ARNHOLD HOLDINGS LIMITED

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect about this circular or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Arnhold Holdings Limited, you should at once hand this circular, together with the accompanying form of proxy, to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s). Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. ARNHOLD HOLDINGS LIMITED * (Incorporated in Bermuda with limited liability) (Stock Code: 102) (I) SPECIAL DEAL AND MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF ASSETS (II) PROPOSED DISTRIBUTION OF SPECIAL DIVIDEND (III) SPECIAL DEAL AND CONTINUING CONNECTED TRANSACTION AND (IV) CAPITAL REORGANISATION Financial Adviser to Arnhold Holdings Limited SOMERLEY LIMITED Independent Financial Adviser to the SD Independent Board Committee, the Independent Board Committee and the SD Independent Shareholders Letters from the SD Independent Board Committee and the Independent Board Committee containing their recommendations to the SD Independent Shareholders are set out on pages 28 and 29 of this circular respectively. A letter from CIMB containing its advice to the SD Independent Board Committee, the Independent Board Committee and the SD Independent Shareholders is set out on pages 30 to 53 of this circular. A notice convening the SGM to be held at Huashan Room, Level 5, Island Shangri-La, Pacific Place, Supreme Court Road, Central, Hong Kong on Thursday, 17 February 2011 at 12:00 noon is set out on pages SGM-1 to SGM-3 of this circular. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Hong Kong branch share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish. * For identification purpose only 24 January 2011

2 CONTENTS Page Definitions Expected timetable Letter from the Board Letter from the SD Independent Board Committee Letter from the Independent Board Committee Letter from CIMB Appendix I Financial information on the Group I-1 Appendix II Unaudited pro forma financial Information on the Remaining Group II-1 Appendix III Report on unaudited financial information on the Remaining Group III-1 Appendix IV Valuation report of the Group IV-1 Appendix V General Information V-1 Notice of SGM SGM-1 i

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions shall have the following meanings: Access Capital Access Capital Limited, a corporation licensed under the SFO to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO and the financial adviser to the Offeror ACL Arnhold & Company Limited, a company incorporated in Hong Kong with limited liability, being a member of the Disposal Group acting in concert has the meaning ascribed to it in the Takeovers Code applicable percentage ratio(s) has the meaning ascribed to it in the Listing Rules associate(s) has the meaning ascribed to it in the Takeovers Code or the Listing Rules, as the context may require from time to time ATL Arnhold Trading Limited, a company incorporated in Hong Kong with limited liability, being a member of the Remaining Group Board the board of Directors Business Contracts all business contracts, including purchase orders, supply orders and distribution contracts relating to the Remaining Business Business Day a day (excluding Saturdays and Sundays and public holidays and days on which a tropical cyclone warning No. 8 or above or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks generally are open in Hong Kong for the transaction of normal banking business BVI British Virgin Islands Capital Reorganisation the proposed transfer of the credit arising from share premium account of the Company as at 31 December 2010 to the contributed surplus account of the Company 1

4 DEFINITIONS Companies Act the Companies Act 1981 of Bermuda, as amended from time to time Company Arnhold Holdings Limited, a company incorporated in Bermuda with limited liability, the securities of which are currently listed on the Main Board of the Stock Exchange (stock code: 102) Completion Accounts the management consolidated statement of financial position of the Disposal Company made up as at the Disposal Completion Date and prepared by the Company Completions collectively, Disposal Completion and Share Transfer Completion connected person(s) has the meaning ascribed to it in the Listing Rules Continuing Connected Transaction the continuing connected transaction to be entered into between the Remaining Group and the Disposal Group pursuant to the Lease Agreement controlling shareholder(s) has the meaning ascribed to it in the Listing Rules Disposal the proposed disposal of the Sale Shares pursuant to the terms of the Disposal Agreement (including the Supplemental Arrangements) Disposal Agreement the conditional agreement dated 20 December 2010, entered into between the Company (as vendor) and Green Motherlode (as purchaser) in relation to the Disposal, as amended and supplemented by the Supplemental Disposal Agreement Disposal Business bathrooms trading; marble and bathroom products manufacturing and export; and bathroom products retail and renovation operations Disposal Company Arnhold (BVI) Limited, a company incorporated in the BVI with limited liability which is a directly wholly-owned subsidiary of the Company as at the Latest Practicable Date 2

5 DEFINITIONS Disposal Completion completion of the Disposal Disposal Completion Date date of Disposal Completion, being the third Business Day after all the Disposal Conditions are fulfilled or waived (as the case may be) in accordance with the Disposal Agreement or such later date as the parties to the Disposal Agreement may agree in writing Disposal Conditions being the conditions precedent to Disposal Completion pursuant to the Disposal Agreement Disposal Consideration the aggregate consideration of HK$149 million (subject to adjustment) payable by Green Motherlode to the Company for the Sale Shares pursuant to the Disposal Agreement Disposal Group the Disposal Company and all companies in which the Disposal Company has interests Director(s) the director(s) of the Company from time to time Executive the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director Form of Acceptance the form of acceptance and transfer of the Offer Shares in respect of the Share Offer Green Motherlode Green Motherlode Limited, a company incorporated in the BVI with limited liability, being the purchaser of the Sale Shares, is owned as to 50% by Green Family Holdings Limited, which is in turn wholly owned by Mr. Michael John Green, who is a Director and a substantial Shareholder, and as to 50% by Mrs. Judith Leslie Green, the spouse of Mr. Michael John Green Green Share(s) 174,367,617 Shares, representing approximately 73.76% of the entire issued share capital of the Company as at the Latest Practicable Date, owned by the Vendors to be sold to the Offeror pursuant to the Share Transfer Agreement Group the Company and its subsidiaries 3

