10:02 CHINA ELECTRON<00085> - Announcement (3) Pursuant to the Equity Transfer Agreement, CEC has given warranties, representations and undertakings in respect of China Electronics Industry's title in the Target Equity Interest, the operations and assets and liabilities of CECW and the legal status of CECW. Subject matter of the Acquisition: Pursuant to the Equity Transfer Agreement, the Company agreed to, subject to certain conditions, acquire from China Electronics Industry the Target Equity Interest. The Target Equity Interest represents a 48% equity interest in CECW. Consideration: The Acquisition was negotiated and entered into on an arm's length basis and on normal commercial terms. The consideration for the Acquisition is HK$22,000,000, which will be settled by the Company in cash upon completion of the Acquisition. The Company intends to finance such consideration by using the Group's internal resources. The consideration for the Acquisition was determined with reference to various factors, including the historical performance of CECW, the current and future earnings potential of CECW, the quality of assets of CECW, as well as the current financial positions and future investment needs of CECW. The consideration for the Acquisition represents a price to earnings ratio of approximately 2.4 times and 6.6 times the audited profits after tax, as adjusted in accordance with Hong Kong Financial Reporting Standards, attributable to the Target Equity Interest for the two years ended 31 December 2003 and 2004, respectively. Conditions Completion is conditional upon the fulfilment (or waiver, in certain cases as stated below) of certain conditions on or before 30 June 2005 or such later date as China Electronics Industry and the Company may agree. These conditions include: (i) the passing of the necessary resolution by the Independent Shareholders at the SGM to approve the Acquisition and the transactions contemplated thereunder; (ii) China Electronics Industry having conducted a state-owned assets valuation in respect of the Target Equity Interest, and the administration authority for state-owned assets or its authorised institutions having confirmed the results of the valuation and agreed to the transfer; (iii) CECW having obtained an amended certificate of approval for establishment of enterprises with foreign investment and having completed the registration for change in connection with the transfer of the Target Equity Interest; (iv) the Company being satisfied with the results of the due diligence review of the legal and financial affairs of CECW; (v) the warranties and representations given by China Electronics Industry and CEC under the Equity Transfer Agreement remaining true and accurate in all material respects and China Electronics Industry and CEC having observed all the pre-Completion undertakings and covenants under the Equity Transfer Agreement; (vi) Cellon Hongkong Ltd. and Cellon Incorporation having consented to the Acquisition and waived all the pre-emptive rights that they are entitled under the joint venture contract and the articles of association of CECW; and (vii) the board of directors of CECW having unanimously approved the Acquisition. The Company may waive conditions described in paragraphs (iv) and (v) above. The Company currently does not intend to waive any of such conditions. The Directors consider the consideration for the Acquisition to be fair and reasonable in so far as the Company is concerned. There is no price adjustment mechanism under the Equity Transfer Agreement. Should the relevant authority or institution not agree to the transfer under the Equity Transfer Agreement, the condition described in paragraph (ii) above will not be fulfilled. As at the date of this announcement, Cellon Hongkong Ltd. and Cellon Incorporation have not yet waived their respective pre-emptive rights under the joint venture contract and the articles of association of CECW. It is expected that such waivers will be obtained prior to the SGM. Should Cellon Hongkong Ltd. or Cellon Incorporation refuse to waive their pre-emptive rights, the condition described in paragraph (vi)