Matrix Holdings Limited — M&A Activity 2000

Mar 31, 2000

Listed Company Information

MATRIX HOLDINGS<1005> - Announcement 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 (Incorporated in Bermuda with limited liability) MENTAL RESOURCES LIMITED (Incorporated in the British Virgin Islands with limited liability) PROPOSED RESTRUCTURING FOR MATRIX HOLDINGS LIMITED AND ITS SUBSIDIARIES APPLICATION FOR A WHITEWASH WAIVER FROM ANY OBLIGATION OF MENTAL RESOURCES LIMITED TO MAKE A GENERAL OFFER Connected Transaction Financial adviser to Mental Resources Limited Deloitte & Touche Corporation Finance Ltd Restructuring Proposal On 21 and 22 December 1999, the Company entered into the Restructuring Agreements with MRL, Oilpro, the Financial Creditors and liquidators of MIL. The Restructuring Proposal comprises: 1. Capital reduction of 90% and consolidation of every 10 of such reduced shares into 1 New Share of HK$0.10 each; 2. Issue of 100,000,000 New Shares at HK$0.10 per share to MRL for HK$10 million in cash; 3. Issue of irredeemable convertible loan stock with conversion price of HK$0.10 to MRL for HK$30 million in cash; 4. Cash payment of HK$6.3 million to the liquidators of MIL as full and final settlement of HK$68 million due by the Group to MIL; 5. Cash payment of HK$14 million and issue of irredeemable convertible loan stock of HK$14 million to Financial Creditors as full and final settlement of HK$155.6 million due by the Group to Financial Creditors; 6. An option granted to Financial Creditors by Oilpro for the sale of the irredeemable convertible loan stock to be issued to them under point 5 above to Oilpro at a 50% discount; 7. Standstill by MIL's liquidators and Financial Creditors till 30 April 2000. Completion of the Restructuring Proposal is conditional on the following conditions: 1. approval of Bermuda Monetary Authority to the issue of New Shares, irredeemable convertible loan stock and New Shares upon conversion of the irredeemable convertible loan stock; 2. approval of the Company's independent shareholders at a general meeting to be convened specifically therefor and such other matters relating thereto, including the approval by the independent shareholders of the Company to the Restructuring Proposal and the Whitewash Waiver (if granted by the SFC); 3. grant of a waiver by the SFC to MRL of a mandatory general offer for any of the shares in the Company not already owned by MRL, Oilpro and/or Mr. James Wong or parties acting in concert with any of them; 4. approval from the Stock Exchange for the listing of and permission to deal in the New Shares resulted from the capital reduction, the New Shares to be issued to MRL and the New Shares to be issued upon the conversion of the irredeemable convertible loan stock; and 5. the approval in principle of the Stock Exchange to the resumption of trading in the shares of the Company conditional on the completion of the Restructuring Proposal and on the restoration of the minimum public float of 25% within one month after Completion. Prior to Completion, Mr. James Wong has advanced approximately HK$5.4 million and MRL has agreed to advance up to HK$15 million to the Company respectively to pay for its operating expenses. The advance from Mr. Wong is interest free and secured by a first floating charge over the assets, excluding investments in subsidiaries, of MML. The advance from MRL is interest free and unsecured. Both advances will be netted off against the consideration in respect of the issue of New Shares and irredeemable convertible loan stock to MRL upon Completion and that the security held by Mr. Wong will then be discharged. Immediately upon Completion and prior to the conversion of the irredeemable convertible loan stock, MRL will acquire 69.1% of the issued shares of the Company and, together with Best Fortune, will own 92.2% of the issued shares of the Company. Accordingly, in the absence of the Whitewash Waiver, MRL will be required under Rule 26 of the Code to make a general offer for all the shares of the Company. MRL has applied to the Executive for the Whitewash Waiver. Upon Completion and prior to the conversion of the irredeemable convertible loan stock, the public float of the Company's shares is expected to be only about 7.8%. MRL, Best Fortune and Mr. James Wong jointly and severally undertake to the Stock Exchange that they will use their best endeavours to place down their shares in order to meet the requirement of Rule 8.08 of the Listing Rules within one month after the Completion. The trading of the Company's shares will remain suspended until its public float restores to 25%. Breaches of the Listing Rules and the Listing Agreement Pursuant to the Listing Rules, the security given to Mr. James Wong in respect of his advance of approximately HK$5.4 million to the Company constitutes connected transaction which would require independent shareholders' approval. The Company has inadvertently misinterpreted the Listing Rules and therefore has not sought independent shareholders' approval for the security given to Mr. Wong. As a result, the Company is in breach of the Listing Rules and the advance from Mr. Wong and the grant of the security to Mr. Wong will be put forward to independent shareholders' approval at the forthcoming Special General Meeting. