CAPITAL STRATEGIC INVESTMENT LIMITED

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, a bank manager, solicitor, professional accountant or other professional adviser. If you have sold or otherwise transferred all your shares in Capital Strategic Investment Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other agent(s) through whom the sale was effected for transmission to the purchaser(s) or transferee(s). The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular. CAPITAL STRATEGIC INVESTMENT LIMITED (Incorporated in Bermuda with limited liability) (STOCK CODE: 497) PROPOSED ISSUE OF 75,000,000 NEW SHARES TO STRATEGIC INVESTORS, WHITEWASH WAIVER APPLICATION AND PROPOSED PLACEMENT OF 25,000,000 NEW SHARES Financial adviser to Capital Strategic Investment Limited Independent financial adviser to the Independent Board Committee and Independent Shareholders A letter from the Independent Board Committee (as defined in this circular) to the Independent Shareholders (as defined in this circular) is set out on page 22 of this circular. A letter from AMS Corporate Finance Limited containing its opinion and advice to the Independent Board Committee and Independent Shareholders in connection with the Subscription (as defined in this circular) and the Waiver (as defined in this circular) is set out on pages 23 to 39 of this circular. A notice convening the Special General Meeting (as defined in this circular) to be held at Board Room, 7/F., The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, on Friday, 6 May 2005 at 2:30 p.m. is set out on pages 121 to 123 of this circular. A form of proxy for use at the Special General Meeting is enclosed. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy and return it in accordance with the instructions printed thereon as soon as possible to Computershare Hong Kong Investor Services Limited, Rooms , 17th Floor, Hopewell Centre, 183 Queen s Road East, Hong Kong, and in any event, not less than 48 hours before the time appointed for the holding of the Special General Meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjourned meeting (as the case may be). 18 April 2005

2 CONTENTS Definitions... 1 Letter from the Board Page Introduction... 5 The Subscription Agreements and the Placing Agreement... 7 Effect on the shareholding following completion of the Subscription and the Placing Whitewash Waiver application Reasons for the Subscription and the Placing, and use of proceeds Information on the Group Special General Meeting Procedures for demanding a poll Recommendations General Letter from the Independent Board Committee Letter from AMS Appendix I Financial information of the Group Appendix II Property valuation Appendix III General information Notice of the Special General Meeting i

3 DEFINITIONS In this circular, unless the context requires otherwise, the following expressions have the following meanings: Access Capital acting in concert Agent AMS Announcement associate Board Calveston Company Completion Access Capital Limited, the financial adviser to the Company. It is a licensed corporation under the SFO and engaged in types 1 (dealing in securities), 4 (advising on securities), 6 (advising on corporate finance) and 9 (asset management) regulated activities has the meaning as defined in the Takeovers Code Kingsway Financial Services Group Limited, a company incorporated in Hong Kong with limited liability and the placing agent of the Company pursuant to the Placing Agreement to procure subscribers to subscribe 25,000,000 new Shares. It is a licensed corporation under the SFO and engaged in types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities), 6 (advising on corporate finance) and 9 (asset management) regulated activities AMS Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Subscription and the Waiver. It is a licensed corporation under the SFO and engaged in types 4 (advising on securities), 6 (advising on corporate finance) and 9 (asset management) regulated activities the announcement dated 8 March 2005 issued by the Company in relation to the Subscription and the Placing has the meaning as defined in the Listing Rules the board of the Directors Calveston Assets Limited, a company incorporated in the British Virgin Islands with limited liability and wholly and beneficially owned by Mr. Yuen Tin Fan, Francis and his spouse Capital Strategic Investment Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange completion of the Subscription Agreements and the Placing Agreement 1

4 DEFINITIONS Completion Date connected person Digisino Director(s) DTZ Earnest Equity Earnest Group Party Eisner Executive Group Hong Kong Independent Board Committee within 10 business days immediately after the date upon the last of the conditions of the relevant Subscription Agreement or the Placing Agreement has been satisfied has the meaning as defined in the Listing Rules Digisino Assets Limited, a company incorporated under the laws of the British Virgin Islands and is wholly and beneficially owned by Mr. Chung. Its sole director is Mr. Chung the director(s) of the Company DTZ Debenham Tie Leung, the independent professional valuer of the properties of the Company Earnest Equity Limited, a company incorporated under the laws of the British Virgin Islands, is wholly-owned by Digisino in its capacity as the sole trustee and for the benefit of a discretionary trust founded and established by Mr. Chung. Its sole director is Mr. Chung Earnest Equity, Mr. Chung and parties acting in concert with them (including the Strategic Investors, as one or more is considered by the Executive to be acting in concert with Earnest Equity in relation to the control of the Company for the purpose of the Waiver) Eisner Investments Limited, a company incorporated in the British Virgin Islands with limited liability, and is wholly and beneficially owned by Mr. Li Tzar Kai, Richard the Executive Director of the Corporate Finance Division of SFC or any delegates of the Executive Director the Company and its subsidiaries the Hong Kong Special Administrative Region of the People s Republic of China the independent board committee of the Company, comprising Mr. Liu Yeau-Hwan, Pete, Mr. Wong Sin Just, Mr. Lam Lee G. and Mr. Cheng Yuk Wo, established for the purpose of advising the Independent Shareholders in relation to the Subscription and the Waiver 2

