HONGGUO INTERNATIONAL HOLDINGS LIMITED (Incorporated in Bermuda) (Company Registration Number: 32062)

Transcription

1 CIRCULAR DATED 10 FEBRUARY 2010 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. This Circular is issued by Hongguo International Holdings Limited ( Hongguo or the Company ). If you are in any doubt in relation to this Circular or as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. If you have sold or transferred all your ordinary shares in the capital of the Company held through The Central Depositary (Pte) Limited (the CDP ), you need not forward this Circular to the purchaser or transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or transferee. If you have sold or transferred all your shares which are not deposited with the CDP, you should at once hand this Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effected the sale, for onward transmission to the purchaser or transferee. HONGGUO INTERNATIONAL HOLDINGS LIMITED (Incorporated in Bermuda) (Company Registration Number: 32062) CIRCULAR TO SHAREHOLDERS in relation to the VOLUNTARY CONDITIONAL CASH OFFER by DBS BANK LTD. (Incorporated in the Republic of Singapore) (Company Registration Number: E) for and on behalf of INFO GIANTS INVESTMENTS LIMITED (Incorporated in the British Virgin Islands) (Company Registration Number: ) to acquire all of the issued and paid-up ordinary shares in the capital of the Company Independent Financial Adviser to the Independent Directors of the Company KPMG CORPORATE FINANCE PTE LTD (Registered in the Republic of Singapore) (Company Registration Number: D) SHAREHOLDERS SHOULD NOTE THAT AS ANNOUNCED BY DBS BANK LTD. FOR AND ON BEHALF OF THE OFFEROR ON 3 FEBRUARY 2010, THE OFFER WILL REMAIN OPEN FOR ACCEPTANCE UNTIL 5.30 P.M. ON 3 MARCH 2010 OR SUCH LATER DATE(S) AS MAY BE ANNOUNCED FROM TIME TO TIME BY OR ON BEHALF OF THE OFFEROR.

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3 CONTENTS CORPORATE INFORMATION... 1 DEFINITIONS... 2 SUMMARY TIMETABLE... 5 LETTER TO SHAREHOLDERS FROM THE BOARD OF DIRECTORS OF HONGGUO INTERNATIONAL HOLDINGS LIMITED Introduction The Offer Options Warranty Duration of the Offer Information on the Offeror Group Information on the Company Rationale for the Offer and Future Plans for the Company Arrangements Affecting Directors of the Company Advice and Recommendations Action to be Taken by Shareholders Overseas Shareholders Directors Responsibility Statement LETTER FROM KPMG CORPORATE FINANCE PTE LTD TO THE INDEPENDENT DIRECTORS OF HONGGUO INTERNATIONAL HOLDINGS LIMITED APPENDICES I Additional General Information... I-1 II Relevant Excerpts from the Company s Bye-Laws... II-1 III Brief Terms of the Options Proposal... III-1 Page IV Audited Consolidated Financial Statements of the Group and Balance Sheet and Statement of Changes in Equity of the Company for the Financial Year Ended 31 December IV-1

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5 CORPORATE INFORMATION Board of Directors : Chen Yixi (Executive Chairman) Li Wei (Deputy Chairman/Managing Director) Zhao Wei (Executive Director) Huo Li (Executive Director/Deputy Secretary) Xu Tingyu (Executive Director and Chief Financial Officer) Miao Bingwen (Non-Executive Director) Dr. John Chen Seow Phun (Independent Director) S. Chandra Das (Independent Director) Liu Yunguang (Independent Director) Company Secretaries : Yvonne Choo (Company Secretary) Huo Li (Deputy Secretary) Registered Office : Canon s Court 22 Victoria Street Hamilton HM12 Bermuda Singapore Registrar & Share : Boardroom Corporate & Advisory Services Pte. Ltd. Transfer Agent 3 Church Street #08-01 Samsung Hub Singapore Independent Financial Adviser to : KPMG Corporate Finance Pte Ltd the Independent Directors in 16 Raffles Quay #22-00 relation to the Offer Hong Leong Building Singapore Legal Adviser to the Company in : Stamford Law Corporation relation to the Offer 9 Raffles Place #32-00 Republic Plaza Singapore Auditors of the Company : Deloitte & Touche LLP Certified Public Accountants 6 Shenton Way #32-00 DBS Building Tower Two Singapore Partner- in-charge: Lim Kuan Meng 1

6 DEFINITIONS Except where the context otherwise requires, the following definitions apply throughout this Circular: Acceptance Threshold : As defined in Section 2.3 of this Circular Bermuda Companies Act : The Companies Act 1981 of Bermuda, as amended or modified from time to time Board : The Board of Directors of the Company Business Day : A day which is not a Saturday, Sunday or a public holiday in Singapore Bye-Laws : The Bye-Laws of the Company CDP : The Central Depository (Pte) Limited Circular : This circular to Shareholders dated 10 February 2010 issued by the Company in relation to the Offer Closing Date : 3 March 2010 or such later date(s) as may be announced from time to time by or on behalf of the Offeror, being the last day for the lodgement of acceptances of the Offer Code : The Singapore Code on Take-overs and Mergers, as amended with effect from 1 April 2007 Companies Act or Act : The Companies Act, Chapter 50 of Singapore, as amended or modified from time to time DBS : DBS Bank Ltd. Deloitte : Deloitte & Touche LLP Directors : The Directors of the Company as at the Latest Practicable Date FAA : Form of Acceptance and Authorisation which forms part of the Offer Document and which is issued to Shareholders whose Shares are deposited with CDP FAT : Form of Acceptance and Transfer which forms part of the Offer Document and which will be issued upon request to Shareholders whose Shares are not deposited with CDP First Closing Date : 5.30 p.m., on 3 March 2010 FY : Financial year ended or ending 31 December Independent Directors : The Directors who are independent for the purposes of making recommendations to the Shareholders in respect of the Offer, namely, Dr. John Chen Seow Phun, S. Chandra Das, Liu Yunguang High Score : High Score Holdings Limited Hongguo, HG or the : Hongguo International Holdings Limited Company Group : The Company, together with its subsidiaries and associated companies 2

