Trump Dragon Distillers Holdings Limited (the Company ) (Incorporated in Bermuda) (Company Registration Number: 41457)

Transcription

1 Trump Dragon Distillers Holdings Limited (the Company ) (Incorporated in Bermuda) (Company Registration Number: 41457) A. PROPOSED ACQUISITION OF THE ENTIRE EQUITY INTEREST IN LUOYANG DUKANG HOLDINGS LIMITED ( 洛阳杜康控股有限公司 ), CONSTITUTING A MAJOR TRANSACTION UNDER CHAPTER 10 OF THE LISTING MANUAL. PROPOSED ENTRY INTO A CALL OPTION AGREEMENT WITH GAO FENG ( 高峰 ), THE COMPANY S EXECUTIVE CHAIRMAN AND CONTROLLING SHAREHOLDER AND A LICENCE AGREEMENT WITH HIS ASSOCIATE (BOTH ON COMPLETION OF THE PROPOSED ACQUISITION), EACH CONSTITUTING AN INTERESTED PERSON TRANSACTION UNDER CHAPTER 9 OF THE LISTING MANUAL. B. PROPOSED ISSUE OF RMB200 MILLION 5% (U.S. DOLLAR-SETTLED) CONVERTIBLE BONDS DUE 31 MARCH 2015 Terms used in this announcement shall, unless otherwise defined, bear the same meaning as set out in the announcement dated 1 October A. PROPOSED ACQUISITION 1. Introduction 1.1 The Board of Directors (the Board ) had announced on 1 October 2009, inter alia, that the Company had through its wholly-owned subsidiary, Henan Zhongxin Haifu Limited ( 河南中新海富商贸有限公司 ) ( Henan Zhongxin ) entered into two (2) memoranda of understanding to acquire the Ruyang Dukang Distillers Group and the Yichuan Dukang Distillers Group. Please refer to the announcement of 1 October 2009 for further details of the two (2) memoranda of understanding. 1.2 The Ruyang Vendors and the Yichuan Vendors have represented that they have completed the transfer of the Ruyang Dukang Distillers Group and the Yichuan Dukang Distillers Group into a holding company, Luoyang Dukang Holdings Limited ( 洛阳杜康控股有限公司 ) ( Luoyang Dukang ), a company established under the laws of the People s Republic of China (the PRC ). As at the date of this announcement, Luoyang Dukang beneficially owns directly and indirectly (i) 100% equity interest in Ruyang Dukang Distillers Company Limited ( 汝阳杜康酿酒有限公司 ) ( Ruyang Dukang ), (ii) 100% equity interest in Ruyang Siji Trading Company Limited Limited ( 汝阳四季商贸有限公司 ) ( Ruyang Siji ), (iii) 100% equity interest in Henan Dukang Distillers Company Limited ( 河南杜康酒业股份有限公司 ) ( Yichuan Dukang ); (iv) 100% equity interest in Yichuan Dukang Sales Co., Ltd ( 伊川杜康销售有限公司 ) ( Yichuan Sales Co. ); and (v) 49% equity interest in Yichuan Dukang Jizu Assets Management Co., Ltd. ( 伊川杜康酒祖资产管理有限公司 )( Yichuan Trademark Co. ). The group chart of Luoyang Dukang and its group of companies (collectively referred to as the Luoyang Group ) (on completion of the Proposed Acquisition (as defined below)) is set out in Appendix A to this announcement. 1.3 The Board is pleased to announce the Company had, through its wholly-owned subsidiary Henan Zhongxin on 12 January 2010 entered into a conditional sale and purchase agreement ( Sale and Purchase Agreement ) for the acquisition of the entire equity interest in Luoyang Dukang with its equity holders listed in Appendix B (collectively, the Vendors and each, a Vendor ) and Luoyang Dukang (the Proposed Acquisition ). The Proposed Acquisition constitutes a major transaction 1