5 DEFINITIONS Independent Shareholders ITC Latest Practicable Date Listing Committee Listing Rules Mr. Chung New Oval Offer Options Placing Shareholders other than the Earnest Group Party (which as at the Latest Practicable Date owned 170,067,250 Shares in aggregate, representing approximately 44.23% of the issued share capital of the Company as at the Latest Practicable Date) ITC Corporation Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange 15 April 2005, being the latest practicable date prior to the publication of this circular for the purpose of ascertaining or collation of the relevant information contained in this circular has the meaning as defined in the Listing Rules the Rules Governing the Listing of Securities on the Stock Exchange Chung Cho Yee, Mico, a non-executive Director and the controlling Shareholder (as at the Latest Practicable Date together with Earnest Equity was interested in an aggregate of 170,067,250 Shares, representing approximately 44.23% of the issued share capital of the Company as at the Latest Practicable Date) New Oval Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, and an indirect wholly owned subsidiary of ITC the mandatory conditional cash offers made by Earnest Equity to acquire all the issued Shares and all outstanding options of the Company (other than those already owned by Earnest Equity and parties acting in concert with it) as initially announced on 15 November 2004 and lapsed on 21 January 2005 options granted under the option schemes of the Company adopted on 13 June 2001 and 26 August 2002 respectively each conferring on the grantee thereof the right to subscribe for one Share at the option exercise price the proposed placing of 25,000,000 new Shares to subscribers procured by the Agent pursuant to the terms and conditions of the Placing Agreement on a best-efforts basis 3

6 DEFINITIONS Placing Agreement SFC SFO Share(s) Shareholder(s) Special General Meeting Stock Exchange Strategic Investors Subscription Subscription Agreements Subscription Price Takeovers Code Waiver HK$ the conditional agreement dated 8 March 2005 entered into between the Company and the Agent with regard to the Placing Securities and Futures Commission Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ordinary share(s) of HK$0.04 each in the share capital of the Company holder(s) of the Shares the special general meeting of the Company to be convened to consider, and if thought fit, to approve the Subscription Agreements, the Placing Agreement and the Waiver or any adjournment thereof The Stock Exchange of Hong Kong Limited Eisner, New Oval and Calveston the proposed subscription of 75,000,000 new Shares by the Strategic Investors pursuant to the terms and conditions of the Subscription Agreements the conditional agreements dated 8 March 2005 entered into between the Company and each of the Strategic Investors with regard to the Subscription price payable for the 100,000,000 new Shares in respect of the Subscription and the Placing at HK$1.08 per Share the Hong Kong Code on Takeovers and Mergers the whitewash waiver to be granted by the Executive pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code to exempt the Earnest Group Party from any obligation to make the Offer as a result of the completion of the Subscription Hong Kong dollar, the lawful currency of Hong Kong % per cent. 4

7 LETTER FROM THE BOARD CAPITAL STRATEGIC INVESTMENT LIMITED (Incorporated in Bermuda with limited liability) (STOCK CODE: 497) Executive Directors: Mr. Choo Yeow Ming (Executive Chairman) Ms. Ma Wai Man, Catherine Non-executive Director: Mr. Chung Cho Yee, Mico Independent non-executive Directors: Mr. Liu Yeau-Hwan, Pete Mr. Wong Sin Just Mr. Lam Lee G. Mr. Cheng Yuk Wo Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda Head office and principal place of business in Hong Kong: Two International Finance Centre 8 Finance Street Central Hong Kong 18 April 2005 To the Shareholders Dear Sir or Madam, 1. INTRODUCTION PROPOSED ISSUE OF 75,000,000 NEW SHARES TO STRATEGIC INVESTORS, WHITEWASH WAIVER APPLICATION AND PROPOSED PLACEMENT OF 25,000,000 NEW SHARES On 8 March 2005, the Company entered into the Subscription Agreements with the Strategic Investors and the Placing Agreement with the Agent. Pursuant to the Subscription Agreements, the Strategic Investors have conditionally agreed to subscribe an aggregate of 75,000,000 new Shares at the subscription price of HK$1.08 per Share. 5

