Matrix Holdings Limited — M&A Activity 2001

Nov 12, 2001

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 however 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)

MAJOR TRANSACTION

AND

CONNECTED TRANSACTIONS

Financial adviser to Matrix Holdings Limited

The Directors are pleased to announce that Matrix Investments, a wholly-owned subsidiary of the Company, has entered into the S&P Agreement with Mr. Cheng, the Company's chairman on 5 November 2001, pursuant to which Matrix Investments would acquire the entire issued share capital of Keyhinge. The total consideration payable under the S&P Agreement is HK$26 million in cash. The S&P Agreement is subject to the satisfaction of a number of conditions as mentioned in the section headed "Conditions of the S&P Agreement" below. Accordingly, the Acquisition may or may not be completed. Investors should exercise caution when dealing in the Shares. The Acquisition constitutes a major and connected transaction for the Company under the Listing Rules, and is therefore subject to the Independent Shareholders' approval at the SGM. A circular containing, among other matters, details of the Acquisition, the S&P Agreement, the advice from an independent financial adviser, the advice from the independent board committee of the Company and the notice convening the SGM, will be despatched to the Shareholders as soon as practicable. Besco, a wholly-owned subsidiary of the Company, has sub-contracted manufacturing orders from various customers to Keyhinge since July 2001. Up to 31 October 2001, the aggregate sub-contracting fees paid to Keyhinge amounted to around HK$5.1 million. The Directors expect that the aggregate sub-contracting fees to be paid to Keyhinge by Besco for the financial year ending 31 December 2001 will be less than HK$10 million. Details of the Sub-contracting Arrangements will be disclosed in the next annual report of the Company. Trading in the Shares was suspended with effect from 10:00 a.m. on 6 November 2001 pending the publication of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 10:00 a.m. on 12 November 2001.

THE S&P AGREEMENT

Date

5 November 2001

Parties

Purchaser: Matrix Investments, a wholly-owned subsidiary of the Company

Vendor: Mr. Cheng

Mr. Cheng is the chairman of the Company. As at the date of this announcement, Suncorp Investments Group Limited, a company beneficially owned by Mr. Cheng, is interested in around 61.78% of the Company's total issued share capital.

Assets to be acquired

The entire issued share capital of Keyhinge.

Consideration

The total consideration payable under the S&P Agreement is HK$26 million in cash, payable in four equal instalments. The first instalment will be payable upon Completion and the remaining instalments will be payable on the last Business Day in each of the three calendar months following Completion. The total consideration was determined after arm's length negotiation and with reference to the unaudited pro forma combined net tangible asset value of the Keyhinge as at 31 July, 2001 of approximately HK$27 million as per its management accounts. The Acquisition will be financed by the Company's internal resources.

Conditions of the S&P Agreement

Completion of the S&P Agreement is subject to, among other matters, the following conditions:

1. the Independent Shareholders having approved the Acquisition at the SGM;

2. the Stock Exchange not having notified the Company that the listing of its securities will or may be withdrawn as a result of the Acquisition;

3. the Shares remained listed on the Stock Exchange at all times prior to Completion, save for any temporary suspension as a result of the Acquisition, and the Company will not be treated as if it were an application for listing from a new applicant as a result of the Acquisition; and

4. all consents or approvals of any governmental authorities in Vietnam or elsewhere for the Acquisition having been obtained (if required).

Completion of the S&P Agreement

The S&P Agreement may be terminated if the above conditions are not fulfilled or waived by the Company on or before 31 December 2001 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 fifth business day after the conditions of the S&P Agreement are satisfied or waived or such other date as the parties to the S&P Agreement may agree in writing.

INFORMATION ON KEYHINGE

Keyhinge, incorporated in Hong Kong in 2000, is an investment holding company with its sole asset being its 100% interest in Keyhinge Toys. Keyhinge Toys, a wholly foreign-owned enterprise incorporated in Vietnam in 1996, is principally engaged in the manufacturing and sale of premium toys and specialised gift products. Keyhinge Toys is one of the suppliers of premium toy items to an international restaurant chain.

For the financial year ended 31 December 1999, the audited net profits before and after tax of Keyhinge Toys were the same, being approximately HK$6.98 million. For the financial year ended 31 December 2000, the audited net profits before and after tax of Keyhinge Toys were also the same, being approximately HK$53.61 million. Keyhinge Toys was exempted from business income tax for the two years ended 31 December, 2000, so no tax was paid for the two years. As at 31 December, 2000, the adjusted net tangible assets of Keyhinge Toys amounted to approximately HK$30.62 million. As at 31 July, 2001, the unaudited pro forma combined net tangible asset value of Keyhinge was approximately HK$27 million.

REASONS FOR ENTERING INTO THE S&P AGREEMENT

The Company is principally engaged in designing, manufacturing and marketing of specialised gift and premium toy products.

The Directors believe that the Company's existing operations could be enhanced by the Acquisition. The Directors are of the view that the future growth prospects of the Company could be significantly improved with discernible synergies by integrating the existing operations of the Company with the profitable and relatively cost-effective operations of Keyhinge Toys.

Upon Completion, the Directors confirmed that there will not be any change in the composition of the Board or in the control of the Company. The Board also has no intention to change the nature of business of the Company following Completion and will remain focused on the designing, manufacturing and marketing of specialised gift products and premium toy items.