2 under Chapter 10 of the SGX-ST Listing Manual ( Listing Manual ) and is therefore subject to the requirements of the Listing Manual governing the same. 1.4 As stated in our announcement of 1 October 2009, although it is the Company s preference and intention to own 100% equity interest in Yichuan Trademark Co. which owns all the intellectual property rights in and associated with the name, brand and logo of 杜康 (Dukang) ( Du Kang IP Rights ), due to certain legal impediments under the PRC laws and regulations on foreign ownership of certain PRC assets and entities, presently the Company will only be able to acquire up to a maximum of 49% equity interest in Yichuan Trademark Co. 1.5 As such, an integral part of our strategy in relation to the Proposed Acquisition was for Yichuan Vendors to concurrently sell their remaining 51% equity interest in Yichuan Trademark Co. to our Executive Chairman and Controlling Shareholder, Gao Feng ( 高峰 ). In that way, following completion of the Proposed Acquisition, the remaining 51% equity interest in Yichuan Trademark Co. will reside in the hands of our Executive Chairman and Controlling Shareholder instead of a third party. 1.6 Accordingly, our Executive Chairman and Controlling Shareholder, Gao Feng ( 高峰 ) had also on 12 January 2010 entered into a conditional sale and purchase agreement to acquire the remaining 51% equity interest in Yichuan Trademark Co.. The consideration thereof was the sum of RMB153 million determined on the basis that the entire 100% of equity interest in Yichuan Trademark Co. as at 31 March 2009, shall be valued at no less than RMB300 million (as determined by a firm of valuers). Completion of the said acquisition by Gao Feng ( 高峰 ) is conditional, inter alia, upon the completion of the Proposed Acquisition by our Group. 1.7 Our Executive Chairman and Controlling Shareholder, Gao Feng ( 高峰 ) has also agreed to grant, on completion of the Proposed Acquisition, an irrevocable and exclusive call option to the Group to require him to sell his 51% equity interest in Yichuan Trademark Co. to the Group or its nominees exercisable at such time, if and when, such legal impediments on foreign ownership of certain PRC assets under PRC laws and regulations are no longer applicable ( Proposed Call Option ). The Proposed Call Option will fall within the ambit of an interested person transaction under Chapter 9 of the Listing Manual and is therefore subject to the requirements of the Listing Manual governing the same. 1.8 In addition, on completion of the Proposed Acquisition, our Executive Chairman and Controlling Shareholder, Gao Feng ( 高峰 ) will procure Yichuan Trademark Co. to enter into a licence agreement ( Licence Agreement ) with Luoyang Dukang pursuant to which Yichuan Trademark Co. will grant an irrevocable, perpetual and exclusive licence of the Du Kang IP Rights to the Group subject to the terms and conditions therein ( Proposed Licence ). The Proposed Licence will fall within the ambit of an interested person transaction under Chapter 9 of the Listing Manual and is therefore subject to the requirements of the Listing Manual governing the same. 1.9 The Proposed Acquisition, the Proposed Call Option and the Proposed Licence will be tabled for the approval of the shareholders of the Company ( Shareholders ) at a special general meeting to be convened ( SGM ). The Shareholders resolutions for the transactions contemplated thereunder will be tabled as inter-conditional resolutions such that that if any one of these resolutions is not approved, the other resolutions would not be carried. 2. Information on Luoyang Group 2.1 Luoyang Group and Structure The information below has been provided to the Company by Luoyang Group and its representatives. Shareholders, please note that the Directors have not conducted an 2

3 independent review or verification of the accuracy of the statements and information below Luoyang Dukang is a limited liability company registered in the PRC on 24 November 2009 and has a registered and fully paid-up capital of RMB600 million. As at the date of this announcement, it is the holding company of the companies set out below: (i) Ruyang Dukang Ruyang Dukang is principally engaged in the production, marketing and distribution and sale of baijiu products in the PRC under its renowned brand name 汝阳杜康 (Ruyang Dukang). Ruyang Dukang s manufacturing facilities are located in Luoyang City, Henan Province, PRC. Based on the Group s understanding and subject to due diligence, Ruyang Dukang has a total production capacity of approximately 10,000 tonnes of grain alcohol and approximately 60,000 tonnes of baijiu per annum. (ii) Ruyang Siji All intellectual property rights in and associated with the brand name 汝阳杜康 (Ruyang Dukang) are registered in the name of Ruyang Siji. (iii) Yichuan Dukang Yichuan Dukang is principally engaged in the production, marketing and distribution and sale of baijiu products in the PRC under its renowned brand name 杜康 (Dukang). Based on the Group s understanding and subject to due diligence, Yichuan Dukang has a total production capacity of approximately 5,000 tonnes of grain alcohol and approximately 30,000 tonnes of baijiu per annum. (iv) Yichuan Trademark Co. All intellectual property rights in and associated with the name brand and logo of 杜康 (Dukang) are registered in the name of Yichuan Trademark Co. (v) Yichuan Dukang Sales Co. Yichuan Sales Co. is principally engaged in the sales and distribution of all Yichuan Dukang s baijiu products in the PRC Please refer to Appendix A for the group chart of Luoyang Group (on completion of the Proposed Acquisition). 2.2 Summary of the Financial Statements of Luoyang Dukang A summary of the unaudited pro forma consolidated income statement for the 10 months ended 31 October 2009 and unaudited pro forma consolidated balance sheet as at 31 October 2009 of the Luoyang Dukang are as follows: 3

4 2.2.1 Unaudited pro forma consolidated income statement for the 10 months ended 31 October months ended 31 October 2009 (RMB 000) Turnover 239,896 Gross Profit 100,088 Profit before taxation 61,360 Income tax expenses (15,482) Profit after taxation 45, Unaudited pro forma consolidated balance sheet as at 31 October 2009 As at 31 October 2009 (RMB 000) Non-current assets 172,358 Current assets 118,828 Current liabilities (77,863) Net current assets 40,965 Net assets 213,323 Total equity 213,323 For the purpose of preparation of the above unaudited pro forma financial information, Luoyang Dukang is assumed to be in existence as at 1 January 2009 and 31 October 2009 and is based on the unaudited accounts of companies comprising Ruyang Dukang, Yichuan Dukang, Ruyang Siji, Yichuan Sales Co. and Yichuan Trademark Co.. 3. Salient Terms of the Sale and Purchase Agreement 3.1 Consideration The aggregate purchase consideration payable by the Group to the Vendors for the purchase of the entire equity interest in Luoyang Group shall be the sum of RMB600 million arrived at on a willing-seller willing-buyer basis taking into account the valuation of Luoyang Group as at 31 March 2009 determined by a firm of PRC valuers. In the event that the valuation of Luoyang Group as at 31 October 2009 as determined by FHMH Corporate Advisory Sdn Bhd, an independent firm of valuers appointed by the Company is less than the sum of RMB600 million, the purchase consideration shall be accordingly adjusted downwards by such difference. The purchase consideration shall be satisfied wholly by way of cash ( Consideration ) The Consideration shall be paid to the Vendors in the following manner: (i) as to 70%, in three (3) instalments in the agreed proportions of 20% (five (5) days from the date of completion of the Proposed Acquisition), 30% (thirty (30) days from the date of completion of the Proposed Acquisition) and 20% (ninety (90) days from the date of completion of the Proposed Acquisition) respectively following completion of the Proposed Acquisition; and (ii) as to the balance 30%, to be retained by the Group and shall be paid to the Vendors ten (10) days after the completion of the Proposed Acquisition or 4

