Nan Nan Resources Enterprise Limited — M&A Activity 2000

Jan 7, 2000

Listed Company Information

ARTFIELD GROUP<1229> - 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. ARTFIELD GROUP LIMITED (incorporated in Bermuda with limited liability) CONNECTED TRANSACTIONS Disposal of interests in two non-wholly owned subsidiaries INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT BOARD COMMITTEE FIRST SHANGHAI CAPITAL LIMITED The Directors announce that on 5th January, 2000, City Bright, a wholly-owned subsidiary of the Company, entered into the Guixi-Acepoint Agreements and the Hongya Agreements with the Purchaser to dispose part of its interests in Guixi-Acepoint and Hongya to the Purchaser. Pursuant to the Guixi-Acepoint Agreements, City Bright has agreed to sell and the Purchaser has agreed to purchase 35% equity interest in Guixi-Acepoint held by City Bright at a consideration of RMB4,125,000 (equivalent to about HK$3,650,000). Pursuant to the Hongya Agreements, City Bright has agreed to sell and the Purchaser has agreed to purchase 30% equity interest in Hongya held by City Bright at a consideration of RMB1,125,000 (equivalent to about HK$996,000). The Disposals constitute connected transactions for the Company under the Listing Rules as the Purchaser is the substantial shareholder of Guixi-Acepoint and Hongya, which are the subsidiaries of the Company and therefore are subject to approval of the Shareholders. An independent board committee of the Company will be formed to advise the Independent Shareholders in respect of the Disposals. First Shanghai Capital Limited has been appointed as the independent financial adviser to advise the independent board committee of the Company in respect of the Disposals. A special general meeting will be convened as soon as possible to consider and if though fit, passing the resolutions to approve the Disposals. The Company will issue a circular to the Shareholders as soon as practicable which will include, among other things, further details of the Disposals, letters of advice from the independent board committee of the Company and First Shanghai Capital Limited, the independent financial adviser, and a notice of the special general meeting of the Company. GUIXI-ACEPOINT AGREEMENTS DATED 5th JANUARY, 2000 Parties Vendor : City Bright, a wholly-owned subsidiary of the Company, holding 60% equity interest in Guixi-Acepoint Purchaser : *, holding 40% equity interest in Guixi-Acepoint Assets to be disposed of Pursuant to the Guixi-Acepoint Agreements, City Bright has agreed to sell and the Purchaser has agreed to purchase 35% equity interest in Guixi-Acepoint held by City Bright. Consideration The consideration for the 35% equity interest is RMB4,125,000 (equivalent to about HK$3,650,000), which was agreed after arm's length negotiations and with reference to the unaudited net asset value (in accordance with the HK SSAP) of Guixi-Acepoint as at 30th September, 1999 of about HK$4,110,000. The Directors (including the independent non-executive Directors) consider that the consideration for the 35% equity interest, which represents about 153.74% premium over the unaudited net asset value of the 35% equity interest of Guixi-Acepoint as at 30th September, 1999 of about HK$1,440,000, is fair and reasonable so far as the Shareholders are concerned. Out of the total consideration, RMB3,000,000 (equivalent to about HK$2,650,000) has been paid in cash upon signing of the Guixi-Acepoint Agreements while the remaining RMB1,125,000 (equivalent to about HK$996,000), the payment method of which was determined after arm's length negotiations between City Bright and the Purchaser, is payable by way of transfer of light tubes sourced by the Purchaser, which are valued at 95% to the market price (as determined in accordance with prices quoted from other suppliers) of such light tubes. The light tubes, as part of the consideration, will be used for other lighting business of the Group. The transfer of the light tubes will take place within six months from the date of the Guixi- Acepoint Agreements and the value of light tubes to be transferred in each month would not exceed RMB187,500 (equivalent to about HK$166,000). The Directors consider that such arrangement for the transfer of light tubes, which is more advantageous to the Group as compared with the arrangement of bulk delivery of all the light tubes from the Purchaser if prices of light tubes decrease subsequently and can ensure a stable supply of light tubes to the Group, is in the interest of the Group. Option to dispose the remaining interest in Guixi-Acepoint Upon completion of the Guixi-Acepoint Disposal, City Bright will hold 25% equity interest in Guixi-Acepoint. City Bright has the option to dispose the remaining 25% equity interest in Guixi-Acepoint to the Purchaser at a consideration of RMB2,815,000 (equivalent to about HK$2,490,000) payable in cash after 30th June, 2001 and there is no deadline for City Bright to exercise such option. The Purchaser has agreed to guarantee the cash payment upon exercise of such option by City Bright with certain properties in the value of about RMB3,400,000 (equivalent to about HK$3,010,000) and 24% equity interest in Guixi-Acepoint held by it. The consideration for this remaining interest was also determined on the same basis as the consideration for the first 35% equity interest to be disposed of. Pursuant to the Guixi-Acepoint