6 DEFINITIONS Group Reorganisation the proposed group reorganisation of the Company which sever the Disposal Business from the Remaining Business such that, when completed, will result in (i) the Remaining Group principally engaging in the Remaining Business; and (ii) the Disposal Group principally engaging in the Disposal Business Hong Kong the Hong Kong Special Administrative Region of the PRC HSBC Guarantee the corporate guarantee dated 3 June 1997 given by the Company in favour of the Hongkong and Shanghai Banking Corporation Limited in relation to a banking facility of a limit up to HK$52,000,000 Independent Board Committee the independent committee of the Board, comprising Messrs. Owen Mark Lewellin Rhys and Thaddeus Thomas Beczak, formed to advise and give recommendation to the SD Independent Shareholders in respect of the Disposal (including the Supplemental Arrangements) Independent Financial Adviser or CIMB CIMB Securities (HK) Limited, a licensed corporation to carry out Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, and the independent financial adviser appointed by the SD Independent Board Committee and the Independent Board Committee to advise the SD Independent Board Committee, the Independent Board Committee and the SD Independent Shareholders in relation to the Special Deals Joint Announcements the announcements jointly published by the Company and the Offeror dated 28 December 2010 and 21 January 2011 respectively Latest Practicable Date 21 January 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular Lease Agreement the agreement to be entered into between ATL (as lessee), which is a member of the Remaining Group, and Arnhold Properties (BVI) Limited (as lessor), which is a member of the Disposal Group, relating to the lease of office space 4

7 DEFINITIONS Listing Rules the Rules Governing the Listing of Securities on the Stock Exchange Main Board the Main Board of the Stock Exchange (excluding the option market) Messrs. Green Mr. Michael John Green and Mr. Daniel George Green Michael Green Family Trust a trust established by Mr. Michael John Green in which Mr. Daniel George Green has a beneficial interest Offers the Share Offer and the Option Offer Offer Price the amount of HK$ per Offer Share payable by the Offeror to holders of Offer Shares for each Offer Share accepted under the Share Offer Offer Shares the existing issued Shares and the Options Shares but excluding the Green Shares and any other Shares owned by the Offeror Group on the Share Transfer Completion Date and/or acquired or agreed to be acquired by the Offeror Group while the Share Offer remains open for acceptance Offeror Delight Max Limited, a company incorporated in the BVI with limited liability, being the purchaser of the Green Shares Offeror Group the Offeror and its ultimate beneficial owners, namely Mr. Ho Yau Lung, Lawrence, Mr. Wang John Peter Ben, Mr. Zhang Jian Hua, Mr. Ko Chun Fung, Henry, Mr. Xu Yi, Ms. Cheng Ho Yan, Mr. Tsang Cheong Wai, Edmund, Mr. Chang Yun Wai, Mr. Yip Yuk Kwan and Mr. Sun Chung Man and parties acting in concert with any of them Option Holder the holder of the Share Options from time to time Option Offer the possible unconditional mandatory cash offer made by Access Capital on behalf of the Offeror Group for the cancellation of the Share Options in accordance with the Takeovers Code 5

8 DEFINITIONS Option Shares 1,600,000 Shares to be issued upon the exercise of the outstanding Share Options held by Mr. Daniel George Green with an exercise price of HK$1.49 per Share Option PRC the People s Republic of China but excluding, for the purpose of this circular, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan Proposed Special Dividend proposed cash dividend of not less than HK$177,000,000 (subject to finalisation) recommended by the Board and to be approved by the Shareholders at the SGM, payable to the Qualifying Shareholders Qualifying Shareholder(s) Shareholder(s) whose name(s) appear(s) on the register of members of the Company at the close of business on the Record Date Record Date 16 February 2011, the record date for the payment of the Proposed Special Dividend (which will be a date prior to Share Transfer Completion) Registrar Computershare Hong Kong Investor Services Limited, the Hong Kong branch share registrar and transfer office of the Company, at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wan Chai, Hong Kong Remaining Business tiles trading and engineering operations Remaining Group the Company and its subsidiaries immediately after the Group Reorganisation and Disposal Completion, which are expected to be principally engaged in the Remaining Business Sale Shares the entire issued share capital of the Disposal Company SD Independent Board Committee the independent committee of the Board, comprising Messrs. Lim Ghee Keong, Owen Mark Lewellin Rhys and Thaddeus Thomas Beczak, formed to advise and give recommendation to the SD Independent Shareholders in respect of the Special Deals 6