7 KPMG : KPMG Corporate Finance Pte Ltd Latest Practicable Date : 4 February 2010 being the latest practicable date prior to the printing of this Circular Listing Manual : The Listing Manual of the SGX-ST Market Day : A day on which the SGX-ST is open for trading of securities Media Value : Media Value Holdings Limited Offer Announcement Date : 18 January 2010, being the date the Offer Announcement was issued Offer Announcement : The announcement issued by DBS, for and on behalf of the Offeror, in relation to the Offeror s firm intention to make the Offer Offer Document : The offer document dated 2 February 2010 issued by DBS, for and on behalf of the Offeror, in respect of the Offer Offer Price : S$0.439 in cash for each Offer Share Offer Shares : All the Shares to which the Offer relates as defined in the Offer Document Offer : The voluntary conditional cash offer made by DBS, for and on behalf of the Offeror, to acquire all the Offer Shares on the terms and subject to the conditions set out in the Offer Document, the FAA and the FAT, as may be amended, extended and revised from time to time Offeror : Info Giant Investments Limited Optionholders : Holders of Options Options Proposal : The proposal put forward by the Offeror to the Option holders as set out in Appendix VI of the Offer Document, the brief terms of which are reproduced in Appendix III of this Circular Options : Options to subscribe for new Shares granted under the Hongguo Share Option Scheme Overseas Shareholders : Shareholders whose addresses are outside Singapore, as shown on the Register PRC : People s Republic of China Register : The register of holders of the Shares, as maintained by the Registrar Registrar : Boardroom Corporate & Advisory Services Pte. Ltd. Securities Account : A securities account maintained by a Depositor with CDP but does not include a securities sub-account maintained with a depository agent SGX-ST : Singapore Exchange Securities Trading Limited Share or Shares : Issued and paid-up ordinary share(s) of par value US$0.015 each in the capital of the Company 3

8 Shareholders : The registered holders of the Offer Shares, except that where the registered holder is CDP, the term Shareholders in relation to Shares held by CDP shall, where the context admits, mean the persons named as depositors who have Offer Shares entered against their names in the depository register maintained by CDP and to whose securities accounts such Offer Shares are credited for the time being SIC : The Securities Industry Council of Singapore Substantial Shareholder : A person (including a corporation) who has an interest in not less than 5 per cent. of the issued voting shares of the Company Sure Manage : Sure Manage Investments Limited Undertaking Shareholders : Each of Chen Yixi, Li Wei and Miao Bingwen, further details of which are set out in Section 9.1 of this Circular RMB : Renminbi, being the lawful currency of the PRC S$ and cents : Singapore dollars and cents respectively, being the lawful currency of Singapore US$ : United States dollars, being the lawful currency of the United States of America % or per cent. : Percentage or per centum Acting in Concert and Associate. The expression acting in concert and associate shall have the meanings ascribed to them respectively in the Code. Depositors. The expressions CDP Depositor, CDP Depositors and Depository Register shall have the same meaning as ascribed to Depositor, Depositors and Depository Register respectively in the Companies Act. Genders. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders. References to persons shall, where applicable, include references to corporations. Headings. The headings in this Circular are inserted for convenience only and shall be ignored in construing this Circular. Statutes. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Companies Act, the Code, the Listing Manual or any statutory or regulatory modification thereof and not otherwise defined in this Circular shall have the meaning assigned to it under the Companies Act, the Listing Manual or the Code or any such statutory or regulatory modification, as the case may be, unless the context otherwise requires. Time and Date. Any reference to a time of day and date in this Circular is made by reference to Singapore time and date, unless otherwise stated. Rounding. Any discrepancies in figures included in this Circular between the amounts listed and their actual values are due to rounding. Accordingly, figures may have been adjusted to ensure that totals or sub-totals shown, as the case may be, reflect an arithmetic aggregation of the figures that precede them. 4

9 SUMMARY TIMETABLE Date of despatch of Offer Document : 3 February 2010 Date of despatch of Offeree Board Circular : 10 February 2010 Close of Offer Period : 3 March 2010, or such later date(s) as may be announced from time to time by or on behalf of the Offeror. Date of settlement of consideration for valid : Within 10 days after (a) the date the Offer acceptance of the Offer Shares becomes or is declared unconditional in all respects (for valid acceptances received before such date); or (b) the date of receipt of each valid acceptance where such acceptances were tendered after the Offer has become or has been declared unconditional in all respects (before the Offer closes). 5

