3DG Holdings (International) Limited - Proxy Solicitation & Information Statement 2021

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Hong Kong Resources Holdings Company Limited (the “ Company ”), you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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.

This circular appears for information purposes only and does not constitute an invitation or offer to sell, dispose, acquire, purchase or subscribe for securities in the Company.

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HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(Incorporated in Bermuda with limited liability and carrying on business in Hong Kong as HKRH China Limited)

(Stock Code: 2882)

(1) PROPOSED CAPITAL REORGANISATION; (2) PROPOSED CHANGE IN BOARD LOT SIZE;

(3) CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE;

(4) SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND

(5) NOTICE OF SGM

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the First Subscription

Capitalised terms used in this cover page have the same meanings as defined in this circular.

A letter from the Board is set out on pages 7 to 35 of this circular and a letter from the Independent Board Committee containing its recommendations to the Independent Shareholders is set out on pages 36 to 37 of this circular. A letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the First Subscription and the transactions contemplated thereunder is set out on pages 38 to 60 of this circular.

A notice convening the SGM to be held at Room 905, 9/F., Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong on Friday, 23 July 2021 at 11:00 a.m. is set out on pages SGM-1 to SGM-5 of this circular. A form of proxy for use at the SGM is also enclosed with this circular. Whether or not you intend to attend and vote at the SGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible but in any event not later than 48 hours (i.e. 11:00 a.m. on Wednesday, 21 July 2021) before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjournment thereof should you so wish.

30 June 2021

	Page
Precautionary measures for the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Appendix I – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SGM-1

– i –

PRECAUTIONARY MEASURES FOR THE SGM

The health of our shareholders, staff and stakeholders is of paramount importance to us. In view of the ongoing Novel Coronavirus (COVID-19) pandemic, the Company will implement the following precautionary measures at the SGM to protect attending Shareholders, staff and stakeholders from the risk of infection:

(i) Compulsory body temperature checks will be conducted for every Shareholder, proxy or other attendee at each entrance of the meeting venue. Any person with a body temperature of over 37.4 degrees Celsius may be denied entry into the meeting venue or be required to leave the meeting venue.
(ii) The Company encourages each attendee to wear a surgical face mask throughout the meeting and inside the meeting venue, and to maintain a safe distance between seats.
(iii) No refreshment will be served, and there will be no corporate gift.

In addition, the Company reminds all Shareholders that physical attendance in person at the meeting is not necessary for the purpose of exercising voting rights. Shareholders may appoint the chairman of the meeting as their proxy to vote on the relevant resolution(s) at the meeting instead of attending the meeting in person, by completing and return the proxy form attached to this document.

If any Shareholder chooses not to attend the meeting in person but has any question about any resolution or about the Company, or has any matter for communication with the board of directors of the Company, he/she is welcome to send such question or matter in writing to our registered office or to our email at [email protected]. If any Shareholder has any question relating to the meeting, please contact the Company’s branch share registrar, Tricor Tengis Limited as follows:

Tricor Tengis Limited Level 54, Hopewell Centre 183 Queen’s Road East, Hong Kong Email: [email protected] Tel: (852) 2980 1333 Fax: (852) 2810 8185

– ii –

EXPECTED TIMETABLE

The expected timetable for the Capital Reorganisation is set out below. The expected timetable is subject to the results of the SGM and is therefore for indicative purpose only. Any change to the expected timetable will be announced in a separate announcement by the Company as and when appropriate. All times and dates in this circular refer to Hong Kong local times and dates.

Event			Time and date
			2021
Latest time for lodging transfer documents in order		to
qualify for the attendance and voting at the SGM		. . . . . . . . .	. . . . . . . . . . . . . . 4:30 p.m.
			on Monday, 19 July
Closure of register of members of the Company for
determining the identity of the Shareholders entitled to
attend and vote at the SGM (both dates inclusive) . . . . . . . . . . . . . . . . . Tuesday, 20 July
			to Friday, 23 July
Latest time for lodging proxy form for the SGM	.	. . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m.
			on Wednesday, 21 July
Time and date of the SGM . . . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m.
			on Friday, 23 July
Publication of the announcement of the poll results		of the SGM	. . . . . . . . . Friday, 23 July
Effective date of the Capital Reorganisation . . . .	.	. . . . . . . . . . . . . . . . . . Tuesday, 27 July
First day of free exchange of existing
share certificates for new share certificates for the New Shares . . . . . . . Tuesday, 27 July
Commencement of dealings in the New Shares . .	.	. . . . . . . . . .	. . . . . . . . . . . . . . 9:00 a.m.
			on Tuesday, 27 July
Original counter for trading in the Existing Shares
in board lots of 10,000 Existing Shares
(in the form of existing share certificates) temporarily closes			. . . . . . . . . . . . . . 9:00 a.m.
			on Tuesday, 27 July
Temporary counter for trading in the New Shares
in board lots of 1,000 New Shares
(in the form of existing share certificates) opens		. . . . . . . . . .	. . . . . . . . . . . . . . 9:00 a.m.
			on Tuesday, 27 July
Original counter for trading in the New Shares
in board lots of 5,000 New Shares
(in the form of new share certificates) re-opens		. . . . . . . . . .	. . . . . . . . . . . . . . 9:00 a.m.
			on Tuesday, 10 August

– iii –

EXPECTED TIMETABLE

Event	Time and date
	2021
Parallel trading in the New Shares
(in the form of both new and existing
share certificates) commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m.
	on Tuesday, 10 August
Designated broker starts to stand in the market
to provide matching services for odd lots of New Shares	. . . . . . . . . . . . . . . . . 9:00 a.m.
	on Tuesday, 10 August
Designated broker ceases to stand in the market
to provide matching services for odd lots of New Shares	. . . . . . . . . . . . . . . . . 4:00 p.m.
	on Monday, 30 August
Temporary counter for trading in the New Shares
in board lots of 1,000 New Shares (in the form
of existing share certificates) closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:10 p.m.
	on Monday, 30 August
Parallel trading in the New Shares (in the form
of both new and existing certificates) ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:10 p.m.
	on Monday, 30 August
Last day for free exchange of existing share certificates
for new certificates for the New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m.
	on Wednesday, 1 September

– iv –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings when used herein:

“2009 Share Option Scheme” the share option scheme conditionally adopted by the Company on 23 January 2009
“2020 Share Option Scheme” the share option scheme conditionally adopted by the Company on 23 June 2020
“2023 Convertible Bonds” the 4% per annum convertible bonds due 2023 in the aggregate principal amount of HK$121,950,000 issued by the Company, of which HK$79,950,000 remained outstanding as at the Latest Practicable Date
“Announcement” the announcement of the Company dated 4 June 2021 relating to the Capital Reorganisation and the change in board lot size
“associate(s)” has the same meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“bondholder(s)” any person who for the time being is the registered holder of any of the Convertible Bonds
“Business Day” a day (other than a Saturday, Sunday or public holiday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Capital Reduction” the proposed reduction in the issued share capital of the Company and cancellation of any fractional Consolidated Shares arising out of the Share Consolidation each as detailed in the section headed “Letter from the Board – (1) Proposed Capital Reorganisation” of this circular
“Capital Reorganisation” collectively, the Share Consolidation, the Capital Reduction and the Share Sub-division
“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC
“Companies Act”
the Companies Act 1981 of Bermuda (as amended)

– 1 –

DEFINITIONS

“Company” Hong Kong Resources Holdings Company Limited, a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 2882)
“connected person(s)” has the same meaning ascribed to it under the Listing Rules
“Consolidated Preference preference share(s) of HK$0.4 each in the share capital Share(s)” of the Company upon the Share Consolidation becoming effective
“Consolidated Share(s)” ordinary share(s) of HK$0.4 each in the share capital of the Company upon the Share Consolidation becoming effective
“Conversion Shares” collectively, the First Conversion Shares and the Second Conversion Shares
“Convertible Bonds” collectively, the First Convertible Bonds and the Second Convertible Bonds
“Director(s)” the director(s) of the Company
“Existing Share(s)”
“First Conversion Price”
ordinary share(s) of HK$0.04 each in the share capital of the Company before the Capital Reorganisation becoming effective HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share (subject to adjustments), at which the bondholder can convert one (1) First Conversion Share
“First Conversion Shares”

the new Shares to be allotted and issued by the Company upon exercise of the conversion rights, pursuant to the terms and conditions of the First Convertible Bonds

“First Convertible Bonds”
the 4% per annum convertible bonds due 2023 in the aggregate principal amount of HK$52,000,000 to be issued by the Company to the First Subscriber
“First Subscriber”
Grace Fountain Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, the entire issued share capital of which is wholly and beneficially owned by Mr. Wang Chaoguang, the co-chairman and an executive Director

– 2 –

DEFINITIONS

“First Subscription” the subscription of the First Subscription Shares and the First Convertible Bonds by the First Subscriber pursuant to the terms of the First Subscription Agreement
“First Subscription Agreement” the conditional subscription agreement entered into between the Company and the First Subscriber dated 31 May 2021 in relation to the First Subscription
“First Subscription Price” the subscription price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per First Subscription Share
“First Subscription Shares” 650,000,000 new Existing Shares (equivalent to 65,000,000 New Shares) to be allotted and issued pursuant to the First Subscription Agreement
“Group” the Company and its subsidiaries
“HKSCC” Hong Kong Securities Clearing Company Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
“Independent Financial Adviser” or “Nuada”
the independent committee of the Board comprising all the independent non-executive Directors established to advise the Independent Shareholders in respect of the First Subscription Agreement and the transactions contemplated thereunder Nuada Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the First Subscription Agreement and the transactions contemplated thereunder
“Independent Shareholders” Shareholders other than Mr. Wang Chaoguang, the First Subscriber and their respective associates
“Independent Third Party(ies)”

any person(s) or company(ies) and its/their respective ultimate beneficial owner(s), to the best of the Director’s knowledge, information and belief having made all reasonable enquiries, are not connected persons of the Company and are third parties independent of the Company and its connected persons in accordance with the Listing Rules

– 3 –

DEFINITIONS

“Latest Practicable Date”
“Listing Rules”
“Long Stop Date”
“New Preference Share(s)”
“New Share(s)”
“PRC” or “Mainland China”
“Preference Share(s)”
“Second Conversion Price”
“Second Conversion Shares”
“Second Convertible Bonds”
“Second Subscriber”
28 June 2021, being the latest practicable date prior to the printing of this circular for ascertaining information contain herein
the Rules Governing the Listing of Securities on the Stock Exchange
31 August 2021 or such later date as may be agreed between the Company and the respective Subscribers in writing
preference share(s) of HK$0.001 each in the share capital of the Company upon the Capital Reorganisation becoming effective
ordinary share(s) of HK$0.001 each in the share capital of the Company upon the Capital Reorganisation becoming effective
the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
preference share(s) of HK$0.04 each in the share capital of the Company before the Capital Reorganisation becoming effective
HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per Second Conversion Share (subject to adjustments), at which the bondholder can convert one (1) Second Conversion Share
the new Shares to be allotted and issued by the Company upon exercise of the conversion rights, pursuant to the terms and conditions of the Second Convertible Bonds
the 4% per annum convertible bonds due 2023 in the aggregate principal amount of HK$32,500,000 to be issued by the Company to the Second Subscriber

Excel Horizon Investments Limited, a company incorporated in the British Virgin Islands with limited liability

– 4 –

DEFINITIONS

“Second Subscription”
the subscription of the Second Subscription Shares and the Second Convertible Bonds by the Second Subscriber pursuant to the terms of the Second Subscription Agreement
“Second Subscription Agreement” the conditional subscription agreement entered into between the Company and the Second Subscriber dated 31 May 2021 in relation to the Second Subscription
“Second Subscription Price” the subscription price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per Second Subscription Share
“Second Subscription Shares” 500,000,000 new Existing Shares (equivalent to 50,000,000 New Shares) to be allotted and issued pursuant to the Second Subscription Agreement
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM”
the special general meeting of the Company to be held to approve, among other things, the Capital Reorganisation, and the Subscription Agreements, including the grant of the Specific Mandates
“Share(s)”
the Existing Share(s), the Consolidated Share(s) or the New Share(s), as the context may require
“Shareholder(s)” holder(s) of the issued Shares
“Share Consolidation”
the proposed consolidation of every ten (10) Existing Shares in the share capital of the Company into one (1) Consolidated Share in the share capital of the Company; and every ten (10) Preference Shares in the share capital of the Company into one (1) Consolidated Preference Share in the share capital of the Company
“Share Option Schemes” collectively, the 2009 Share Option Scheme and the 2020 Share Option Scheme

“Share Sub-division” the proposed sub-division of each of the authorised but unissued Consolidated Share of HK$0.4 into four hundred (400) New Shares of HK$0.001 each; and each of the authorised but unissued Consolidated Preference Shares of HK$0.4 each into four hundred (400) New Preference Shares of HK$0.001 each

– 5 –

DEFINITIONS

“Specific Mandates”	the authority to be sought from the Shareholders or	the authority to be sought from the Shareholders or	the authority to be sought from the Shareholders or	the authority to be sought from the Shareholders or	the
	Independent Shareholders (as the	case	may	be)	to
	authorise the Board to issue the Subscription Shares
	and the Conversion Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscribers”	collectively, the First Subscriber	and	the	Second
	Subscriber
“Subscriptions”	collectively, the First Subscription	and	the	Second
	Subscription
“Subscription Agreements”	collectively, the First Subscription Agreement			and	the
	Second Subscription Agreement
“Subscription Shares”	collectively, the First Subscription	Shares		and	the
	Second Subscription Shares
“HK$”	Hong Kong dollars, the lawful currency of		Hong Kong
“%”	per cent.