8 LETTER FROM THE BOARD Pursuant to the Placing Agreement entered into between the Agent and the Company, the Agent agreed to procure subscribers to subscribe 25,000,000 new Shares at the subscription price of HK$1.08 per Share on a best-efforts basis. Following the issue of the Announcement and through subsequent discussions with the Executive, the Company has been informed by the Executive that he is of the view that one or more of the Strategic Investors is or are acting in concert with Earnest Equity, Mr. Chung and/or parties acting in concert with them in relation to the control of the Company. In the interest of facilitating completion of the Subscription in a timely manner (before the long-stop date of 20 May 2005) and for the benefit of the Company and whilst expressing no view on the aforementioned view of the Executive, the Strategic Investors have, at the request of the Company, agreed to seek a whitewash waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code to exempt them from any obligations to make a general offer of the Shares as a result of completion of the Subscription. An application in respect of the Waiver has been made to the Executive, and if granted, will be subject to the approval of the Independent Shareholders (by poll) at the special general meeting of the Company to be convened to consider, among other things, the Waiver. In this regard, the Earnest Group Party has agreed to abstain from voting on all the resolutions in respect of the Subscription and the Waiver. Mr. Choo Yeow Ming, who has been serving in the past two years as a salaried Director, is not considered independent for the purpose of giving advice to the Independent Shareholders with regard to the Subscription and the Waiver. Ms. Ma Wai Man, Catherine, who has been serving in the past two years as a salaried Director and the company secretary to the Company, is not considered independent for the purpose of giving advice to the Independent Shareholders with regard to the Subscription and the Waiver. Mr. Chung, who is a member of the Earnest Group Party, is not considered independent for the purpose of giving advice to the Independent Shareholders with regard to the Subscription and the Waiver. The Independent Board Committee comprising the independent non-executive Directors has been established to consider and to advise the Independent Shareholders as to whether the terms of the Subscription and the Waiver are fair and reasonable so far as the Independent Shareholders are concerned, and whether the Subscription and the Waiver are in the interests of the Company and the Independent Shareholders as a whole. AMS, an independent financial adviser, has been appointed to advise the Independent Board Committee and the Independent Shareholders with respect to the Subscription and the Waiver. The purpose of this circular is to provide you with (i) further information on the Subscription Agreements and the Placing Agreement; (ii) the Waiver; (iii) the advice of the Independent Board Committee to the Independent Shareholders in respect of the Subscription and the Waiver; (iv) the advice of AMS to the Independent Board Committee and the Independent Shareholders in respect of the Subscription and the Waiver; and (v) the financial information of the Group. A notice convening the Special General Meeting for the purpose of considering, if thought fit, approving the Subscription Agreements, the Placing Agreement and the Waiver, is set out on pages 121 to 123 of this circular. 6

9 LETTER FROM THE BOARD 2. THE SUBSCRIPTION AGREEMENTS AND THE PLACING AGREEMENT All the Subscription Agreements and the Placing Agreement have the same terms set out below, except the Placing has been agreed between the Agent and the Company on a best-efforts basis and that the Agent will procure no less than three independent third parties to subscribe 25,000,000 new Shares. The Agent has identified 6 subscribers to subscribe 25,000,000 new Shares. Details are set out under paragraph below. 2.1 Date 8 March Parties Subscription Agreements (a) (b) the Company as the issuer; and Eisner, New Oval and Calveston each as the subscriber Placing Agreement (a) (b) the Company as the issuer; and the Agent as the placing agent Information about the Strategic Investors, the Agent and the placees Eisner is a company wholly and beneficially owned by Mr. Li Tzar Kai, Richard. Mr. Li, is the Chairman of PCCW Limited, the Chairman and Chief Executive of the Pacific Century Group and the Chairman of Pacific Century Premium Developments Limited and the Singapore-based Pacific Century Regional Developments Limited. Eisner is an investment holding company. New Oval is an indirect wholly-owned subsidiary of ITC. New Oval is an investment holding company. 7

10 LETTER FROM THE BOARD Calveston is a company wholly and beneficially owned by Mr. Yuen Tin Fan, Francis and his spouse. Mr. Yuen is the Chairman of Pacific Century Insurance Holdings Limited, the Deputy Chairman of the Pacific Century Group and a Deputy Chairman of PCCW Limited. Calveston is an investment holding company. To the best of the Directors knowledge, information and belief, and after having made all reasonable enquiry, each of the Strategic Investors is an independent third party to the Company, is not, a connected person of the Company and is not connected to the directors, chief executive, substantial shareholder of the Company, or its subsidiaries and their respective associates, or other connected persons of the Company for the purpose of the Listing Rules. The Directors have, however, noted that the Executive considers one or more of the Strategic Investors to be parties acting in concert with Earnest Equity in relation to the control of the Company. Therefore, the Strategic Investors are not considered independent of the Company, its subsidiaries and their respective associates for the purpose of the Takeovers Code. The Agent is not a connected person of the Company and is independent from and not connected to the directors, chief executive, substantial shareholder of the Company, or its subsidiaries and their respective associates, or other connected persons of the Company for the purpose of the Listing Rules. The Agent will use reasonable endeavours to place the new Shares to the subscribers (and their respective ultimate beneficial owners) who will not be connected persons of the Company and will be independent from and not connected with the Strategic Investors or the directors, the chief executive or the substantial shareholders of the Company or its subsidiaries and/or their respective associates and other connected persons of the Company for the purpose of the Listing Rules. On 30 March 2005, the Agent informed the Board that it had, pursuant to and subject to the terms and conditions of the Placing Agreement, conditionally placed 25,000,000 new Shares to 6 subscribers. To the best of the Directors knowledge, information and belief, and after having made all reasonable enquiry, each of these 6 subscribers is an independent third party to the Company, is not a connected person of the Company and is not connected to or acting in concert with the Strategic Investors, or the directors, chief executive, substantial shareholders of the Company, or its subsidiaries and their respective associates, or connected persons of the Company for the purpose of the Listing Rules. The Directors expect that (i) no new substantial shareholder will be introduced to the Company and (ii) no new Director will be introduced to the Board as a result of the Subscription and the Placing. 8

