10:42 MAGNUM INT'L<00305>-Announcement&Resumption of Trading (13) Currently, the Group has pledged certain Properties (including items 1 to 5 in the table above) to its lending banks as collateral security for obtaining bank facilities. As at the date of this announcement, the Group drew down bank overdrafts of approximately HK$600,000 under such bank facilities. These bank overdrafts carry interest rates of either (i) Hong Kong Prime Rate plus 1.75% to 2% per annum; or (ii) the bank's cost of fund plus 1.75% per annum. In order to discharge the Properties as collaterals for the bank facilities from the banks so as to facilitate the execution of the Security Documents for the Compromise Deed Completion, the Group intends to repay the existing bank overdrafts by its internal resources. Other than the Shareholder's Loan, only trade and sundries creditors are left with the Group upon repayment of the bank overdrafts. Based on the Group's management accounts, the Group has a cash and bank balance of approximately HK$16.4 million as at 31 January 2005 and as such, the Directors consider that the Group has sufficient internal resources for repayment of the bank overdrafts. The Directors also confirm that the Group will have no other bank creditor upon repayment of such bank overdrafts. The Subordination Deed In addition to the Property Charges and the Share Mortgages, the Company will also enter into the Subordination Deed with Unichina and MGL for facilitation of the Compromise Deed Completion. Pursuant to the Subordination Deed, Unichina agrees that, inter alia, (i) the Subordinated Indebtedness shall remain subordinated and the repayment thereof deferred to all and any rights, claims and actions which MGL may have against the Company in respect of the Company's indebtedness under the Secured Promissory Note and the Unsecured Promissory Note; (ii) it shall not claim, request, demand, sue for, take or receive any money or other property in respect of the Subordinated Indebtedness or any part thereof; and (iii) if any monies or other property are received in respect of the Subordinated Indebtedness by or on behalf of Unichina from the Company, Unichina shall forthwith refund the same to the Company whereupon the Company shall forthwith pay or transfer the same to MGL and MGL may apply the same in or towards satisfaction of the Company's indebtedness under the Secured Promissory Note and the Unsecured Promissory Note. provided, however, Unichina shall be entitled to exercise its rights of conversion under the Convertible Bond. Special deal and connected transaction The Compromise Deed, including the execution of the Security Documents, constitutes a ``special deal'' under Rule 25 of the Takeovers Code, and therefore requires the consent of the Executive and such consent, if granted, will be conditional upon the approval of the Independent Shareholders voting by way of a poll. Given that MGL is the immediate controlling Shareholder, the entering into of the Compromise Deed (including the execution of the Security Documents) among MGL, Unichina and the Company constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. The SGM will be convened to approve the entering into of the Compromise Deed and the transactions contemplated thereunder. By virtue of the Listing Rules, the resolution for the connected transaction is required to be passed by the Independent Shareholders and voted by way of a poll. MGL and its associates will abstain from voting on the resolution in respect of the Compromise Deed at the SGM. VI. THE SUBSCRIPTION AGREEMENT Date of and parties to the Subscription Agreement Date: 8 April 2005 Issuer: The Company Subscriber: Unichina Guarantor: MCB has agreed to subscribe for the Convertible Bond Completion date: The seventh Business Day following the date on which the conditions precedent to the Subscription Agreement are fulfilled and simultaneously with the S&P Completion and the Compromise Deed Completion, or such other date as the Company and Unichina may agree for the issue of the Convertible Bond.