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breach. The Company is in breach of the Listing Rules and the Listing Agreement as it has not released its annual reports and audited final results for the year ended 31 December 1998 and unaudited interim results for the six months ended 30 June 1999 and has not convened its Annual General Meeting for the year ended 31 December 1998. The breach of the Listing Rules arose because the Company has been in financial difficulties and has not had funds to maintain its accounting function and settle its outstanding audit fees. The board meeting of the Company for the release of its audited results, which was originally convened on 6 April 2000, has now been rescheduled to 5 April 2000. It is expected that the Company will announce its audited final results for the year ended 31 December 1998 and interim results for the six months ended 30 June 1999 on 5 April 2000. Besides, the Company will seek a sanction from the Registrar of Companies of Bermuda to convene the belated Annual General Meeting for the year ended 31 December 1998. After the sanction is obtained, the Company will convene the Annual General Meeting for both the year ended 31 December 1998 and 1999 together before 30 June 2000. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breaches. Since 11 March 1999, trading of the shares of the Company has been suspended, and the Company has submitted resumption proposals to the Stock Exchange on 2 March 2000. The circular to shareholders of the Company convening the Special General Meeting to be held on 29 April 2000 regarding the Restructuring Proposal, the Whitewash Waiver, the advance from Mr. Wong and the grant of the security to Mr. Wong is expected to be despatched on 6 April 2000. Best Fortune, Mr. Wong and their respective associates will abstain from voting at the Special General Meeting. The release of this announcement does not in any way indicate that the trading in the shares of the Company will be resumed and that the Restructuring Proposal will necessarily be implemented and completed. THE RESTRUCTURING AGREEMENTS AND RESTRUCTURING PROPOSAL On 21 and 22 December 1999, the Company entered into: a) a subscription agreement with MRL; b) a settlement deed with Financial Creditors, MRL, and Oilpro; and c) a settlement deed with its subsidiary, MILand MIL's liquidators. Other than MIL and the Financial Creditors, the Group owed to other creditors approximately HK$14 million as at 31 December 1999. The other creditors include material suppliers and service providers who are not parties to the Restructuring Agreements. The Group has commenced negotiation with these creditors regarding settlement arrangements and no repayment schedule has been made. As of the date of the announcement, none of the other creditors have instituted any action against the Group. The Company do not expect that any of the other creditors will make an attempt to block the Restructuring Proposal. On 29 February 2000, all the parties to the Restructuring Agreements entered into a deed of variation, pursuant to which the latest date for the completion of the Restructuring Agreements was extended to 30 April 2000. The Restructuring Proposal comprises : 1. Capital reduction The par value of the Company's issued and paid up shares will be reduced by 90% from HK$0.10 per share to HK$0.01 per share. Every 10 of such reduced shares will then be consolidated into 1 New Share of HK$0.10. 2. Issue of New Shares MRL, which is beneficially owned as to 12.5% by Mr. James Wong, Chairman of the Company, and as to 87.5% by Oilpro (a company 100% beneficially owned by Mr. Low), has agreed to subscribe for 100,000,000 New Shares to be issued by the Company at HK$0.10 per share for a total cash consideration of HK$10 million. 3. Issue of irredeemable convertible loan stock MRL has agreed to subscribe for irredeemable convertible loan stock with a face value of HK$30 million to be issued by the Company for a cash consideration of HK$30 million. 4. Settlement arrangement with MIL (in liquidation) MIL's liquidators, who claimed a net amount of approximately HK$68 million due to MIL from other members of the Group, have agreed to accept cash payment of HK$6,344,627 from the Company as full and final settlement for all claims between MIL and other members of the Group. 5. Settlement arrangement with Financial Creditors The Financial Creditors, comprising banks, finance companies and the landlord of its previous Hong Kong office, have agreed with the Group that the total outstanding unsecured debts owed to them by the Group amount to HK$155.6 million. Under the Restructuring Proposal, the Financial Creditors have agreed to accept the following full and final settlement arrangement: HK$ million To be settled by cash proceeds 14.0 9% To be settled by the issue of irredeemable convertible loan stock with a face value of HK$14 million to the Financial Creditors 14.0 9% To be waived by Financial Creditors 127.6 82% 155.6 100% The HK$14 million irredeemable convertible loan stock has the same terms as and ranks pari passu in all respects, including all rights as regards to dividends, voting and return of capital, with the irredeemable convertible loan stock to be issued to MRL. In addition, Oilpro has agreed to grant an option to the Financial Creditors whereby each member of the Financial Creditors can sell all of its loan stock to Oilpro at a 50% discount to face value on or