– 6 –

LETTER FROM THE BOARD

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HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(Incorporated in Bermuda with limited liability and carrying on business in Hong Kong as HKRH China Limited)

(Stock Code: 2882)

Executive Directors: Principal place of business in Hong Kong: Mr. Li Ning (Chairman) Room 905, 9/F., Star House, Mr. Wang Chaoguang (Co-chairman) 3 Salisbury Road, Ms. Dai Wei Tsim Sha Tsui, Kowloon, Hong Kong Non-executive Director: Mr. Hu Hongwei Registered Office: Clarendon House Independent non-executive Directors: 2 Church Street Dr. Loke Yu alias Loke Hoi Lam Hamilton, HM 11 Mr. Fan, Anthony Ren Da Bermuda Mr. Chan Kim Sun

30 June 2021

To the Shareholders

Dear Sir/Madam,

(1) PROPOSED CAPITAL REORGANISATION; (2) PROPOSED CHANGE IN BOARD LOT SIZE;

(3) CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND

(4) SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

INTRODUCTION

References are made to the announcements of the Company dated 31 May 2021, 4 June 2021, 25 June 2021 and 28 June 2021 in relation to, among other things, the Subscriptions; and the Capital Reorganisation and the change in board lot size, respectively.

– 7 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with (i) a letter from the Board containing further details of the Capital Reorganisation, the change in board lot size, the Subscription Agreements and the transactions contemplated thereunder; (ii) a letter of recommendation from the Independent Board Committee to the Independent Shareholders in respect of the First Subscription Agreement and the transactions contemplated thereunder; (iii) a letter from the Independent Financial Adviser in respect of the First Subscription Agreement and the transactions contemplated thereunder; and (iv) other information as required under the Listing Rules, and to give you notice of the SGM containing the resolutions to be proposed at the SGM which is set out on pages SGM-1 to SGM-5 of this circular.

(1) PROPOSED CAPITAL REORGANISATION

The Company proposes to implement the following Capital Reorganisation involving the Share Consolidation, the Capital Reduction and the Share Sub-division as follows:

(i) every ten (10) issued and unissued Existing Shares of par value HK$0.04 each in the share capital of the Company shall be consolidated into one (1) Consolidated Share of par value HK$0.4; and every ten (10) issued and unissued Preference Shares of par value HK$0.04 each in the share capital of the Company shall be consolidated into one (1) Consolidated Preference Share of par value HK$0.4;
(ii) immediately following the Share Consolidation, the issued share capital of the Company shall be reduced through a cancellation of (a) any fractional Consolidated Share in the share capital of the Company that may arise as a result of the Share Consolidation; and (b) the paid up capital of the Company to the extent of HK$0.399 on each of the then issued Consolidated Shares such that the par value of each issued Consolidated Share shall be reduced from HK$0.4 to HK$0.001, so as to form a New Share of par value of HK$0.001;
(iii) immediately following the Share Consolidation, each of the authorised but unissued Consolidated Shares shall be sub-divided into four hundred (400) New Shares, so that the par value of each unissued Consolidated Share shall be reduced from HK$0.4 to HK$0.001; and each of the authorised but unissued Consolidated Preference Shares shall be sub-divided into four hundred (400) New Shares, so that the par value of each unissued Consolidated Preference Share shall be reduced from HK$0.4 to HK$0.001; and
(iv) the credit arising from the Capital Reduction be transferred to the contributed surplus account of the Company.

Effects of the Capital Reorganisation

As at the Latest Practicable Date, the authorised share capital of the Company is HK$230,000,000 divided into 5,000,000,000 Existing Shares of par value of HK$0.04 each and 750,000,000 Preference Shares of par value of HK$0.04 each, of which 1,546,716,012 Existing Shares have been issued as fully paid or credited as fully paid and no Preference Shares have been issued.

– 8 –

LETTER FROM THE BOARD

Assuming that no further Existing Shares and no Preference Shares are allotted, issued or repurchased between the Latest Practicable Date and up to and including the effective date of the Capital Reorganisation, upon the Capital Reorganisation becoming effective, the authorised share capital of the Company shall become HK$230,000,000 divided into 200,000,000,000 New Shares of par value of HK$0.001 each and 30,000,000,000 New Preference Shares of par value of HK$0.001 each, of which 154,671,601 New Shares will have been issued fully paid or credited as fully paid and no New Preference Shares will have been issued.

Based on 1,546,716,012 Existing Shares in issue as at the Latest Practicable Date or (as the case may be) 154,671,601 Consolidated Shares in issue as at the date on which the Share Consolidation becomes effective, and assuming no further Existing Shares and no Preference Shares or (as the case may be) Consolidated Shares and Consolidated Preference Shares will be issued or repurchased prior to the effective date of the Capital Reorganisation, a credit amounting to approximately HK$61,713,968 will arise as a result of the Capital Reduction. It is proposed that the credit arising from the Capital Reduction will be credited to the distributable reserve account of the Company, which will be utilised by the Company in such manner as the Board may deem fit and permitted under all applicable laws, and the memorandum of association and bye-laws of the Company.

Assuming no further Existing Shares and Preference Shares are issued or repurchased or surrendered from the Latest Practicable Date until the effective date of the Capital Reorganisation, the share capital structure of the Company will be as follows:

Immediately upon the As at the Latest Capital Reorganisation Practicable Date becoming effective Par value HK$0.04 per HK$0.001 per New Share Existing Share and and HK$0.001 per New HK$0.04 per Preference Preference Share Share Amount of HK$230,000,000 HK$230,000,000 authorised share capital Number of 5,000,000,000 200,000,000,000 New authorised shares Existing Shares and Shares and 30,000,000,000 750,000,000 New Preference Shares Preference Shares Number of issued 1,546,716,012 154,671,601 shares Existing Shares New Shares

– 9 –

LETTER FROM THE BOARD

Immediately upon the As at the Latest Capital Reorganisation Practicable Date becoming effective Amount of the HK$61,868,640.48 HK$154,671.601 issued share capital

Under the laws of Bermuda, contributed surplus is a distributed reserve and the Directors may apply the contributed surplus of the Company in any manner permitted by the Companies Act and the memorandum of association and bye-laws of the Company.

Upon the Capital Reorganisation becoming effective, all the New Shares will rank pari passu in all respects with each other, and all the New Preference Shares will rank pari passu in all respects with each other, in accordance with the memorandum of association and bye-laws of the Company. Fractions of Consolidated Shares that arise from the Share Consolidation will not be allocated to the Shareholders otherwise entitled thereto and will be aggregated and sold for the benefit of the Company.

Other than the relevant expenses to be incurred in relation to the Capital Reorganisation, the implementation of the Capital Reorganisation will have no effect on the consolidated net asset value of the Group, nor will it alter the underlying assets, business, operations, management or financial position of the Company or the interest of the Shareholders as a whole. The Directors believe that the Capital Reorganisation will not have any material adverse effect on the financial position of the Group.

Conditions of the Capital Reorganisation

The Capital Reorganisation is conditional upon the following conditions:

(i) the passing of a special resolution by the Shareholders to approve the Capital Reorganisation at the SGM;
(ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares; and
(iii) compliance with the relevant procedures and requirements under the Listing Rules and the applicable laws of Bermuda, including the Companies Act, to effect the Capital Reorganisation, which includes publication of a notice in relation to the Capital Reduction in Bermuda in accordance with the Companies Act; and the Directors being satisfied that on the date the Capital Reorganisation is to take effect, there are no reasonable grounds for believing that the Company is, or after the Capital Reorganisation would be, unable to pay its liabilities as they become due.

– 10 –

LETTER FROM THE BOARD

Subject to the fulfilment of the conditions of the Capital Reorganisation, the effective date of the Capital Reorganisation is expected to be on Tuesday, 27 July 2021.

As at the Latest Practicable Date, none of the above conditions have been fulfilled.

Application for listing

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the New Shares upon the Capital Reorganisation becoming effective. Subject to the granting of the approval of listing of, and permission to deal in, the New Shares on the Stock Exchange, as well as compliance with the stock admission requirements of the HKSCC, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements will be made for the New Shares to be admitted into CCASS established and operated by HKSCC.

None of the Existing Shares and Preference Shares are listed or dealt in on any other stock exchange other than the Stock Exchange, and at the time the Capital Reorganisation becomes effective, the New Shares and New Preference Shares in issue will not be listed or dealt in on any stock exchange other than the Stock Exchange, and no such listing or permission to deal is being or is proposed to be sought.

Reasons for the Capital Reorganisation

Pursuant to Rule 13.64 of Listing Rules, where the market price of the securities of an issuer approaches the extremities of HK$0.01 or HK$9,995.00, the Stock Exchange reserves the right to require the issuer either to change the trading method or proceed with a consolidation or splitting of securities.

The “Guide on Trading Arrangements for Selected Types of Corporate Actions” issued by the Hong Kong Exchanges and Clearing Limited on 28 November 2008 and updated on 30 August 2019 has stated that market price of the shares at a level less than HK$0.1 will be considered as trading at extremity as referred to under Rule 13.64 of the Listing Rules.

– 11 –

LETTER FROM THE BOARD

Based on the closing price of HK$0.059 per Existing Share on 4 June 2021 (being the date of the Announcement), upon the Capital Reorganisation becoming effective, the theoretical closing price shall be HK$0.59 per New Share. The Capital Reorganisation would enable the Company to comply with the trading requirements under the Listing Rules.

The Share Consolidation will increase the nominal value of the Shares and will reduce the total number of Shares currently in issue. As such, it is expected that the Share Consolidation will bring about a corresponding upward adjustment in the trading price of the Shares.

In addition, the Company is prohibited from issuing any new Shares at a price at below its par value. Immediately after completion of the Share Consolidation but before implementation of the Capital Reduction, the par value of the Consolidated Shares will be HK$0.4 per Consolidated Share. The Capital Reduction will keep the par value of the New Shares at a lower level of HK$0.001 per New Share, which allows greater flexibility in the pricing for any issue of new Shares in the future.

As at the Latest Practicable Date, the Company has no intention to carry out other corporate actions in the next 12 months which may have an effect of undermining or negating the intended purpose of the Capital Reorganisation. Save as disclosed in this circular, the Company does not have any concrete plan to conduct any fund raising activities in the next 12 months. However, the Board cannot rule out the possibility that the Company will conduct debt and/or equity fund raising exercises when suitable fund raising opportunities arise in order to support future development of the Group. The Company will make further announcement in this regard in accordance with the Listing Rules as and when appropriate.

The Board considers that the Capital Reorganisation is beneficial to and in the interests of the Company and the Shareholders as a whole.