11 LETTER FROM THE BOARD 2.3 The new Shares Set out below are the number of new Shares to be subscribed by the Strategic Investors and the subscribers to be procured by the Agent respectively. Name of the subscribers Number of new Shares the Strategic Investors: Eisner 25,000,000 New Oval 40,000,000 Calveston 10,000,000 the subscribers procured by the Agent (Note) 25,000,000 Total 100,000,000 Note: On 30 March 2005, the Agent informed the Board that it had, pursuant to and subject to the terms and conditions of the Placing Agreement, conditionally placed 25,000,000 new Shares to 6 subscribers. 100,000,000 new Shares represent approximately 26.01% of the existing issued share capital of the Company, and approximately 20.64% of the issued share capital of the Company as enlarged by the Subscription and the Placing. 2.4 The Subscription Price The Subscription Price of HK$1.08 per Share was arrived at after arm s length negotiation between the Strategic Investors, the Agent and the Company and after having considered the recent market price of the Shares. The Subscription Price represents: (i) a discount of approximately 29.9% to the closing price per Share of HK$1.54 on the Latest Practicable Date; (ii) a discount of approximately 17.6% to the closing price per Share of HK$1.31 on 7 March 2005 (the last trading day prior to suspension of trading in the Shares with effect from 8 March 2005); (iii) (iv) a discount of approximately 10.7% to the average closing price per Share of approximately HK$1.21 as quoted on the Stock Exchange for the last 5 trading days up to and including 7 March 2005; a discount of approximately 12.9% to the average closing price per Share of approximately HK$1.24 as quoted on the Stock Exchange for the last 10 trading days up to and including 7 March 2005; 9

12 LETTER FROM THE BOARD (v) (vi) a discount of approximately 44.0% to the unaudited consolidated net asset value of approximately HK$1.93 per Share as at 30 September 2004 (the latest available published financials of the Group); and a discount of approximately 38.6% to the unaudited pro forma consolidated net tangible asset value of approximately HK$1.76 per Share (assuming completion of the Subscription Agreements and the Placing Agreement) as set out in Appendix I. After deducting the expenses relating to the Subscription and the Placing (e.g. professional fees, printing and advertising cost) being approximately HK$1.5 million, the estimated consideration receivable by the Company on a per Share basis is approximately HK$ Conditions of the Subscription Agreements and the Placing Agreement The Subscription and the Placing are independent and are not inter-conditional. Completion of each of the Subscription Agreements and the Placing Agreement is independently conditional upon: (a) (b) (c) the passing of the resolution by the Shareholders at the Special General Meeting to approve the entry into and performance of the relevant agreement and the transactions contemplated thereunder in the manner as required under the Listing Rules and the applicable law; all necessary consents and approval (including those required by the relevant regulatory authority) in respect of the relevant agreement and the transactions contemplated thereunder required by the Company being obtained; and the Listing Committee granting the listing of, and permission to deal in, the new Shares to be issued pursuant to the relevant agreement (and such listing and permission not subsequently being revoked prior to the delivery of definitive share certificate(s)). Applications have been made to the Listing Committee for the listing of, and permission to deal in, the 100,000,000 new Shares to be issued pursuant to the Subscription Agreements and the Placing Agreement. As described in the paragraph headed 4. Whitewash Waiver application below, the Subscription will not proceed, if the Waiver is not granted. Pursuant to the requirements set out in the Takeovers Code, the Waiver, if granted, is conditional upon the approval of the Independent Shareholders (by poll) at the Special General Meeting. An application for the Waiver has been made to the Executive. Further details are set out in the paragraph headed 4. Whitewash Waiver application below. 10