before 17 May 2000. Upon Completion, the HK$14 million cash and the HK$14 million loan stock will be distributed to each financial creditor in accordance with the respective proportions of their debts to the total agreed debt. 6. Standstill Pursuant to the terms of the Restructuring Agreements, MIL's liquidators and the Financial Creditors have agreed to refrain from making any demand for repayments or exercising any rights of enforcement (including without limitation the appointment of a liquidator, garnishee action or attachment of debts) until 30 April 2000 or such later date as the parties may agree. TERMS OF THE IRREDEEMABLE CONVERTIBLE LOAN STOCK The irredeemable convertible loan stock is transferrable without any restriction, unsecured, bears a coupon rate of 5% p.a. and can be converted into New Shares by the holder at a predetermined fixed price of HK$0.10 per New Share, which is equal to the issue price of the New Shares to be issued to MRL as detailed above, commencing from the 3rd year after the date of issue. At the end of its 5-year term, all the outstanding amount of the loan stock must be converted into New Shares. The Company undertakes to notify the Stock Exchange in case of any transfer of the irredeemable convertible loan stock. ADVANCES AND DEPOSITS FROM MR. JAMES WONG & MRL In early 1999 the Group suspended its sales and manufacturing operations. Following the entering into of the Restructuring Agreements in December 1999, the Group has started to resume its operations. As a result, prior to Completion, the Company has been and will be in need of cash to finance its operating expenses and payments of fees for audit and other professional services. Advance from Mr. James Wong Mr. James Wong has advanced to the Company approximately HK$5.4 million, which is secured by a first floating charge over the assets, excluding investments in subsidiaries, of MML with the approval of the Financial Creditors. The advance was also previously secured by a fixed charge over all moneys placed by the Company with any bank or other financial institution together with all interest accrued thereon and all other book debts at any time during the continuance of the security due or owing to the Company. On 10 March 2000, Mr. James Wong entered into a deed of discharge and release in favour of the Company to release the fixed charge over all moneys placed by and all book debts due to the Company. Based on the most recent draft audited accounts of MML and the Company for the year ended 31 December 1999, MML and the Company had total assets (excluding their investments in subsidiaries) of approximately HK$60,000 and HK$2,000 respectively. The total assets consisted of fixed assets and cash for MML and cash only for the Company. Mr. Wong is aware that the aggregate realisable value of the security may not be sufficient to cover the whole amount of his advance. Pursuant to the Listing Rules, the security given to Mr. James Wong in relation to his advances to the Company constitutes connected transaction which would require independent shareholders' approval. The Company has inadvertently misinterpreted the Listing Rules and therefore has not sought independent shareholders' approval for the security given to Mr. Wong. As a result, the Company is in breach of the Listing Rules and the advance from Mr. Wong and the grant of the security to Mr. Wong will be put forward to independent shareholders' approval at the forthcoming Special General Meeting. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breach. Advance from MRL MRL has agreed since January 2000 to provide up to HK$15 million to finance the Group's operation prior to completion of the Restructuring Proposal. MRL has already advanced about HK$13.5 million to the Company for payment of operating expenses. The remaining cash for the HK$1.5 million facility has been deposited in an escrow account with CMS Cameron McKenna, legal adviser to the Company, which will release further funds (from the HK$1.5 million) as required by the Group's operation. The HK$15 million facility from MRL is unsecured and interest free. It is expected that the aggregate of the advances from Mr. Wong and MRL of up to HK$20 million will be netted off against the aggregate consideration of HK$40 million in respect of the issue of New Shares and irredeemable convertible loan stock to MRL upon Completion and that the remaining security held by Mr. Wong will then be discharged. Prior to the signing of the Restructuring Agreements, MRL and Mr. James Wong placed deposits of HK$27 million and HK$344,627 respectively in an interest bearing escrow account in December 1999. The deposits will be refundable together with interest earned on the escrow fund if Completion does not take place on or before 30 April 2000. The total deposit of HK$27.3 million placed by MRL and Mr. James Wong represents the total amount of settlement payable to Financial Creditors of HK$14 million and MIL's liquidators of approximately HK$6.3 million under the Restructuring Proposal, and HK$7 million for which the Financial Creditors may sell to Oilpro all the irredeemable convertible loan stock issued to them pursuant to the option granted by Oilpro. The HK$27.3 million is deposited solely for settlements to Financial Creditors and MIL's liquidators upon Completion, and the amount will not be withdrawn for other purposes