Fractional entitlement to New Shares

Fractional New Shares, if any, will be disregarded and will not be issued to the Shareholders but all such fractional New Shares will be aggregated and, if possible, sold for the benefit of the Company. Fractional New Shares will only arise in respect of the entire shareholding of a holder of the Existing Shares regardless of the number of existing share certificates held by such holder.

Arrangement on odd lot trading

In order to facilitate the trading of odd lots of the New Shares, the Company has appointed One China Securities Limited as an agent to provide matching services, on a best effort basis, to those Shareholders who wish to acquire odd lots of the New Shares to make up a full board lot, or to dispose of their holding of odd lots of the New Shares, from Tuesday, 10 August 2021 to Monday, 30 August 2021 (both days inclusive). The Shareholders who wish to use this matching service during this period

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LETTER FROM THE BOARD

should contact Ms. Carmen Wong of One China Securities Limited at 2/F., Cheong K. Building, 84-86 Des Voeux Road Central, Hong Kong or at telephone number (852) 3188 2676 during office hours.

Holders of odd lots of the New Shares should note that the matching of the sale and purchase of odd lots of the New Shares is not guaranteed. Shareholders who are in any doubt about the odd lots matching arrangement are recommended to consult their own professional advisers.

Exchange of share certificates for New Shares

Subject to the Capital Reorganisation becoming effective, which is currently expected to be on Tuesday, 27 July 2021, being the second Business Day immediately after the date of the SGM, the Shareholders may during the period from Tuesday, 27 July 2021 to Wednesday, 1 September 2021 (both days inclusive) submit existing share certificates for the Existing Shares (in blue colour) to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre,183 Queen’s Road East, Hong Kong, to exchange for new share certificates for the New Shares (in red colour) at the expense of the Company.

Shareholders should note that after the prescribed time for free exchange of share certificates, a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) will be payable by the Shareholders to the branch share registrar for each share certificate issued for the New Shares or each existing share certificate for the Existing Shares submitted for cancellation, whichever the number of certificates issued or cancelled is higher.

After 4:10 p.m. on Monday, 30 August 2021, trading will only be in New Shares. Existing share certificates in blue colour for the Existing Shares will cease to be valid for trading and settlement purpose, but will remain valid and effective as documents of title.

Adjustments in relation to other securities of the Company

Share options

According to the rules of the Share Option Schemes, if there is any alteration in the capital structure of the Company whether by way of, among others, consolidation, sub-division or reduction of the share capital of the Company, while any options remains exercisable, corresponding alteration shall be made to the subscription price of the options. The aforementioned alteration is conditional on the confirmation in writing by the auditors of the Company or the independent financial adviser appointed by the Company that the alteration is made on the basis that the proportion of the issued share capital of the Company to which a participant of the Share Option Scheme(s) is entitled after such alteration shall remain the same as that to which he/she was entitled before such alteration. No such alteration shall be made to the effect of which would

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LETTER FROM THE BOARD

be to enable any Share to be issued at less than its nominal value or which would result in the aggregate amount payable on the exercise of any option in full being increased.

As at the Latest Practicable Date, there were (i) outstanding options granted under the 2009 Share Option Scheme to subscribe for 25,450,000 Existing Shares; and (ii) no option granted under the 2020 Share Option Scheme. Upon the Capital Reorganisation become effective, pursuant to the rules of the 2009 Share Option Scheme, the exercise price and the number of the outstanding share options granted under the 2009 Share Option Scheme will be adjusted in the following manner:

		Before adjustments	Before adjustments	After adjustments	After adjustments
			Number of
			Existing		Number of
			Shares to be		New Shares to
			allotted and		be allotted and
			issued upon		issued upon
		Exercise price	full exercise of	Exercise price	full exercise of
		per	the	per	the
		outstanding	outstanding	outstanding	outstanding
		share option	share options	share option	share options
Date of grant	Exercisable period	granted	granted	granted	granted
		HK$		HK$
25 January 2013	28 February 2013 to 24	0.9152	1,200,000	9.152	120,000
	January 2023
27 February 2013	28 February 2014 to 24	0.9152	5,000,000	9.152	500,000
	January 2023
12 January 2018	12 January 2018 to	0.3232	19,250,000	3.232	1,925,000
	11 January 2028
			25,450,000		2,545,000

The Independent Financial Adviser has reviewed the calculations and confirmed to the Directors in writing that the above adjustments are in accordance with the rules of the 2009 Share Option Scheme, Rule 17.03(13) of the Listing Rules and the supplementary guidance issued by the Stock Exchange on 5 September 2005 regarding the interpretation of Rule 17.03(13) of the Listing Rules.

Convertible bonds

According to the terms of the 2023 Convertible Bonds, if there is any alteration in the capital structure of the Company whether by way of, among others, consolidation or sub-division of the share capital of the Company, while any convertible bonds remains exercisable, corresponding alteration shall be made to the conversion price. The aforementioned alteration is conditional on the confirmation in writing by the auditors of the Company or the independent financial adviser appointed by the Company that the alteration is made on the basis that the proportion of the issued share capital of the Company to which the holder of the 2023 Convertible Bonds is entitled

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LETTER FROM THE BOARD

after such alteration shall remain the same as that to which he/she/it was entitled before such alteration. No such alteration shall be made to the effect of which would be to enable any Share to be issued at less than its nominal value or which would result in the aggregate amount payable on the exercise in full of the conversion rights attaching to the 2023 Convertible Bonds being increased.

As at the Latest Practicable Date, the 2023 Convertible Bonds in the principal amount of HK$79,950,000 is convertible into 533,000,000 Existing Shares at the conversion price of HK$0.15. Upon the Capital Reorganisation become effective, pursuant to the terms of the 2023 Convertible Bonds, the conversion price and the number of shares to be allotted and issued upon full conversion of the outstanding 2023 Convertible Bonds will be adjusted in the following manner:

Before adjustments	Before adjustments	After adjustments	After adjustments
	Number of		Number of New
	Existing Shares		Shares to be
	to be allotted		allotted and
	and issued upon		issued upon full
	full conversion of		conversion of the
	the outstanding		outstanding 2023
	2023 Convertible		Convertible
Conversion price	Bonds	Conversion price	Bonds
HK$		HK$
0.15	533,000,000	1.5	53,300,000

The Independent Financial Adviser has reviewed the calculations and confirmed to the Directors in writing that the above adjustments are in accordance with the terms of the 2023 Convertible Bonds, Rule 28.05 of the Listing Rules and Guidance Letter HKEX-GL80-15 (Updated in July 2018) issued by the Stock Exchange.

Save as aforesaid, as at the Latest Practicable Date, the Company did not have any other derivatives, options, warrants, other securities or conversion rights or other similar rights which are convertible or exchangeable into, any Shares.

The Capital Reorganisation is subject to the satisfaction of the conditions precedent as set out in the paragraph headed “(1) Proposed Capital Reorganisation – Conditions of the Capital Reorganisation” in this section. Accordingly, the Capital Reorganisation may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

(2) PROPOSED CHANGE IN BOARD LOT SIZE

As at the Latest Practicable Date, the existing board lot size is 10,000 Existing Shares.

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LETTER FROM THE BOARD

Based on the closing price of HK$0.059 per Existing Share on 4 June 2021 (being the date of the Announcement), the board lot value of 10,000 Existing Shares is approximately HK$590. Upon the Capital Reorganisation becoming effective, based on the theoretical closing price of HK$0.59 per New Share, the board lot value of 10,000 New Shares is approximately HK$5,900.

The Board proposes to change the board lot size for trading in Shares on the Stock Exchange from 10,000 Existing Shares to 5,000 New Shares conditional upon the Capital Reorganisation becoming effective. The Board expects that the reduction in board lot size will lower the value of each board lot, making it more attractive to the investors and therefore may improve the liquidity of the Shares. Upon the Capital Reorganisation and the change in board lot size becoming effective, based on the theoretical closing price of HK$0.59 per New Share, and the board lot value of 5,000 New Shares is approximately HK$2,950.

The effective date of the change in board lot size is expected to take place upon the Capital Reorganisation becoming effective.

The Board is of the view that the change in board lot size is appropriate and would help maintain the transaction amount for each board lot at a reasonable level.

(3) THE SUBSCRIPTIONS

(A) The First Subscription

On 31 May 2021, the Company and the First Subscriber entered into the First Subscription Agreement, pursuant to which the First Subscriber has conditionally agreed to subscribe for, and the Company has conditionally agreed to (i) allot and issue the First Subscription Shares, being 650,000,000 Existing Shares (equivalent to 65,000,000 New Shares), at the First Subscription Price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per First Subscription Share; and (ii) issue the First Convertible Bonds in the principal amount of HK$52,000,000 which may be converted into 800,000,000 Existing Shares (equivalent to 80,000,000 New Shares) at the initial First Conversion Price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share (subject to adjustments).

The First Subscription Agreement

Set out below are the principal terms of the First Subscription Agreement:

Date: 31 May 2021 Parties: Issuer: The Company Subscriber: The First Subscriber

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LETTER FROM THE BOARD

The First Subscriber is a company incorporated in the British Virgin Islands with limited liability, and principally engaged in investment holding. The entire issued share capital of the First Subscriber is wholly and beneficially owned by Mr. Wang Chaoguang, being the co-chairman and an executive Director. Hence, the First Subscriber is a connected person of the Company by being an associate of Mr. Wang Chaoguang.

The First Subscription Shares, the First Convertible Bonds and the First Conversion Shares

Pursuant to the First Subscription Agreement, the First Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to:

(i) allot and issue the First Subscription Shares, being 650,000,000 Existing Shares (equivalent to 65,000,000 New Shares); and
(ii) issue the First Convertible Bonds in the aggregate principal amount of HK$52,000,000.

The First Subscription Shares represent (i) approximately 42.02% of the existing issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 29.59% of the entire issued share capital of the Company as enlarged by the issue of the First Subscription Shares only; and (iii) approximately 24.10% of the entire issued share capital of the Company as enlarged by the issue of the Subscription Shares.

The aggregate of the First Subscription Shares and the First Conversion Shares represent (i) approximately 93.75% of the existing issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 48.39% of the entire issued share capital of the Company as enlarged by the issue of the First Subscription Shares and the First Conversion Shares only; and (iii) approximately 36.28% of the entire issued share capital of the Company as enlarged by the issue of the Subscription Shares and the Conversion Shares.

Set out below are the principal terms of the First Convertible Bonds:

Issuer	:	The Company
Principal amount	:	HK$52,000,000
Maturity date	:	The date falling	the second anniversary of the		date
		of issue of the	First Convertible	Bonds (or if	such
		day is not a	Business Day,	the Business	Day
		immediately after such day)
Interest rate	:	4% per annum on the outstanding		principal amount

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LETTER FROM THE BOARD

Conversion price : The initial First Conversion Price shall be HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share, subject to adjustment provisions summarised below
Conversion shares : Assuming the conversion rights attaching to the First Convertible Bonds are exercised in full at the First Conversion Price, the First Conversion Shares, being 800,000,000 Existing Shares (equivalent to 80,000,000 New Shares), will be allotted and issued, representing:
(i) approximately 51.72% of the existing issued share capital of the Company as at the Latest Practicable Date;
(ii) approximately 34.09% of the entire issued share capital of the Company as enlarged by the issue of the First Conversion Shares only; and
(iii) approximately 28.10% of the entire issued share capital of the Company as enlarged by the issue of the Conversion Shares
Conversion period : The period commencing on the day immediately following the initial issue date of the First Convertible Bonds and ending on the fifth Business Day prior to the maturity date (both days inclusive)
Conversion rights : The bondholder shall have the right to convert the whole or part (must be in multiple of HK$1,000,000) of the principal amount of the First Convertible Bonds into First Conversion Shares during the conversion period
Conversion : Conversion right shall only be exercised to the restrictions extent it will not (a) trigger a mandatory offer obligation under Rule 26 of the Takeovers Code; nor (b) result in insufficient public float of the Shares as defined under the Listing Rules

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LETTER FROM THE BOARD

Redemption : Save for the occurrence of an event of default, no outstanding amount of First Convertible Bonds shall be redeemed at the request of the bondholder from the initial issue date of the First Convertible Bonds until the maturity date (both days included)
The Company has the right to redeem any outstanding First Convertible Bond by giving five-day notice to the bondholder before the maturity date thereof
Adjustment : The First Conversion Price shall from time to time provisions be adjusted in accordance with the terms and conditions of the First Convertible Bonds upon the occurrence of certain events in relation to the Company, including but not limited to the following:
(i) an alteration of the nominal amount of a Share by reason of any consolidation or subdivision;
(ii) an issue (other than in lieu of a cash dividend) of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);
(iii) a capital distribution being made by the Company to the Shareholders (whether on a reduction of capital or otherwise) or shall grant to such holders rights to acquire for cash assets of the Company or any of its subsidiaries
Transferability : The bondholder may assign or transfer the First Convertible Bonds to the transferee, subject to the prior notification to the Company
The First Convertible Bonds may not be assigned or transferred, in whole or in part, to any connected person of the Company without prior written consent of the Company
Listing : No application will be made by the Company for the listing of the First Convertible Bonds on the Stock Exchange or any other stock exchange
Status : The First Convertible Bonds constitute unsecured and unsubordinated obligations of the Company and shall rank pari passu among themselves

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LETTER FROM THE BOARD

The First Subscription Price

The First Subscription Price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per First Subscription Share represents:

(i) a premium of approximately 4.17% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of approximately 15.25% to the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the First Subscription Agreement;
(iii) a discount of approximately 15.25% to the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the First Subscription Agreement; and
(iv) a discount of approximately 16.39% to the average closing price of HK$0.060 per Existing Share (equivalent to the theoretical average closing price of approximately HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the First Subscription Agreement.