10 LETTER TO SHAREHOLDERS FROM THE BOARD OF DIRECTORS OF HONGGUO INTERNATIONAL HOLDINGS LIMITED HONGGUO INTERNATIONAL HOLDINGS LIMITED (Incorporated in Bermuda) (Company Registration Number: 32062) Board of Directors: Chen Yixi (Executive Chairman) Li Wei (Deputy Chairman/Managing Director) Zhao Wei (Executive Director) Huo Li (Executive Director/Deputy Secretary) Xu Tingyu (Executive Director and Chief Financial Officer) Miao Bingwen (Non-Executive Director) Dr. John Chen Seow Phun (Independent Director) S. Chandra Das (Independent Director) Liu Yunguang (Independent Director) Registered Office: Canon s Court 22 Victoria Street Hamilton HM12 Bermuda 10 February 2010 To: The Shareholders of Hongguo Dear Sir/Madam VOLUNTARY CONDITIONAL CASH OFFER BY DBS FOR AND ON BEHALF OF THE OFFEROR FOR THE OFFER SHARES 1. INTRODUCTION 1.1 Offer Announcement On 18 January 2010, DBS, for and on behalf of the Offeror, announced that the Offeror intended to make the Offer for the Offer Shares. A copy of the Offer Announcement is available on the website of the SGX-ST at In the Offer Announcement, it was stated that the Offeror had received irrevocable undertakings (the Irrevocable Undertakings ) from each of Mr Chen Yixi (Executive Chairman), Mr Li Wei (Managing Director) and Mr Miao Bingwen (Non-Executive Director) to accept the Offer in respect of all the Shares legally and/or beneficially owned by them prior to and up to the close of the Offer. As at the date of the Offer Announcement, the aggregate number of Shares legally and/or beneficially owned by them amounted to 186,867,000 Shares representing approximately per cent. of all the Shares. 1 Shareholders should have by now received a copy of the Offer Document, despatched on 3 February 2010, setting out, inter alia, the terms and conditions of the Offer. The principal terms and conditions of the Offer are set out in Section 2 of the Offer Document. Shareholders are urged to read the terms and conditions of the Offer set out in the Offer Document carefully. KPMG has been appointed by the Board as the independent financial adviser to the Independent Directors in respect of the Offer. The purpose of this Circular is to provide relevant information to the Shareholders pertaining to the Offer and to set out the recommendation of the Independent Directors and the opinion of the independent financial adviser to the Independent Directors in relation to the Offer. 1 Based on a total of 396,868,200 issued Shares as at the Offer Announcement Date. 6

11 Shareholders should consider carefully the recommendation of the Independent Directors and the opinion of KPMG before deciding whether or not to accept the Offer. 2. THE OFFER Based on the information set out in the Offer Document, DBS has, for and on behalf of the Offeror, offered to acquire the Offer Shares on the terms and subject to the conditions set out in the Offer Document, the FAA and FAT. 2.1 Offer Price Based on the Offer Document, the Offer will be made on the following basis: For each Offer Share: S$0.439 in cash. 2.2 Offer Shares The Offer is extended to: (a) (b) all the Shares; and all new Shares unconditionally issued or to be issued pursuant to the valid exercise, prior to the close of the Offer, of any Options. For the purposes of the Offer, the expression Offer Shares shall include such new Shares. Based on the Offer Document, the Offer Shares will be acquired (i) fully paid; (ii) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever; and (iii) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto, including all voting rights, the right to receive and retain all dividends, rights and other distributions (if any) which may be announced, declared, paid or made by the Company on or after the Offer Announcement Date. As stated in the Offer Document, if any dividend, other distribution or return of capital is declared, paid or made on or after the Offer Announcement Date, the Offeror reserves the right to reduce the Offer Price by the amount of such dividend, distribution or return of capital. 2.3 Conditions of the Offer As stated in the Offer Document, the Offer is subject to the Offeror having received, by the close of the Offer, valid acceptances in respect of such number of Offer Shares which will result in the Offeror and parties acting in concert with it holding more than 50 per cent. of the Offer Shares as at the close of the Offer (excluding any Shares held by the Company as treasury shares) (the Acceptance Threshold ). Accordingly, the offer will not become or be capable of being declared unconditional as to acceptances until the close of the Offer, unless at any time prior to the close of the Offer, the Offeror has received valid acceptances in respect of such number of Offer Shares which will result in the Offeror holding such number of Shares carrying more than 50 per cent. of the maximum potential issued share capital of the Company (i.e., the total number of Shares which would be in issue had all the Options been validly exercised as at the date of such declaration). 3. OPTIONS 3.1 Hongguo Share Option Scheme As at the Latest Practicable Date, there were 12,029,500 outstanding Options granted under the Hongguo Share Option Scheme. Under the rules of the Hongguo Share Option Scheme, the Options are not transferable by Optionholders. As stated in the Offer Document, in view of this restriction, DBS, on behalf of the Offeror, will not make an offer to acquire the Options (although, for the avoidance of doubt, the Offer will be extended to all new Shares issued or to be issued pursuant to the valid exercise of the Options prior to the close of the Offer). 7

