09:49 AV CONCEPT HOLD<00595> - Announcement & Resumption (7) US$'000 HK$'000 2003 2004 2003 2004 Net loss before tax (169) (11,445) (1,318) (89,271) Net loss after tax (314) (11,898) (2,449) (92,804) The above net losses before tax include restructuring charges of approximately US$1.9 million (equivalent to approximately HK$14.8 million) and approximately US$10.7 million (equivalent to approximately HK$83.5 million) for the year ended 1 June 2003 and the year ended 30 May 2004 respectively. As at 30 May 2004, the audited net deficiency in assets of BreconRidge amounted to approximately US$1.8 million (equivalent to approximately HK$14.0 million). To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, BreconRidge and its ultimate beneficial shareholders are third parties independent of the Company and connected persons of the Company (i.e. the directors, chief executive and substantial shareholders of the Company or its subsidiaries or any of their respective associates). To the best of the Directors' knowledge and based on information provided by BreconRidge, none of the Company or its connected persons holds any common shares of BreconRidge or the BreconRidge Convertibles. REASONS FOR AND BENEFITS OF THE AGREEMENT AND THE SUPPLY AGREEMENT The Directors consider that the Agreement enables the Group to join force with BreconRidge in the joint development of AV Chaseway's business now and to proceed with a second stage disposal of AV Chaseway later subject to BreconRidge obtaining a listing. The joint venture in AV Chaseway may be unwound if BreconRidge does not list. The structure of the Agreement also enables the Group to retain joint control of AV Chaseway until such time as it is paid by BreconRidge in listed securities or cash and to benefit from the synergistic effect arising from the joint development of AV Chaseway's business by the Group and BreconRidge as set out in the following paragraph. The Directors understand that, apart from its own manufacturing facilities in North America, BreconRidge currently procures manufacturing services from AV Chaseway as well as other suppliers in the PRC. Pursuant to the Supply Agreement, AV Chaseway will become the sole supplier of BreconRidge in the PRC. Furthermore, the Directors believe that the cost efficient and effective production operation of AV Chaseway in the PRC (as compared to production operations in the North America) may enable BreconRidge to effectively increase its volume of business. The Directors believe that the creation of the joint venture will bring in additional electronic manufacturing service business to AV Chaseway, thus benefiting AV Chaseway (and the Group throughout the period during which the Group retains its joint control in AV Chaseway). The terms of the Agreement and ancillary agreements/documents (including the total consideration) have been determined based on arm's length negotiations between the Group and BreconRidge. As stated in the paragraph headed "Occurrence of a Liquidity Event and Final Closing", it is the intention of the parties that a public offering and listing of the shares of BreconRidge should occur within 2 years after Initial Closing. If a Liquidity Event occurs within 2 years after Initial Closing, AVCC will receive 15 million common shares of BreconRidge (subject to adjustment); and if the fair value of such securities as at the date of the Liquidity Event is less than US$20 million, BreconRidge will have to pay to AVCC the shortfall in cash or in additional shares. In agreeing to the above terms, the parties have effectively attached a value of US$20 million to the entire equity interest of AV Chaseway. In assessing whether such terms are fair and reasonable from the Group's point of view, the Directors have made reference to, among other things, an internal estimate of the financial parameters of AV Chaseway, the market statistics of certain publicly traded companies which are considered to be comparables or near comparables to AV Chaseway, the industry trends and the anticipated synergistic effect of AVCC and BreconRidge joining forces in the development of AV Chaseway's business as mentioned in the preceding paragraph. AVCC has agreed to wait one more year for a Liquidity Event to occur provided a 10% premium is paid on the total consideration in return. BreconRidge may elect to pay the Extension Fee (US$2 million, being an amount equal to the amount of above- mentioned premium) on or before the second anniversary of Initial Closing.