prior to Completion. MRL has also undertaken to arrange for or provide to the Group working capital or standby credit facilities of up to HK$10 million for the Group's operations in the coming year. The facilities, if provided by MRL, will be unsecured and interest free. CONDITIONS PRECEDENT TO COMPLETION OF THE RESTRUCTURING PROPOSAL Completion of the subscription for New Shares and irredeemable convertible loan stock and the settlement with MIL and the Financial Creditors is inter-conditional. Completion of the Restructuring Proposal is conditional on the following conditions being satisfied on or before 30 April 2000 or on such later date as the parties may agree in writing: 1. approval of Bermuda Monetary Authority to the issue of New Shares, irredeemable convertible loan stock and New Shares upon conversion of the irredeemable convertible loan stock; 2. approval of the Company's independent shareholders at a general meeting to be convened specifically therefor and such other matters relating thereto, including the approval by the independent shareholders of the Company to the Restructuring Proposal and the Whitewash Waiver (if granted by the SFC); 3. grant of a waiver by the SFC to MRL of a mandatory general offer for any of the shares in the Company not already owned by MRL, Oilpro and/or Mr. James Wong or parties acting in concert with any of them; 4. approval from the Stock Exchange for the listing of and permission to deal in the New Shares resulted from the capital reduction, the New Shares to be issued to MRL and the New Shares to be issued upon the conversion of the irredeemable convertible loan stock; and 5. the approval in principle of the Stock Exchange to the resumption of trading in the shares of the Company conditional on the Completion and on the restoration of the minimum public float of 25% within one month after Completion. None of the above conditions will be waived. If all the conditions precedent to Completion are fulfilled, the Restructuring Proposal is expected to be completed and effective on or before 30 April 2000. The Company intends to convene the Special General Meeting on 29 April 2000 to approve the Restructuring Proposal, the Whitewash Waiver and the advance from Mr. Wong and the grant of the security to Mr. Wong. Best Fortune, Mr. Wong and their respective associates will abstain from voting at the Special General Meeting. The circular is expected to be despatched on 6 April 2000. SHARE CAPITAL As at the date of this announcement, the Company has an authorised share capital of HK$70 million divided into 700,000,000 shares of HK$0.10 each, of which 447,200,000 shares have been issued and are fully paid. Immediately after the capital reduction and share consolidation, the issued and paid up share capital of the Company will be reduced from HK$44,720,000 to HK$4,472,000, and the number of issued shares will be reduced from 447,200,000 shares to 44,720,000 New Shares. The entire credit amount arising from the capital reduction of HK$40,248,000 shall be applied to write off part of the accumulated losses of the Company brought forward which amounted to approximately HK$281 million as at 31 December 1999. SHAREHOLDING STRUCTURE (for the interests of Mr. James Wong in the share capital of the Company are set out as follows. In addition, under the Restructuring Proposal, after capital reduction and share consolidation, 100,000,000 New Shares will be issued upon Completion and 540,000,000 New Shares upon conversion of all the irredeemable convertible loan stock according to the following schedule, please refer to the press announcement today.) Upon Completion and prior to the exercise of the irredeemable convertible loan stock, MRL, Best Fortune and Mr. James Wong together will own more than 75% of the share capital of the Company and the public float is expected to be only about 7.8%. MRL, Mr. James Wong and Best Fortune jointly and severally undertake to the Stock Exchange that they will use their best endeavours to place down their New Shares in order to meet the requirement of Rule 8.08 of the Listing Rules within one month after the Completion. OSK Asia Securities Limited has been appointed as the placing agent of MRL. The trading of the Company's shares will remain suspended until its public float restores to 25%. Save for the interests of Best Fortune and Mr. James Wong as disclosed above, MRL and Oilpro and parties acting in concert with each of them do not own any shares of the Company. Best Fortune and Mr. James Wong, MRL and Oilpro and parties acting in concert with each of them did not deal in the shares of the Company during the past 6 months preceding the date of this announcement. BACKGROUND OF MRL AND OILPRO MRL, beneficially owned as to 12.5% by Mr. James Wong and 87.5% by Oilpro, was incorporated on 2 July 1999 in the British Virgin Islands and has not engaged in any business activities. The directors of MRL are Mr. James Wong and Mr. Low. It is intended that MRL will only invest in the Company and will not be engaged in other business activities. Oilpro, incorporated in Hong Kong on 6 March 1990, is an investment holding company since incorporation and is 100% beneficially owned by Mr. Low. The directors of Oilpro are Mr. Low and Mr. Teoh Beng Leong. Since incorporation, Oilpro has not made any significant share investment except MRL and its assets comprise