12 Instead, DBS will, on behalf of the Offeror, put forward a proposal to Optionholders (the Options Proposal ) in respect of the Options. A separate letter setting out the Option Proposal made by the Offeror to the Optionholders has been sent to them on the same day as the despatch of the Offer Document. The brief terms of the Options Proposal are reproduced in Appendix III to this Circular. 3.2 Offer and Options Proposal Mutually Exclusive For the avoidance of doubt, while the Options Proposal is conditional upon the Offer becoming or being declared unconditional, the Offer will not be conditional upon acceptances received in relation to the Options Proposal. The Offer and the Options Proposal are separate and are mutually exclusive. The Options Proposal does not form part of the Offer, and vice versa. Without prejudice to the foregoing, if Optionholders exercise their Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise, they may not accept the Options Proposal in respect of such Options. Conversely, if Optionholders wish to accept the Options Proposal in respect of their Options, they may not exercise those Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise. 4. WARRANTY A Shareholder who tenders his Offer Shares in acceptance of the Offer will be deemed to unconditionally and irrevocably warrant that he sells such Offer Shares as or on behalf of the beneficial owner(s) thereof, (i) fully paid, (ii) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever and (iii) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto, including all voting rights, the right to receive and retain all dividends, rights and other distributions (if any) announced, declared, paid or made by the Company on or after the Offer Announcement Date. 5. DURATION OF THE OFFER 5.1 First Closing Date Except insofar as the Offer may be withdrawn with the consent of the SIC and every person released from any obligation incurred thereunder, the Offer will remain open for acceptances by Shareholders for a period of at least 28 days from the date of the Offer Document. Accordingly, as stated in the Offer Document, the first closing date for the Offer was 5.30 p.m. on 3 March 2010 (the First Closing Date). 5.2 Subsequent Closing Date Any announcement of the extension need of the Offer must state the next Closing Date or, if the Offer has become unconditional as to acceptances, the announcement may state that the Offer will remain open until further notice. In such a case, the Offeror must give Shareholders at least 14 days prior notice in writing before it may close the Offer. 5.3 No Obligation to Extend the Offer The Offeror is not obliged to extend the Offer if the Acceptance Threshold is not fulfilled by the Closing Date(s). 5.4 Offer to Remain Open for 14 Days After Being Declared Unconditional as to Acceptances Pursuant to Rule 22.6 of the Code, if the Offer becomes or is declared to be unconditional as the acceptances, the Offer will remain open for acceptance for not less than 14 days after the date on which it would otherwise have closed, in order to give those Shareholders who have not accepted the Offer the opportunity to do so. This requirement does not apply if, before the Offer becomes or is declared unconditional as to acceptances, the Offeror has given notice in writing to Shareholders at least 14 days before the specified Closing Date that the Offer will not be open for acceptance beyond such date. Such notice may not be given, or if already given, will not be capable of being enforced in a competitive situation. 8

13 5.5 Final Day Rule Pursuant to Rule 22.9 of the Code, the Offer (whether revised or not) will not be capable of becoming or being declared to be unconditional as to acceptances after 5.30 p.m. on the 60th day after the date of the Offer Document or of being kept open after the expiry of such period, unless it has previously become or been declared to be unconditional as to acceptances, except with the prior approval of the SIC. The SIC will consider granting such permission in circumstances, including but not limited to, where a competing offer has been announced. 5.6 Revision Pursuant to Rule 20.1 of the Code, if the Offer is revised, it will remain open for acceptance for at least 14 days from the date of despatch of the written notification of the revision to Shareholders. In any case, where the terms are revised, the benefit of the Offer (as so revised) will be made available to each of the Shareholders, including those who had previously accepted the Offer. 5.7 Time for Fulfilment of Other Conditions Pursuant to Rule of the Code, except with the consent of the SIC, all conditions of the Offer must be fulfilled or the Offer must lapse within 21 days of the First Closing Date or the date the Offer becomes or is declared unconditional as to acceptances, whichever is the later. 5.8 Further Details of the Offer Further details of the Offer are set out in Appendix IV of the Offer Document including details on (i) the settlement of the consideration for the Offer; (ii) the requirements relating to announcements of the level of acceptances of the Offer; and (iii) the right of withdrawal of acceptances of the Offer. 6. INFORMATION ON THE OFFEROR GROUP Information on the Offeror has been selectively extracted from the Offer Document and set out in italics in this Section. Unless otherwise stated, all terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document. 6.1 The Offeror The Offeror is an investment holding company incorporated in the British Virgin Islands on 3 November The Offeror has not carried on any business since its incorporation, except to enter into certain arrangements in connection with the Offer. As at the Latest Practicable Date: (a) (b) the Offeror has an issued and paid-up capital of US$50,000 consisting of 50,000 ordinary shares of US$1.00 each Offeror Shares, of which 27,405 Offeror Shares are held by High Score, 11,770 Offeror Shares are held by Media Value and 10,825 Offeror Shares are held by Sure Manage; and the Directors of the Offeror are Mr. Chen, Mr. Li and Mr. Miao. High Score, Media Value and Sure Manage are investment holding companies incorporated in the British Virgin Islands wholly owned by Mr. Chen, Mr. Li and Mr. Miao respectively. For the purposes of the Offer Document, Mr. Chen, Mr. Li and Mr. Miao refers to Chen Yixi (Executive Chairman), Li Wei (Deputy Chairman / Managing Director) and Miao Bingwen (Non- Executive Director) respectively. 6.2 Set-Off Arrangement The Offeror further states, in paragraph 4.2 of the Offer Document, the following in relation to a set off arrangement with the Directors of the Offeror: In connection with the Offer, the Offeror has entered into separate subscription agreements with each of the Undertaking Shareholders and their respective investment holding companies (each, the Subscription Agreement ), pursuant to which the respective investment holding companies shall subscribe for Offeror Shares and the Undertaking Shareholders shall apply the proceeds that 9

