Sands China Ltd. — M&A Activity 1999

May 12, 1999

Listed Company Information

PACIFIC PLYWOOD<0767> - 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. PACIFIC PLYWOOD HOLDINGS LIMITED (incorporated in Bermuda with limited liability) DISCLOSEABLE TRANSACTION Summary The directors of Pacific Plywood announced that on 11 May 1999, Pacific Plywood and Mr. Tjong amended an option agreement signed on 8 December 1997 and supplemented on 29 June 1998 and 3 December 1998. Pursuant to the Supplemental Agreement, Mr. Tjong has granted to Pacific Plywood an option to purchase 10,000,000 shares of US$1 each in the capital of Dragon Venture, which represents 100% of the issued share capital of Dragon Venture at an aggregate purchase price of US$49,200,000, which is equivalent to approximately HK$381,349,200 (based on the closing exchange rate of US$1 per HK$7.751 quoted from Dah Sing Bank Limited on 10 May 1999). Forthwith upon the amendments to the option agreement having been made on 11 May 1999, Pacific Plywood exercised the Option by serving a share option notice on Mr. Tjong. It is anticipated that the Option Agreement will be completed on 9 June 1999 or such other date as the parties may agree. As the amount of the purchase price represents more than 15% of the net tangible assets of Pacific Plywood as shown in its latest published audited consolidated accounts for the year ended 31 December 1997, which is approximately US$143,765,000 (equivalent to approximately HK$1,114,322,515), the transaction constitutes a discloseable transaction under the Listing Rules. Dragon Venture owns 75% and Jilin Forestry owns 25% of the interest in Jilin Newco the principal business of which is the manufacture and sale of fancy veneer, plywood, fancy plywood and 3-ply parquet. The principal activities of Pacific Plywood is the manufacture, distribution and sale of plywood and veneer products. The directors of Pacific Plywood believe that by exercising the Option, Pacific Plywood will acquire a controlling interest in Jilin Newco, which business complements the existing businesses and development plans of the Group and allows the Group to expand into the manufacture and sale of wooden products in the PRC's massive domestic market. Supplemental Agreement: Date: 11 May 1999 Parties: Seller: Mr. Tjong Jauw Sing, who is not connected to Pacific Plywood, any directors, chief executive or substantial shareholders of Pacific Plywood and its subsidiaries or any associates (as defined in the Listing Rules) of any of them Purchaser: Pacific Plywood Holdings Limited Main terms of the Supplemental Agreement: The main terms of the Supplemental Agreement are as follows: (a) the purchase price for the option shares has been reduced to US$49,200,000 (equivalent to approximately HK$381,349,200); (b) completion date of the Option Agreement has been changed to 30 June 1999 (or such other date as the parties may agree in writing); (c) the purchase price of US$49,200,000 (equivalent to approximately HK$381,349,200) will be payable in the manner set out in the paragraph headed "Payment terms" below; (d) on completion, Mr. Tjong shall assign free of consideration a shareholder's loan of US$6,400,000 (equivalent to approximately HK$49,606,400) owing by Dragon Venture to Mr. Tjong; (e) Mr. Tjong unconditionally and irrevocably guarantees to Pacific Plywood that the net profits of the Company shall not be less than US$8,000,000 (equivalent to approximately HK$62,008,000) for the financial year ending 31 December 2000; (f) Mr. Tjong also guarantees that on the completion date, the net tangible assets of Dragon Venture shall not be less than US$16,400,000 (equivalent to approximately HK$127,116,400) which shall comprise US$10,000,000 (equivalent to approximately HK$77,510,000) as share capital of Dragon Venture, and US$6,400,000 (equivalent to approximately HK$49,606,400) as shareholders' loan; and (g) the provision regarding the interest expense set out in paragraph (d) of the section headed "Previous amendments to the option agreement" be cancelled. Previous amendments to the option agreement: On 29 June 1998, the parties agreed to extend the option period from 30 June 1998 to 31 December 1998. On 3 December 1998, the parties further amended the option agreement in the following manner: (a) the option period be extended from 31 December 1998 to 30 June 1999; (b) the option shares be changed to mean 10,000,000 shares in Dragon Venture, representing 100% of the total issued share capital of Dragon Venture; (c) the purchase price for the option shares shall not exceed US$60,000,000; (d) the interest expense incurred from 8 December 1997 to the date when the Option is exercised in respect of a loan in the amount of US$30,000,000, which was borrowed by Pacific Plywood for the sole purpose of the transaction, shall be borne by Mr. Tjong. Option exercised: In consideration of US$49,200,000 (equivalent to approximately HK$381,349,200), Pacific Plywood has exercised the Option by serving a notice on Mr. Tjong on 11 May 1999 to purchase 10,000,000 shares of US$1 each in Dragon Venture. Completion date: 9 June 1999. On that day, the 