9 DEFINITIONS SD Independent Shareholders Shareholders other than (i) Green Motherlode, its associates and parties acting in concert with any of them, including Messrs. Green and other family members of Messrs. Green; (ii) the Offeror Group, if the Offeror and/or its associates will have any shareholding in the Company; and (iii) any Shareholders who are involved in or interested in the Special Deals or any transactions contemplated therein SFC the Securities and Futures Commission of Hong Kong SFO the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) SGM the special general meeting of the Company to be convened and held on Thursday, 17 February 2011 for the purpose of considering and, if thought fit, approving the terms of the Special Deals, the Capital Reorganisation and the Proposed Special Dividend Shareholder(s) the registered holder(s) of the Share(s) from time to time Share(s) ordinary shares of HK$0.10 each in the issued share capital of the Company Share Offer the possible unconditional mandatory cash offer made by Access Capital on behalf of the Offeror Group for the Offer Shares in accordance with the Takeovers Code Share Options options issued under the share option scheme of the Company approved and adopted by the Shareholders at a special general meeting of the Company on 11 July 2002 Share Transfer the proposed transfer of the Green Shares pursuant to the terms of the Share Transfer Agreement Share Transfer Agreement the conditional agreement dated 20 December 2010, entered into between the Vendors (as vendors) and the Offeror (as purchaser) in relation to the Share Transfer, as amended and supplemented by the Supplemental Share Transfer Agreement 7

10 DEFINITIONS Share Transfer Completion completion of the Share Transfer Share Transfer Completion Date the date of Share Transfer Completion, being the third Business Day after the day on which the last of the Share Transfer Conditions is fulfilled or waived (as the case may be) by the Offeror in accordance with the Share Transfer Agreement or such later date as the parties to the Share Transfer Agreement may agree in writing Share Transfer Conditions the conditions precedent to Share Transfer Completion pursuant to the Share Transfer Agreement Special Deals the Disposal (including the Supplemental Arrangements) and the Continuing Connected Transaction, both of which constitute special deals for the Company under Rule 25 of the Takeovers Code Stock Exchange The Stock Exchange of Hong Kong Limited substantial Shareholder(s) has the meaning ascribed to it in the Listing Rules Supplemental Arrangements the arrangements as agreed by the Company and Green Motherlode under the Supplemental Disposal Agreement with respect to the Business Contracts that could not be novated/assigned by the Disposal Group to the Remaining Group for the purpose of the Group Reorganisation, and including the deed of undertaking to be entered into between ACL and ATL on Disposal Completion, details of which are set out in the section headed Group Reorganisation in the letter from the Board in this circular Supplemental Disposal Agreement the supplemental agreement to the Disposal Agreement dated 21 January 2011 entered into between the Company (as vendor) and Green Motherlode (as purchaser) in relation to the Disposal (including the Supplemental Arrangements) Supplemental Share Transfer Agreement the supplemental agreement to the Share Transfer Agreement dated 21 January 2011 entered into between the Vendors (as vendors) and the Offeror (as purchaser) in relation to the Share Transfer 8

11 DEFINITIONS Takeovers Code Vendors HK$ the Code on Takeovers and Mergers Messrs. Green and HSBC International Trustee Limited Hong Kong dollar, the lawful currency of Hong Kong % per cent. 9

12 EXPECTED TIMETABLE The expected timetable set out below is indicative only and subject to change. Further announcement(s) will be made as and when appropriate Last day of dealings in the Shares cum-entitlement to the Proposed Special Dividend (Note 1) Thursday, 10 February First day of dealings in the Shares ex-entitlement to the Proposed Special Dividend (Note 1) Friday, 11 February Latest time for lodging transfers of the Shares with the Registrar in order to be qualified for the Proposed Special Dividend :30 p.m. on Monday, 14 February Closure of the register of members of the Company for determining the entitlements of the Qualifying Shareholders to the Proposed Special Dividend Tuesday, 15 February to Wednesday, 16 February (both dates inclusive) Latest time for lodging form of proxy in respect of the SGM (Note 2) :00 noon on Tuesday, 15 February Record Date for determining the entitlements of the Qualifying Shareholders to the Proposed Special Dividend... Wednesday, 16 February SGM :00 noon on Thursday, 17 February Effective date of the Capital Reorganisation Friday, 18 February Announcement of final amount of the Proposed Special Dividend Tuesday, 22 February Expected date of despatch of the cash cheque for the Proposed Special Dividend to the Qualifying Shareholders Friday, 25 February Notes: 1. The distribution of the Proposed Special Dividend is subject to Disposal Completion and the Capital Reorganisation becoming effective. 2. The form of proxy should be lodged with the Registrar as soon as possible and in any event not later than the time and date stated above. Completion and return of a form of proxy for the SGM will not preclude a Shareholder from attending and voting in person at the SGM if he or she so wishes. In such event, the returned form of proxy will be deemed to have been revoked. 10

