virgin Islands with limited liability and beneficially owned as to 87.5% by Oilpro and 12.5% by Mr. Wong

"Net Asset Value" the value of the consolidated net assets of the Group (on a fully diluted basis taking into account all the Conversion Shares) as at Completion to be calculated by applying the same principal accounting policies and principles adopted by the Company as disclosed in the audited consolidated financial statements of the Group for the year ended 31 December 1999.

"Offer" the unconditional cash offer to be made by Deloitte & Touche on behalf of Suncorp and parties acting in concert with it in accordance with the Takeovers Code for the Offer Shares

"Offer Shares" the existing issued Shares but excluding the Sale Shares and any other Shares owned or agreed to be acquired by Suncorp and parties acting in concert with it (within the meaning of the Takeovers Code) on the Completion Date while the Offer remains open for acceptance

"Oilpro" Oilpro (Asia) Limited, a company incorporated in Hong Kong with limited liability and beneficially and wholly owned by Mr. Low Nyap Heng. Mr. Low is an executive director of the Company

"Restructuring Circular" the circular issued by the Company to its shareholders dated 7 April 2000 in connection with its restructuring proposal, connected transaction and general mandates to issue and repurchase securities

"Sale Convertible Loan Stock" the Convertible Loan Stock with an aggregate value of HK$40,653,624 to be bought and sold at a price of HK$0.2365 per Conversion Share pursuant to the Agreement

"Sale Shares" the 92,990,200 Shares to be bought and sold at a price of HK$0.2365 per Share pursuant to the Agreement

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

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"Suncorp" Suncorp Investments Group Limited, a company incorporated in the British Virgin Islands with limited liability and 100% beneficially owned by Mr. Cheng

"Takeovers Code" the Hong Kong Code on Takeovers and Mergers

"Vendors" MRL, Best Fortune, Mr. Wong and Oilpro

"Warranties" warranties given by the Vendors to Suncorp in the Agreement which include, but are not limited to, the title to the Sale Shares and the Sale Convertible Loan Stock, the title to the fixed assets of the Company and the Net Asset Value of the Group

By the Order of the Board By the Order of the Board

Matrix Holdings Limited Suncorp Investments Group Limited

Wong Chak Hung, James Cheng Yung Pun

Chairman Director

Hong Kong, 3 July 2000

The directors of the Company jointly and severally accept full responsibility for the accuracy of information (other than that relating to Suncorp and its intentions with regard to the Group) contained in this announcement and confirm, having made all reasonable inquiries, that to the best of their knowledge, the opinions expressed in this announcement have been arrived at after due and careful consideration and that there are no other facts not contained in this announcement, the omission of which would make any statement in the announcement (other than those relating to Suncorp and its intention with regard to the Group) misleading.

The sole director of Suncorp accepts full responsibility for the accuracy of information contained in this announcement (other than that relating to the Group) and confirms, having made all reasonable inquiries, that to the best of his knowledge, the opinions expressed in this announcement have been arrived at after due and careful consideration and that there are no other facts not contained in this announcement, the omission of which would make any statement in the announcement misleading.

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