5 ninety (90) days after all outstanding issues shall have been fully settled whenever is later to our satisfaction It is contemplated by the Company that the Consideration will be satisfied by (i) RMB145 million, being the proceeds received by the Company pursuant to its listing on the SGX-ST and the accompanying initial public offering of its shares in 2008 (the IPO ) which was ear-marked for its original expansion and relocation plans as set out on pages 127 and 128 of the Prospectus (defined below); (ii) the proceeds from the Proposed Convertible Bond Issue (as defined below); (iii) through internal resources; and (iv) such external financings as the Company may obtain For further details of the Company s listing and IPO, please refer to the prospectus issued by the Company in connection therewith dated 26 August 2008 (the Prospectus ). Shareholders, please note that should the Proposed Convertible Bond Issue not proceed for any reason whatsoever, the Company will endeavour to procure external financings to fund the balance of the Consideration for the Proposed Acquisition. 3.2 Conditions Precedent of the Sale and Purchase Agreement Completion of the Sale and Purchase Agreement is conditional upon the following conditions, inter alia, having been fulfilled or waived, if capable of being waived, as the case may be, before 12 May 2010: (a) (b) (c) (d) (e) (f) (g) the warranties given by the Vendors and Luoyang Dukang thereunder will be fulfilled down to and will be true and accurate in all material respects and not misleading in any material respect at completion as if they had been given again at completion; any such acts, obligations or conditions which are required thereunder to be fulfilled by the Vendors and Luoyang Dukang on or before completion will be fulfilled down to in all material respects on completion; the approval of the directors and shareholders of the Company being obtained for the Proposed Acquisition; the in-principle approval from the SGX-ST for the Proposed Acquisition having been obtained by the Company and not being revoked, rescinded or cancelled prior to completion of the Proposed Acquisition and, where such inprinciple approval is obtained subject to any conditions, such conditions being reasonably acceptable to the parties thereto; the approval of the directors and shareholders of the Company being obtained for such ancillary agreements in connection with the Sale and Purchase Agreement including but not limited to the Proposed Call Option and the Proposed Licence; no notice of any injunction or other order, directive or notice restraining or prohibiting, whether in Singapore, the PRC, Bermuda or elsewhere, the consummation of the transactions completed in the Sale and Purchase Agreement and there being no action, whether in Singapore, the PRC, Bermuda or elsewhere, seeking to restrain or prohibit the consummation thereof; all material approvals, authorisations, clearances, confirmations, consents, exemptions, grants, licences, orders, permissions, recognitions and waivers as may be required or appropriate for or in connection with the Proposed Acquisition or the transactions contemplated therein having been obtained on or before completion and not withdrawn or revoked; 5

6 (h) (i) (j) (k) (l) (m) (n) (o) where the terms of any material contracts contain any restrictions or prohibition on the change in control of the shareholdings and/or boards of directors of Luoyang Dukang or include any right to terminate exercisable prior to or as a result of any matter contemplated by the Sale and Purchase Agreement, the waiver of such restrictions or prohibitions in relation to any such change or of any such right to terminate; the execution of the Call Option Agreement by the parties thereto on or before completion; the execution of the Licence Agreement and the licence agreement between Ruyang Siji and Luoyang Dukang, on or before completion; the appointment of such directors and persons nominated by the Company to form the majority of each of Luoyang Group companies board of directors and the management and the resignation of the existing directors and management personnel of each of Luoyang Group companies; the receipt of all governmental and regulatory approvals and consents in respect of the change in status of Luoyang Dukang from a limited liability company to a limited liability company invested by a wholly owned foreign enterprise having been obtained within four (4) months from the date of the Sale and Purchase Agreement, and not withdrawn on or before completion; the completion of the due diligence exercise by the Company on the business, affairs, operations, assets, financial conditions, and prospects of the Luoyang Group and the results being satisfactory in all material aspects to the Company in its sole and absolute discretion; the completion of all ancillary matters relating to and in connection with the Ruyang Restructuring and the Yichuan Restructuring and that the results of which are satisfactory to the Company in its sole and absolute discretion; and the completion of the change in name by Henan Dukang Investment Group Co., Ltd. ( 河南杜康投资集团有限公司 ), a Vendor such that it will no longer use any name or derivatives thereof associated with the name 杜康 (Dukang) If any of the conditions precedent is not fulfilled or waived, if capable of being waived by the relevant party, or if any of the terms, conditions, warranties and representations therein contained are in any way breached, or untrue, or incorrect or misleading in any material respect, or if prior to completion any of the conditions is not fulfilled, then our subsidiary Henan Zhongxin may at any time prior to completion in addition to and without prejudice to its other rights and remedies by notice in writing to the Vendors and Luoyang Dukang rescind the Sale and Purchase Agreement whereupon it shall be deemed to be terminated and of no further force or effect save for such rights and remedies as shall have accrued in favour of Henan Zhongxin. 3.3 Completion of the Sale and Purchase Agreement On completion of the Sale and Purchase Agreement, Luoyang Dukang will be converted from a limited liability company a limited liability company invested by a wholly owned foreign enterprise and will become a wholly-owned subsidiary of the Company. The Company, its subsidiaries and Luoyang Group shall be referred to as the Enlarged Group. 6

