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. This announcement appears for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Shares described below. YUGANG INTERNATIONAL LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 613) CONNECTED TRANSACTION: PROPOSED ISSUE OF A CONVERTIBLE NOTE On 25th May, 2004, the Company and the Subscriber entered into a conditional subscription agreement ( Subscription Agreement ) pursuant to which the Company has agreed to issue and the Subscriber has agreed to subscribe for a convertible note ( Convertible Note ) of HK$70 million in cash. Assuming the exercise in full of the conversion rights attaching to the Convertible Note at the lowest conversion price of HK$0.075 per Share, a total number of 933,333,333 new Shares will be issued. The lowest conversion price of HK$0.075 per Share is approximately 107.14% of the latest closing price of HK$0.070 per Share quoted on the Stock Exchange on 24th May, 2004. So far as the Directors are aware, the interests of Mr. Cheung Chung Kiu and his associates in the issued share capital of the Company will increase from their existing approximately 38.42% to approximately 44.54% if the Subscriber exercises in full the conversion rights attaching to the Convertible Note at the aforesaid lowest conversion price. The net proceeds from the issue of the Convertible Note of HK$70 million will be used for repayment on 31st July, 2004 of part of the outstanding amount of Existing Convertible Note (with the balance to be paid from internal resources of the Company). Given that Mr. Cheung Chung Kiu is the chairman of the Company and the Subscriber is wholly owned by him, the entering into of the Subscription Agreement by the Subscriber constitutes a connected transaction for the Company under the Listing Rules. A special general meeting ( SGM ) will be convened to approve (i) the entering into the Subscription Agreement; (ii) the issue of the Convertible Note and the allotment and issue of the Conversion Shares and (iii) all transactions as may be contemplated under the Subscription Agreement. By virtue of the Listing Rules, the resolutions for the connected transactions are required to be approved by Independent Shareholders and voted by way of a poll. A circular containing, among other things, further details of the Subscription Agreement and the Convertible Note, a letter of advice from the independent financial adviser to the Independent Board Committee, the recommendations from the Independent Board Committee to the Independent Shareholders and the notice of the SGM will be despatched to the Shareholders as soon as practicable. 1
I. SUBSCRIPTION AGREEMENT DATED 25TH MAY, 2004 1. Parties The Company: The Subscriber: The Company s principal activity is investment holding. The principal activities of its principal subsidiaries are manufacturing and trading of watch boxes, gift boxes, spectacles cases, bags and pouches, display units and general trading and of its principal associated company are property investment. Timmex Investment Ltd., a company incorporated in the British Virgin Islands. The Subscriber is 100% owned by Mr. Cheung Chung Kiu (a shareholder and the chairman of the Company). The Subscriber s sole business is holding interests in the Existing Convertible Note and entering into the Subscription Agreement. 2. The Convertible Note Pursuant to the Subscription Agreement, the Company has agreed to issue and the Subscriber has agreed to subscribe for the Convertible Note of HK$70 million in cash. Subject to the Conditions Precedent, the Convertible Note shall be issued on the third Business Day following the date on which the Conditions Precedent of the Subscription are fulfilled or such other date as the Company and the Subscriber may agree. 3. Principal terms of the Convertible Note (A) The terms of the Convertible Note were negotiated between the Company and the Subscriber on an arm s length basis and the principal terms of which are summarised below: Principal amount: Interest: Maturity: Completion date: Conditions precedent: Conversion price: HK$70 million 3% per annum accrued from the date of issue on a day to day basis on the principal amount of the Convertible Note outstanding, payable annually in arrears. The Company shall repay principal amount outstanding under the Convertible Note to the Noteholder together with all interest accrued on the third anniversary of the date of the issue of the Convertible Note. The third Business Day following the date on which the Conditions Precedent are fulfilled or such other date as the Company and the Subscriber may agree for the issue of Convertible Note. The conditions precedent set out in section 4 headed Conditions Precedent of this announcement. HK$0.075 per Share for the period from the date of issue of the Convertible Note up to the first anniversary of the date of issue of the Convertible Note, HK$0.082 per Share for the period from the date immediately following the first anniversary of the date of issue of 2
the Convertible Note up to the second anniversary of the date of issue of the Convertible Note and HK$0.089 per Share for the period from the date immediately following the second anniversary of the date of issue of the Convertible Note up to the third anniversary of the date of issue of the Convertible Note. The conversion price is subject to adjustment for, among other matters, subdivision or consolidation of Shares, bonus issues, capital reduction, rights issues and other events which have diluting effects on the issued share capital of the Company. Conversion period: Ranking of the Conversion Shares: Transferability: Voting: Listing: The Noteholder will have the right to convert the whole or part of the principal amount of the Convertible Note into Shares at any time and from time to time, from the date of issue of the Convertible Note up to the third anniversary of the issue of the Convertible Note in amounts not less than HK$1,000,000 on each conversion, save that if at any time, the principal outstanding amount of