14 they receive for their Shares tendered in acceptance of the Offer as consideration for the subscription. The obligation of each of the Undertaking Shareholders investment holding company to pay for the Offeror Shares in cash will be set off against the obligation of the Offeror to pay the Offer Price for the Undertaking Shareholder s Shares tendered in acceptance of the Offer. Following the close of the Offer and the subscription of the Offeror Shares by the Undertaking Shareholders investment holding companies pursuant to the Subscription Agreements, the shareholding percentage in the Offeror will remain as follows: (a) (b) (c) High Score approximately 54.81% of the Offeror Shares in issue; Media Value approximately 23.54% of the Offeror Shares in issue; and Sure Manage approximately 21.65% of the Offeror Shares in issue. The SIC has confirmed that the set-off arrangement as described in this paragraph 4.2 does not constitute a special deal for the purposes of Rule 10 of the Code. Appendix I of the Offer Document sets out certain additional information on the Offeror. 7. INFORMATION ON THE COMPANY Hongguo was incorporated in Bermuda on 26 April 2002 and was listed on the Main Board of the SGX-ST on 5 June Hongguo is an investment holding company. Through its subsidiaries, Hongguo designs, produces and retails premium fashion ladies footwear. Currently, the Group consists of five wholly owned subsidiaries and owns two flagship ladies fashion footwear labels C. Banner (ranked third largest by market share in the PRC) and E. Blan. The Group has also expanded into contract manufacturing for several footwear brands, including the American brand Naturalizer, the Canadian brand Aldo and the Australian brand Colorado. The Group is also the exclusive distributor for the American ladies shoe brand Naturalizer and is also the regional distributor for several international apparel brands like Max Mara and Byford. As at the Latest Practicable Date, Hongguo has a market capitalisation of S$ million based on a closing price of S$ Appendix II of the Offer Document and Appendix I of this Circular set out certain additional information on the Company. 8. RATIONALE FOR THE OFFER AND FUTURE PLANS FOR THE COMPANY Selected text of the rationale for the Offer and the future plans for the Company has been extracted from the Offer Document and set out in italics below. Unless otherwise stated, all terms and expressions used in the extracts in this Section 8 shall have the same meanings as those defined in the Offer Document. Paragraph references in the extracts in italics are references to paragraphs in the Offer Document. Shareholders are advised to read these pages carefully. 8.1 Offeror s Intention to Delist and Privatise the Company As noted in paragraph 8 below, the Offeror is making the Offer with a view to delisting the Company from the SGX-ST and depending on the outcome of the Offer, the Offeror intends to pursue any rights of compulsory acquisition that may arise under the Bermuda Companies Act as a result of the Offer. 8.2 Opportunity for Shareholders to Realise their Investment The Offer represents a clean cash exist opportunity for Shareholders to realise their entire investment at an attractive premium over the market prices of the Shares prior to the Offer Announcement Date. In this regard, the Undertaking Shareholders, who hold approximately 47.09% of the Shares, have each given the Irrevocable Undertaking to accept the Offer in respect of their Shares. 10

15 As stated in paragraph 7 below, the Offer Price represents a premium of approximately 30.27% to 68.85% over the one (1)-month, three (3)-month, six(6)-month and 12-month VWAP of the Shares. The Offer Price also represents a premium of approximately 37.19% to the last transacted price of S$0.320 per Share as quoted on the SGX-ST on 13 January 2010 (being the last day on which there were trades in the Shares on the SGX-ST prior to the Offer Announcement Date). The Offer Price is also at a significant premium of % over the Company s Initial Public Offering ( IPO ) of S$0.20 per Share. 8.3 Uncertain Operating Environment and Greater Management Flexibility The China footwear retail industry within which the Company operates is a highly competitive environment. The growth and success of the Company is largely dependent on the Company s ability to develop its brand and merchandise sufficiently well to appeal to the individual consumer and to collaborate with international players. As the fashion industry tends to be subjective in nature, commercial viability of merchandise cannot be guaranteed season-on-season. In addition, the increasing emergence of domestic and international brands also poses increased competition in respect of the Company s market share in the consumer market in China. The Offeror believes that the privatisation of the Company would provide greater flexibility to the Offeror and key management to promote greater efficiency and competitiveness through changes in strategy or investments. 8.4 The Offeror s Intentions for Hongguo It is the Offeror s intention that the Group will continue to operate its existing business. Save as disclosed above, the Offeror has no present intention to (a) make any major changes to the existing businesses of the Company, (b) redeploy the fixed assets of the Company, or (c) discontinue the employment of the employees of the Group. Nonetheless, the Offeror retains the flexibility at any time to consider any options or opportunities which may present themselves, and which the Offeror regards to be in the interests of the Offeror and/or the Company. 8.5 Compulsory Acquisition The Offeror also states, in paragraph 8 of the Offer Document, the following in relation to compulsory acquisition of the Company: Pursuant to Section 102 of the Bermuda Companies Act, where an offeror who has, within four (4) months after the making of an offer under a scheme or contract: (a) (b) obtained acceptances from shareholders holding not less than 90% in value of the shares in a target Bermuda company whose transfer is involved (other than shares already held, at the date of the offer, by the offeror, the offeror s subsidiaries, and nominees of the offeror or its subsidiaries); and where, at the date of the offer, shares in the target Bermuda company whose transfer is involved, are already held by the offeror, the offeror s subsidiaries, and nominees of the offeror or its subsidiaries to a value greater than 10% of the total issued shares of the target Bermuda company, such accepting shareholders also represent not less than 75% in number of the holders of shares in the target Bermuda company whose transfer is involved (other than shares already held, at the date of the offer, by the offeror, the offeror s subsidiaries, and nominees of the offeror or its subsidiaries), and further provided that the offeror must have made the offer on the same terms to all holders of the shares whose transfer is involved (other than those already held as aforesaid), the offeror may at any time within two (2) months beginning from the date on which such threshold is achieved, give notice under Section 102(1) of the Bermuda Companies Act to any dissenting shareholder that the offeror wishes to acquire his shares (the Acquisition Notice ). When such Acquisition Notice is given, upon the expiry of one (1) month from the date on which the notice was given, the offeror will be entitled and bound to acquire those shares on the same terms of the offer, unless an application is made by the dissenting shareholder(s) to the Supreme Court of Bermuda (the Court ) within one (1) month from the date on which the notice was given and the Court thinks fit to order otherwise. 11