7 4. Major Transaction under Chapter 10 of the Listing Manual 4.1 Based on the audited consolidated accounts of the Company for the financial year ended 30 June 2009 ( FY2009 ) and the unaudited pro forma accounts of Luoyang Dukang for the 10 months ended 31 October 2009, the relative figures of the Proposed Acquisition computed on the bases set out in Rule 1006(a) to (d) of the Listing Manual are as follows: Relative Figures under Rule 1006 (a) (b) (c) (d) Note: Net asset value of the assets to be disposed of, compared with the Group s net asset value Net profits (attributable to the assets acquired for the period ended 31 October 2009 (RMB 000) Net profits of the Group for FY2009 (RMB 000) Size of relative figure Aggregate value of the maximum consideration to be given (RMB 000) Company s market capitalisation as at 11 January 2010 being the market day immediately preceding the date of the Sale and Purchase Agreement on which the Shares were traded (RMB 000) Size of relative figure Maximum number of Consideration Shares to be issued by the Company as consideration Number of equity securities of the Company in issue Size of relative figure Not applicable to an acquisition of assets. 61, , % 600,000 2,824,080 (1) 21.2% N.A. N.A. N.A. (1) Based on the exchange rate of S$1.00:RMB4.92 as at 11 January As the relative figures under Rules 1006(b) and (c) of the Listing Manual exceed 20% as set out above, the Proposed Acquisition constitutes a major transaction as defined in Chapter 10 of the Listing Manual. Accordingly, the Proposed Acquisition is subject to the approval of Shareholders. 5. Rationale for the Proposed Acquisition 5.1 The Group is of the view that the Proposed Acquisition would enable the Group to acquire two renowned brands of baijiu 汝阳杜康 (Ruyang Dukang) and 杜康 (Dukang) which will strengthen the Group s visibility in the baijiu market in the PRC substantially. With the addition of the facilities of Luoyang Group, the Group s production capacity is also expected to increase approximately five (5) folds for grain alcohol and approximately two (2) folds for baijiu. The Proposed Acquisition would also provide the Group with a ready stream of sales and marketing channels throughout the PRC particularly in Luoyang City, Henan Province. 7

8 5.2 Should the Proposed Acquisition proceed, the Group intends not to continue with its original expansion and relocation plans as set out on pages 127 and 128 of the Prospectus under the section entitled Strategies and Future Plans. Pursuant thereto, the Group had originally intended, inter alia, to expand its production capacity by acquiring approximately 366,000 sq m of land for the construction of a new production facility. The new production facility is expected to be capable of an annual production capacity of up to 100,000 tonnes of baijiu. The acquisition and construction of the new production facility was estimated to take place in three (3) stages over a period of approximately three (3) years, with completion of the final stage to occur by the end of 2011 at an estimated cost of RMB300 million. 5.3 The Company is of the view that this mode of expansion (by way of the Proposed Acquisition) remains in line with its plans to expand and increase its production capacity as described in the Prospectus. Through the Proposed Acquisition, the Company is of the view the Group will be able to shorten the original three (3) year timeline to achieve its expansion plans as set out in the Prospectus in terms of its production capacity and baijiu production. 5.4 The Company proposes to utilise the IPO proceeds ear-marked for the expansion and relocation plans as set out in the Prospectus to satisfy part of the aggregate purchase consideration for the Proposed Acquisition. 6. Financial Effects of the Proposed Acquisition 6.1 The pro forma financial effects of the Proposed Acquisition have been prepared based on the audited consolidated financial statements of the Group for FY2009 and the unaudited pro forma consolidated financial statements of Luoyang Dukang for the period from 1 January 2009 to 31 October 2009 (being the latest available accounts prior to the establishment of Luoyang Dukang and on the basis as if Luoyang Group had been in existence as at 1 January 2009 and 31 October 2009), and are purely for illustration purposes only and do not reflect the actual financial result and financial position of the Group after the Proposed Acquisition The financial effects of the Proposed Acquisition as presented: (a) (b) (c) (d) assumes that the Proposed Acquisition is completed, in respect of income statements of the Group on 1 July 2008 and in respect of the balance sheet of the Group on 30 June 2009; do not take into account the impact of purchase price allocation and any goodwill or negative goodwill that may arise from the Proposed Acquisition thereon. Accordingly, the fair value of individually identifiable assets and liabilities acquired at the date of completion of the Proposed Acquisition may be substantially different from their values used in the preparation of the unaudited pro forma financial effects; do not take into account the differences in the International Financial Reporting Standards and generally accepted accounting standards in the PRC for which the financial statements of the Company and Luoyang Dukang respectively have been prepared, as well as for the differences in the accounting policies used in the preparation of the unaudited pro forma financial effects; and assumes that consideration of the Proposed Acquisition of RMB600 million is financed partly by the proceeds received by the Company pursuant to its IPO of RMB145 million, internal resources and external borrowings aggregating RMB455 million which comprises of the Convertible Bonds of RMB200 million and other borrowings of RMB250 million and the remaining through internal resources. 8