The First Subscription Price was determined with reference to the prevailing market price of the Shares and was negotiated on an arm’s length basis between the Company and the First Subscriber.

The First Conversion Price

The First Conversion Price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share represents:

(i) a premium of approximately 35.42% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a premium of approximately 10.17% over the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the First Subscription Agreement;

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LETTER FROM THE BOARD

(iii) a premium of approximately 10.17% over the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the First Subscription Agreement; and
(iv) a premium of approximately 8.70% over the average closing price of approximately HK$0.060 per Existing Share (equivalent to the theoretical average closing price of HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the First Subscription Agreement.

The First Conversion Price were determined with reference to the prevailing market price of the Shares and was negotiated on an arm’s length basis between the Company and the First Subscriber.

Conditions of the First Subscription

The First Subscription is conditional upon, among others, the following conditions being satisfied:

(i) the passing by the Shareholders at the SGM of resolutions approving the Capital Reorganisation, and the Capital Reorganisation having become effective;
(ii) the passing by the Independent Shareholders at the SGM of resolutions approving the First Subscription Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the First Subscription Shares and the issue of the First Convertible Bonds (including the grant of the Specific Mandates to allot and issue the First Subscription Shares and the First Conversion Shares);
(iii) the Listing Committee of the Stock Exchange granting approval (subject to allotment) for the listing of and permission to deal in the First Subscription Shares and the First Conversion Shares to be issued and such approval not being subsequently revoked;
(iv) all necessary consents, licenses and approvals required to be obtained on the part of the Company in respect of the First Subscription Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect; and
(v) all necessary consents, licenses and approvals required to be obtained on the part of the First Subscriber in respect of the First Subscription Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect.

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LETTER FROM THE BOARD

The parties to the First Subscription Agreement shall use all endeavours to procure the fulfilment of all the conditions above by the Long Stop Date or such other date as the parties to the First Subscription Agreement may agree. In the event that all the conditions have not been fulfilled by the Long Stop Date, the First Subscription Agreement will be terminated and ceased to be effective, neither parties have obligations and liabilities thereafter save for any antecedent breach.

Completion of the First Subscription

Completion of the First Subscription shall take place within fourteen (14) calendar days after the conditions of the First Subscription have been fulfilled (or such other date and time as may be agreed between the Company and the First Subscriber in writing).

On the completion of the First Subscription, the First Subscriber shall effect payment of the aggregate First Subscription Price and the aggregate principal amount of the First Convertible Bonds in full. The Company shall simultaneously, among others, (a) allot and issue the First Subscription Shares to the First Subscriber free and clear of all encumbrances and on terms that they rank pari passu in all respects with the Shares then in issue and issue the relevant share certificate(s) in the name of the First Subscriber (or its nominee); and (b) issue the First Convertible Bonds to the First Subscriber free and clear of all encumbrances and issue the relevant bond certificate(s) in the name of the First Subscriber (or its nominee).

The First Subscription Agreement and the Second Subscription Agreement are not inter-conditional upon each other.

(B) The Second Subscription

On 31 May 2021, the Company and the Second Subscriber entered into the Second Subscription Agreement, pursuant to which the Second Subscriber has conditionally agreed to subscribe for, and the Company has conditionally agreed to (i) allot and issue the Second Subscription Shares, being 500,000,000 Existing Shares (equivalent to 50,000,000 New Shares), at the Second Subscription Price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per Second Subscription Share; and (ii) issue the Second Convertible Bonds in the principal amount of HK$32,500,000 which may be converted into 500,000,000 Existing Shares (equivalent to 50,000,000 New Shares) at the initial Second Conversion Price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per Second Conversion Share (subject to adjustments).

The Second Subscription Agreement

Set out below are the principal terms of the Second Subscription Agreement:

Date: 31 May 2021 Parties: Issuer: The Company Subscriber: The Second Subscriber

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LETTER FROM THE BOARD

The Second Subscriber is a company incorporated in the British Virgin Islands with limited liability, and principally engaged in investment holding. The entire issued share capital of the Second Subscriber is wholly and beneficially owned by Mr. Duan Guangzhi. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, each of the Second Subscriber and its ultimate beneficial owner is an Independent Third Party.

The Second Subscription Shares, the Second Convertible Bonds and the Second Conversion Shares

Pursuant to the Second Subscription Agreement, the Second Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to:

(i) allot and issue the Second Subscription Shares, being 500,000,000 Existing Shares (equivalent to 50,000,000 New Shares); and
(ii) issue the Second Convertible Bonds in the aggregate principal amount of HK$32,500,000.

The Second Subscription Shares represent (i) approximately 32.33% of the existing issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 24.43% of the entire issued share capital of the Company as enlarged by the issue of the Second Subscription Shares only; and (iii) approximately 18.54% of the entire issued share capital of the Company as enlarged by the issue of the Subscription Shares.

The aggregate of the Second Subscription Shares and the Second Conversion Shares represent (i) approximately 64.65% of the existing issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 39.27% of the entire issued share capital of the Company as enlarged by the issue of the Second Subscription Shares and the Second Conversion Shares only; and (iii) approximately 25.02% of the entire issued share capital of the Company as enlarged by the issue of the Subscription Shares and the Conversion Shares.

Set out below are the principal terms of the Second Convertible Bonds:

Issuer	:	The Company
Principal amount	:	HK$32,500,000
Maturity date	:	The date falling the second anniversary of the		date
		of issue of the Second Convertible Bonds (or if		such
		day is not a Business Day,	the Business	Day
		immediately after such day)
Interest rate	:	4% per annum on the outstanding	principal amount

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LETTER FROM THE BOARD

Conversion price : The initial Second Conversion Price shall be HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per Second Conversion Share, subject to adjustment provisions summarised below
Conversion shares : Assuming the conversion rights attaching to the Second Convertible Bonds are exercised in full at the Second Conversion Price, the Second Conversion Shares, being 500,000,000 Existing Shares (equivalent to 50,000,000 New Shares), will be allotted and issued, representing:
(i) approximately 32.33% of the existing issued share capital of the Company as at the Latest Practicable Date;
(ii) approximately 24.43% of the entire issued share capital of the Company as enlarged by the issue of the Second Conversion Shares only; and
(iii) approximately 17.56% of the entire issued share capital of the Company as enlarged by the issue of the Conversion Shares
Conversion period : The period commencing on the day immediately following the initial issue date of the Second Convertible Bonds and ending on the fifth Business Day prior to the maturity date (both days inclusive)
Conversion rights : The bondholder shall have the right to convert the whole or part (must be in multiple of HK$1,000,000) of the principal amount of the Second Convertible Bonds into Second Conversion Shares during the conversion period
Conversion : Conversion right shall only be exercised to the restrictions extent it will not (a) trigger a mandatory offer obligation under Rule 26 of the Takeovers Code; nor (b) result in insufficient public float of the Shares as defined under the Listing Rules

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LETTER FROM THE BOARD

Redemption : Save for the occurrence of an event of default, no outstanding amount of Second Convertible Bonds shall be redeemed at the request of the bondholder from the initial issue date of the Second Convertible Bonds until the maturity date (both days included) The Company has the right to redeem any outstanding Second Convertible Bond by giving five-day notice to the bondholder before the maturity date thereof
Adjustment : The Second Conversion Price shall from time to provisions time be adjusted in accordance with the terms and conditions of the Second Convertible Bonds upon the occurrence of certain events in relation to the Company, including but not limited to the following:
(i) an alteration of the nominal amount of a Share by reason of any consolidation or subdivision;
(ii) an issue (other than in lieu of a cash dividend) of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);
(iii) a capital distribution being made by the Company to the Shareholders (whether on a reduction of capital or otherwise) or shall grant to such holders rights to acquire for cash assets of the Company or any of its subsidiaries
Transferability : The bondholder may assign or transfer the Second Convertible Bonds to the transferee, subject to the prior notification to the Company The Second Convertible Bonds may not be assigned or transferred, in whole or in part, to any connected person of the Company without prior written consent of the Company
Listing : No application will be made by the Company for the listing of the Second Convertible Bonds on the Stock Exchange or any other stock exchange
Status : The Second Convertible Bonds constitute unsecured and unsubordinated obligations of the Company and shall rank pari passu among themselves

The Second Convertible Bonds may not be assigned or transferred, in whole or in part, to any connected person of the Company without prior written consent of the Company

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LETTER FROM THE BOARD

The Second Subscription Price

The Second Subscription Price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per Second Subscription Share represents:

(i) a premium of approximately 4.17% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of approximately 15.25% to the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the Second Subscription Agreement;
(iii) a discount of approximately 15.25% to the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the Second Subscription Agreement; and
(iv) a discount of approximately 16.39% to the average closing price of approximately HK$0.060 per Existing Share (equivalent to the theoretical average closing price of HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the Second Subscription Agreement.

The Second Subscription Price was determined with reference to the prevailing market price of the Shares and was negotiated on an arm’s length basis between the Company and the Second Subscriber.

The Second Conversion Price

The Second Conversion Price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per Second Conversion Share represents:

(i) a premium of approximately 35.42% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a premium of approximately 10.17% over the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the Second Subscription Agreement;

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LETTER FROM THE BOARD

(iii) a premium of approximately 10.17% over the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the Second Subscription Agreement; and
(iv) a premium of approximately 8.70% over the average closing price of approximately HK$0.060 per Existing Share (equivalent to the theoretical average closing price of HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the Second Subscription Agreement.

The Second Conversion Price were determined with reference to the prevailing market price of the Shares and was negotiated on an arm’s length basis between the Company and the Second Subscriber.

Conditions of the Second Subscription

The Second Subscription is conditional upon, among others, the following conditions being satisfied:

(i) the passing by the Shareholders at the SGM of resolutions approving the Capital Reorganisation, and the Capital Reorganisation having become effective;
(ii) the passing by the Shareholders at the SGM of resolutions approving the Second Subscription Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Second Subscription Shares and the issue of the Second Convertible Bonds (including the grant of the Specific Mandates to allot and issue the Second Subscription Shares and the Second Conversion Shares);
(iii) the Listing Committee of the Stock Exchange granting approval (subject to allotment) for the listing of and permission to deal in the Second Subscription Shares and the Second Conversion Shares to be issued and such approval not being subsequently revoked;
(iv) all necessary consents, licenses and approvals required to be obtained on the part of the Company in respect of the Second Subscription Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect; and
(v) all necessary consents, licenses and approvals required to be obtained on the part of the Second Subscriber in respect of the Second Subscription Agreement and the transactions contemplated thereunder having been obtained and remaining in full force and effect.