The Directors consider that the Acquisition is in the interests of the Company and the terms of the S&P Agreement are fair and reasonable as far as the Shareholders are concerned.

THE SUB-CONTRACTING ARRANGEMENTS

Besco, a wholly-owned subsidiary of the Company, has sub-contracted manufacturing orders of gift products to Keyhinge for production since July 2001. Up to 31 October 2001, the aggregate sub-contracting fees paid/payable to Keyhinge amounted to approximately HK$5.1 million. It was not until 31 October 2001 that the sub-contracting fees paid/payable to Keyhinge in aggregate amounted to more than HK$1 million which is then subject to the disclosure requirements under Rule 14.25(1) of the Listing Rules. However, the Stock Exchange has indicated that it has reserved its right to take disciplinary actions against the Company and/or its Directors as it considered there may be a breach of the Listing Rules by the Company in relation to the timing of reporting the ongoing connected transactions for the Sub-Contracting Arrangements.

No written agreement has been entered into between Besco and Keyhinge with respect to the Sub-contracting Arrangements. The sub-contracting fees paid by Besco to Keyhinge have been charged on an order-by-order basis.

The Directors (including the independent non-executive Directors) are of the view that the Sub-contracting Arrangements between Besco and Keyhinge are in the ordinary and usual course of the Company's business based on normal commercial terms and such terms are fair and reasonable so far as the Shareholders are concerned. The Directors expect that the aggregate sub-contracting fees to be paid to Keyhinge by Besco for the financial year ending 31 December 2001 will be less than HK$10 million. The Sub-contracting Arrangements constitute "on-going connected transactions" for the Company pursuant to the Listing Rules before Completion. Details of the Sub-contracting Arrangements for the year ending 31 December 2001 will be disclosed in the next annual report of the Company. In the event that the aggregate amount of sub-contracting fees paid/payable to Keyhinge exceeds the higher of either HK$10 million or 3% of the Group's net tangible assets, the Company will comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions unless it applies for and obtains a separate waiver from the Stock Exchange.

It is expected that the Sub-contracting Arrangements will continue after Completion upon which Keyhinge will become an indirect wholly-owned subsidiary of the Company.

GENERAL

Mr. Cheng, being a Director and the controlling shareholder of the Company, is considered a connected person under the Listing Rules, and accordingly the Acquisition constitutes a major and connected transaction for the Company. Therefore, the Acquisition will be subject to the approval of the Independent Shareholders at the SGM to be convened.

As at the date of this announcement, Suncorp Investments, a company beneficially owned by Mr. Cheng, has a 61.78% shareholding interest in the Company. Suncorp Investments and its associates will abstain from voting at the SGM to approve the Acquisition.

An independent committee of the Board will be formed to advise the Independent Shareholders in relation to the Acquisition. An independent financial adviser will be appointed to advise such independent board committee. A circular containing, among other matters, details of the Acquisition, a letter of advice from the independent financial adviser and the notice to convene the SGM will be despatched to the Shareholders as soon as practicable.

The S&P Agreement is subject to the satisfaction of a number of conditions and accordingly, the Acquisition may or may not be completed. Investors should exercise caution when dealing in the Shares.

Trading in the Shares was suspended with effect from 10:00 a.m. on 6 November 2001 pending the publication of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 10:00 a.m. on 12 November 2001.

DEFINITIONS

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

"Acquisition" the acquisition of the entire issued share capital of Keyhinge pursuant to the S&P Agreement

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

"Besco" Besco Enterprises Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company

"Board" the board of Directors

"Business Day" a day other than a Saturday or Sunday on which banks are open in Hong Kong to the general public for business

"BVI" British Virgin Islands

"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 the S&P Agreement

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

"Group" the Company and its subsidiaries

"Independent Shareholders" the Shareholders, other than Mr. Cheng and his associates

"Keyhinge" Keyhinge Holdings Limited, a company incorporated in Hong Kong with limited liability

"Keyhinge Toys" Keyhinge Toys Vietnam Company Limited, a wholly foreign-owned enterprise incorporated in Vietnam and a wholly-owned subsidiary of Keyhinge

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

"Matrix Investments" Matrix Investments Group Limited, a company incorporated in the BVI with limited liability

"Mr. Cheng" Mr. Cheng Yung Pun, the chairman and the controlling shareholder of the Company beneficially interested in approximately 61.78% of the issued share capital of the Company through Suncorp Investments

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

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

"S&P Agreement" the agreement dated 5 November 2001 entered into between Matrix Investments and Mr. Cheng in relation to the Acquisition

"SGM" the special general meeting of the Company to be convened to approve, among other matters, the Acquisition

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"Sub-contracting the arrangements between Besco and Keyhinge in

Arrangements" relation to the sub-contracting of orders to Keyhinge by Besco for the manufacturing of gift products

"Suncorp Investments" Suncorp Investments Group Limited, a company incorporated in the BVI with limited liability and beneficially owned by Mr. Cheng, and which is interested in approximately 61.78% of the issued share capital of the Company

"Vietnam" Socialist Republic of Vietnam

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

By Order of the Board

Yu Sui Chuen

Executive Director

Hong Kong, 9 November 2001

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