13 LETTER FROM THE BOARD Shareholders are reminded that in addition to the outcome of the Waiver application, the Subscription and the Placing are subject to other conditions precedent, including the force majeure provisions in the Subscription Agreements and the Placing Agreement. If any of these conditions precedent is not fulfilled or if the force majeure provisions under any of the Subscription Agreements or the Placing Agreement are invoked, the transaction contemplated under the relevant agreement with regard to the relevant Strategic Investor or the Agent will not proceed. 2.6 Ranking of the new Shares The 100,000,000 new Shares, when issued and fully paid, will rank pari passu with the existing Shares in issue as at the date of issue of the new Shares. 2.7 Completion of the Subscription and the Placing The three Subscription Agreements and the Placing Agreement are independent and are not inter-conditional. Subject to fulfillment of the conditions of the relevant agreement, completion of the Subscription and the Placing will take place within 10 business day after the date when all the conditions set out therein are satisfied or such later date as the Company and the relevant Strategic Investor or the Agent (as the case may be) agree in writing. If the conditions of the Subscription are not fulfilled on or before 20 May 2005 (or such other date or time as may be agreed between the Company and the relevant Strategic Investor or the Agent (as the case may be)), then the Company and the relevant Strategic Investor or the Agent (as the case may be) will not be bound to proceed with the Subscription and allotment and issue of the Shares under the relevant agreement and such agreement will cease to be of any effect save in respect of claims arising out of antecedent breach of the relevant agreement. 2.8 Force majeure Each of the Subscription Agreements and the Placing Agreement contains provision granting the Strategic Investors and the Agent the right to terminate the relevant agreement on the occurrence of certain events including force majeure occurring prior to Completion. For this purpose, force majeure includes any event, development or change resulting in a material adverse change in political, economic, fiscal, financial, regulatory or stock market conditions and which in each of the relevant Strategic Investor or the Agent s reasonable opinion would materially adversely affect the success of the relevant Subscription or the Placing as the case may be. If any of the Strategic Investors or the Agent exercises such right (i.e. in each case at any time prior to the Completion Date which is expected to be within 10 business days after fulfillment of the conditions), the transaction contemplated under the relevant agreements with regard to the relevant Investor or the Agent will not proceed. 11

14 LETTER FROM THE BOARD 3. EFFECT ON THE SHAREHOLDING FOLLOWING COMPLETION OF THE SUBSCRIPTION AND THE PLACING Set out below is the table of the shareholdings in the Company before and after completion of the Subscription and the Placing: Shareholding Shareholding as at upon completion the Latest of the Subscription Shareholder Practicable Date and the Placing Shares % Shares % Mr. Chung (Note) 420, , Earnest Equity (Note) 169,647, ,647, Sub-total 170,067, ,067, the Strategic Investors: Eisner ,000, New Oval ,000, Calveston ,000, Sub-total the Earnest Group Party 170,067, ,067, the placees under the Placing ,000, Other Shareholders 214,473, ,473, Total 384,540, ,540, Note: Mr. Chung holds 420,000 Shares personally. Earnest Equity, the entire share capital of which is held by Digisino as trustee of a discretionary trust founded by Mr. Chung who together with his spouse and children are the current discretionary beneficiaries. Furthermore, the entire issued share capital of Digisino is held by Mr. Chung and both Digisino and Earnest Equity are corporations controlled by him. The aggregate shareholding in the Company held by the Earnest Group Party, upon completion of the Subscription and the Placing is approximately 50.58%. 12

15 LETTER FROM THE BOARD 4. WHITEWASH WAIVER APPLICATION Further to the Announcement and through subsequent discussions with the Executive, the Company has been informed by the Executive that he is of the view that one or more of the Strategic Investors is or are acting in concert with Mr. Chung, Earnest Equity and/or parties acting in concert with them in relation to the control of the Company. As at the Latest Practicable Date, Mr. Chung and Earnest Equity were interested in 170,067,250 Shares in aggregate which represented approximately 44.23% of the issued share capital of the Company as at the Latest Practicable Date. If one or more of the Strategic Investors is/are considered to be acting in concert with Earnest Equity, completion of the Subscription would, under Rule 26 of the Takeovers Code, give rise to the obligation for Earnest Group Party, to make a general offer for all of the Shares other than those already owned by Earnest Equity and its concert parties or agreed to be subscribed by the relevant Strategic Investors under the Subscription. Earnest Equity, Mr. Chung and each of the Strategic Investors acknowledge the view and position of the Executive and express no view thereon. In the interest of facilitating completion of the Subscription in a timely manner (before the long-stop date of 20 May 2005) and for the benefit of the Company and whilst expressing no view on the aforementioned view of the Executive, the Strategic Investors have, at the request of the Company, agreed to seek the Waiver. The Earnest Group Party also considers it desirable to make an application in respect of the Waiver and to ascertain their respective positions under the Takeovers Code in the event that any member of the Earnest Group Party may wish to increase its shareholding in the Company in the future. An application in respect of the Waiver has been made to the Executive, and if granted, will be subject to the approval of the Independent Shareholders (by poll) at the special general meeting of the Company to be convened to consider, among other things, the Waiver. In this regard, the Earnest Group Party has agreed to abstain from voting on all the resolutions in respect of the Subscription and the Waiver. The Executive has agreed, subject to approval by Independent Shareholders, to grant the Waiver and as such, waive any obligations to make a general offer which might result from the Subscription. Each of the Strategic Investors and its concert parties confirmed that they have not owned or dealt in the Shares during the past six months prior to the date of the Announcement and up to and including the Latest Practicable Date. As at 21 January 2005, the date when the Offer lapsed, the Earnest Group Party held 162,935,250 Shares, representing approximately 42.40% of the then issued share capital of the Company. Earnest Equity has, after the lapse of the Offer to 4 February 2005, acquired 7,132,000 Shares, representing approximately 1.86% of the then issued share capital of the Company, on the market. The Earnest Group Party confirmed that it has not dealt in any Shares after 4 February 2005 and the aforementioned acquisitions took place prior to the Company s contemplation of the Subscription and the Placing. The Earnest Group Party confirmed that it would not deal in the Shares during this period up to and including the date of the Special General Meeting. As set out in the table on page 12 of this letter, upon 13