9 6.3 Net profit attributable to the assets being acquired The unaudited net profit attributable to the asset (equity interest in Luoyang Dukang) from 1 January 2009 to 31 October 2009 (being the latest available accounts for the purpose of this information)) is nil as Luoyang Dukang was newly incorporated on 24 November The unaudited pro forma net profit before tax attributable to the asset (equity interest in Luoyang Dukang) from 1 January 2009 to 30 October 2009 is RMB61,360,000 assuming Luoyang Dukang is in existence as at 1 January 2009 and there are no profit or loss effect resulting from fair value adjustment of assets and liabilities of Luoyang Dukang. 6.4 The effect of transaction on the Net Tangible Assets per Share Assuming that the proposed acquisition of Luoyang Dukang had been completed on 30 June 2009 (being the most recently completed financial year of the Company), and based on the audited consolidated balance sheet of the Company as at 30 June 2009 and unaudited pro forma balance sheet of Luoyang Dukang as at 31 October 2009 (being the latest available accounts for the purpose of this information), the unaudited pro forma consolidated net tangible assets ( NTA ) per share of the Enlarged Group are as follows: Before the Proposed Acquisition After the Proposed Acquisition NTA (RMB 000) (1)(3)(4) 538, ,473 NTA per Share (RMB) (2) Notes: (1) On the assumption that the NTA does not take into account land use rights, goodwill and other intangible assets and that the unaudited pro forma balance sheet of Luoyang Dukang as at 31 October 2009 is prepared based on the unaudited historical net book value of assets and liabilities as at 31 October (2) Based on the number of issued shares of 625,000,000 as at 30 June (3) On the assumption that the effect of issuance of RMB200 million Convertible Bonds is classified as liabilities only and no conversion occurred on 30 June (4) On the assumption that the effect of fair value of Proposed Call Option and Proposed License and all assets and liabilities of Luoyang Dukang have not been taken into account. 6.5 The effect of the transactions on the Earnings per Share Assuming that the proposed acquisition of Luoyang Dukang had been completed on 1 July 2008, and based on the audited consolidated income statement of the Company for FY2009 and unaudited pro forma income statement of Luoyang Dukang from1 January 2009 to 31 October 2009 (being the latest available accounts for the purpose of this information), the pro forma financial effects on the earnings per share ( EPS ) of the Enlarged Group are as follows: Profit attributable to equity holders (RMB 000) (1)(2) Before the Proposed Acquisition After the Proposed Acquisition 104, ,450 EPS - basic (RMB cents) (3) 9

10 EPS diluted (RMB N.A cents) (4) Notes: (1) On the assumption that the effect of derivative financial instrument component of RMB200 million Convertible Bonds has not been taken into account and that there is an increase in finance cost of RMB24,286,000 in connection with the RMB200 million Convertible Bonds and RMB250 million other borrowings, decrease in interest income of RMB392,000 and increase in royalty expenses of RMB1,615,000. (2) On the assumption that the effect of fair value of Proposed Call Option and Proposed License and all assets and liabilities of Luoyang Dukang have not been taken into account. (3) Based on the weighted average number of shares of 602,397,260 for FY2009. (4) Based on the earnings of RMB134,450,000 and the weighted average number of shares of 705,366,640 for FY Proposed Call Option and Proposed Licence 7.1 Salient terms of the Proposed Call Option It is proposed that upon completion of the Proposed Acquisition, our Controlling Shareholder and Executive Chairman, Gao Feng ( 高峰 ), will enter into a call option agreement ( Call Option Agreement ) with Luoyang Dukang. Pursuant thereto, Gao Feng ( 高峰 ), in consideration of a nominal consideration of the payment of RMB1.00 by Luoyang Dukang), will grant Luoyang Dukang an irrevocable and exclusive call option to require him to sell his 51% equity interest in Yichuan Trademark Co. or any part thereof (as Luoyang Dukang may decide) to Luoyang Dukang The Call Option shall be exercisable by Luoyang Dukang from the date where, inter alia, there are no legal impediments and/or violation of any of applicable PRC laws and regulations (including but not limited to any law and regulations restricting foreign entities from having majority control of certain PRC assets and entities) up to the date of termination of Yichuan Trademark Co. or any other date as may be mutually agreed by Luoyang Dukang and Gao Feng ( 高峰 ) The consideration payable on the exercise of the Call Option to Gao Feng( 高峰 ) shall depend on the percentage of equity interest Luoyang Dukang should choose to exercise over on the basis that for the entire 51% equity interest, the sum shall be RMB153 million or such lower amount equivalent to 51% of the value of the Yichuan Trademark Co. as at the last day of the month immediately preceding the month on which the date of the exercise of the Proposed Call Option shall fall on as determined by a firm of international valuers to be appointed by the Group During the subsistence of the Call Option Agreement, Gao Feng ( 高峰 ) shall not enter into any negotiations or any agreement with or grant any option to any third party for the sale of any or all of the 51% equity interest to a third party In addition, under the Call Option Agreement, in the event that Gao Feng ( 高峰 ) is not able to fulfil his obligation to sell any or all of his 51% equity interest upon the exercise of the Call Option by Luoyang Dukang, Luoyang Dukang shall be entitled to a compensation of RMB5 million in addition to any damages arising from the breach of the Call Option Agreement by Gao Feng ( 高峰 ). 7.2 Salient terms of the Proposed Licence It is also proposed that upon completion of the Proposed Acquisition, Gao Feng ( 高峰 ) will procure Yichuan Trademark Co. to grant an irrevocable, perpetual and exclusive licence of the Du Kang IP Rights to the Group on the terms and subject to the 10