the Convertible Note is less than HK$1,000,000, the whole (but not part only) of the principal amount of the Convertible Note may be converted. Shares to be issued upon conversion shall rank pari passu in all respects with all other existing Shares outstanding at the date of the conversion notice and be entitled to all dividends and other distributions the record date of which falls on a date on or after the date of the conversion notice. Subject to any requirements of the Stock Exchange, the Convertible Note may be assigned or transferred to any one in whole or in part of its principal amount outstanding and the Company shall facilitate any such assignment or transfer of the Convertible Note, including making any necessary applications to the Stock Exchange. The Noteholder will not be entitled to attend or vote at any meeting of the Company by reason of being the Noteholder. No application will be made for the listing of the Convertible Note on the Stock Exchange. An application will be made to the Stock Exchange for the listing of Shares to be issued on exercise of the conversion rights attaching to the Convertible Note. (B) The conversion price of HK$0.075, HK$0.082 and HK$0.089 per Share represents approximately 107.14%, 117.14% and 127.14% to the closing price of HK$0.070 per Share quoted on the Stock Exchange on 24th May, 2004 respectively and approximately 110.46%, 120.77% and 131.08% to the average closing price of HK$0.0679 per Share quoted on the Stock Exchange for the ten consecutive trading days up to and including 24th May, 2004 respectively. 3
4. Conditions Precedent The subscription of the Convertible Note is conditional upon the fulfillment of the following conditions precedent: (a) (b) (c) the Listing Committee of the Stock Exchange shall have granted (either unconditionally or subject only to conditions to which neither the Company nor the Subscriber shall reasonably object) listing of and permission to deal in the Conversion Shares; if so required, the Bermuda Monetary Authority shall have approved the issue of the Convertible Note and the Conversion Shares; and the Independent Shareholders shall have approved by way of a poll at the SGM (i) the entering into the Subscription Agreement; (ii) the issue of the Convertible Note and the allotment and issue of the Conversion Shares and (iii) all transactions as may be contemplated under the Subscription Agreement. If the above conditions are not fulfilled on or before 31st August, 2004 or such later date as may be agreed between the Subscriber and the Company, the Subscription Agreement will lapse and become null and void and the parties to the Subscription Agreement will be released from all obligations thereunder, save the liabilities for any antecedent breaches thereof. 5. Use of proceeds The net proceeds from the issue of the Convertible Note of HK$70 million will be used for repayment on 31st July, 2004 of part of the outstanding amount of Existing Convertible Note (with the balance to be paid from internal resources of the Company). 6. Reasons for the issue of the Convertible Note The Directors consider that the issue of the Convertible Note represents a good opportunity to raise funds for repayment of part of the outstanding amount of the Existing Convertible Note. The Directors believe that the terms of the Subscription Agreement and the Convertible Note are fair and reasonable and for commercial benefits and in the best interests of the Company. 7. Connected transaction Given that Mr. Cheung Chung Kiu is the chairman of the Company and the Subscriber is wholly owned by him, the entering into of the Subscription Agreement by the Subscriber constitutes a connected transaction for the Company under the Listing Rules. A SGM will be convened to approve (i) the entering into the Subscription Agreement; (ii) the issue of the Convertible Note and the allotment and issue of the Conversion Shares and (iii) all transactions as may be contemplated under the Subscription Agreement, in which the Subscriber, Mr. Cheung Chung Kiu, Chongqing Industrial Limited and their associates will abstain from voting. The Company confirms that, to the best of the Directors knowledge, information and belief having made all reasonable enquiry, the Subscriber and the ultimate beneficial owner (Mr. Cheung Chung Kiu, a shareholder and the chairman of the Company) are connected persons of the Company. 4
A circular containing, among other things, further details of the Subscription Agreement, the Convertible Note, a letter of advice from the independent financial adviser to the Independent Board Committee, the recommendations from the Independent Board Committee to the Independent Shareholders and the notice of the SGM will be despatched to the Shareholders as soon as practicable. By virtue of the Listing Rules, the resolutions for the connected transactions are required to be approved by Independent Shareholders and voted by way of a poll. II. SHAREHOLDING OF THE SIGNIFICANT SHAREHOLDERS Assuming the exercise in full of the conversion rights attaching to the Convertible Note at the lowest conversion price of HK$0.075, a total number of 933,333,333 new Shares will be issued, representing approximately 11.04% of the Company s existing issued share capital of 8,453,321,700 Shares and approximately 9.94% of the Company s issued share capital of 9,386,655,033 Shares as enlarged by the issue and allotment of such new Shares. In that event, the Subscriber shall become directly interested in a total of 933,333,333 Shares, being approximately 11.04% of the Company s existing issued share capital of 8,453,321,700 Shares and approximately 9.94% of the Company s issued share capital of 9,386,655,033 Shares as enlarged by the issue and allotment of such new Shares. So far as the Directors are aware, the following persons will, as at the following indicated event, have the following interests in the Shares (on the basis that the Subscriber does not exercise any of its conversion rights attached to the Existing Convertible Note): No. of Shares