– 27 –

LETTER FROM THE BOARD

The parties to the Second Subscription Agreement shall use all endeavours to procure the fulfilment of all the conditions above by the Long Stop Date or such other date as the parties to the Second Subscription Agreement may agree. In the event that all the conditions have not been fulfilled by the Long Stop Date, the Second Subscription Agreement will be terminated and ceased to be effective, neither parties have obligations and liabilities thereafter save for any antecedent breach.

Completion of the Second Subscription

Completion of the Second Subscription shall take place within fourteen (14) Business Days after the conditions of the Second Subscription have been fulfilled (or such other date and time as may be agreed between the Company and the Second Subscriber in writing).

On the completion of the Second Subscription, the Second Subscriber shall effect payment of the aggregate Second Subscription Price and the aggregate principal amount of the Second Convertible Bonds in full. The Company shall simultaneously, among others, (a) allot and issue the Second Subscription Shares to the Second Subscriber free and clear of all encumbrances and on terms that they rank pari passu in all respects with the Shares then in issue and issue the relevant share certificate(s) in the name of the Second Subscriber (or its nominee); and (b) issue the Second Convertible Bonds to the Second Subscriber free and clear of all encumbrances and issue the relevant bond certificate(s) in the name of the Second Subscriber (or its nominee).

The First Subscription Agreement and the Second Subscription Agreement are not inter-conditional upon each other.

Ranking of the Subscription Shares and the Conversion Shares

The Subscription Shares and the Conversion Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares then in issue.

The Subscription Shares represent (i) approximately 74.35% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 42.64% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares. The aggregate nominal value of the Subscription Shares under the Subscriptions will be HK$46 million.

The aggregate of the Subscription Shares and the Conversion Shares represent (i) approximately 158.40% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 61.30% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Conversion Shares. The aggregate nominal value of the Subscription Shares and the Conversion Shares under the Subscriptions will be HK$98 million.

– 28 –

LETTER FROM THE BOARD

Application for listing

The Company will make an application to the Listing Committee of the Stock Exchange for the grant of the listing of, and permission to deal in, the Subscription Shares and the Conversion Shares.

Specific Mandates

The issue of the Subscription Shares and the Conversion Shares are subject to approval by the Shareholders at the SGM. Ordinary resolutions will be proposed at the SGM to seek, among other things, the Specific Mandates to issue the Subscription Shares and the Conversion Shares under the Subscription Agreements.

Completion of the Subscriptions is subject to the satisfaction of the conditions precedent in the respective Subscription Agreements. The issue of this circular does not in any way imply that the Subscription Agreements will be implemented or completed. As the Subscriptions may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

REASONS FOR THE SUBSCRIPTIONS

The Company is an investment holding company. The Group is principally engaged in trademark licensing and retailing for selling gold and jewellery products in Hong Kong, Macau and Mainland China and the wholesaling and processing of gold and jewellery products in Mainland China.

As disclosed in the interim results of the Company for the six months ended 31 December 2020, the Group’s current liabilities exceeded its current assets by HK$89,901,000 and its total liabilities exceeded its total assets by HK$81,936,000 respectively, indicating the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern. Therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Notwithstanding the view of the Directors that the Group has the financial ability to meet the interest payments accrued on the borrowings, the Directors are mindful of the significant deterioration in economic and credit conditions that have affected the world economies in the past year. Given the uncertain economic outlook in the near to medium term, the Group is well conscious of the risk that the Company may not be able to obtain the necessary funding, either through debt or equity financing or both, to repay or refinance the loan and indebtedness when they fall due. As at 31 December 2020, the Group’s gearing ratio was 104% and the Group’s total borrowing was approximately HK$1,694 million. In view of the high gearing ratio, the Company had difficulty securing debt financing from financial institutions. Despite the Company’s enquiries with some financial institutes, none of them were interested in providing loans to the Company. Further, the Directors considered that the debt financing will further intensify the Group’s indebtedness and gearing ratio. The Directors therefore believe equity financing will be more beneficial to the Group.

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LETTER FROM THE BOARD

The Directors had also explored the feasibility of conducting rights issue so as to allow all Shareholders to participate in the future development of the Company. Considering the total amount of funds required, if the Company were to carry out the rights issue, it is expected that a longer time would be required. The Directors also considered that it is not desirable to raise funds only when there is immediate need of funds as the cost of fund raising by then may be higher, and/or there are uncertainties as to whether the Group will be able to raise the amount of funding required for its business development by then, which may depend on the then prevailing market sentiments.

The Directors are of the view that a new equity financing is an imminent priority of the Company and the Subscriptions are the most viable options for the Company. Given the high gearing ratio of the Company as mentioned above, the Subscriptions provide a good opportunity for the Company to raise equity funding to repay its outstanding liabilities, improve its financial position and mobilise further resources for business development of the Group.

The Directors consider that it is in the interest of the Company and its Shareholders as a whole to strengthen the financial position of the Company through the Subscriptions, which will enable the Company to expand its capital base and shareholder base. As such, the Directors believe that the Subscribers will bring in additional resources and investment opportunities to the Company that would be beneficial to the Company and the Shareholders as a whole.

As the First Subscriber is an associate of Mr. Wang Chaoguang, Mr. Wang Chaoguang is considered to have a material interest in the First Subscription and had abstained from voting on the board resolution(s) of the Company to approve the First Subscription Agreement and the transactions contemplated thereunder. Save as disclosed, no other Director has a material interest in the Subscriptions and is required to abstain from voting on the board resolution(s) of the Company to approve the Subscription Agreements and the respective transactions contemplated thereunder.

Having considered all the factors as mentioned above, the Directors (with respect to the First Subscription only, other than Mr. Wang Chaoguang who was required to abstain from voting, and the independent non-executive Directors who will express their views after receiving advice from the Independent Financial Adviser) are of the view that the terms and conditions of the Subscription Agreements are fair and reasonable; and the Subscriptions are in the interest of the Company and the Shareholders as a whole to proceed with the Subscriptions.

USE OF PROCEEDS

The gross proceeds from the Subscriptions will be HK$142 million, of which (i) HK$57.5 million will be from the subscription of the Subscription Shares; and (ii) HK$84.5 million will be from the subscription of the Convertible Bonds. After deducting the expenses of approximately HK$1 million (which include the professional fees payable to the Independent Financial Adviser, legal advisers and financial printer), the net proceeds from the Subscriptions will be approximately HK$141 million.

– 30 –

LETTER FROM THE BOARD

Based on the net proceeds of approximately HK$141 million and the aggregate of the Subscription Shares and the Conversion Shares, being 2,450,000,000 Existing Shares (equivalent to 245,000,000 New Shares), the net issue price is approximately HK$0.058 (equivalent to HK$0.58 as adjusted for the effect of the Capital Reorganisation) per Share.

The net proceeds will be applied as to approximately HK$126 million for repayment of indebtedness; and approximately HK$15 million for general working capital of the Group.

In the event that only the First Subscription is proceeded, after deducting the expenses, the net proceeds from the First Subscription will be approximately HK$83.5 million, which will be applied for repayment of indebtedness. In the event that only the Second Subscription is proceeded, after deducting the expenses, the net proceeds from the Second Subscription will be approximately HK$56.5 million, which will be applied for repayment of indebtedness. Under such circumstances, the Company may consider obtaining short-term debt financing from its connected person(s) for the repayment of the remaining indebtedness.

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

The shareholding structure of the Company (1) as at the Latest Practicable Date (“ Scenario 1 ”); (2) immediately upon the Capital Reorganisation becoming effective (“ Scenario 2 ”); (3) immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the First Subscription Shares only (“ Scenario 3 ”); (4) immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Second Subscription Shares only (“ Scenario 4 ”); (5) immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares only (“ Scenario 5 ”); and (6) for illustrative purpose only, immediately upon the Capital Reorganisation becoming effective, the allotment and issue of the Subscription Shares and the Conversion Shares upon full conversion of the Convertible Bonds (“ Scenario 6 ”) are set out below:

Shareholders Mr. Li Ning (Note 1) Eminent Rise Holdings Limited (Note 1) Well Pop Group Limited (Note 2) Weltrade Group Limited (Note 3) Mr. Wen Jialong (Note 3) First Subscriber Second Subscriber Public Shareholders Total	Scenari No. of Shares 1,570,000 210,000,000 280,000,000 251,055,619 1,415,489 – – 802,674,904 1,546,716,012	o 1 Approx. % 0.10% 13.58% 18.10% 16.23% 0.09% – – 51.90% 100.00%	Scenari No. of Shares 157,000 21,000,000 28,000,000 25,105,561 141,548 – – 80,267,492 154,671,601	o 2 Approx. % 0.10% 13.58% 18.10% 16.23% 0.09% – – 51.90% 100.00%	Scenari No. of Shares 157,000 21,000,000 28,000,000 25,105,561 141,548 65,000,000 – 80,267,492 219,671,601	o 3 Approx. % 0.07% 9.56% 12.75% 11.43% 0.06% 29.59% – 36.54% 100.00%	Scenari No. of Shares 157,000 21,000,000 28,000,000 25,105,561 141,548 – 50,000,000 80,267,492 204,671,601	o 4 Approx. % 0.08% 10.26% 13.68% 12.27% 0.07% – 24.43% 39.22% 100.00%	Scenari No. of Shares 157,000 21,000,000 28,000,000 25,105,561 (Note 4) 141,548 65,000,000 50,000,000 80,267,492 269,671,601	o 5 Approx. % 0.06% 7.79% 10.38% 9.31% 0.05% 24.10% 18.54% 29.76% 100.00%	Scenari No. of Shares 157,000 21,000,000 28,000,000 25,105,561 (Note 4) 141,548 145,000,000 100,000,000 80,267,492 399,671,601	o 6 Approx. % 0.04% 5.25% 7.01% 6.28% 0.04% 36.28% 25.02% 20.08%
												100.00%

– 31 –

LETTER FROM THE BOARD

Notes:

Eminent Rise Holdings Limited (“ Eminent Rise ”) is a company wholly-owned by Mr. Li Ning, the executive Director and the chairman. As such, Mr. Li Ning is deemed to be interested in the Shares held by Eminent Rise.
Well Pop Group Limited (“ Well Pop ”) is a company wholly-owned by Ms. Hao Yuanyuan. As such, Ms. Hao Yuanyuan is deemed to be interested in the Shares held by Well Pop.
Weltrade Group Limited (“ Weltrade ”) is a company wholly-owned by Kerui Jinrong Company Limited, which is in turn owned as to 40% by Mr. Zheng Yue Wen, 20% by Mr. Xiang Hong and 40% by Hallow King Global Investment Limited, which in turn is wholly-owned by Mr. Wen Jialong. As such, Mr. Zheng Yue Wen and Mr. Wen Jialong are deemed to be interested in the Shares held by Weltrade.
Upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares, Weltrade will cease to be a substantial shareholder (as defined in the Listing Rules) of the Company.
The percentages are subject to rounding error.

FUND RAISING ACTIVITIES IN THE PAST TWELVE-MONTH PERIOD

During the past twelve months immediately preceding the Latest Practicable Date, the Company has not conducted any equity fund raising activity.

IMPLICATIONS UNDER THE LISTING RULES

The entire issued share capital of the First Subscriber is owned by Mr. Wang Chaoguang, the co-chairman and an executive Director. Hence, the First Subscriber is a connected person of the Company by being an associate of Mr. Wang Chaoguang. Accordingly, the First Subscription is a connected transaction on the part of the Company under the Listing Rules and are subject to the reporting, announcement, circular and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

THE INDEPENDENT BOARD COMMITTEE AND THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all the independent non-executive Directors, namely Dr. Loke Yu alias Loke Hoi Lam, Mr. Fan, Anthony Ren Da and Mr. Chan Kim Sun, has been formed to advise the Independent Shareholders on the First Subscription Agreement (including the grant of the Specific Mandates in connection with the First Subscription Agreement) and the transactions contemplated thereunder.

Nuada has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the First Subscription Agreement (including the grant of the Specific Mandates in connection with the First Subscription Agreement) and the transactions contemplated thereunder.