11 conditions of the Licence Agreement. The licence fee shall be payable semi-annually as determined according to the formula set out below: Licence Fee = Aggregate revenue generated by the Group arising from the sale of the products with the Du Kang IP Rights for the relevant six (6) month period x 1.5% 8. Interested Person Transactions under Chapter 9 of the Listing Manual 8.1 Under Rule 906 of the Listing Manual, where a listed company proposes to enter into a transaction with an interested person. Shareholders approval and/or an immediate announcement is required in respect of that transaction if the value of the transaction is equal to or exceeds certain financial thresholds. In particular, shareholders approval is required where the value of such transaction is equal to, or exceeds: (a) (b) 5% of the listed company s latest audited NTA; or 5% of the listed company s latest audited NTA, when aggregated with other transactions entered into with the same interested person during the same financial year. 8.2 As at the date of this announcement, Profit Crest International Limited ( Profit Crest ) owns 350,000,000 Shares, representing 56% of the issued share capital of the Company. Profit Crest is 100% legally and beneficially owned by Gao Feng ( 高峰 ), our Executive Chairman and Controlling Shareholder. Gao Feng ( 高峰 ) does not own any Shares directly, other than through Profit Crest. 8.3 Profit Crest and Gao Feng ( 高峰 ) are each considered an interested person for the purposes of Chapter 9 of the Listing Manual and accordingly both the Proposed Call Option and the Proposed Licence each constitutes an interested person transaction within the meaning of Chapter 9 of the Listing Manual. 8.4 Based on the latest audited consolidated financial statements of the Company and its subsidiaries (the Group ) for the financial year ended 30 June 2009, the Group s latest audited NTA as at 30 June 2009 was approximately RMB538,586,000 (after deducting land use rights of RMB25,384,000). 8.5 The maximum consideration of RMB153 million payable by Luoyang Dukang to Gao Feng ( 高峰 ) on the exercise of the Proposed Call Option pursuant to the Call Option Agreement will represent approximately 28.4% of the Group s latest audited NTA as at 30 June Accordingly, pursuant to Rule 906(1)(b) of the Listing Manual, the entry into the Proposed Call Option Agreement by the Group and the terms and conditions contemplated therein are therefore subject to the approval of Shareholders. 8.6 In addition, the Licence Agreement and the terms and conditions contained therein including but not limited to the manner in which the licence fee payable by our Group to Yichuan Trademark Co. is to be determined is subject to the approval of Shareholders pursuant to Rule 906(1)(b) of the Listing Manual. 9. Interests of Directors and controlling Shareholders and substantial Shareholders 9.1 Profit Crest and Gao Feng ( 高峰 ) have declared their interests as described above to the Board and have abstained from voting in respect of the resolutions of the Board to recommend the approval of the Proposed Call Option and the Proposed Licence. 11

12 9.2 Profit Crest, Gao Feng ( 高峰 ) and their associates will abstain from recommending or voting on the resolutions in relation to the Proposed Call Option and the Proposed Licence at the SGM. 9.3 Saved as disclosed herein, none of the Directors, executive officers, controlling Shareholders, substantial Shareholders or their associates has any interest, direct or indirect, in the Proposed Call Option and the Proposed Licence. 9.4 Save as disclosed herein, as far as the Directors are aware, none of the Directors, executive officers, controlling Shareholders, substantial Shareholders or their associates is related to Luoyang Dukang. 10. Interested Person Transactions for the Financial Year ended 30 June 2009 Save as disclosed above, the Company has not entered into any discloseable interested person transactions with Gao Feng ( 高峰 ) or any of his associates in the current financial year up to the date of the Proposed Call Option and the Proposed Licence. 11. Appointment of Independent Financial Advisor The Company will appoint an independent financial advisor ( IFA ) in accordance with Rule 921(4) of the Listing Manual to advise the Board in relation to the Proposed Call Option and the Proposed Licence. The opinion of the IFA will be enclosed in a circular to Shareholders to be despatched by the Company in due course. 12. Audit Committee Statement In relation to the Proposed Call Option and the Proposed Licence, the Audit Committee, comprising Tan Siok Sing, Chia Seng Hee and Zhang Wenzhe will form its view as to whether each of these proposed transactions is on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders after considering the IFA s opinion referred to in section 11 above. The Audit Committee s view on the Proposed Call Option and the Proposed Licence will be set out in the said circular to Shareholders. (B) PROPOSED CONVERTIBLE BOND ISSUE 1. Introduction 1.1 The Company had announced on 1 October 2009, that in connection with and to provide funding for the Proposed Acquisition, the Company had entered into a binding summary of terms with Sculptor Finance (MD) Ireland Limited as investor, Gao Feng ( 高峰 ) and Profit Crest International Limited, as major shareholders, on 30 September 2009 for the issue of RMB200 million 5% U.S. Dollar-Settled Convertible Bonds due 31 March 2015 ( Convertible Bonds ) by the Company convertible into new ordinary shares in the Company ( Proposed Convertible Bond Issue ). 1.2 The Board wishes to announce that following thereon, the Company had, on 12 January 2010 entered into a conditional subscription agreement with the parties listed in Appendix C of this announcement (collectively, the Investors and each, an Investor ) ( Subscription Agreement ) pursuant to which the Company proposes to issue the Convertible Bonds to the Investors. The Convertible Bonds are convertible at the option of the holder (the Bondholder ) thereof into fully paid ordinary shares of HK$0.40 each ( Conversion Shares ) on the terms and subject to the conditions of the Convertible Bonds. The agreed terms and conditions ( Terms and Conditions ) are attached to the Subscription Agreement. 12