Agreements, City Bright can receive a fixed investment return of RMB675,000 (equivalent to about HK$597,000) in cash from Guixi-Acepoint for its holding of the remaining 25% equity interest in Guixi-Acepoint during the period from the date of completion of the Guixi-Acepoint Disposal up to and including 30th June, 2001, which has been paid as to RMB337,500 (equivalent to about HK$298,500) to City Bright upon signing of the Guixi-Acepoint Agreements and will be paid as to RMB337,500 (equivalent to about HK$298,500) to City Bright on 1st July, 2000. Conditions precedent Completion of the Guixi-Acepoint Disposal is conditional upon: (i) the passing of ordinary resolution by the Shareholders at a special general meeting of the Company approving the Guixi-Acepoint Agreements; and (ii) the Guixi-Acepoint Agreements not being terminated by either party to the Guixi-Acepoint Agreements in accordance with the termination provisions, such as force majure provisions, contained in the Guixi-Acepoint Agreements; and (iii) the relevant regulatory authorities, including PRC authorities, approving the Guixi-Acepoint Agreements, if necessary. Completion Completion of the Guixi-Acepoint Disposal shall take place upon the conditions precedent to the Guixi-Acepoint Disposal being fulfilled. HONGYA AGREEMENTS DATED 5th JANUARY, 2000 Parties: Vendor : City Bright, holding 55% equity interest in Hongya Purchaser : * holding 20% equity interest in Hongya note: the remaining 25% equity interest in Hongya is held by an independent PRC party, *. Assets to be disposed of Pursuant to the Hongya Agreements, City Bright has agreed to sell and the Purchaser has agreed to purchase 30% equity interest in Hongya held by City Bright. Consideration The consideration for the 30% equity interest is RMB1,125,000 (equivalent to about HK$996,000), which was agreed after arm's length negotiations and with reference to the unaudited net asset value (in accordance with the HK SSAP) of Hongya as at 30th September, 1999 of about HK$2,290,000. The Directors (including the independent non-executive Directors) consider that the consideration for the 30% equity interest, which represents about 44.98% premium over the unaudited net asset value of the 30% equity interest of Hongya as at 30th September, 1999 of about HK$687,000, is fair and reasonable so far as the Shareholders are concerned. The consideration has been paid in cash upon signing of the Hongya Agreements. Option to dispose the remaining interest in Hongya Upon completion of the Hongya Disposal, City Bright will hold 25% equity interest in Hongya. City Bright has the option to dispose the remaining 25% equity interest in Hongya to the Purchaser at a consideration of RMB935,000 (equivalent to about HK$827,000) payable in cash after 30th June, 2001 and there is no deadline for City Bright to exercise such option. The consideration for this remaining interest was determined on the same basis as the first 30% equity interest to be disposed of. Conditions precedent Completion of the Hongya Disposal is conditional upon: (i) the passing of ordinary resolution by the Shareholders at a special general meeting of the Company approving the Hongya Agreements; and (ii) the Hongya Agreements not being terminated by either party to the Hongya Agreements in accordance with the termination provisions, such as force majure provisions, contained in the Hongya Agreements; and (iii) the relevant regulatory authorities, including PRC authorities, approving the Hongya Agreements, if necessary. Completion Completion of the Hongya Disposal shall take place upon the conditions precedent to the Hongya Disposal being fulfilled. REASONS FOR THE DISPOSALS The Group is principally engaged in manufacture and sale of clocks and lighting products, trading of metals and provision of electroplating services. Guixi-Acepoint and Hongya are two of the 11 subsidiaries of Precision Group Limited, which was acquired by the Company on 2nd April, 1997 at a consideration of HK$42,750,000 (HK$29,500,000 was repaid to the Company in November 1999). Before such acquisition, Precision Group Limited and its subsidiaries recorded an audited combined profits after taxation of about HK$6,900,000 for the year ended 31st March, 1996 and an audited combined net tangible asset value of about HK$6,600,000 as at 31st March, 1996. (for details of the acquisition of the Precision Group Limited, please refer to the circulars of the Company dated 17th March, 1997 and 19th October, 1999). The principal activities of Guixi- Acepoint and Hongya are manufacture (in Jiangxi, the PRC) and sale (mainly to the PRC) of rare earth fluorescent glass tubes. Hongya is responsible for providing glass tubes, which are semi-finished products, to Guixi-Acepoint for the manufacture and sale of rare earth fluorescent glass tubes. The Directors has presently no intention to dispose the other subsidiaries of Precision Group Limited. The unaudited results of Guixi-Acepoint and Hongya for the two years ended 31st March, 1999 are as follows: Year ended Year ended 31st March, 1998 31st March, 1999 Guixi-Acepoint Hongya Guixi-Acepoint Hongya HK$'000 HK$'000 HK$'000 HK$'000 Turnover 21,204 4,044 15,627 2,599 Profit/(loss) before tax 1,588 504 (2,484 ) (831 ) Profit/(loss) after tax 1,588 504 (2,531 ) (831 ) note: Guixi-Acepoint and Hongya did not have any extraordinary items for the two years ended 31st March, 1999 The Directors