13 LETTER FROM THE BOARD ARNHOLD HOLDINGS LIMITED * (Incorporated in Bermuda with limited liability) (Stock Code: 102) Executive Directors: Michael John Green (Chairman) (also appointed as the alternate director to Simon Murray) Daniel George Green (Managing Director) Lai Ka Tak, Patrick Non-executive Directors: Lim Ghee Keong Christopher John David Clarke Independent non-executive Directors: Owen Mark Lewellin Rhys Thaddeus Thomas Beczak Simon Murray Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda Head office and principal place of business in Hong Kong: 6th Floor Victoria Centre 15 Watson Road Hong Kong 24 January 2011 To the Shareholders Dear Sir or Madam, (I) SPECIAL DEAL AND MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF ASSETS (II) PROPOSED DISTRIBUTION OF SPECIAL DIVIDEND (III) SPECIAL DEAL AND CONTINUING CONNECTED TRANSACTION INTRODUCTION AND (IV) CAPITAL REORGANISATION that: The Company and the Offeror jointly announced on 28 December 2010, among other things, (i) the Vendors entered into the Share Transfer Agreement (as amended and supplemented by the Supplemental Share Transfer Agreement) with the Offeror on 20 December 2010, pursuant to which the Vendors have conditionally agreed to sell and the Offeror has conditionally agreed to purchase the Green Shares for a cash consideration of HK$203,678,813 (equivalent to approximately HK$ per Green Share). The Green Shares represent approximately 73.76% of the issued share capital of the Company as at the Latest Practicable Date; * For identification purpose only 11

14 LETTER FROM THE BOARD (ii) (iii) (iv) on 20 December 2010, the Company entered into the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), pursuant to which Green Motherlode has conditionally agreed to purchase and the Company has conditionally agreed to sell the entire issued share capital of the Disposal Company. The Disposal Consideration of HK$149 million (subject to adjustment) will be satisfied in cash; subject to and upon Disposal Completion and the Capital Reorganisation becoming effective, the Board has resolved to recommend to the Shareholders for approval at the SGM a declaration of the Proposed Special Dividend of not less than HK$177 million (subject to finalisation); and upon completion of the Group Reorganisation and Disposal Completion, as an interim measure to ensure smooth transition of the Remaining Group to a new controlling shareholder, the Remaining Group and the Disposal Group will enter into the Lease Agreement pursuant to which the Remaining Group will lease some office space at premises owned by the Disposal Group upon Disposal Completion. Upon Share Transfer Completion, the Offeror Group will own 174,367,617 Shares, representing approximately 73.76% of the issued share capital of the Company as at the Latest Practicable Date or approximately 73.27% of the issued share capital of the Company as enlarged by the issue of the Option Shares upon full exercise of the Share Options. Under Rules 13 and 26.1 of the Takeovers Code, the Offeror will be required to make an unconditional mandatory general cash offer for all the Shares not already owned or agreed to be acquired by the Offeror Group and to make an appropriate offer for all the Share Options upon Share Transfer Completion. The Offer Price will be HK$ per Offer Share, which is equal to the price per Green Share payable under the Share Transfer Agreement. Details of the Offers and the information on the Offeror were set out in the Joint Announcements. Upon Share Transfer Completion, a composite document (accompanied by the Form of Acceptance) in connection with the Offers setting out, inter alia, details of the Offers and incorporating the respective letters of advice from an independent committee of the Board and the Independent Financial Adviser on the Offers will be issued and despatched by the Offeror and the Company jointly to the Shareholders in accordance with the Takeovers Code. On 21 January 2011, the Supplemental Disposal Agreement was entered into between the Company and Green Motherlode to provide for, among other things, with respect to the Business Contracts that could not be novated/assigned by the Disposal Group to the Remaining Group, where as agreed by the Company and Green Motherlode under the Supplemental Disposal Agreement, (i) the transfer of money received by the Disposal Group in respect of the Remaining Business (with no service fee) to the Remaining Group within 3 Business Days upon receipt of such monies, and (ii) the assumption and performance by the Remaining Group of all benefits, rights, obligations and liabilities under such Business Contracts of the Remaining Business as if the Remaining Group had been an original party to such Business Contracts, and including a deed of undertaking to be entered into between ACL and ATL on Disposal Completion. 12

15 LETTER FROM THE BOARD In connection with the Supplemental Disposal Agreement, on 21 January 2011, the Supplemental Share Transfer Agreement was entered into between the Offeror and the Vendors to provide for, among other things (i) the amendment of the references to the Disposal Agreement in the Share Transfer Agreement to include references to the Disposal Agreement as amended by the Supplemental Disposal Agreement; and (ii) instead of being a Share Transfer Condition, Messrs. Green will undertake to procure the release and discharge of the HSBC Guarantee on or before 31 December 2011, that is, the change of the release of the HSBC Guarantee from a Share Transfer Condition to a post-share Transfer Completion undertaking. Green Motherlode is owned as to 50% by Green Family Holdings Limited, which is in turn wholly owned by Mr. Michael John Green, who is a Director and a substantial Shareholder, and as to 50% by Mrs. Judith Leslie Green, the spouse of Mr. Michael John Green, and Green Motherlode is therefore a connected person of the Company. As each of the applicable percentage ratios in respect of the Disposal exceeds 25% but is below 75%, the Disposal (including the Supplemental Arrangements) constitutes a major and connected transaction for the Company pursuant to the Listing Rules. The entering into of the Lease Agreement will constitute a continuing connected transaction for the Company as the Disposal Company upon Disposal Completion will be wholly owned by Green Motherlode. In addition, any time on and after Disposal Completion, Mr. Michael John Green will continue to be a connected person of the Company by way of his capacity as Director within the preceding twelve months pursuant to the Listing Rules. As each of the applicable percentage ratios as defined under the Listing Rules in respect of the Continuing Connected Transaction is less than 0.10%, the Continuing Connected Transaction will exempt from the reporting, announcement and the independent shareholders approval requirements under Chapter 14A of the Listing Rules. The Disposal (including the Supplemental Arrangements) and the Continuing Connected Transaction constitute special deals on the part of the Company under Rule 25 of the Takeovers Code and require the consents of the Executive. Such consents, if granted, will be subject to the Independent Financial Adviser publicly stating that in its opinion the respective terms of the Special Deals are fair and reasonable; and the approval of the Special Deals by the SD Independent Shareholders by way of poll at the SGM. Shareholders including (i) Green Motherlode, its associates and parties acting in concert with any of them, including Messrs. Green and other family members of Messrs. Green; (ii) the Offeror Group, if the Offeror and/or its associates will have any shareholding in the Company; and (iii) any Shareholders who are involved in or interested in the Special Deals or any transactions contemplated therein, will abstain from voting on the proposed resolution in respect of the Special Deals at the SGM. The Capital Reorganisation and the Proposed Special Dividend are subject to approval by the Shareholders and no Shareholders are required to abstain from voting on the proposed resolutions in these respects at the SGM. 13