16 Once the offeror (together with its subsidiaries and nominees) holds 90% or more in value of the shares of the target Bermuda company including those held at the date of the transfer, the offeror has one (1) month in which it must notify the remaining shareholders of such 90% holding (the Ownership Notice ). Once the Ownership Notice is given to the remaining shareholders, the dissenting shareholders have three (3) months in which they may give the offeror a notice (an Offeree Notice ) requiring the offeror to acquire the dissenting shareholders shares and where a dissenting shareholder gives an Offeree Notice with respect to any shares in the target Bermuda company, the offeror shall be entitled and bound to acquire those shares on the same terms of the original offer (or on such other terms as may be agreed or as the Court, on the application of either the offeror or the dissenting shareholder, thinks fit to order), notwithstanding that the offeror may not have issued the Acquisition Notice. Under Section 103 of the Bermuda Companies Act, the Offeror and parties acting in concert with it may, after the close of the Offer, give notice to the remaining Shareholders of their intention to acquire the remaining Shareholders Shares on the terms set out in the notice if the Offeror has received acceptances in respect of such number of Shares which, when taken together with the Shares held by the Offeror and parties acting in concert with it, result in the Offeror and parties acting in concert with it holding not less than 95% of the total issued Shares. When such a notice is given, the Offeror and parties acting in concert with it shall be entitled and bound to acquire the Shares of the remaining Shareholders on the terms set out in the notice unless a remaining Shareholder applies to the Court to have the Court appraise the value of such Shares. Shareholders who are in doubt of their position under the Bermuda Companies Act are advised to seek their own independent legal advice. In the event that the Offeror is unable to exercise the right to compulsorily acquire all the Offer Shares not acquired under the Offer but receives such number of acceptances such that the public float of the Company falls to below 10%, resulting in the Company not being in compliance with the requirements relating to the minimum public float under Rules 723, 724 and/ or 725, the SGX-ST may exercise its discretion under Rule 1305 to remove the Company from the Official List of the SGX-ST. Under Rule 1307 of the Listing Manual ( Rule 1307 ), the Offeror may submit an application to the SGX-ST to obtain approval to delist the Company, subject to among others, Rule 1306 and Rule 1309 of the Listing Manual. 8.6 Listing Status The Offeror states, in paragraph 8 of the Offer Document, the following in relation to the listing status of the Company: Pursuant to Rule 1105 of the Listing Manual, upon an announcement by the Offeror that acceptances have been received pursuant to the Offer that bring the holdings owned by the Offeror and parties acting in concert with it to above 90% of the total number of the issued Shares (excluding any Shares held by the Company as treasury shares), the SGX-ST may suspend the listing of the Shares in the Ready and Unit Share markets until it is satisfied that at least 10% of the total number of issued Shares (excluding any Shares held by the Company as treasury shares) are held by at least 500 Shareholders who are members of the public. Rule 1303(1) of the Listing Manual provides that if the Offeror succeeds in garnering acceptances exceeding 90% of the total number of issued Shares (excluding any Shares held by the Company as treasury shares), thus causing the percentage of the total number of Shares (excluding any Shares held by the Company as treasury shares) held in public hands to fall below 10%, the SGX-ST will suspend trading of the Shares only at the close of the Offer. In addition, pursuant to Rule 723 of the Listing Manual ( Rule 723 ), the Company must ensure that at least 10% of its total issued Shares (excluding any Shares held by the Company as treasury shares) is at all times held in public hands (the Free Float Requirement ). Pursuant to Rule 724 of the Listing Manual ( Rule 724 ), if the percentage of the Shares held in public hands falls below 10%, the Company must, as soon as practicable, announce that fact and the SGX-ST may suspend trading of all the Shares. Rule 725 of the Listing Manual ( Rule 725 ) states that the SGX- ST may allow the Company a period of three (3) months, or such longer period as the SGX-ST may agree, to raise the percentage of the Shares held in public hands to at least 10%, failing which the Company may be delisted from the SGX-ST. 12