10,000,000 shares of US$1 each in Dragon Venture will be transferred to Pacific Plywood and Mr. Tjong will assign free of consideration to Pacific Plywood the benefit and right to a shareholder's loan of US$6,400,000 (equivalent to approximately HK$49,606,400) owing by Dragon Venture to Mr. Tjong. Purchase price: US$49,200,000 (equivalent to approximately HK$381,349,200). The purchase price was determined after arm's length negotiations between Pacific Plywood and Mr. Tjong. The purchase price represents a premium of approximately US$32,800,000 (equivalent to approximately HK$254,232,800) on the asset value of Dragon Venture. The directors of Pacific Plywood believe the purchase price is fair and reasonable for the following reasons: (a) Jilin Newco is ready for operation and Pacific Plywood would have saved import duty payable in the PRC on the import of machinery if it establishes a new joint venture under the current PRC laws; (b) Pacific Plywood may build up a close relationship with Jilin Forestry, which is an affiliate of the PRC Forestry Bureau; (c) based on the estimated production capacity of Jilin Newco, Mr. Tjong has guaranteed that the profit of Dragon Venture shall not be less than US$8,000,000 (equivalent to HK$62,008,000) for the year ending 31 December 2000 respectively. Payment terms: Under the option agreement dated 8 December 1997, the purchase price was to be paid as to US$30,000,000 (equivalent to approximately HK$232,530,000) on signing and as to the balance on completion. Under the Supplemental Agreement, the consideration of US$49,200,000 (equivalent to approximately HK$381,349,200) comprises: (i) the deposit of US$30,000,000 (equivalent to approximately HK$232,530,000) paid by Pacific Plywood to Mr. Tjong in cash on signing of the option agreement on 8 December 1997; (ii) an allotment of 768,141,593 new shares in Pacific Plywood (representing 17.6% and 15.0% of the existing and enlarged issued share capital of Pacific Plywood respectively) by Pacific Plywood to Mr. Tjong on the completion date at a price equal to the average of the closing price for the shares in Pacific Plywood on the Stock Exchange for the sixty-day period immediately prior to 11 May 1999 (which aggregate price shall be approximately equal to US$11,200,000 (equivalent to approximately HK$86,811,200)); and (iii) the Deferred Payment to be paid on or before 31 December 2000. Funding: After completion of the Option Agreement, the only part of consideration that is outstanding and Pacific Plywood will have to pay for is the sum of US$8,000,000 (equivalent to approximately HK$62,008,000) and it will be payable on or before 31 December 2000. This amount will be financed by the profits made by Dragon Venture for the year ending 31 December 2000 as guaranteed by Mr. Tjong. If the profit guarantee of US$8,000,000 (equivalent to approximately HK$62,008,000) cannot be reached, then Mr. Tjong shall pay to Pacific Plywood the shortfall between the amount of US$8,000,000 and the profits of Dragon Venture forthwith on receiving a demand for payment from Pacific Plywood. Mr. Tjong shall pay such shortfall either in cash or by consenting to the deduction of such shortfall from the Deferred Payment, as may be directed by Pacific Plywood. The payment of the deposit of US$30,000,000 (equivalent to approximately HK$232,530,000) by Pacific Plywood to Mr. Tjong on 8 December 1997 was funded by bank borrowings. Interest expense on such bank borrowings will be borne by Pacific Plywood. Conditions of the exercise of the Option: Under the Option Agreement, all of the following conditions must be satisfied or waived on or before the date on which Pacific Plywood exercises the Option: (a) Pacific Plywood having notified Mr. Tjong in writing that it is satisfied upon inspection and investigation as to the respective financial, corporate, taxation and trading positions of each of Dragon Venture and Jilin Newco (including all contracts relating to Jilin Newco), the title of the Dragon Venture Group to their respective properties and other assets and the ownership of the 75% interest in Jilin Newco by Dragon Venture; (b) if necessary, the passing by the shareholders of Pacific Plywood in a general meeting of an ordinary resolution approving the Option Agreement, the exercise of the Option and the transactions contemplated under the Option Agreement in accordance with the relevant requirements of the Listing Rules; (c) the warranties under the Agreement remaining true and accurate and not misleading at the date of exercise of the Option and at all times between the date of the Option Agreement and the date of exercise of the Option; (d) Pacific Plywood having received an opinion from its British Virgin Islands lawyers as to the law of British Virgin Islands in relation to the due incorporation and good standing of Dragon Venture; (e) Pacific Plywood having received an opinion from PRC counsel as to the law of the PRC in relation to Jilin Newco which is in all respects satisfactory to Pacific Plywood. Waiver of certain condition: As the transaction is only a discloseable transaction under the Listing Rules and