16 LETTER FROM THE BOARD completion of the Subscription and the Placing, the aggregate shareholding of the Earnest Group Party represents approximately 50.58% of the issued share capital of the Company as enlarged by the Subscription and the Placing. The aggregate shareholding of the Earnest Group Party after completion of the Subscription and the Placing will exceed 50% of the issued share capital of the Company as enlarged by the new Shares to be issued pursuant to the Subscription Agreements and the Placing Agreement. Accordingly, if the Waiver is approved by the Independent Shareholders, the Earnest Group Party may increase their shareholding in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer. If the Waiver is not granted, the Subscription will not proceed. 5. REASONS FOR THE SUBSCRIPTION AND THE PLACING, AND USE OF PROCEEDS The Board views the Subscription and the Placing as a good opportunity to strengthen the Company s balance sheet as well as to better equip the Group with the financial flexibility to capture those opportunities in making larger scale property investment, including high quality property projects, and strategic investment both in Hong Kong and within South East Asia in which the Company considers may provide lucrative investment return. Although the Group reviews and considers investment opportunities from time to time, the Group currently has no concrete plans or identified any targets for investment purposes. The Directors also believe that by placing the Shares with the Strategic Investors under the Subscription (namely Eisner, New Oval and Calveston, which are wholly and beneficially owned by Mr. Li Tzar Kai, Richard, ITC, and Mr. Yuen Tin Fan Francis and his spouse respectively), the Company would stand to benefit from any future business developments and new investment opportunities that the Strategic Investors may come across or be involved in from time to time. The Board also recognises that the Strategic Investors have extensive business connections in the Asia Pacific Region as well as in other parts of the world. The Company did not have any equity fund raising activities in the past 12 months. The net proceeds from the Subscription and the Placing are estimated to be approximately HK$106.5 million. It is expected that the entire amount of the net proceeds will be utilised for property investment and strategic investment. As mentioned above, the Group continues to review and consider investment opportunities as and when they arise. However, the Group currently has no concrete plans or identified any targets for investment purposes. The Directors, having considered the reasons for the Subscription and the Placing set out in this paragraph, are of the view that the terms of the Subscription Agreements and the Placing Agreement (including the Subscription Price as set out in paragraph 2.4 above) are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. 6. INFORMATION ON THE GROUP 6.1 Principal activities The Group is principally engaged in property investment, strategic investment and securities investment. 14

17 LETTER FROM THE BOARD The Directors and the Earnest Group Party have no intention to discontinue the existing principal business of the Group after completion of the Subscription Agreements and/or the Placing Agreement. Apart from carrying out the normal and ordinary course of business of the Group, the Directors and the Earnest Group Party do not anticipate any major changes to be introduced in the business, including any redeployment of the fixed assets of the Group. In addition, the Directors and the Earnest Group Party do not expect any material change to the continued employment of the management and employees of the Group as a result of completion of the Subscription Agreements and/or the Placing Agreement. 6.2 Financial information of the Group The following has been extracted from (i) the annual report of the Group for the year ended 31 March 2004 and (ii) the interim report of the Group for the six months ended 30 September The information has been modified to include the additional information required in compliance with the disclosure requirements of the Takeovers Code. Management discussions and analysis for each of the three financial years ended 31 March 2004 and the six months ended 30 September For the financial year ended 31 March 2002 For the financial year ended 31 March 2002, the Group had operated under difficult business environment but nevertheless successfully turned-around its financial performance into profit of approximately HK$13.9 million, compared to a loss of approximately HK$320.9 million in the previous financial year. In that year, the Group continued the consolidation in the businesses of manufacturing and trading of computer related products, two principal subsidiaries engaged in these operations were disposed of as part of the Group s down-sizing exercise for its loss making operations. Thus, the business segment of trading of computer related products was discontinued since then. As for one of the Group s other principal operation comprising principally that of franchising estate agency work, real estate project management and related undertakings, its businesses remained stable and with operating losses kept under control at a relatively minimal level. The Group also began to concentrate in the second half of that financial year in making strategic investments in various financial instruments, comprising mostly of debt securities with high credit ratings and other convertible debt securities in various locally listing companies. The making and subsequent realisation of these investments had substantially broadened the Group s revenue base and had contributed significantly towards the Group s revenue of that year. In further broadening of the Group s income and revenue base, the Group had also acquired certain prime local properties, with the view to collect rental returns. As a result, based on the Group s audited consolidated financial statements, the Group reported a turnover of approximately HK$297.9 million for the year ended 31 March 2002, including approximately HK$276.6 million as the new source of revenue generated from the financial investments during that year. 15