– 32 –

LETTER FROM THE BOARD

THE SGM

The SGM will be held to consider and, if thought fit, pass (i) the special resolution to approve the Capital Reorganisation; and (ii) the ordinary resolutions to approve the Subscription Agreements and the respective transactions contemplated thereunder, including the grant of the Specific Mandates. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no Shareholders are interested or involved in the Capital Reorganisation; and no Shareholders are required to abstain from voting on the relevant special resolution(s) to be proposed at the SGM to approve the Capital Reorganisation.

As at the Latest Practicable Date, Mr. Wang Chaoguang, the co-chairman and an executive Director, is the ultimate beneficial owner of the First Subscriber. Accordingly, Mr. Wang Chaoguang is considered to have a material interest in the First Subscription Agreement (including the grant of the Specific Mandates in connection with the First Subscription Agreement) and the transactions contemplated thereunder by virtue of his interest in the First Subscriber, and had abstained from voting on the Board resolution(s) approving the First Subscription Agreement and the transactions contemplated thereunder. Save for Mr. Wang Chaoguang and his associate(s) (including the First Subscriber), to the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no other Shareholder is interested or involved in the First Subscription; and no other Shareholder is required to abstain from voting on the relevant ordinary resolution(s) to be proposed at the SGM to approve the First Subscription Agreement (including the grant of the Specific Mandates in connection with the First Subscription Agreement) and the transactions contemplated thereunder.

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no Shareholder is interested or involved in the Second Subscription; and no Shareholder is required to abstain from voting on the relevant ordinary resolution(s) to be proposed at the SGM to approve the Second Subscription Agreement (including the grant of the Specific Mandates in connection with the Second Subscription Agreement) and the transactions contemplated thereunder.

A notice convening the SGM to be held at Room 905, 9/F., Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong on Friday, 23 July 2021 at 11:00 a.m., is set out on pages SGM-1 to SGM-5 of this circular for the purpose of considering and, if thought fit, passing the resolutions as set out therein. In order to qualify for attending and voting at the SGM, the register of members of the Company will be closed from Tuesday, 20 July 2021 to Friday, 23 July 2021 (both days inclusive) for determining the identity of the Shareholders entitled to attend and vote at the SGM. No transfer of Shares will be registered during the above book closure period.

All transfers of Shares accompanied by the relevant share certificates must be lodged at the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre,183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Monday, 19 July 2021.

– 33 –

LETTER FROM THE BOARD

A form of proxy for use by the Shareholders at the SGM is enclosed herewith. Whether or not you are able to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre,183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM, or any adjourned meeting 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 adjourned meeting thereof (as the case may be) should you so wish. Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. Accordingly, the Company will procure that the chairman of the SGM shall demand voting on all resolutions set out in the notice of SGM be taken by way of poll.

RECOMMENDATIONS

The Board considers that the terms of the proposed Capital Reorganisation are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors would recommend the Shareholders to vote in favour of the relevant resolution(s) approving the Capital Reorganisation at the SGM.

Your attention is drawn to the letter from the Independent Board Committee set out on pages 36 to 37 of the circular. The Independent Board Committee, having taken into account the advice from the Independent Financial Adviser, the text of which is set out on pages 38 to 60 of this circular, considers that the First Subscription Agreement is entered into upon normal commercial terms following arm’s length negotiations between the parties hereto and that the terms of the First Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve the First Subscription Agreement and the transactions contemplated thereunder (including the grant of the Specific Mandates to allot and issue the First Subscription Shares and the First Conversion Shares) at the SGM.

The Board considers that the terms of the Second Subscription Agreement are fair and reasonable and the entering into of the Second Subscription Agreement is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors would recommend the Shareholders to vote in favour of the relevant resolutions approving the Second Subscription Agreement and the transactions contemplated thereunder (including the grant of the Specific Mandates to allot and issue the Second Subscription Shares and the Second Conversion Shares) at the SGM.

– 34 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information of the Group set out in the appendix to this circular.

Yours faithfully For and on behalf of the Board

Hong Kong Resources Holdings Company Limited Mr. Li Ning Chairman

– 35 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(Incorporated in Bermuda with limited liability and carrying on business in Hong Kong as HKRH China Limited)

(Stock Code: 2882)

30 June 2021

To the Independent Shareholders

Dear Sir/Madam,

CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

We refer to the circular of the Company to the Shareholders dated 30 June 2021 (the “ Circular ’’), in which this letter forms a part. Unless the context requires otherwise, capitalised terms used in this letter will have the same meanings given to them in the section headed “Definitions” of the Circular.

We have been authorised by the Board to form the Independent Board Committee to advise the Independent Shareholders on whether the terms of the First Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

We wish to draw your attention to the letter of advice from Nuada, being the Independent Financial Adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the First Subscription Agreement and the transactions contemplated thereunder, as set out on pages 38 to 60 of the Circular and the letter from the Board set out on pages 7 to 35 of the Circular.

Having considered, among other matters, the factors and reasons considered by, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider that (i) the terms of the First Subscription Agreement are on normal commercial terms and are fair and reasonable, although the First Subscription is not conducted in the ordinary and usual course of business of the Group, it is in the interests of the Company and the

– 36 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) in relation to the First Subscription Agreement and the transactions contemplated thereunder to be proposed at the SGM.

Yours faithfully,

The Independent Board Committee of

Hong Kong Resources Holdings Company Limited Loke Yu alias Loke Hoi Lam Fan, Ren Da

Fan, Anthony Ren Da Chan Kim Sun Independent Independent non-executive Director non-executive Director

Independent non-executive Director

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Nuada Limited dated 30 June 2021 prepared for the purpose of inclusion in this circular.

Unit 1606, 16/F OfficePlus @Sheung Wan 93-103 Wing Lok Street Sheung Wan, Hong Kong 香港上環永樂街93-103號協成行上環中心16樓1606室

30 June 2021

To the Independent Board Committee and the Independent Shareholders of Hong Kong Resources Holdings Company Limited

Dear Sir or Madam,

CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Shareholders in respect of the First Subscription, details of which are set out in the section headed “Letter from the Board” (the “ Board Letter ”) in the Company’s circular dated 30 June 2021 to the Shareholders, of which this letter forms part. Our appointment as the Independent Financial Adviser has been approved by the Independent Board Committee. Terms used in this letter shall have the same meanings as defined in this circular unless the context requires otherwise.

On 31 May 2021 (after trading hours), the Company announced it proposed to raise HK$142 million by (i) the issue of a total of 1,150,000,000 Subscription Shares (equivalent to 115,000,000 New Shares) at the subscription price of HK$0.05 per Subscription Share (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation); and (ii) the issue of Convertible Bonds in the principal amount of HK$84.50 million, convertible into 1,300,000,000 Conversion Shares (equivalent to 130,000,000 New Shares) at an initial conversion price of HK$0.065 per Conversion Share (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation).

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Under the First Subscription, the First Subscriber has conditionally agreed, under the First Subscription Agreement, to subscribe for part of the Shares and Convertible Bonds, being 650,000,000 Subscription Shares (equivalent to 65,000,000 New Shares) and the First Convertible Bonds in the principal amount of HK$52,000,000. The entire issued share capital of the First Subscriber is owned by Mr. Wang Chaoguang, the co-chairman and an executive Director. Hence, the First Subscriber is a connected person of the Company by being an associate of Mr. Wang Chaoguang. Accordingly, the First Subscription is a connected transaction on the part of the Company under the Listing Rules and are subject to the reporting, announcement, circular and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Company has established the Independent Board Committee and we have been appointed as the Independent Financial Adviser in respect of the First Subscription Agreement and the transactions contemplated thereunder.

During the past two years immediately preceding and up to the date of our appointment as the Independent Financial Adviser, save for this appointment as the Independent Financial Adviser in respect of the First Subscription, there were no other engagements between the Group and Nuada Limited. Apart from normal professional fees for our services to the Company in connection this appointment as the Independent Financial Adviser, no other arrangement exists whereby we have received/will receive any fees and/or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we are independent from, and are not associated with the Company or its substantial shareholder(s) or connected person(s) as defined under the Listing Rules, and accordingly are considered eligible to give independent advice on the First Subscription.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in this circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information or representation relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in this circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true up to the Latest Practicable Date and should there be any material changes after the despatch of this circular, the Shareholders would be notified as soon as possible.

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors have jointly and severally accepted full responsibility for the accuracy of the information contained in this circular and have confirmed in this circular, having made all reasonable inquiries, that to the best of their knowledge, opinion expressed in this circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in this circular misleading.

Our review and analysis were based upon, among other things, the information provided by the Company including the Subscription Agreements, the announcement in relation to the Subscriptions, this circular and certain published information from the public domain including trading performance of the Shares on the Stock Exchange, the annual report of the Company for the year ended 30 June 2020 (the “ Annual Report ”) and the interim report of the Company for the six months ended 31 December 2020 (the “ Interim Report ”).

We consider that we have reviewed sufficient information, including relevant information and documents provided by the Company and the Directors and the information published by the Company, to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in this circular and to provide a reasonable basis for our opinions and advice. We have not, however, carried out any independent verification of the information provided by the Company and the Directors, nor have we conducted an independent in-depth investigation into the business and affairs, financial condition and future prospects of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our advice in respect of the First Subscription, we have taken into consideration the following principal factors and reasons:

1. Background information on the Group and the First Subscriber

(a) Information of the Group

The Group is principally engaged in trademark licensing and retailing for selling gold and jewellery products in Hong Kong, Macau and Mainland China and the wholesaling and processing of gold and jewellery products in Mainland China.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Financial information of the Group

The table below summarises the financial results of the Group for the two financial years ended 30 June 2019 (“ FY2019 ”) and 30 June 2020 (“ FY2020 ”) respectively as extracted from the Annual Report, and for the two six months ended 31 December 2019 (“ FP2019 ”) and 31 December 2020 (“ FP2020 ”) as extracted from the Interim Report.

	For	the six
	months ended		For the year ended
	31	31
	December	December	30 June	30 June
	2020	2019	2020	2019
	(unaudited)	(unaudited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	389,467	517,164	804,863	1,460,953
Gross profit	138,755	185,323	277,919	406,446
Profit/(loss) for the year/
period attributable to the
owners of the Company	9,862	(37,972)	(62,721)	(181,414)

Financial performance for FY2020

The revenue of the Group for FY2020 amounted to approximately HK$804.9 million, representing a decrease of approximately 44.9% as compared with approximately HK$1,461.0 million for FY2019. Meanwhile, the gross profit of the Group also decreased from approximately HK$406.5 million for FY2019 to approximately HK$277.9 million for FY2020, representing a decrease of approximately 31.6% mainly due to the decrease of revenue of the Group. As disclosed in the Annual Report and according to the management of the Company, such decreases were mainly attributable to the decrease in retailing of gold and jewellery after the outbreak of COVID-19 during the year. The loss attributable to the owners of the Company was approximately HK$62.7 million for FY2020, improved from that of HK$181.4 million for FY2019. According to the management of the Company, such improvement in figure was due to several fair value adjustments. As set out in the Annual Report and according to the management of the Company, where the positive change in fair value of derivatives embedded in convertible bonds of approximately HK$19.7 million and gain on conversion of convertible bonds of approximately HK$14.2 million for FY2020 and the one-off impairment loss on loan and interests receivable of approximately HK$86.0 million for FY2019 were excluded, the loss attributable to the owners of the Company would slightly increase by approximately 1.3%, from approximately HK$95.4 million for FY2019 to approximately HK$96.6 million for FY2020.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial performance for FP2020

The Group recorded a revenue of approximately HK$389.5 million for FP2020, representing a decrease of approximately 24.7% as compared with that of approximately HK$517.2 million for FP2019. According to the management of the Company, such decrease was mainly due to (i) the COVID-19 spreading worldwide since the turn of the year 2020 hitting the global economy hard and caused decline in consumer confidence and spending in the retail industry; and (ii) challenges experienced by Hong Kong’s retail market in view of the trade frictions between China and the United States and social unrest in Hong Kong since June of 2019.