consider that given (i) the unsatisfactory financial performance of Guixi-Acepoint and Hongya for the past two financial years; (ii) the difficulty in managing and controlling the business and operations of such joint ventures due to their remote geographical locations in Jiangxi, the PRC; and (iii) the considerations for the Disposals, which represent high premiums to the net asset values of such joint ventures, provide an immediate cash resources to the Group, it is in the interests of the Company to enter into the Guixi-Acepoint Agreements and the Hongya Agreements to dispose its interest in such joint ventures. The Directors also consider the Disposals would not affect the Group's other lighting business as the Group can source light tubes either from other suppliers or Guixi-Acepoint and Hongya in the future. Presently the Company has production facilities for the manufacture of electronic parts of lighting products and assembly of energy saving lamps. It is the present intention of the Company to develop its lighting business with operations and manufacturing facilities located in a closer geographical location, such as the Guangdong province, and at the same time to explore new investment opportunities in the lighting business and related high-tech areas, which are under preliminary discussions (as announced by the Company on 8th December, 1999). The Company will make further announcements if any agreements in respect of new investments are entered into. The proceeds from the Disposals are intended to be used for developing lighting business located in closer geographical locations and to develop high-tech lighting business, such as the manufacture of coolite, high voltage and high efficiency energy saving lamps. The Directors consider that the Disposals, which can enhance the Group to re-focus its resources in lighting business located in closer geographical locations and to develop high-tech lighting business, can improve the Group's efficiency and profitability and enhance the Shareholders' value. GENERAL The Disposals constitute connected transactions for the Company under the Listing Rules as the Purchaser is the substantial shareholder of Guixi-Acepoint and Hongya, which are the subsidiaries of the Company and therefore are subject to approval of the Shareholders. An independent board committee of the Company will be formed to advise the Independent Shareholders in respect of the Disposals. First Shanghai Capital Limited has been appointed by the Company to advise the independent board committee of the Company in respect of the Disposals. A special general meeting will be convened as soon as possible to consider and if though fit, passing the resolutions to approve the Disposals. The Company will issue a circular to the Shareholders as soon as practicable which will include, among other things, further details of the Disposals, letters of advice from the independent board committee of the Company and First Shanghai Capital Limited, the independent financial adviser, and a notice of the special general meeting of the Company. DEFINITIONS "City Bright" City Bright International Limited, a company incorporated in Hong Kong on 16th June, 1994 and wholly owned by the Company "Company" Artfield Group Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the Stock Exchange "Directors" the directors of the Company "Disposals" the Guixi-Acepoint Disposal and the Hongya Disposal "Group" the Company and its subsidiaries "Guixi-Acepoint" *, Jiangxi Guixi-Acepoint Lightings Co. Ltd, a joint venture established in the PRC on 20th June, 1991 and held as to 60% equity interest by City Bright and as to 40% equity interest by the Purchaser. "Guixi-Acepoint the sale and purchase agreement Agreements" dated 5th January, 2000 and entered into between City Bright and the Purchaser in relation to the Guixi-Acepoint Disposal and any other ancillary agreements "Guixi-Acepoint the disposal of 35% equity Disposal" interest in Guixi-Acepoint by City Bright to the Purchaser "Hong Kong" the Hong Kong Special Administrative Region of the PRC "Hongya" *, Jiangxi Hongya Lamps Co. Ltd, a joint venture established in the PRC on 19th November, 1996 and held as to 55% equity interest by City Bright, 20% equity interest by the Purchaser and the remaining by an independent PRC party, * "Hongya Agreements" the sale and purchase agreement dated 5th January, 2000 and entered into between City Bright and the Purchaser in relation to the Hongya Disposal and any other ancillary agreements "Hongya Disposal" the disposal of 30% equity interest in Hongya by City Bright to the Purchaser "Independent Shareholders other than the Shareholders" Purchaser and its associates "Listing Rules" The Rules Governing the Listing of Securities on the Stock Exchange "PRC" Peoples's Republic of China, and for the purpose of this announcement, excludes Hong Kong "Purchaser" *, a company established in the PRC holding 40% equity interest and 20% equity interest in Guixi- Acepoint and Hongya respectively "Shareholders" holders of shares of the Company "Stock Exchange" The Stock Exchange of Hong Kong Limited "HK$" Hong Kong dollar, the lawful currency of Hong Kong "RMB" Renminbi, the lawful currency of the PRC exchange rate: HK$: RMB = 1: 1.13 By Order of the Board Artfield Group Limited Liang Jin You Chairman Hong Kong, 6th January, 2000 * (For the Chinese name, please refer to the press announcement today.)