18 LETTER FROM THE BOARD For the financial year ended 31 March 2003 For the financial year ended 31 March 2003, the Group continued to focus on making strategic investments, which had contributed significantly towards the Group s revenue and profit from operations. Besides the investments in financial instruments, the Group had been actively seeking to capture investment opportunities afforded by China s entry into the W.T.O., and successfully taken up a strategic stake in one of the largest local private distributor of mobile phones and related products and acquired strategic stakes in each of Capital Estate Limited (formerly Yoshiya International Corporation, Limited) and Capital Prosper Limited (formerly Rockapetta Holdings Limited) (HKSE stock codes 193 and 1003 respectively). As for one of the Group s other operation comprising principally that of franchising estate agency work, real estate project management and related undertakings, its businesses remained stable and with operating losses kept under a relatively minimal level, despite the local property market remaining depressed throughout that financial year. Near the end of that financial year, the Group had acquired certain prime local properties, with the view to capture capital growth potential as well as a stable return on investment which further broaden the Group s income and revenue base. As a result, based on the Group s audited consolidated financial statements, the Group reported a turnover of approximately HK$672.2 million for the year ended 31 March 2003, representing an increase of 125.6% from approximately HK$297.9 million recorded in the year ended 31 March 2002, while the turnover generated from the financial investments increased by approximately HK$391.6 million but the turnover generated from the manufacturing of computer and related products decreased by approximately HK$20.5 million due to the disposal of these business. The Group achieved a profit from operations of approximately HK$16.8 million compared with the loss from operation of approximately HK$23.5 million, while the Group recorded a net profit of approximately HK$10.1 million, representing a decrease of 27.4% from approximately HK$13.9 million recorded in the year ended 31 March The decrease in net profit was mainly due to the increase in impairment loss on investment in securities, impairment loss of goodwill arising from acquisition of subsidiaries and net loss on dilution of interest in associated companies. For the financial year ended 31 March 2004 For the financial year ended 31 March 2004, the Group continued to keep focus on strategic investment in various financial instruments such as debt securities in various locally listed companies. These investments had continued to result in significant contribution towards the Group s revenue and profit from operation. In light of the apparent signs of the possible commencement in the cycle of interest rate increase, the Group had reduced its investment in financial instruments, resulting in a decrease in the Group s turnover generated from these investments. In focusing on the Group s primary activity of making strategic investments, the Group successfully acquired a 23-storey prime commercial building at No. 88 Gloucester Road, Hong Kong in July In realising the capital gains resulting from the appreciation in other investment properties, all of these investment properties had been successfully disposed of at profit by the Group. In addition, the Group acquired in July 2004, with Shareholder s approval, a 19-storey prime commercial 16

19 LETTER FROM THE BOARD building known as Fullcorp Centre located at Nos Chatham Road South, Tsimshatsui, Kowloon, Hong Kong. With a view of stream-lining the Group s operation, the Group also re-allocated resources to better enhance investment return, and strengthening the core businesses of the Group, the Group s entire interests in Century 21 Hong Kong Limited was disposed of to Capital Estate Limited and the Group s entire interests in Capital Prosper Limited was disposed of for HK$61 million. As a result and based on the Group s audited consolidated financial statements, the Group reported a turnover of approximately HK$415.3 million for the year ended 31 March 2004, representing a decrease of 38.2% from approximately HK$672.2 million recorded in the year ended 31 March 2003, while the turnover generated from the securities investments decreased by approximately HK$295 million but the turnover generated from the investment properties and sale of properties increased by approximately HK$36.7 million. The Group achieved a profit from operations and a net profit of approximately HK$40.3 million and HK$30.6 million for the year ended 31 March 2004, representing the increases of 140.2% and 327% from approximately HK$16.8 million and HK$7.2 million (as restated) recorded in the year ended 31 March The increases in profit from operations and net profit were mainly due to the increase in contributions resulting from the investment properties and sale of properties. Air Zone Group Limited, a company incorporated in the British Virgin Islands and controlled by the executive Chairman, Mr. Choo Yeow Ming, the entire share capital of which is wholly and beneficially owned by Cyber One Group Limited, also a company incorporated in the British Virgin Islands, was the substantial shareholder of the Company for the two financial years ended 31 March 2002 and 31 March On 4 February 2004, the Company made an announcement regarding the selling of the entire shareholding interest in the Company held by Air Zone Group Limited, representing 29.36% of the total issued share capital of the Company, to Earnest Equity, which is wholly owned by Digisino, in its capacity as the sole trustee and for the benefit of a discretionary trust founded and established by Mr. Chung. Digisino, a company incorporated under the laws of the British Virgin Islands, is wholly-owned by Mr. Chung. Mr. Chung is the sole director of Earnest Equity and Digisino. After the transaction, Earnest Equity had become the substantial shareholder of the Company up to the Latest Practicable Date. For the six months ended 30 September 2004 During the interim period ended 30 September 2004, the local economy as well as the business operating environment had found to have strongest improvement. In focusing on the Group s primary activity of making strategic investments, the Group continued to actively seek out investment opportunities afforded by such improvement. In particular, amongst other investment opportunities, the local property market had shown conclusive signs of recovery from recent years low, and in towards capturing investment opportunities in such market, as well as in broadening the Group s recurring income and revenue base, 17