13 1.3 The Board wishes to inform Shareholders that there are no material changes to the principal terms and conditions of the Convertible Bonds as contained in the Terms and Conditions of the Convertible Bonds as attached to the Subscription Agreement from those set out in the announcement dated 1 October 2009 under the section entitled Principal terms of the Summary of Terms. Please refer to the announcement of 1 October 2009 for further details of the same. Full details of the Terms and Conditions of the Convertible Bonds shall be set out in a circular to be despatched to Shareholder in due course in relation to the Proposed Convertible Bond Issue. 1.4 The Convertible Bonds will be placed to the Investors pursuant to Section 272B of the Securities and Futures Act (Chapter 289 of Singapore) as a private placement pursuant to which, inter alia, the offer shall be made to not more than 50 persons within any period of 12 months. Accordingly, no offering documents will be issued by the Company in relation thereto. 1.5 The Convertible Bonds will not be listed on SGX-ST. However, the Company shall at the request of the Investors, use its best endeavours to apply for and maintain the listing of the Convertible Bonds on the SGX-ST so long as any of the Convertible Bonds remains outstanding Under Chapter 8 of the Listing Manual, any issue of convertible securities not covered under a general mandate must be specifically approved by Shareholders in a general meeting. Bondholders shall have the option to convert all or a part of the outstanding Convertible Bonds into Conversion Shares at any time and from time to time at the conversion price (which is subject to, inter alia, full anti-dilution adjustments formula set out in the Terms and Conditions of the Convertible Bonds attached to the Subscription Agreement) prevailing at the time of conversion ( Conversion Price ). As such, depending on the market price of the Shares at the date of conversion, the Conversion Shares may be issued at a Conversion Price which represents more than a 10% discount to the Shares at the prevailing market price. The initial conversion price is S$ The initial conversion price is subject to such adjustments as more particularly set out in the Terms and Conditions of the Convertible Bonds attached to the Subscription Agreement. The said initial conversion price of S$0.385 represents a discount of 58.08% to the volume weighted average price per Share of S$ for trades done on the SGX-ST on 11 January 2010, being the last full market day immediately preceding the date of this announcement. In addition, and following thereon, the actual number of Conversion Shares which may be issued is therefore not determinable with certainty as at the date of this announcement. The Proposed Convertible Bond Issue is therefore subject to the approval of the Shareholders. 1.7 The Proposed Convertible Bond Issue will be tabled for the approval of Shareholders at a SGM. A circular to Shareholders containing information on the Proposed Convertible Bond Issue together with the notice of the SGM, will be despatched by the Company to Shareholders in due course. 2. Salient terms of the Subscription Agreement 2.1 Conditions Precedent of the Subscription Agreement The obligations of the Investors to subscribe for the Convertible Bonds under the Subscription Agreement are conditional, inter alia, upon the satisfaction of each of the following conditions precedent on or prior to the date falling four (4) months after the date of the Subscription Agreement (or such later date as the Majority Investors (as defined below) may approve): (i) the Company having obtained the general permission given by the Bermuda Monetary Authority to Bermuda companies with voting shares listed on an appointed stock exchange, as defined in the Companies Act 1981 of Bermuda, as from time to time amended, for the issue and transfer of any securities of such companies from and/or to non-residents of Bermuda 13

14 remaining applicable in full force and effect on closing in relation to the Company and the issue and transfer of the Convertible Bonds, the Conversion Shares and such other Shares as may be required to be issued pursuant to the terms of the Convertible Bonds; (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) the Company having obtained the approval of the Proposed Convertible Bond Issue of the SGX-ST, clearance of the draft circular to Shareholders of the SGX-ST and the approval in-principle of the SGX-ST for the listing of the Conversion Shares on terms reasonably acceptable to the Company and the Majority Investors and such approval remaining in full force and effect on closing and, if such approval is subject to any conditions which are required to be fulfilled on or prior to closing, such conditions having been fulfilled; the Company having obtained the approval of its Shareholders for (1) the Proposed Convertible Bond Issue, (2) the issue of the Conversion Shares, (3) the Whitewash Waiver (as defined below), (4) the Proposed Acquisition (including the Licence Agreement), and (5) the exercise of the Proposed Call Option under the Call Option Agreement having being obtained on terms reasonably acceptable to the Company and the Majority Investors and such approval remaining in full force and effect on closing and, if such approval is subject to any conditions which are required to be fulfilled on or prior to closing, such conditions are fulfilled; the Lock-up Undertaking ( as defined below) and Lock-Up Escrow Agreement (as defined below) having been executed and delivered to the Investors in the form acceptable to the Majority Investors and remaining in full force and effect on closing; the Voting Undertaking (as defined below) having been executed and delivered to the Investors in the form acceptable to the Majority Investors and remaining in full force and effect on closing; the Call Option Agreement and Licence Agreement each having been executed in the form acceptable to the Majority Investors and remaining in full force and effect on closing; the execution and delivery of the Transaction Documents (defined below) to the Investors; the completion of the Proposed Acquisition pursuant to the terms and conditions of the Sale and Purchase Agreement; no injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Proposed Convertible Bond Issue shall be in effect on closing; up to and as of closing (1) all the representations and warranties of the Company in the Subscription Agreement being true, accurate and correct at, and as if made on closing, and (2) the Company shall have performed all of its undertakings or obligations hereunder to be performed on or before closing; no material adverse change shall have occurred between the date of the Subscription Agreement and the closing date; the delivery of certified copies of all corporate and other consents, approvals or authorisations required in connection with the Proposed Convertible Bond Issue and the issue of the of Conversion Shares and the performance by each Group company of its obligations under the Convertible Bonds and the Transaction Documents to which it is or will be a party; 14