16 LETTER FROM THE BOARD The purpose of this circular is to provide you with details of (i) the Group Reorganisation; (ii) the Disposal (including the Supplemental Arrangements); (iii) the Capital Reorganisation; (iv) the Proposed Special Dividend; and (v) the Continuing Connected Transaction, and to give you the notice of the SGM. THE DISPOSAL AGREEMENT Date 20 December 2010 (as amended and supplemented by the Supplemental Disposal Agreement dated 21 January 2011) Parties (i) The Company (as vendor) (ii) Green Motherlode (as purchaser) As at the Latest Practicable Date, Green Motherlode is owned as to 50% by Green Family Holdings Limited, which is in turn wholly owned by Mr. Michael John Green, who is a Director and a substantial Shareholder, and as to 50% by Mrs. Judith Leslie Green, the spouse of Mr. Michael John Green, and Green Motherlode is therefore a connected person of the Company. Sale Shares Pursuant to the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), Green Motherlode has conditionally agreed to purchase and the Company has conditionally agreed to sell the Sale Shares, free from all encumbrances and together with all rights now or hereafter attaching to them, including all rights to any dividend or other distribution declared, made or paid on and after the Disposal Completion Date. Disposal Consideration The Disposal Consideration of HK$149 million (subject to adjustment) was determined after arm s length negotiation between the Company and Green Motherlode with reference to the net asset value of the Disposal Group (approximately HK$142 million as at 30 June 2010 as determined based on the management accounts of the Disposal Group) and adjusted for the market value of the properties held by the Disposal Group (based on the assessment by Vigers Appraisal & Consulting Limited, an independent valuer, as at 30 November 2010) and assuming the Group Reorganisation has been completed on 30 June The Disposal Consideration will be satisfied in cash. 14

17 LETTER FROM THE BOARD In the event that the net asset value of the Disposal Group as shown in the Completion Accounts is more than HK$142 million, Green Motherlode shall pay such surplus to the Company in cash on dollar-for-dollar basis. In the event that the net asset value of the Disposal Group as shown in the Completion Accounts is less than HK$142 million, no adjustment on the Disposal Consideration shall be made. The Company does not anticipate any material adjustment to the Disposal Consideration as at the Latest Practicable Date. Disposal Conditions Disposal Completion is conditional upon, among other things: (a) the Group Reorganisation having been completed; (b) the Capital Reorganisation having been completed; (c) the passing of the necessary resolutions by the Shareholders (other than such Shareholders who are required to abstain from voting by law, the Listing Rules, the Takeovers Code, the Stock Exchange, the SFC and/or the constitutional documents of the Company) at the SGM approving (i) the execution, delivery and performance of the Disposal Agreement (in particular, the sale of the Sale Shares); and (ii) the Proposed Special Dividend, in accordance with the constitutional documents of the Company and the requirements of the Listing Rules and the Takeovers Code; (d) the consent of the Executive in relation to the Disposal Agreement and the transactions contemplated as a special deal under Rule 25 of the Takeovers Code having been obtained and not revoked prior to Disposal Completion; (e) no indication being given by the Stock Exchange or the SFC prior to Disposal Completion that the listing of the Shares on the Main Board may be revoked or withdrawn; (f) all the Share Transfer Conditions (except the Share Transfer Condition (c)) having been fulfilled or waived, as applicable; (g) the warranties provided by the Company remaining true and accurate and not misleading in all material aspects at Disposal Completion as if repeated on the Disposal Completion Date; 15

