10:44 MAGNUM INT'L<00305>-Announcement&Resumption of Trading (16) If the conditions precedent to the Subscription Agreement are not fulfilled on or before 31 July 2005 or such later date as may be agreed between Unichina 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 (without prejudice to the rights of any party in respect of antecedent breaches). Pursuant to the Subscription Agreement, the Subscription Agreement shall terminate at any time on or before its completion in the event that the Sale and Purchase Agreement and/or the Compromise Deed are/is terminated pursuant to the terms therein. Connected transaction As Unichina entered into the Sale and Purchase Agreement with MGL and will be the controlling Shareholder upon the S&P Completion while the Subscription Completion will take place simultaneously with the S&P Completion, the issuance of the Convertible Bond under the Subscription Agreement will constitute a connected transaction for the Company under Chapter 14A of the Listing Rules which requires the approval of the Independent Shareholders voting by way of a poll, MGL and its associates will abstain from voting on the resolution in respect of the Subscription Agreement at the SGM. VII. REASONS FOR THE ENTERING INTO OF THE COMPROMISE DEED AND THE SUBSCRIPTION AGREEMENT The Group recorded net loss attributable to Shareholders for each of the five years ended 31 December 2003 and the six months ended 30 June 2004, and has recorded net liabilities since 31 December 2001. The total unaudited liabilities of the Group as at 31 January 2005 amounted to approximately HK$127.9 million, of which approximately HK$115.2 million were intercompany advances from MGL, the immediate controlling Shareholder. As at the date of this announcement, the Shareholder's Loan amounted to approximately HK$116,414,639. The interest rates payable on the Shareholder's Loan are based on the lender's cost of funds, which range from approximately 6.5% to 8% per annum presently. MGL has provided financial support to the Group to enable it to operate as a going concern. Along with the change in controlling stake in the Company from MCB to Unichina pursuant to the Sale and Purchase Agreement, MCB (as the ultimate controlling shareholder of MGL) requested the Company to settle the Shareholder's Loan. Based on the Balance Shareholder's Loan as at the date of this announcement, the Company will record a gain of approximately HK$33.8 million for the year ending 31 December 2005 in the event that the Company repays the indebtedness under the Secured Promissory Note on or before the date falling six months after the issuance of the Secured Promissory Note (which is expected to be issued on or before 30 June 2005). The Directors consider that it is beneficial to and in the interest of the Company to enter into the Compromise Deed for the purpose of settlement of the Shareholder's Loan, which are interconditional with the Sale and Purchase Agreement and the Subscription Agreement. Given the Group's current financial position and the thin trading volume of the Shares (the average daily trading volume for the month up to and including 7 February 2005 was approximately 0.03% of the total issued Shares as at the date of this announcement), the Directors consider that the entering into of the Compromise Deed together with the issue of the Convertible Bond to Unichina by the Group under the Subscription Agreement, is an appropriate way for settlement of the Shareholder's Loan. The Directors believe that the terms of the Compromise Deed (together with the Secured Promissory Note and the Unsecured Promissory Note to be issued thereunder) and the Subscription Agreement (together with the Convertible Bond to be issued thereunder) are fair and reasonable and in the interests of the Company and the Shareholders as a whole. VIII. SHAREHOLDING STRUCTURE OF THE COMPANY The following table sets out the shareholding structure of the Company (based on the information received by the Company and notified pursuant to Part XV of the SFO as at the date of this announcement) (i) immediately before S&P Completion; (ii) upon S&P Completion (assuming that there are no changes other than those contemplated in the Sale and Purchase Agreement); and (iii) upon the full conversion of the Convertible Bond by Unichina: Shareholder Before S&P Completion Upon S&P Completion Upon full conversion of the Convertible Bond by Unichina (Shares) (%) (Shares) (%) (Shares) (%) MGL 316,973,680 51.54 --- --- --- --- Unichina --- --- 316,973,680 51.54 1,056,150,026 77.99 Public 298,050,495 48.46 298,050,495 48.46 298,050,495 22.01 Total 615,024,175 100.00 615,024,175 100.00 1,354,200,521 100.00