approval of the shareholders of Pacific Plywood is not required, the condition set out in (b) above is deemed satisfied. The condition set out in (e) above was not yet satisfied on 11 May 1999. Having received advice from its PRC counsel as to how the outstanding issues in relation to the injection of increased capital and land title of Jilin Newco can be handled, the directors of Pacific Plywood have considered that these outstanding issues are not critical and have decided to waive the condition in (e) above and intend to resolve the outstanding issues after Pacific Plywood has taken control of Dragon Venture. Reasons for and benefits of the transaction: Dragon Venture is an investment holding company incorporated in the British Virgin Islands which is wholly-owned by Mr. Tjong. The only asset of Dragon venture is a 75% interest in Jilin Newco, a sino- foreign equity joint venture established in the PRC. In December 1995, Dragon Venture and Jilin Forestry, a PRC stated-owned enterprise, established an equity joint venture in the PRC, the principal business of which is the manufacture and sale of fancy veneer, plywood, fancy plywood and 3-ply parquet. The unaudited net asset value of Jilin Newco as at 31 March 1999 is approximately US$34,412,000 (equivalent to approximately HK$266,727,412), of which US$32,450,000 (equivalent to approximately HK$251,519,950) is attributable to the value of its building plant and machinery, US$1,226,000 (equivalent to approximately HK$9,502,726) is attributable to the value of its interest in land and US$736,000 (equivalent to approximately HK$5,704,736) is attributable to pre- operating expenses and other intangible assets. The remaining 25% interest in Jilin Newco is held by Jilin Forestry. Jilin Newco has not yet commenced production and has no revenue at present. Dragon Venture does not have any other business and its net asset value for the last two years is US$10,000,000 being its issued share capital. The directors of Pacific Plywood believe that by exercising the Option, Pacific Plywood will acquire a controlling interest in Jilin Newco, which business complements the existing businesses and development plans of the Group and allows the Group to expand into the manufacture and sale of wooden products in the PRC's massive domestic market. In addition to such general benefits, Mr. Tjong has also guaranteed that the profit of Dragon Venture shall not be less than US$8,000,000 (equivalent to approximately HK$62,008,000) for the financial year ending 31 December 2000. Further Information: Upon completion, Mr. Tjong will become interested in 768,141,593 shares, representing 17.6% and 15.0% of the existing and enlarged issued capital of Pacific Plywood respectively. Mr. Tjong undertakes that he will not sell or dispose of the shares in Pacific Plywood allotted to him to any party within a period of one year from the completion date without the prior written consent of Pacific Plywood. Such shares will be allotted pursuant to the general mandate given to the directors of Pacific Plywood in a general meeting held on 25 June 1998 and will have the same rights as the other issued shares in Pacific Plywood. There is no intention to appoint Mr. Tjong as a director of Pacific Plywood or of its subsidiaries. The allotment price which is equal to the average of the closing price for the shares in Pacific Plywood on the Stock Exchange for the 60-day period immediately prior to 11 May 1999 will be HK$0.113 per share. Such allotment price is a 23.75 per cent. discount to the average closing price of the shares traded on the Stock Exchange in the 5-day period immediately prior to 11 May 1999. Application for listing of and permission to deal in the shares which will be allotted to Mr. Tjong will be made to the Stock Exchange. Pacific Plywood will issue a circular to its shareholders setting out the particulars of the Supplemental Agreement. Definitions: "Deferred Payment" means the sum of US$8,000,000 (equivalent to approximately HK$62,008,000); "Dragon Venture" means Dragon Venture Holdings Limited; "Dragon Venture Group" means Dragon Venture and Jilin Newco; "Group" means Pacific Plywood and its subsidiaries; "Jilin Forestry" means China Jilin Forestry Industry (Group) Corporation; "Jilin Newco" meansJilin Newco Wood Industries Co. Ltd.; "Listing Rules" means the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited; "Option" means the opinion granted by Mr. Tjong to Pacific Plywood to purchase 10,000,000 shares of US$1 each in the capital of Dragon Venture; "Option Agreement" means the option agreement for the purchase of shares in Dragon Venture Holdings Limited dated 8 December 1997 entered into between Mr. Tjong Jauw Sing and Pacific Plywood Holdings Limited as amended on 29 June 1998, 3 December 1998 and 11 May 1999; "Pacific Plywood" means Pacific Plywood Holdings Limited; "PRC" means The People's Republic of China; "Stock Exchange" means the Stock Exchange of Hong Kong Limited; "Supplemental Agreement" means the supplemental agreement to the option agreement dated 11 May 1999. By Order of the Board Budiono Widodo Chairman Hong Kong, 11 May 1999