18 LETTER FROM THE BOARD (h) all necessary consents to the sale and purchase of the Sale Shares having been granted by third parties (including financial institutions which provide loan facilities to the Disposal Group); and (i) the warranties provided by Green Motherlode remaining true and accurate and not misleading in all material aspects at Disposal Completion as if repeated on the Disposal Completion Date. Green Motherlode may waive the Disposal Condition (g) either in whole or in part at any time by notice in writing to the Company. The Company may waive the Disposal Condition (i) either in whole or in part at any time by notice in writing to Green Motherlode. The Disposal Conditions (a), (b), (c), (d), (e), (f) and (h) are incapable of being waived. As at the Latest Practicable Date, save for the Disposal Condition (h), none of the Disposal Conditions have been fulfilled. In the event that any of the Disposal Conditions has not been fulfilled (or waived by the parties to the Disposal Agreement) prior to 31 March 2011, then Green Motherlode will not be bound by the Disposal Agreement, and the Disposal Agreement will cease to be of any effect and save in respect of claims arising out of any antecedent breach of the Disposal Agreement. Disposal Completion Subject to the satisfaction or (if applicable) waiver of the Disposal Conditions as set out above, Disposal Completion will take place on the Disposal Completion Date. The Share Transfer Agreement (as amended and supplemented by the Supplemental Share Transfer Agreement) and the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) are inter-conditional with each other. Share Transfer Completion is intended to take place simultaneously with Disposal Completion. Group Reorganisation Pursuant to the Group Reorganisation, the Remaining Group will be principally engaged in tiles trading and engineering operations and the Disposal Group will carry on the Disposal Business which refers to the rest of the existing business operations of the Group. The Disposal Group will, upon Disposal Completion, be sold to Green Motherlode. Upon completions of the Group Reorganisation, the Disposal and the Share Transfer, the Company will continue as a publicly listed company and will continue to operate the Remaining Business. 16

19 LETTER FROM THE BOARD As part of the Group Reorganisation, the Business Contracts will be assigned or novated from the Disposal Group to the Remaining Group and effective upon such written consents having been obtained from the relevant parties (including the customers, suppliers and distributors). The management of the Group has used their best endeavours to negotiate with the relevant customers, suppliers and distributors in order to seek such consents but the Group anticipates that not all of such consents can be obtained before Disposal Completion given some of the Business Contracts were obtained from the Government of Hong Kong and other contractors through tender and whose consents are unlikely to be provided on the basis that (i) it is not a contractual obligation for the other parties to give consents; and (ii) assignment or novation is not an ordinary business practice for the government and the contractors. Since 17 December 2010, ATL has been receiving sales orders and placing purchase orders for the Remaining Business. As a result, on 21 January 2011, the Supplemental Disposal Agreement was entered into between the Company and Green Motherlode to provide for, among other things, with respect to the Business Contracts that could not be novated/assigned by the Disposal Group to the Remaining Group, where as agreed by the Company and Green Motherlode under the Supplemental Disposal Agreement, (i) the transfer of money received by the Disposal Group in respect of the Remaining Business (with no service fee) to the Remaining Group within 3 Business Days upon receipt of such monies; and (ii) the assumption and performance by the Remaining Group of all benefits, rights, obligations and liabilities under such Business Contracts as if the Remaining Group had been an original party to such Business Contracts, and including a deed of undertaking to be entered into between ACL and ATL on Disposal Completion. The abovementioned arrangements are collectively known as the Supplemental Arrangements. If there is any non-performance by the third party, ACL shall notify ATL within 3 Business Days when payment is due to be made by the third party to ACL, and ATL may require ACL to enforce the contract and take action against such third party as ATL considers appropriate and at the cost of ATL. Also, as ACL and ATL will enter into a deed of undertaking in relation to the arrangement between ACL and ATL in this regard, both ACL and ATL are bound by and are under an obligation to perform under the deed of undertaking. The management of the Group anticipates that the Supplemental Arrangements will remain effective until such Business Contracts are completed or terminated or expired. Regarding the obligation to transfer any monies received by the Disposal Group to the Remaining Group in respect of the Remaining Business, it is currently expected not to last for more than two years, estimated based on the preliminary delivery schedules provided by the customers and suppliers. The estimated amounts of the Business Contracts pending to be assigned and novated from the Disposal Group to the Remaining Group was approximately HK$48.3 million for sales orders and HK$22.1 million for purchase orders as at 31 December

20 LETTER FROM THE BOARD Group structure before and after completion of the Group Reorganisation The chart below illustrates the simplified Group structure as at the Latest Practicable Date and immediately before completion of the Group Reorganisation (assuming no other changes since the Latest Practicable Date): Other Directors The Vendors Public 1.08% 73.76% 25.16% The Company Disposal Group (note 1) and Remaining Group (note 2) Notes: 1. Bathrooms trading; marble and bathroom products manufacturing and export; and bathroom products retail and renovation operations. 2. Tiles trading and engineering operations. 18

21 LETTER FROM THE BOARD The chart below shows the simplified Group structure immediately after completion of the Group Reorganisation (assuming no other changes in the shareholding of the Company since the Latest Practicable Date): Other Directors The Vendors Public 1.08% 73.76% 25.16% The Company Disposal Group (note 1) Remaining Group (note 2) Notes: 1. Bathrooms trading; marble and bathroom products manufacturing and export; and bathroom products retail and renovation operations. 2. Tiles trading and engineering operations. Reason for the Group Reorganisation After arm s length negotiations, the Offeror has conditionally agreed to acquire the controlling stake in the Company from the Vendors provided that the Group will be principally engaged in tiles trading and engineering operations only. The Board considers that the Group Reorganisation will facilitate Share Transfer Completion and accordingly the Offers to the Shareholders and the Option Holder respectively. 19