17 In the event the Offeror is unable to exercise the right to compulsorily acquire all the Offer Shares not acquired under the Offer as set out in paragraph 8.2 below and the Company does not meet the requirements under Rule 723, the Offeror does not intend to maintain or support any action taken or to be taken to maintain the present listing status of the Company. Accordingly, the Offeror does not intend to place out any Shares held by the Offeror to members of the public to meet the Free Float Requirement, and if the Company does not meet the requirements under Rule 723, the SGX-ST will suspend trading of the shares on the SGX-ST following the close of the Offer. Under Rule 1305 of the Listing Manual ( Rule 1305 ), if a company listed on the SGX-ST is unable or unwilling to comply with a listing rule, the SGX-ST may remove such company from the Official List of the SGX-ST and Rule 1306 of the Listing Manual ( Rule 1306 ) shall apply. 9. ARRANGEMENTS AFFECTING DIRECTORS OF THE COMPANY 9.1 Irrevocable Undertakings Acceptance of the Offer: On the Offer Announcement Date, each of Chen Yixi (Executive Chairman), Li Wei (Managing Director) and Miao Bingwen (Non-Executive Director) (the Undertaking Shareholders ) had given irrevocable undertakings (the Irrevocable Undertakings ) to the Offeror to accept the Offer in respect of all the Shares legally and/or beneficially owned by them. Details of the Irrevocable Undertakings are set out in Section 3.1 of the Offer Document. As stated in the Offer Document, as at the latest practicable date as defined in the Offer Document, the aggregate number of Shares legally and/or beneficially owned by the Undertaking Shareholders amounted to 186,867,000 Shares, representing approximately per cent. of all the Shares. The Undertaking Shareholders each currently hold 8,000,000 Shares held through HL Bank. These Shares were placed with HL Bank by each of the Undertaking Shareholders to satisfy the eligibility requirement pursuant to their respective Singapore permanent residence application under the Financial Investor Scheme of the Monetary Authority of Singapore. As stated in the Offer Document, and in connection with their Irrevocable Undertakings, each of the Undertaking Shareholders has agreed to use his best endeavours to procure the tendering of these Shares towards acceptance of the Offer. The Undertaking Shareholders have taken steps prior to the Offer Announcement Date to renounce their permanent residency status. However, there is no certainty that the Undertaking Shareholders will be able to procure that such Shares will be tendered towards acceptance before the close of the Offer. 9.2 Termination The Irrevocable Undertakings given by each of the Undertaking Shareholders will lapse if for whatever reason, other than a breach by the Undertaking Shareholder of any of his obligations under the Irrevocable Undertaking, the Offer lapses or is withdrawn or fails to become or be declared unconditional in all respects. 9.3 General Manager of the Offeror As announced by DBS for and on behalf of the Offeror on 27 January 2010, Mr Huo Li, Executive Director of the Company, had been appointed as General Manager of the Offeror with effect from 27 January Following Mr. Huo Li s appointment as General Manager, he shall be deemed to be acting in concert with the Offeror for the purpose of the Code. As at the Latest Practicable Date, Mr. Huo Li holds 3,674,000 Shares and an aggregate of 400,000 Options of which (a) 200,000 Options were granted on 23 June 2008 with an exercise price of S$0.453 per Option, exercisable in whole or in part after the third anniversary of the date of the grant until the 10th anniversary of the date of the grant; and (b) 200,000 Options were granted on 18 August 2009 with an exercise price of S$0.272 per Option, exercisable in whole or in part after the third anniversary of the date of the grant until the 10th anniversary of the date of the grant. 13

18 10. ADVICE AND RECOMMENDATION KPMG has been appointed by the Board as the independent financial adviser to the Independent Directors in respect of the Offer. Shareholders should read and consider carefully the recommendations of the Independent Directors and the opinion of KPMG as set out in its letter to the Independent Directors in respect of the Offer dated 10 February 2010 (the IFA Letter ) as set out in this Circular before deciding whether to accept or reject the Offer. The Independent Directors have considered carefully the opinion of KPMG on the Offer. The following extract from the IFA Letter should be read in conjunction with, and in the context of, the full text of the IFA Letter Conclusion and Recommendation by KPMG In arriving at our recommendation, we have considered the factors set out in the previous sections of this letter. Accordingly, it is important that our letter and, in particular all the considerations and information we have taken into account, be read in its entirety. Our conclusions in respect of the factors regarding the Offer are set out below: (a) (b) (c) (d) (e) The Company s liquidity as represented by the average daily value traded as a percentage of market capitalisation and the average daily volume traded as a percentage of shares outstanding are 38.76% and 90.16% higher than the median liquidity statistics of the SGX- ST-listed entities with a market capitalisation of between S$ million to S$ million, respectively; The Offer Price is at a premium of 37.19% and 31.44% to the VWAPs of the Shares on the last traded day and one-month period prior to the Offer Announcement Date. In addition, for the different periods ranging from one year prior to the Offer Announcement Date to the last traded day prior to the Offer Announcement Date, the Offer is at a premium over the VWAPs of the Shares of the observation periods. We further note that the Offer Price is at a premium of 2.09% and 1.86% compared to the VWAPs of the Shares one market day post the Offer Announcement Date and the period from post the Offer Announcement Date up to the Latest Practicable Date, respectively; The Company s implied EV/EBITDA multiple is at a 5.71% discount to the median EV/EBITDA multiple of comparable companies. The implied P/E multiple is at a 6.63% premium to the median P/E multiple of comparable companies. In addition, the implied P/TBV multiple is at a 6.00% premium to the median P/TBV multiple of comparable companies; The Company s premium implied by the Offer Price over the VWAP of its respective threemonth observation period, is at a marginal discount to the respective median premia for the corresponding observation period of the Precedent Privatisation Transactions. However, we note that the premia implied by the Offer over its respective VWAPs of the last transacted price and one-month observation periods are at a premium when compared to the respective median premia for the corresponding observation periods of the Precedent Privatisation Transactions; Based on analyst coverage, we note that on 13 November 2009, DBS Vickers Research (Singapore) Pte Ltd issued a report maintaining a hold rating on the Shares due to expectations that net margins would remain considerably low. The analyst was of the view that the Share price as of 13 November 2009, had largely factored in the next year s earnings growth. With a net cash position and improved inventory turnover, the price target for the Shares was estimated at S$0.32 which is at a 27.11% discount from the Offer Price; and 14