its investment in and shareholder loan to MRL. Mr. Low is qualified as a chartered secretary and has about 30 years' experience in corporate management and investment. He is an executive director of Bukit Melita Sdn. Bhd., a company incorporated in Malaysia with limited liability and engaged in plantation business. BMSB and its associates own approximately 2000 acres of rubber plantation in the Pahang State of Malaysia. Mr. Low has no shareholding interest in BMSB. Mr. Low is also an independent non-executive director of Diversified Resources Berhad, a listed company on the Kuala Lumpur Stock Exchange. DRB is engaged in the manufacture and distribution of automobiles, property development and financial services. Previously Mr. Low was an executive director of Kampong Lanjut Tin Dredging Bhd and chief executive officer and a director of Ayer Hitam Tin Dredging (Malaysia) Berhad. Both of these two companies are engaged in tin mining business and are listed on the Kuala Lumpur Stock Exchange. Both Oilpro and Mr. Low have no prior business relationships with the Group or Mr. James Wong. Oilpro, Mr. Low and Mr. Teoh Beng Leong have not hold any shares of the Company and are independent third parties not connected with (as defined in the Listing Rules) the Company or any of its subsidiaries or their executive and non-executive directors or their substantial shareholders or any of their respective associates (as defined in the Listing Rules). Mr. Low has not been a director of any listed companies in Hong Kong. MRL has appointed Deloitte & Touche Corporate Finance Ltd. as its financial adviser. DTCFL is satisfied that MRL will have sufficient financial resources to complete the transaction. DTCFL is an associate of Deloitte Touche Tohmatsu, auditors of the Company. DTT and DTCFL maintain separate management and staff and have two separate teams of professionals on the audit and financial advisory assignments. INTENTION OF MRL AND OILPRO It is the intention of MRL and Oilpro that after Completion, they will remain as the controlling shareholders of the Company and the Company will remain focused on its core business of designing, manufacturing and marketing specialised gift products and take the steps as detailed in the section headed 'Future plans of the Group' below. MRL and Oilpro intend that they will assist the Group in strengthening its financial management and developing new markets in South East Asia. Although the Group will look for new business opportunities in its ordinary course of business, MRL and Oilpro have no immediate plan for the Group to acquire any new businesses. MRL, Best Fortune, Mr. James Wong, Mr. Low and their respective associates (as defined in the Listing Rules) have no intention to inject assets into the Company. Mr. James Wong and Mr. Low jointly and severally undertake to the Stock Exchange that they will not inject assets into the Company for a period of twelve months after Completion. The Stock Exchange has stated that, if the Company remains a listed company on the Stock Exchange, any future injections 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, irrespective of the size, represents a departure from the principal activities of the Group following completion of the Restructuring Proposal. the Stock Exchange also has the power, pursuant to the Listing Rules, to aggregate a series of acquisitions, or proposals by the Company and any such acquisitions or disposals may, in any event, result in the Company being treated as a new applicant for listing and subject to the requirement for new applicants as set out in the Listing Rules. WHITEWASH WAIVER Upon Completion, MRL will hold more than 35% of the voting rights of the Company which would (give rise to a mandatory general offer obligation under Rule 26 of the Hong Kong Code on Takeovers and Mergers. MRL has applied to the SFC for the Whitewash Waiver. Such Whitewash Waiver and the Restructuring Proposal would be subject to the independent shareholders' approval of the Company at a special general meeting, resolution of which will be subject to a poll. FINANCIAL EFFECTS OF THE RESTRUCTURING PROPOSAL The principal financial effects of the Restructuring Proposal are 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. The reduction in the indebtedness will also reduce the Group's interest cost, with positive effect on the Group's earnings and cashflow. Upon Completion, the Group will receive equity and debt capitals of HK$54 million, comprising HK$10 million from the issue of New Shares and HK$44 million from the issue of irredeemable convertible loan stock to MRL and the Financial Creditors. It is expected Mr. James Wong and MRL will net off the outstanding balances of the advances (of up to HK$20 million in aggregate) to the Company against the consideration of HK$40 million payable by MRL. After repayment to the Financial Creditors and MIL (in liquidation) and settlement of the restructuring costs, the Group will have cash of about HK$11 million as the working capital of the Group. It is the intention of the Company that the Group will consider various financing alternatives for its working capital requirements as and when it receives more sales orders after Completion. MRL has undertaken to provide to the Group standby credit facilities of up to HK$10 million for the Group's operations in the coming year. In addition, the