15 (xiii) (xiv) the delivery of legal opinions of the Company s Singapore counsel, PRC counsel and Bermuda counsel on the laws of Singapore, the PRC, and Bermuda respectively in the agreed form distributed to the Investors prior to signing the Subscription Agreement; and if required by the Majority Investors, a waiver from the Securities Industry Council in relation to the obligation of any Bondholder to make a general offer for the Company if it and its concert parties should, as a result of the conversion of the Convertible Bonds acquire 30% or more of the issued share capital of the Company having being obtained on terms acceptable to the Majority Investors and such approval remaining in full force and effect on closing and, if such approval is subject to conditions which are required to be fulfilled on or prior to closing, such conditions having been so fulfilled (the Whitewash Waiver ). 2.2 Termination Rights The Investors may, by written notice to the Company, at any time before closing, terminate the Subscription Agreement: (a) if the following circumstances shall have come to the notice of any of the Investors: (i) (ii) (iii) (iv) (v) (vi) any breach of, or any event rendering untrue or incorrect any of the representations and warranties of the Company in any material respect; any failure to perform any of the Company s undertakings or agreements under any of the Transaction Documents in any material respect; the occurrence of any event which would constitute (if the Convertible Bonds had already been issued) an event of default (as defined in the Terms and Conditions of the Convertible Bonds) or which with the giving of notice or lapse of time or other condition would (had the Convertible Bonds already been issued) an event of default: if there shall have occurred any change, or any development involving a prospective change, in national or international monetary, financial, political or economic conditions or currency exchange rates or foreign exchange controls (which in the opinion of the Majority Investors has an adverse effect on the subscription of the Convertible Bonds or the value of the Convertible Bonds or would render it impracticable or inadvisable to proceed with the subscription of the Convertible Bonds or the dealing in the Convertible Bonds in the secondary market); if there shall have occurred a general moratorium on commercial banking activities in the PRC or the United Kingdom or Singapore or United States or Hong Kong by any PRC, United Kingdom, Singapore, New York State, United States Federal or Hong Kong authorities (which in the opinion of the Majority Investors after such consultation with the Company as may be reasonably practicable in the circumstances has an adverse effect on the subscription of the Convertible Bonds or the value of the Convertible Bonds or would render it impracticable to proceed with the subscription of the Convertible Bonds or the dealing in the Convertible Bonds in the secondary market); if there shall have occurred an outbreak or escalation of hostilities or act of terrorism or epidemic (which in the opinion of the Majority 15

16 (b) (vii) Investors after such consultation with the Company as may be reasonably practicable in the circumstances has an adverse effect on the subscription of the Convertible Bonds or the value of the Convertible Bonds or would render it impracticable to proceed with the subscription of the Convertible Bonds or the dealing in the Convertible Bonds in the secondary market); or if on or after the date hereof there shall have occurred: (a) (b) suspension or material limitation of trading in securities generally on the New York Stock Exchange, the Nasdaq Stock Market, Inc., the London Stock Exchange plc, the Hong Kong Stock Exchange, SGX-ST; or suspension in trading the Company s securities on the SGX- ST, save in respect of any suspension in trading of the Shares on the SGX-ST (x) for the purposes of clearing an announcement in respect of the issue of the Convertible Bonds pursuant to the Subscription Agreement or (y) which in the Majority Investors opinion is not materially adverse to the issue and subscription of the Convertible Bonds or the value of the Convertible Bonds. if any of the conditions precedent set out in section 2.1 above has not been satisfied or waived (as the case may be) If the Investors shall terminate the Subscription Agreement in the circumstances set out in paragraphs (iv) to (vii) in section above, the Investors shall pay to the Company the sum of up to US$200,000 of the costs and expenses incurred by the Company in connection with the Proposed Convertible Bond Issue In the event that (i) closing of the Proposed Convertible Bond Issue does not take place or (ii) the Company having failed to issue the Convertible Bonds to the Investors as a result of the Company s own act, omission or decision including without limitation, its failure to fulfill any of the conditions precedent set out in section 2.1 above, the Company shall subject to section above bear and pay, or reimburse to the Investors (or such other person as it may direct) up to US$200,000 in aggregate of the costs and expenses incurred by the Investors in connection with the Proposed Convertible Bond Issue. 2.3 Exclusivity Period The Subscription Agreement provides, inter alia, that in the event that the Company wishes to sell or issue any Shares, Convertible Securities (as defined below) or any assets or business undertakings of any Group Company at any time during the period commencing from 15 January 2010 and ending six months thereafter or up to Closing Date, whichever is the earlier, it shall provide the Investors with the exclusive first right to participate up to 50.1% in such transaction, which right shall be exercised by the Investors without unreasonable delay and in any event within 14 days upon being given reasonable notice of such transaction and its terms. 2.4 Voting Undertaking, Lock-up Undertaking and Lock-up Escrow Agreement Voting Undertaking (i) Our Controlling Shareholder, Profit Crest has given an irrevocable undertaking to vote all the 350,000,000 Shares held by Profit Crest ( Relevant Shares ) in favour of the Proposed Convertible Bond Issue at the SGM to the extent permissible by applicable laws and regulations. Our Controlling Shareholder and Executive Chairman, Gao Feng ( 高峰 ) shall procure that Profit Crest shall comply with its voting undertaking referred to 16