19 Our conclusions in respect of the other considerations are set out below: (f) As at the Latest Practicable Date, there is no publicly available evidence of any alternative offer for the Shares. Further, the Directors have also confirmed that as at the Latest Practicable Date, apart from the Offer, they have not received any other offer from any other party. After carefully considering the information available to us as at the Latest Practicable Date, and based upon the monetary, industry, market, economic and other relevant conditions subsisting as at the Latest Practicable Date and based on our considerations above, we are of the opinion that the financial terms of the Offer and Options Proposal are fair and on that basis we advise the Independent Directors to advise the independent Shareholders to accept the Offer and Options Proposal. In rendering the above opinion, we have not taken into consideration the specific investment objectives, financial situation, tax position or unique needs and constraints of any individual shareholder. Accordingly, any individual shareholder who may require specific advice in relation to their investment portfolio including their investment in the Company should consult their stockbroker, bank manager, solicitor, accountant, tax adviser, or other professional adviser immediately. This opinion is governed by, and construed in accordance with the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter. Nothing herein shall confer or be deemed or is intended to confer any right or benefit to any third party and the Contracts (Rights of Third Parties) Act 2001, Chapter 53B of Singapore and any re-enactment thereof shall not apply Recommendation of the Independent Directors The Independent Directors, having considered carefully the terms of the Offer and the advice given by KPMG to the Independent Directors in the IFA Letter, CONCUR with the advice of KPMG in respect of the Offer. Accordingly, the Independent Directors recommend as follows: (a) (b) Shareholders who are unable to obtain a price higher than the Offer Price of S$0.439 per Share (net of related expenses) on the open market should accept the Offer. Shareholders who are prepared to take a long-term view of their investment in the Shares and/or who are positive about the prospects of Hongguo under the control of the Offeror may wish to retain all or part of their Shares. Shareholders who are considering doing so are advised to consider the implications in the event of a trading suspension or de-listing of the Shares as set out in Section 8 of the Offer Document. Shareholders should note that KPMG s opinion should not be relied upon by any Shareholder as the sole basis for deciding whether or not to accept the Offer. Further, in rendering the above opinion and giving the above recommendation, both KPMG and the Independent Directors have not had regard to the general or specific investment objectives, financial situation, tax status or position, risk profiles or unique needs and constraints or other particular circumstances of any individual Shareholder. As different Shareholders would have different investment objectives and profiles, the Independent Directors recommend that any individual Shareholder who may require advice in the context of his specific investment portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser. 15

20 11. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders may accept the Offer in respect of all or any part of their holdings of Shares. Shareholders who wish to accept the Offer must do so not later than 5.30 pm on 3 March 2010 or such later date(s) as may be announced from time to time by or on behalf of the Offeror. There are different procedures for acceptances for Depositors whose Securities Accounts are credited with Offer Shares, Depositors whose Securities Accounts will be credited with Offer Shares as well as for Shareholders who hold Offer Shares which are not deposited with CDP. Shareholders who wish to accept the Offer should take note of the Procedures for Acceptance of the Offer as set out in Appendix V to the Offer Document. Shareholders who do not wish to accept the Offer need not take any further action in respect of the Offer Document and the FAA and/or the FAT which has been sent to them. 12. OVERSEAS SHAREHOLDERS 12.1 Overseas Shareholders The availability of the Offer to Shareholders whose addresses are outside Singapore, as shown on the Register (an Overseas Shareholder ) may be affected by the laws of the relevant overseas jurisdictions. Accordingly, all Overseas Shareholders should inform themselves about and observe any applicable legal requirements in their own jurisdictions. Where there are potential restrictions on sending the Offer Document, the FAA and/or the FATs to any overseas jurisdiction, the Offeror and DBS have reserved the right not to send these documents to any Overseas Shareholder in such overseas jurisdiction. Based on the Offer Document, for the avoidance of doubt, the Offer is made to all Shareholders including those to whom this Offer Document and the relevant acceptance forms have not been, or will not be, sent Copies of Offer Document The Offeror has stated in the Offer Document that Shareholders and Overseas Shareholders may obtain copies of the Offer Document, the relevant acceptance forms and any related documents, during normal business hours up to the Closing Date at the office of the Company s Singapore Share Transfer Agent, Boardroom Corporate & Advisory Services Pte. Ltd. at 3 Church Street, #08-01, Samsung Hub, Singapore or (from 22 February 2010 onwards) 50 Raffles Place, #32-01, Singapore Land Tower, Singapore ), or from the office of The Central Depository (Pte) Limited, at 4 Shenton Way #02-01 SGX Centre 2 Singapore Alternatively, an Overseas Shareholder may write to the Company through Boardroom Corporate & Advisory Services Pte. Ltd. at 3 Church Street, #08-01, Samsung Hub, Singapore or (from 22 February 2010 onwards) 50 Raffles Place, #32-01, Singapore Land Tower, Singapore ), to request for the Offer Document, the relevant acceptance forms and any related documents to be sent to an address in Singapore by ordinary post at his own risk, up to three (3) Market Days prior to the Closing Date Copies of this Circular This Circular may not be sent to any Overseas Shareholder due to potential restrictions on sending such documents to the relevant overseas jurisdictions. Any affected Overseas Shareholder may, nonetheless, obtain copies of the Circular during normal business hours and up to the Offer Closing Date, from the office of the Company s Singapore Share Transfer Agent, Boardroom Corporate & Advisory Services Pte. Ltd. at 3 Church Street #08-01 Samsung Hub Singapore or (from 22 February 2010 onwards) 50 Raffles Place, #32-01, Singapore Land Tower, Singapore ), or make a request to the Company s share transfer agent for this Circular to be sent to an address in Singapore by ordinary post at his own risk. The last date for despatch in respect of such request shall be the date falling three Market Days prior to the Closing Date. 16