financial effect of the Restructuring Proposal upon the retained losses of the Group is set out as follows: HK$ million Capital reduction 40 Outstanding balance waived by MIL's liquidators 62 Debts waived by Financial Creditors 127 Accrual for restructuring costs (5) Reduction in retained losses 224 As at 31 December 1999, the Group's unaudited net current liabiliites, net liabilities and retained losses are approximately HK$242 million, HK$165 million and HK$281 million respectively. Upon completion of the Restructuring Proposal, the Group's proforma unaudited net current liabilities, net assets and retained losses will be approximately HK$4 million, HK$30 million and HK$56 million respectively. As the Group has not completed its audited accounts for the year ended 31 December 1999, these exact balances are not known yet. It is expected that the announcement on the audited results of the Group for the years ended 31 December 1998 and 1999 and the unaudited results of the Group for the six months ended 30 June 1999 will be released in on 5 April 2000. The circular containing information on the Restructuring Proposal, which is expected to be despatched to shareholders in on 6 April 2000, will include the audited balance of the Group's net current assets or liabilities and net deficit or asset as at 31 December 1999 and the proforma balance of the Group's net current assets or liabilities and net deficit or asset after Completion. FUTURE PLANS OF THE GROUP In early 1999 the Group suspended its sales and manufacturing operations. MIL, the Group's former sales and marketing arm in Hong Kong, is in liquidation. Notwithstanding this, the Group has continued to invest in product design and development sub-contracted to outside contractors with cash advances from Mr. James Wong and MRL. Mr. Wong has also maintained contact with the Group's customers, presented to them new products developed by the Group and discussed with them about sales orders for 2000. Since July 1999 and January 2000, Mr. Wong and MRL have each made cash advances of HK$5.4 million and HK$13.5 million respectively to the Company for it to resume its operation, including the sub-contracting of its product design and development work to outside sub-contractors. In addition, MRL has deposited HK$1.5 million in an escrow account with CMS Cameron Mckenna, legal adviser to the Company, which will release further funds as required by the Group's operation. In February 2000, the Group set up a new sales and marketing operation in Hong Kong. Mr. James Wong contacted some of the previous key staff and secured their employment with the Group. In addition, the Group retains its interest in its manufacturing operation in the PRC and has kept its production facilities in good condition. The Group has now recruited more than 1,000 workers and has resumed its manufacturing operation in Zhongshan in the first week of January 2000 for new orders already verbally indicated to the Group by its customers. It is the industry's normal practice to start production for selected products at the beginning of the year on the basis of customers' verbal indications so that it could spread out its production schedule and cope with an increase in production in the peak season from May to September. It is expected that the Group will resume its sales and manufacturing operations in full scale in a short span of time after the new capital injection. Some of the Group's customers have already indicated that they will continue to support the Group as its established track record in the industry has been well recognised. On the basis of the customers' initial indications and taking into account of the robust retail market in the U.S. for 1999, management of the Company are confident that the Group will be able to secure a significant amount of sales orders for 2000. In addition, it is the intention of the Company that the following steps will be taken to revive its business: Focus on core business After reviewing its existing operation, management of the Company has decided that the Group will remain focused on its core business of designing, manufacturing and marketing specialised gift products for private label customers and for retailers under its own brand name "Matrix". The Group's major market will remain North America. The Company will regularly assess opportunities to expand sales to Europe and South East Asia. Outsourcing In order to reduce the level of fixed manufacturing overheads borne by the Group and in view of the lower margin of the manufacturing operation, management of the Company plans to sub-contract more production orders to outside factories. It is expected that the Group will cautiously monitor the scale of its manufacturing operation and close down or dispose of some of its peripheral production assets. The Group will also focus more of its manpower and resources on product design, marketing and quality control, which represent the competitive edge of the Group when compared with other manufacturers in the region. Financial management In order to strengthen its financial management and reduce its operating overheads, management of the Company will install a new budgeting and financial control system and maintain a lean and efficient management structure. E-commerce Management of the Company will explore the use of e-commerce in marketing and retailing