22 LETTER FROM THE BOARD Information on the Group The Group is engaged in the distribution of building materials and engineering equipment in Hong Kong and the PRC. The Group also wholly owns and operates a stone processing facility in the PRC. As per the interim results of the Group as at 30 June 2010, the Group currently focuses on higher value opportunities in its chosen segments and especially the retail of plumbing fixtures and the manufacturing and export of building materials. Information on Green Motherlode Green Motherlode, a company incorporated in the BVI and whose entire issued share capital is owned as to 50% by Green Family Holdings Limited, which is in turn wholly owned by Mr. Michael John Green, and as to 50% by Mrs. Judith Leslie Green, the spouse of Mr. Michael John Green. Green Motherlode is an investment holding company. Information on ACL Arnhold & Company Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the Latest Practicable Date. ACL is principally engaged in trading and engineering operations and it will be a member of the Disposal Group upon Disposal Completion. Information on the ATL Arnhold Trading Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the Latest Practicable Date. ATL is principally engaged in trading and engineering operations and it will be a member of the Remaining Group upon Disposal Completion. 20

23 LETTER FROM THE BOARD Information on the Disposal Company The Disposal Company, a company incorporated in the BVI with limited liability, is a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date. Upon completion of the Group Reorganisation, the Disposal Company will become the holding company of the Disposal Group and will be engaged in, through the Disposal Group, a range of operations including, among others, bathrooms trading; marble and bathroom products manufacturing and export; and bathroom products retail and renovation operations and holding of office and storage space. The properties owned by the Disposal Group have an aggregate market value of approximately HK$81.2 million (including an indicative value of the building portion of a property located at Hualiaodun, Yaoshan Village, Xiegang Town, Dongguan City, Guangdong Province, the PRC (property no. 3 as at set out in the valuation report in appendix IV to this circular), which has yet to be obtained the relevant building ownership certificate, of approximately HK$11.8 million) as at 30 November 2010 based on the assessment by Vigers Appraisal & Consulting Limited, an independent property valuer. Valuation report of these properties has been set out in appendix IV to this circular. In addition, the unaudited profit before and after taxation of the Disposal Group for each of the two years ended 31 December 2008 and 2009, assuming the Group Reorganisation has been completed on 1 January 2008, were as follows: Year ended 31 December HK$ 000 HK$ 000 Profit before taxation 20,277 1,936 Profit after taxation 18, The unaudited net asset value of the Disposal Group as at 30 June 2010, assuming the Group Reorganisation had been completed on 30 June 2010, was approximately HK$142 million. Possible financial effects of the Disposal As set out in the unaudited pro forma financial information on the Remaining Group in appendix II to this circular, based on the Disposal Consideration of HK$149 million, less (i) the unaudited net asset value of the Disposal Group as at 30 June 2010 of approximately HK$142 million and (ii) the estimated aggregate professional and related costs to be incurred to complete the Group Reorganisation, the Disposal, the Proposed Special Dividend and the Capital Reorganisation of approximately HK$3.6 million, the gain on the Disposal is estimated to be approximately HK$3.4 million based on the basis and assumption that the Group Reorganisation and the Disposal had been completed as at 30 June Further details of the estimated gain on the Disposal are set out in notes 2 and 3 to the Unaudited pro forma financial information on the Remaining Group on page II-4 of this circular. 21

24 LETTER FROM THE BOARD The unaudited pro forma financial information (including the gain on the Disposal) on the Remaining Group and the expected gain on the Disposal were reported on by the reporting accountant of the Company and the financial adviser to the Company in accordance with Rule 10 of the Takeovers Code as set out in appendices II and III to this circular respectively. As set out in the pro forma financial information on the Remaining Group in appendix II to this circular, assuming the Group Reorganisation and the Disposal had been completed on 1 January 2009, the pro forma net profit of the Remaining Group for the year ended 31 December 2009 would increase to HK$4.1 million as compared to the net profit of the Group of HK$1.2 million for the same year. Assuming the Group Reorganisation, the Disposal and the Proposed Special Dividend had been completed on 30 June 2010, the pro forma total assets of the Remaining Group as at 30 June 2010 would decrease to approximately HK$56.5 million or HK$0.24 per Share (based on 236,396,000 Shares in issue as at the Latest Practicable Date) as compared to the total assets of the Group of approximately HK$289.2 million as at the same date, while the pro forma total liabilities of the Remaining Group as at 30 June 2010 would also decrease to approximately HK$14.3 million or HK$0.06 per Share (based on 236,396,000 Shares in issue as at the Latest Practicable Date) as compared to the total liabilities of the Group of approximately HK$77.9 million as at the same date. Upon Disposal Completion, the Company will not hold any shareholding interest in the Disposal Group and the Disposal Group will cease to be subsidiaries of the Company. Reasons for and benefits of the Disposal The Disposal Consideration is higher than the net asset value of the Disposal Group having adjusted for the market value of the properties to be held by it as at 30 November 2010 and assuming the Group Reorganisation has been completed on 30 June The Board (excluding the members of the SD Independent Board Committee or the Independent Board Committee whose views are expressed in the letters from the SD Independent Board Committee or the Independent Board Committee respectively) are of the view that the Disposal would enable the Company to realise its investments in the Disposal Group at a fair price. In view of the above and that (i) the net proceeds from the Disposal will be distributed to the Shareholders by way of the Proposed Special Dividend (subject to and upon Disposal Completion and Share Transfer Completion and upon the Capital Reorganisation becoming effective); (ii) the Disposal will facilitate Share Transfer Completion which will result in the Share Offer to the Shareholders; and (iii) the Share Offer price of HK$ per Offer Share together with the Proposed Special Dividend per Share are significantly above the Share price before the joint announcement published by the Company and the Offeror dated 28 December 2010 in general, the Directors (excluding the members of the SD Independent Board Committee or the Independent Board Committee whose views are expressed in the letters from the SD Independent Board Committee or the Independent Board Committee respectively) consider the Disposal to be fair and reasonable and in the interests of the Company and the Shareholders as a whole. Mr. Michael John 22