20 LETTER FROM THE BOARD the Group had been actively making property investments in addition to those made since the fourth quarter of All of these property investments were prime commercial units, and in realising the capital gains resulting from the appreciation in value of these investment properties, most of these properties had either been successfully disposed of or agreed to be disposed of by the Group during the period ended 30 September 2004, and thereby contributing approximately HK$104 million towards the Group s turnover for the period ended 30 September 2004, with a resulting net profit of approximately HK$12.8 million. Furthermore, the Group s long-term investment in an associate company having a sizeable interest in a potential local hotel project was also successfully disposed of at a gain during the interim period ended 30 September As for another of the Group s strategic investment focus, namely in various financial instruments such as debt securities with high credit ratings and other convertible debt securities in various locally listed companies, these investments had continued to result in significant contribution towards the Group s revenue and profit from operations. Nevertheless, following the third quarter of 2003 and in light of the apparent signs of the possible commencement in the cycle of interest rate increases, the Group has since reduced its investments in financial instruments, resulting in a decrease in the Group s turnover generated from these investments. As a result and based on the Group s unaudited interim report the Group reported a turnover of approximately HK$159.4 million for the six months ended 30 September 2004, representing a decrease of 33% from approximately HK$238 million for the corresponding period in the last year. The decrease of revenue generated from securities trading by approximately HK$191.1 million was partly offset by the increase in revenue generated from property investment by approximately HK$113.7 million. The Group recorded a net profit of approximately HK$42.2 million for the six months ended 30 September 2004 compared to a net profit of approximately HK$16.5 million in the corresponding period in last year. In September 2004, the Group entered into an agreement to purchase the whole floor of the office space located at 31st floor and four car parking spaces of Bank of America Tower, Central, Hong Kong at a consideration of HK$90 million. This acquisition was completed on 31 December Trading prospects Since the interim period ended 30 September 2004, the Group has continued to be active in the local property market and in capturing investment opportunities afforded by the recent surges in property prices. In particular, in December 2004 the Group has agreed to dispose of Fullcorp Centre, Nos Chatham Road South, Tsimshatsui, Kowloon, which was acquired by the Group in July 2004, and thereby generating a net profit of approximately HK$58 million. The sale of this property was completed on 13 April

21 LETTER FROM THE BOARD In addition, two prime commercial office premises located in Units , 31/F China Merchant Tower, Shun Tak Centre, Central, Hong Kong and 6/F, Tower 1, Admiralty Centre, 18 Harcourt Road, Central, Hong Kong respectively were acquired by the Group in January and February 2005 with completion of purchase in August 2005 and on 8 March 2005 respectively having a gross floor area of approximately 2,121 square feet and approximately 20,318 square feet at a cost of approximately HK$15.3 million and HK$125.3 million respectively, and both have also been successfully agreed to be disposed of by the Group (with such disposals expected to be completed by August 2005). The unaudited net profit of the aforesaid disposal attributable to the Group is approximately HK$1.1 million and HK$9.9 million respectively. According to the Company, this kind of acquisition and disposal of properties fall within the usual and ordinary course of business of the Group. On this basis, no adjustment is required to be made to the statement of unaudited pro forma consolidated net tangible assets of the Group. Furthermore, the Group has agreed to acquire an entire floor of a prime commercial building located in 9/F, Far East Finance Centre, 16 Harbour Road, Central, Hong Kong in March 2005 with completion in July 2005 having a gross floor area of approximately 10,800 square feet at a cost of approximately HK$94 million, and a sizeable development site in the shopping hub of Causeway Bay, Hong Kong (No. 32, 34, 36, 38, 40 Yiu Wa Street, Hong Kong) in January 2005 (with completion having taken place on 4 April 2005) having a site area of approximately 4,010 square feet and currently classify as investment, at a cost of approximately HK$240 million. As explained above, the two prime commercial office premises in Shun Tak Centre and Admiralty Centre, Central, the entire floor of a prime commercial office in Far East Finance Centre, Central and a development site in Causeway Bay were not owned by the Group as at 28 February Accordingly, none of the aforesaid properties are included in the valuation report of the Group (with the latest practicable date set at 28 February 2005) set out in Appendix II to this circular. Since the acquisition for the entire floor of a prime commercial office in Central and a development site in Causeway Bay was financed by the Group s internal resources and/or bank borrowings, the Directors believe that such acquisition will not exert any effect to the net assets of the Group. On this basis, no adjustment is required to be made to the statement of unaudited pro forma consolidated net tangible assets of the Group. In summary, after 30 September 2004 (the date of the interim result of the Group for the six months ended 30 September 2004) the Group estimated to generate an unaudited net profit of approximately HK$58 million from the disposal of Fullcorp Centre; and, subject to completion of the disposal of the two prime commercial office premises in Shun Tak Centre and Admiralty Centre, Central, the Group is expected to generate additional unaudited net profit of approximately HK$11 million. As at 28 February 2005, the associated companies of the Group which the Company held 30% or more interest as described in note 17 of the financial statement of the Group for the years ended 31 March 2004 did not own any properties. 19