The Group recorded a turnaround to profit attributable to owners of the Company of approximately HK$9.9 million for FP2020 as compared to a loss attributable to owners of the Company of approximately HK$38.0 million of FP2019. As disclosed in the Interim Report and according to the management of the Company, the turnaround to profit was mainly attributable to (i) cost saving measures including but not limited to reduction in salary and rental expenses; (ii) receipt of subsidies under the Employment Support Scheme of Hong Kong Government; (iii) decrease in finance costs by approximately HK$19.1 million; (iv) exchange gain arising from the appreciation of the Renminbi of approximately HK$30.1 million; and (v) gains arising on change in fair value of the Group’s convertible bonds of approximately HK$8.8 million.

Financial position for FP2020

	As at 31	As at 30
	December	June
	2020	2020
	(unaudited)	(audited)
	(HK$’000)	(HK$’000)
Current assets	1,668,050	1,628,863
Current liabilities	1,757,951	1,774,718
Net current liabilities	(89,901)	(145,855)
Total assets	1,886,240	1,863,741
Total liabilities	1,968,176	1,983,187
Net liabilities	(81,936)	(119,446)
Equity attributable to the Shareholders	(35,475)	(51,795)
Bank balances and cash	111,937	110,810
Pledged bank deposits	764,771	767,778

As stated in the Interim Report, as at 31 December 2020, net current liabilities of the Company amounted to approximately HK$89.9 million (as compared with that of approximately HK$145.9 million as at 30 June 2020),

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and the net liabilities of the Company amounted to approximately HK$81.9 million (as compared with that of approximately HK$119.4 million as at 30 June 2020).

As at 31 December 2020, the current liabilities comprising mainly bank and other borrowings of approximately HK$1,504.0 million and trade and other payables, accruals and deposits received of approximately HK$184.3 million.

(c) Information on the First Subscriber

The entire issued share capital of the First Subscriber is owned by Mr. Wang Chaoguang, the co-chairman and an executive Director.

2. Reasons for and benefits of the Subscription and use of proceeds

As disclosed in the Board Letter and the Interim Report, as at 31 December 2020, the Group’s current liabilities exceeded its current assets by approximately HK$89.9 million and its total liabilities exceeded its total assets by approximately HK$81.9 million respectively, indicating the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern. Therefore, the Directors are of the view that it may be unable to realise its assets and discharge its liabilities in the normal course of business. Please refer to Note 1 to the Interim Report for further information on going concern.

The Directors are mindful of the significant deterioration in economic and credit conditions that have affected the world economies in the past year. Given the uncertain economic outlook in the near to medium term, the Group is well conscious of the risk that the Company may not be able to obtain the necessary funding, either through debt or equity financing or both, to repay or refinance the loan and indebtedness when they fall due. Given the high gearing ratio of the Company of approximately 1.04 times as at 31 December 2020, the Subscriptions provide a good opportunity for the Company to raise equity funding to repay its outstanding liabilities, improve its financial position and mobilise further resources for business development of the Group.

The gross proceeds from the Subscriptions will be HK$142.0 million, of which (i) HK$57.5 million will be from the subscription of the Subscription Shares; and (ii) HK$84.5 million will be from the subscription of the Convertible Bonds. After deducting the expenses of approximately HK$1.0 million (which include the professional fees payable to the Independent Financial Adviser, legal advisers and financial printer), the net proceeds from the Subscriptions will be approximately HK$141.0 million. The net proceeds will be applied as to approximately HK$126.0 million for repayment of indebtedness as detailed below; and approximately HK$15.0 million for general working capital of the Group. Approximately 59.51% of the Subscription money is to be contributed by the First Subscriber under the First Subscription. In the event that only the First Subscription is proceeded, after deducting the expenses, the net proceeds from the First Subscription will be approximately HK$83.5 million, which will be fully applied for repayment of indebtedness. In the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

event that only the Second Subscription is proceeded, after deducting the expenses, the net proceeds from the Second Subscription will be approximately HK$56.5 million, which will be fully applied for repayment of indebtedness. Under such circumstances, the Company may consider obtaining short-term debt financing from its connected person(s) for the repayment of the remaining indebtedness. As discussed with the management of the Company, we understand that in the event only one of the Subscriptions proceeds, the Company will apply the proceeds from such Subscription to repay the indebtedness according to their due dates.

We had enquired and understand that the Company will use the proceeds from Subscriptions to repay several interest bearing indebtedness. As advised by the Company, those indebtedness are interest bearing with annual interest rates ranging from 4% to 18% per annum and most of the debt will fall due in July 2021 or repayable on demand. It is expected that repayment of the indebtedness with higher interest rates will reduce the financing cost of the Company. In particular, we understand from the Company that the indebtedness to be repaid with the proceeds from the Subscriptions totalling approximately HK$141.0 million consists of (i) a loan due on 21 July 2021 with interest rate of 18% per annum and an outstanding amount of approximately HK$27.0 million; (ii) a bond due on 12 July 2021 with interest rate of 15% per annum and a repayment amount of approximately HK$22.0 million; (iii) a deposits received with interest rate of 8% per annum and repayable on demand and an outstanding amount of approximately HK$12.0 million; and (iv) a convertible bonds with interest rate of 4% per annum, an outstanding sum of approximately HK$80.0 million and initially due on 16 January 2023 (the “ 2023 CB ”) but the holder of which (the “ 2023 CB Holder ”) has verbally demanded for repayment by July 2021 when the Company failed to repay the interest fall due in January 2021. Regarding indebtedness items (i), (ii) and (iii) above, we noted that they are either due in July 2021 or repayable on demand. As discussed with the management of the Company, we understand that when preparing for the annual results for the year ended 30 June 2020, the Company informed the 2023 CB Holder that it was unlikely to pay the interest under the 2023 CB due in January 2021 and requested the 2023 CB Holder to extend the first payment of interest of the 2023 CB from 16 January 2021 to 16 July 2021. On 22 September 2020, the 2023 CB Holder agreed to extend the payment of the first interest payment to 16 July 2021. Nevertheless, the 2023 CB Holder expressed the non-payment of first interest payment on 16 January 2021 would constitute an event of default of the 2023 CB and the 2023 CB Holder is entitled to demand an immediate repayment of the outstanding sum of the 2023 CB in full. We understand from the Company that the 2023 CB Holder has verbally expressed its intention to demand repayment of the outstanding sum of the 2023 CB in full by July 2021.

Having considered (i) there is imminent funding need of the Company to repay the indebtedness that will fall due soon as stated above; (ii) the application of the proceeds towards repayment of the indebtedness with higher interest rates will reduce the overall financing cost of the Company as stated above; and (iii) the continued net current liabilities position of the Group for recent financial periods and the gearing ratio of the Group of approximately 1.04 times (represented by the total liabilities divided by total assets) as at 31 December 2020 as stated above, we consider it is

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

reasonable for the Company to have fund raising to fulfil those payment obligation and hence reduce gearing ratio and reserve some financial resources for working capital purpose, thus the use of proceeds are justifiable.

Having taken into consideration (i) the Company has been in loss making and net liabilities position for the recent financial years as disclosed in the sub-section headed “1. Background information on the Group” above in this letter; (ii) the proceeds from the First Subscription would provide funding for the Group to repay the indebtedness as stated above and allow the Group to reduce its gearing ratio and improve its financial position as stated above; (iii) the First Subscription is a feasible means as compared with other funding alternatives as disclosed in the sub-section headed “4. Other financing alternatives” below in this letter; and (iv) while not being in the ordinary and usual course of business of the Group, the First Subscription Agreement is on normal commercial terms and the terms of the First Subscription are fair and reasonable as analysed in the sub-section headed “3. Principal terms of the First Subscription Agreement” below in this letter, which includes comparable analysis on the First Subscription Price and First Conversion Price, we are of the view and concur with the view of the management of the Company that the First Subscription is in the interest of the Company and the Shareholders as a whole.

3. Principal terms of the First Subscription Agreement

Pursuant to the First Subscription Agreement, the First Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to:

(i) allot and issue the First Subscription Shares, being 650,000,000 Shares (equivalent to 65,000,000 New Shares); and
(ii) issue the First Convertible Bonds in the aggregate principal amount of HK$52,000,000.

Set out below are the principal terms of the First Subscription Shares:

Subscription Price: HK$0.05 per First Subscription Share Number of Subscription Shares: 650,000,000 Shares (equivalent to 65,000,000 New Shares)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below are the principal terms of the First Convertible Bonds:

Issuer: The Company Principal amount: HK$52,000,000 Maturity date: The date falling the second anniversary of the date of issue of the First Convertible Bonds (or if such day is not a Business Day, the Business Day immediately after such day) Interest rate: 4% per annum on the outstanding principal amount Conversion price: The initial First Conversion Price shall be HK$0.065 per First Conversion Share (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation), subject to adjustment provisions as summarised in the Board Letter

For further details of the terms of the First Convertible Bonds, please refer to the Board Letter.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the following terms of the First Subscription Shares and the First Convertible Bonds. In order to assess the fairness and reasonableness of the First Subscription Price, we compared with reference to (i) the recent price performance of the Shares and trading liquidity of the Company; and (ii) the market comparables analysis, as follows:

(a) First Subscription Price and First Conversion Price

The First Subscription Price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per First Subscription Share represents:

(i) a premium of approximately 4.17% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of approximately 15.25% to the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the First Subscription Agreement;
(iii) a discount of approximately 15.25% to the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the First Subscription Agreement; and
(iv) a discount of approximately 16.39% to the average closing price of HK$0.060 per Existing Share (equivalent to the theoretical average closing price of approximately HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the First Subscription Agreement.

The First Conversion Price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share represents:

(i) a premium of approximately 35.42% over the closing price of HK$0.048 per Existing Share (equivalent to the theoretical closing price of HK$0.48 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the Latest Practicable Date;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) a premium of approximately 10.17% over the closing price of HK$0.059 per Existing Share (equivalent to the theoretical closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange on the date of the First Subscription Agreement;
(iii) a premium of approximately 10.17% over the average closing price of HK$0.059 per Existing Share (equivalent to the theoretical average closing price of HK$0.59 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of the First Subscription Agreement; and
(iv) a premium of approximately 8.70% over the average closing price of approximately HK$0.060 per Existing Share (equivalent to the theoretical average closing price of HK$0.60 per New Share as adjusted for the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last ten (10) consecutive trading days immediately preceding the date of the First Subscription Agreement.

As stated in the Board Letter and according to the management of the Company, the First Subscription Price and the First Conversion Price were determined with reference to the prevailing market price of the Shares and was negotiated on an arm’s length basis between the Company and the First Subscriber.

(b) Historical Share price performance

The historical closing prices of the Shares for the period from 1 June 2020 to 31 May 2021, being a twelve-month period from the date of the First Subscription Agreement (the “ Review Period ”), are plotted below against the First Subscription Price and the First Conversion Price.

==> picture [266 x 171] intentionally omitted <==

----- Start of picture text -----

HK$ Historical daily closing price per Share
0.12
0.1
0.08
First Conversion Price : HK$0.065
0.06
First Subscription Price: HK$0.050
0.04
0.02
0
2020/06/01 2020/06/08 2020/06/15 2020/06/22 2020/06/30 2020/07/08 2020/07/15 2020/07/22 2020/07/29 2020/08/05 2020/08/12 2020/08/19 2020/08/26 2020/09/02 2020/09/09 2020/09/16 2020/09/23 2020/09/30 2020/10/09 2020/10/19 2020/10/27 2020/11/03 2020/11/10 2020/11/17 2020/11/24 2020/12/01 2020/12/08 2020/12/15 2020/12/22 2020/12/30 2021/01/07 2021/01/14 2021/01/21 2021/01/28 2021/02/04 2021/02/11 2021/02/22 2021/03/01 2021/03/08 2021/03/15 2021/03/22 2021/03/29 2021/04/08 2021/04/15 2021/04/22 2021/04/29 2021/05/06 2021/05/13 2021/05/21 2021/05/28
----- End of picture text -----

Source: Website of the Stock Exchange

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the Review Period, the closing price of the Shares is rather fluctuating. It is noted that there are two notable surges in the closing price of the Shares in June 2020 and February 2021 respectively. We have reviewed the announcements published by the Company at the relevant times, save and except for the positive profit alert announcement of the Company on 9 February 2021, we are not aware of other announcement made by the Company which is price sensitive. We have also discussed with the management of the Company and understand that they are not aware of any other price sensitive information at the relevant times. It is also noted that the closing price of the Shares gradually decreased after the surges. The closing prices of the Shares range from HK$0.027 (recorded from 3 to 9 February 2021) to HK$0.101 (recorded on 18 February 2021), with an average of approximately HK$0.048 during the Review Period.