25 LETTER FROM THE BOARD Green, who are regarded as having material interests in the transaction contemplated under the Disposal Agreement in view of his interests in Green Motherlode, have abstained from voting on the board resolution on such transaction. PROPOSED SPECIAL DIVIDEND The Board is pleased to announce that, subject to and upon Disposal Completion and Share Transfer Completion and upon the Capital Reorganisation becoming effective, it has resolved to recommend to the Shareholders for approval at the SGM a declaration of the Proposed Special Dividend of not less than HK$177 million (subject to finalisation). Being one of the Share Transfer Conditions, the Offeror agreed that the Company will be entitled to declare and pay the Proposed Special Dividend to each Qualifying Shareholders, including, for the avoidance of doubt, the Vendors. The Board intends to apply the estimated net proceeds received from the Disposal (after deducting all relevant expenses) of approximately HK$145.4 million and any surplus cash of the Company for the payment of the Proposed Special Dividend while maintaining sufficient cash resources for the Remaining Group to operate the Remaining Business. As at 30 June 2010, the Group has cash and cash equivalent of approximately HK$70.5 million. Based on 236,396,000 Shares in issue as at the Latest Practicable Date and assuming the outstanding Share Options to be exercised in full by Mr. Daniel George Green on or before the Record Date, the Qualifying Shareholders will receive the Proposed Special Dividend in cash of not less than HK$ per Share (subject to finalisation). LEASE AGREEMENT Upon completion of the Group Reorganisation and Disposal Completion and as an interim measure to ensure smooth transition of the Remaining Group to a new controlling shareholder, ATL, which is a member of the Remaining Group, and Arnhold Properties (BVI) Limited, which is a member of the Disposal Group, will enter into the Lease Agreement as a temporary measure for the purpose of operating the Remaining Business. Pursuant to the Lease Agreement, ATL will lease some office space at premises owned by Arnhold Properties (BVI) Limited upon Disposal Completion. Key terms of the Lease Agreement and the Continuing Connected Transaction are set out below: Lessor: Arnhold Properties (BVI) Limited Lessee: ATL Term: One year from the Disposal Completion Date 23

26 LETTER FROM THE BOARD Rent: HK$24,000 per month, which is determined after arm s length negotiation and with reference to the prevailing market rent and the size of the office space to be occupied by the lessee Deposits: HK$48,000 Information on the Arnhold Properties (BVI) Limited Arnhold Properties (BVI) Limited, a company incorporated in BVI and a wholly-owned subsidiary of the Company as at the Latest Practicable Date. Arnhold Properties (BVI) Limited is principally engaged in property holding and it will be a member of the Disposal Group upon Disposal Completion. Information on ATL Arnhold Trading Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the Latest Practicable Date. ATL is principally engaged in trading and engineering operations and it will be a member of the Remaining Group upon Disposal Completion. LISTING RULES AND TAKEOVERS CODE IMPLICATIONS Green Motherlode is owned as to 50% by Green Family Holdings Limited, which is in turn wholly owned by Mr. Michael John Green, who is a Director and a substantial Shareholder, who is interested in approximately 73.76% of the issued share capital of the Company as at the Latest Practicable Date, and as to 50% by Mrs. Judith Leslie Green, the spouse of Mr. Michael John Green. Green Motherlode is therefore a connected person of the Company. As each of the applicable percentage ratios as defined under the Listing Rules in respect of the Disposal exceeds 25% but is below 75%, the Disposal (including the Supplemental Arrangements) constitutes a major and connected transaction for the Company and subject to reporting, announcement and independent shareholders approval requirements pursuant to the Listing Rules. As any time on and after Disposal Completion, Mr. Michael John Green will continue to be a connected person of the Company by virtue of his capacity as Director within the preceding 12 months pursuant to the Listing Rules, the entering into of the Lease Agreement will constitute a continuing connected transaction for the Company. As the Continuing Connected Transaction will be carried out on normal commercial terms and each of the applicable percentage ratios as defined under the Listing Rules in respect of the Continuing Connected Transaction is less than 0.10%, the Continuing Connected Transaction will exempt from reporting, announcement and the independent shareholders approval requirements under Chapter 14A of the Listing Rules. 24