its products as part of its marketing plan to expand its distribution channels and in placing purchase orders with its suppliers and sub-contractors. As the U.S. market continues to grow and many of the Asian economies are already showing signs of recovery, management of the Company believes that the Group will have good prospects as it is one of the very few players in the Asia Pacific region that possess the skill and expertise in designing, manufacturing and marketing specialised gift products. MRL does not plan to impose any major change to the existing businesses of the Group or to inject any assets or businesses into the Group after Completion. MANAGEMENT OF THE COMPANY AFTER COMPLETION Upon Completion, all the existing directors of the Company, comprising Mr. James Wong, Chairman of the Company, and Mr. Heng Kwoo Seng, the independent non-executive director, will remain on the board of the Company. Mr. Low, sole shareholder and a director of Oilpro, will be appointed as an executive director and Deputy Chairman of the Company upon Completion. It is anticipated that Mr. Low will continue to be based in Malaysia and will come to Hong Kong and the PRC to oversee the Group's operations on a monthly basis. Details of the curriculum vitae of Mr. Low are set out in the section headed "Background of MRL and Oilpro" above. Dr. Yap Set who is nominated by Mr. Low will be appointed as a non-executive director of the Company upon Completion. Dr. Yap holds a master degree in business administration and a Phd degree in chemical engineering. He has more than 25 years' experience in corporate management relating to mobile satellite telecommunciations, lotteries, property development, and commodity trading. Dr. Yap Set has not hold any shares of the Company and is an independent third party not connected with (as defined in the Listing Rules) the Company or any of its subsidiaries or their executive and non-executive directors or their substantial shareholders or any of their respective associates (as defined in the Listing Rules). It is expected that one additional non-executive director will be appointed to the board of the Company and that two authorised representatives as required under the Listing Rules will be appointed before the resumption of the trading of the Company's shares. A qualified accountant will be recruited as financial controller to take charge of financial, accounting and treasury functions. All the existing staff will continue to be employed. BREACHES OF THE LISTING RULES AND LISTING AGREEMENT As the Group has not had funds to maintain its accounting function and settle outstanding audit fees, it has not been able to release its annual reports and audited final results for the year ended 31 December 1998 and unaudited interim results for the six months ended 30 June 1999. In addition, the Company has not convened its Annual General Meeting for the year ended 31 December 1998. This is in breach of the requirements of the Listing Rules and the Listing Agreement. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breaches. With the cash advances available from Mr. James Wong and MRL since July 1999 and January 2000 respectively, audit work on the final results for the years ended 31 December 1998 and 1999 has been commenced. It is expected that the announcement on the audited results of the Group for the years ended 31 December 1998 and 1999 and the unaudited results of the Group for the six months ended 30 June 1999 will be released and the annual reports will be despatched to shareholders at the beginning of April 2000. Besides, the Company will seek a sanction from the Registrar of Companies of Bermuda to convene the belated Annual General Meeting for the year ended 31 December 1998. After the sanction is obtained, the Company will jointly convene the Annual General Meeting for both the years ended 31 December 1998 and 1999 before 30 June 2000. As detailed in the subsection headed "Advance from Mr. James Wong", the advance from Mr. Wong and the security granted to him have not been approved by the independent shareholders. This is in breach of rule 14.26(8) of the Listing Rules. The Directors intend to propose at the Special General Meeting a resolution to approve the advance from Mr. Wong and the grant of the security to Mr. Wong. Best Fortune, Mr. Wong and their respective associates will abstain from voting at the Special General meeting on this resolution. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breach. GENERAL Mr. Heng Kwoo Seng, the only independent non-executive director of the Company, will give advice to the independent shareholders of the Company in relation to the Restructuring Proposal. The Company has appointed Pacific Challenge Capital Limited as an independent financial adviser to advise its independent director and independent shareholders in respect of the Restructuring Proposal, the Whitewash Waiver and the advance from and the grant of the security to Mr. James Wong. A special general meeting of the Company will be convened in order for the independent shareholders of the Company to consider and, if thought fit, to approve the Restructuring Proposal, the Whitewash Waiver, and matters relating thereto and the advance from and the grant of the security to Mr. James Wong. A circular will be despatched to shareholders giving further information relating to the