after exercise in full the conversion rights attached to the Convertible Note at Existing No. of Approximate % of the conversion price Approximate % of Shares shareholding of HK$0.075 per Share shareholding Mr. Cheung Chung Kiu 53,320,000 0.63% 53,320,000 0.57% Chongqing Industrial Limited (Note 1) 3,194,434,684 37.79% 3,194,434,684 34.03% Subscriber (Note 2) 0 0% 933,333,333 9.94% Directors (Note 3) 90,064,000 1.07% 90,064,000 0.96 % Public 5,115,503,016 60.51% 5,115,503,016 54.50% Total: 8,453,321,700 100% 9,386,655,033 100% Notes: 1. The voting rights of 3,194,434,684 Shares are exercisable by Chongqing Industrial Limited. Mr. Cheung Chung Kiu, Peking Palace Limited, Miraculous Services Limited and Prize Winner Limited have a 35%, 30%, 5% and 30% equity interest in Chongqing Industrial Limited, respectively. Peking Palace Limited and Miraculous Services Limited are beneficially owned by Palin Holdings Limited which is in turn owned by Palin Discretionary Trust, a family discretionary trust, the object of which include Mr. Cheung Chung Kiu and his family. Prize Winner Limited is beneficially 5
owned by Mr. Cheung Chung Kiu and his associates. By virtue of the SFO, Mr. Cheung Chung Kiu and Palin Holdings Limited are respectively deemed to be interested in the Shares in which Chongqing Industrial Limited has a beneficial interest. 2. Mr. Cheung Chung Kiu has a beneficial interest of 100% in the Subscriber. By virtue of the SFO, Mr. Cheung Chung Kiu is deemed to be interested in the Shares in which the Subscriber has a beneficial interest. The Subscriber also has interest in 833,333,333 underlying shares of the Company and that shares are issuable upon the exercise of the Existing Convertible Note held by the Subscriber. 3. 13,600,000, 41,800,000 and 34,664,000 Shares are personally owned by Mr. Zhang Qing Xin, Mr. Lam Hiu Lo, Mr. Liang Kang respectively, all being the executive Directors. III. DIRECTORS The Board comprises Mr. Cheung Chung Kiu (the chairman and managing Director), Mr. Yuen Wing Shing, Mr. Zhang Qing Xin, Mr. Lam Hiu Lo and Mr. Liang Kang who are the executive Directors, and Mr. Lee Ka Sze, Carmelo and Mr. Wong Wai Kwong, David who are the independent non-executive Directors. IV. FUND RAISING The Company had not carried out any equity funds raising exercises in the past 12 months. V. POLL DEMAND By virtue of the Listing Rules, the resolutions for the connected transactions are required to be voted by way of a poll. According to the Bye-laws of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands) a poll is duly demanded. A poll may be demanded by: 1. the chairman of a meeting, or 2. at least three Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or proxy for the time being entitled to vote at the meeting, or 3. a Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting, or 4. a Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right. If a poll is duly demanded the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. On a poll votes may be given either personally or by proxy. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall be entitled to a second or casting vote in addition to any other vote he may have. 6
VI. DEFINITIONS In this announcement, the following expressions have the following meanings unless otherwise requires. associates Board Business Day Company Conditions Precedent Conversion Shares Convertible Note Conversion Price Directors Existing Convertible Note HK$ Hong Kong Independent Board Committee Independent Shareholders the meaning ascribed to under the Listing Rules the board of Directors a day (excluding Saturday) on which banks in Hong Kong are generally open for business Yugang International Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange the conditions precedent set out in section 4 headed Conditions Precedent of this announcement the Shares to be issued by the Company upon exercise by the Subscriber of the conversion rights attached to the Convertible Note the convertible note of HK$70 million to be issued by the Company to the Subscriber the conversion price for the Convertible Note set out in section 3 headed Principal terms of the Convertible Note of this announcement the directors of the Company the existing convertible note with a principal value of HK$100,000,000 maturing on 31st July, 2004 with a conversion price of HK$0.12 per conversion Share issued to the Subscriber in 2001 and still being held by the Subscriber Hong Kong dollars the Hong Kong Special Administrative Region of the People s Republic of China Mr. Wong Wai Kwong, David is expected to be appointed as an independent committee of the Board to advise the Independent Shareholders on the Subscription Agreement and the transactions contemplated thereby including but not limited to the allotment and issue of the Conversion Shares the shareholders of the Company, other than the Subscriber and its associates together with Mr. Cheung Chung Kiu, Chongqing Industrial Limited and their associates and, if any, any other shareholder of the Company who has a material interest in the connected transaction in relation to the Subscription Agreement pursuant to the Listing Rules 7
Listing Rules Noteholder SFO SGM Share(s) Shareholders Stock Exchange the Rules Governing the Listing of Securities on the Stock Exchange the person who is for the time being the holder of the Convertible Note the Securities and Futures Ordinance the special general meeting of the Company to be convened to approve matters set out in section 4 headed Conditions Precedent of this announcement share(s) of HK$0.01 each in the share capital of the Company the shareholders of the Company The Stock Exchange of Hong Kong Limited Subscription the conditional subscription agreement dated 25th May, 2004 Agreement entered into between the Company and the Subscriber in relation to Convertible Note % per cent. Hong Kong, 25th May, 2004 By Order of the Board Yugang International Limited Yuen Wing Shing Director Please also refer to the published version of this announcement in The Standard. 8