Restructuring Proposal. Mr. James Wong, who has an interest in the Company with his personal shareholding and via his interest in Best Fortune, and who is involved in the Restructuring Proposal via his interest in MRL, has undertaken that both he and Best Fortune will abstain from voting on the resolutions to approve the Restructuring Proposal, the Whitewash Waiver and the advance from and the grant of the security to Mr. James Wong at the special general meeting. EXPECTED TIMETABLE The board meeting of the Company for the release of its audited results, which was originally convened on 6 April 2000, has now been rescheduled to 5 April 2000. It is expected that the Company will announce its audited final results for the year ended 31 December 1998 and interim results for the six months ended 30 June 1999 on 5 April 2000. Besides, the Company will seek a sanction from the Registrar of Companies of Bermuda to convene the belated Annual General Meeting for the year ended 31 December 1998. After the sanction is obtained, the Company will convene the Annual General Meeting for both the year ended 31 December 1998 and 1999 together before 30 June 2000. The Stock Exchange has informed the Company that it will take appropriate actions regarding the breaches. Events Expected timeframe Announcement of the final results for the years ended 31 December 1998 & 1999 and the interim results for the six months ended 30 June 1999 5 April 2000 Despatching circulars 6 April 2000 Despatching annual reports 6 April 2000 Convening special general meeting 29 April 2000 Announcement of the results of the Special General Meeting and the completion of the Restructuring Proposal 29 April 2000 Resumption of the trading of the New Shares on the Stock Exchange 2 May 2000 The above dates are tentative. Further announcement will be made if there is any change in the timetable. RESUMPTION OF TRADING IN SHARES OF THE COMPANY Since 11 March 1999, trading of the shares of the Company has been suspended, and since 11 September 1999, the Company has entered into the second stage of delisting procedures under Practice Note 17 of the Listing Rules. At the second stage, the Company is required to submit resumption proposals within six months which was made on 2 March 2000. The release of this announcement does not in any way indicate that the trading in the shares of the Company will be resumed and that the Restructuring Proposal will necessarily be implemented and completed. DEFINITIONS "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 "BMSB" Bukit Melita Sdn. Bhd., a company incorporated in Malaysia with limited liability and engaged in plantation business "Company" Matrix Holdings Limited, incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange "Completion" Completion of the Restructuring Proposal "DRB" Diversified Resources Berhad, a company incorporated in Malaysia with limited liability and listed on the Kuala Lumpur Stock Exchange "DTCFL" Deloitte & Touche Corporate Finance Limited, a registered investment adviser under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) "DTT" Deloitte Touche Tohmatsu, auditors of the Company "Financial Creditors" Nine financial institutions and the landlord of the Company's previous office in Hong Kong "Group" Matrix Holdings Limited and its subsidiaries "MIL" Matrix Industries Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly owned subsidiary of the Company, which is in liquidation "MML" Matrix Manufacturing Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly owned subsidiary 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. James Wong "Mr. Low" Mr. Low Hyap Heng, a director of MRL and Oilpro "New Share(s)" New Share(s) of HK$0.10 each upon capital reduction and share consolidation becoming effective "Oilpro" Oilpro (Asia) Limited, incorporated in Hong Kong with limited liability and wholly owned by Mr. Low "Restructuring Agreements" the subscription agreement dated 22 December 1999 between the Company and MRL and the settlement deeds dated 21 and 22 December 1999 respectively between the Company, the Financial Creditors, Oilpro, MRL, MIL and MIL's liquidators as varied by the supplemental deeds entered into between the same parties on 29 February 2000 "Restructuring Proposal" the arrangements contained in the Restructuring Agreements "SFC" Securities and Futures Commission "Stock Exchange" The Stock Exchange of Hong Kong Limited "Whitewash Waiver" a waiver from the SFC in respect of the obligations of MRL and parties acting in concert with it to make a general offer for all the shares of the Company not already owned or agreed to be acquired by them upon Completion By Order of the Board By Order of the Board MATRIX HOLDINGS LIMITED MENTAL RESOURCES LIMITED Mr. Wong Chak Hung, James Mr. Low Nyap Heng Chairman Director Hong Kong, 30 March 2000 The directors of Matrix Holdings Limited jointly and severally accept full responsibility for the accuracy of the information contained in this announcement, other than for information relating to MRL, Oilpro and Mr. Low, and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading. The directors of Mental Resources Limited jointly and severally accept full responsibility for the accuracy of the information contained in this announcement, other than for information relating to the Group, and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.