The First Subscription Price of HK$0.05 per First Subscription Share represents, during the Review Period, (i) a premium of approximately 85.19% over the lowest closing price of the Shares of HK$0.027; (ii) a discount of approximately 50.50% to the highest closing price of the Shares of HK$0.101; and (iii) a slight premium of approximately 4.17% over the average closing price of the Shares of approximately HK$0.048.

The First Conversion Price of HK$0.065 per First Conversion Share represents, during the Review Period, (i) a premium of approximately 140.74% over the lowest closing price of the Shares of HK$0.027; (ii) a discount of approximately 35.64% to the highest closing price of the Shares of HK$0.101; and (iii) a premium of approximately 35.42% over the average closing price of the Shares of approximately HK$0.048.

(c) Trading volume analysis

Set out below are the average daily trading volume of the Shares during the Review Period.

		Average daily
		trading volumes
		over the issued
	Average daily	Share capital of the
	trading volumes	Company as at end
	during the month	of the month
	(Shares)	(approximate %)
2020
June	1,313,721	0.08%
July	1,609,073	0.10%
August	2,934,767	0.19%
September	787,809	0.05%
October	2,201,925	0.14%
November	1,972,511	0.13%
December	893,745	0.06%

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		Average daily
		trading volumes
		over the issued
	Average daily	Share capital of the
	trading volumes	Company as at end
	during the month	of the month
	(Shares)	(approximate %)
2021
January	3,426,206	0.22%
February	34,233,765	2.21%
March	3,774,832	0.24%
April	3,209,827	0.21%
May	4,020,330	0.26%

As illustrated above, the average daily trading volumes of the Shares having accounted for a range from approximately 0.05% to approximately 2.21% of the issued Share capital of the Company. Save and except for the figures in February 2021 which correspond to the surge in closing price of the Shares as disclosed above, the daily volume of the Shares was relatively low during the Review Period.

(d) Comparable analysis on the First Subscription Price

In assessing whether the First Subscription Price is fair and reasonable, we carried out a comparable analysis of issue of new shares to connected persons (the “ Comparable Share Issue(s) ”) with the proceeds mainly used for the repaying/ refinancing of indebtedness as announced by companies listed on the Stock Exchange (excluding those issues of A shares by PRC issuers) through the HKEXnews website, between 1 December 2020 and 31 May 2021 (being a six-month period prior to entering into the First Subscription Agreement). We consider that the six-month period are representative as it demonstrates the recent market practice and market sentiments prior to the date of the First Subscription Agreement. Since there are sufficient number of Comparable Share Issues under the selection criteria mentioned above, we are of the view that such comparable analysis is fair and reasonable regarding subscription by connected persons under specific mandate with similar use of proceeds in the recent period.

While the listed companies of the Comparable Share Issue(s) may be engaged in different business and have different financial performance than the Company, we have set certain criteria above regarding connected persons and intended use of proceeds, thus we consider that the Comparable Share Issues are meaningful, fair and representative for reflecting the market practice regarding subscription by connected persons under specific mandate with similar use of proceeds in the recent period.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

To the best of our knowledge, based on the aforesaid criteria, we identified an exhaustive list of seven Comparable Share Issues, details of which are set out below:

					Premium/
				Premium/	(discount) of	Premium/
				(discount) of	subscription	(discount) of
				subscription	price over/to	the conversion
				price over/to	average	price over/to
				closing price	closing price	the net asset
				per share on	per share on	value
				the last	the last 5	attributable to
				trading day	trading days	owners of the
				prior to/on the	prior to/on the	Company as
				date of the	date of the	per latest
				relevant	relevant	published
		Stock	Date of initial	announcement/	announcement/	financial
No.	Company	code	announcement	agreement	agreement	position
(Note
2)					(Note 1)
1.	China CBM Group	8270	31 December	0.00%	0.72%	(78.93)%
	Company Limited		2020
2.	China Dredging	871	14 January	11.11%	17.65%	(86.48)%
	Environment		2021
	Protection
	Holdings Limited
3.	Pak Tak	2668	20 January	(1.96)%	(10.15)%	19.70%
	International		2021
	Limited
4.	China Finance	875	20 January	(18.37)%	(19.84)%	(20.85)%
	Investment		2021
	Holdings Limited
5.	Carrianna Group	126	8 March 2021	(10.00)%	(12.45)%	(83.25)%
	Holdings
	Company Limited
6.	Greatwalle Inc.	8315	18 March 2021	(6.78)%	(5.50)%	1,400.52%
7.	Qidian International	1280	7 April 2021	0.00%	3.80%	N.A.
	Co., Ltd
	Average premium/(discount)			(3.71)%	(3.68)%	191.78%
	Median premium/(discount)			(1.96)%	(5.50)%	(49.89)%
	Maximum (discount)			(18.37)%	(19.84)%	(86.48)%
	Maximum premium			11.11%	17.65%	1,400.52%
	The Company			(15.25)%	(15.25)%	N.A.

Note:

N.A. denotes not applicable, as the subject companies recorded net deficits.
Risecomm Group Holdings Limited (Stock code: 1679) is excluded from our comparison since the subscription as announced on 25 January 2021 lapsed according to its announcement dated 31 May 2021.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown above, the premium/(discount) of the subscription prices over/to the closing price of the Comparable Share Issues on the respective last trading day prior to/on the date of the relevant announcement/ agreement of the Comparable Share Issue range from a discount of approximately 18.37% to a premium of approximately 11.11%, with a mean and median discount of approximately 3.71% and approximately 1.96% respectively. The premium/ (discount) of subscription price over/to average closing price per share on the last five trading days prior to/on the date of the relevant announcement/ agreement of the Comparable Share Issue range from a discount of approximately 19.84% to the a premium of approximately 17.65%, with a mean and median discount of approximately 3.68% and approximately 5.50% respectively.

The discounts of approximately 15.25% represented by the First Subscription Price to the closing price of the Shares on the Last Trading Day and the last five trading days prior to the date of the First Subscription Agreement are higher than the average but fall within the above ranges.

It is noticed that only 1 out of the 7 Comparable Share Issues was at a deeper discount than that of the First Subscription, however taking into account that (i) offering discounts to share price in the new issue of shares is a common market practice and such discounts of the First Subscription Price fall within the range of Comparable Share Issues; and (ii) the Company was in the loss making and net liabilities position for the recent financial year while 6 out of 7 of the Comparable Share Issues are in net asset position; and (iii) the First Subscription Price is at a premium of approximately 4.17% over the average closing price of the Shares during the Review Period, we consider that the First Subscription Price is fair and reasonable so far as the Independent Shareholders are concerned, and in the interest of the Company as a whole.

(e) Comparable analysis on the First Conversion Price, interest rate and term of the First Convertible Bonds

In order to assess the fairness and reasonableness of the First Conversion Price, interest rate and term of the First Convertible Bonds, we have reviewed transactions of issue of convertible bonds/notes to connected persons for refinancing of indebtedness announced by companies listed on the Stock Exchange (excluding those issues of bonds/notes convertible into A shares by PRC issuers) from 1 June 2020 to 31 May 2021 (being a twelve-month period prior to entering into the First Subscription Agreement). To the best of our knowledge and as far as we are aware of, we have identified seven comparable transactions which met the said criteria (the “ Comparable CB Issues ”). We originally intended to set a six-month period for the Comparable CB Issues which would be the same as Comparable Shares Issues, but noted that there would only be three Comparable CB Issues under the aforesaid criteria. Therefore we extended to a twelve-month period for the Comparable CB Issues to have a larger sample size for comparison purpose.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

While the listed companies of the Comparable CB Issue(s) may be engaged in different business and have different financial	performance than the Company, we have set certain criteria above, regarding connected persons and intended use of proceeds, thus	we consider that Comparable CB Issue(s) are meaningful, fair and representative for reflecting the market practice regarding	subscription by connected persons under specific mandate with similar use of proceeds in the recent period. The following table	sets forth the relevant details of the Comparable CB Issues:	Premium/ (discount)	Premium/ (discount) of the conversion Premium/ (discount)	of the conversion price over/to average of the conversion	price over/to closing closing price per price over/to the net	price per share on share on the last 5 asset value	the last trading day trading days prior attributable to	prior to/on the date to/on the date of the owners of the	of the relevant relevant company as per latest	Date of the Principal Interest rate announcement/ announcement/ published financial	No. Company Stock code announcement amount per annum agreement agreement position Term	(Notes 5	and 6) (note 1)	1. Green Leader Holdings 61 22 July 2020 HK$395.0 0% 0.00% 0.00% N.A. 24 months	Group Limited million	2. China Regenerative 8158 20 October 2020 HK$95.0 0% (1.48)% 0.50% 366.70% 36 months	Medicine International million	Limited	3. Grand Field Group 115 17 November 2020 Up to 5% 2.56% 2.83% (81.86)% 18 months	Holdings Limited HK$102.32	million	4. CAR Inc. 699 3 December 2020 HK$1,356.2 5% 5.82% 6.10% 102.88% 60 months	million	5. Century Entertainment 959 30 December 2020 HK$50.0 0% 8.70% 2.88% 1,513.99% 18 months	International Holdings million	Limited	6. Sheng Yuan Holdings 851 1 April 2021 HK$150 million 1% 0.00% 1.33% N.A. 24 months	Limited	7. Asia Television Holdings 707 14 May 2021 HK$500.0 8% 104.08% (outliner, 122.22% (outliner, 562.28% (outliner, 24 months	Limited million (note 2) note 3) note 3) note 3)	Average 2.71% 2.60% 2.27% 475.43% 29.1 months	Median 1.00% 1.28% 2.08% 234.79% 24 months	Maximum 8% 8.70% 6.10% 1,513.99% 60 months	Minimum/ maximum 0% (1.48)% 0.00% (81.86)% 18 months	discount	31 May 2021 The 2882 HK$84.5 4% 10.17% 10.17% N.A. 24 months	Company million (Note 4)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

N.A. denotes not applicable, as the subject companies recorded net deficits.
Out of the HK$500 million, HK$200 million are issued to connected person.
It is found that the premiums of the conversion price over market price for this comparable are significantly higher than all other comparables and that the conversion price is set to be equal to the par value of the share of this comparable. We excluded this comparable since the significant higher premium is due to the fact that it is restricted to issue new shares at price below par value of the relevant company.
This includes both the First Convertible Bonds in the aggregate principal amount of HK$52,000,000 and the Second Convertible Bonds in the aggregate principal amount of HK$32,500,000.
The proposed issue of perpetual bond by Asiaray Media Group Limited (stock code: 1993) announced on 4 June 2020 is excluded from our comparison as it has no maturity which we consider not comparable to the First Convertible Bonds.
China LotSynergy Holdings Limited (Stock code: 1371) is excluded from our comparison since the subscription of convertible bond as announced on 9 October 2020 is terminated according to its announcement dated 20 January 2021.

Conversion Price

As shown above, the premium/(discount) of the conversion prices over/ to the closing price of the Comparable CB Issues on the respective last trading day prior to/on the date of the relevant announcement/ agreement of the Comparable CB Issue range from a discount of 1.48% to a premium of approximately 8.70%, with a mean and median discount of approximately 2.60% and approximately 1.28% respectively. The premium/(discount) of subscription price over/to average closing price per share on the last 5 trading days range from no premium/discount to a premium of approximately 6.10%, with a mean and median premium of approximately 2.27% and approximately 2.08% respectively.

The First Conversion Price represents a premium of approximately 10.17% over the average closing price on the Last Trading Day and for the last five trading days immediately prior to the date of the First Subscription Agreement, which is higher than all the Comparable CB Issues (except for the outlier).

Taking into account that the First Conversion Price is higher than the average historical closing price per Share in the Review Period, and the premiums of the First Conversion Price over the prevailing prices of the Shares are higher than the average of the Comparable CB Issues, thus the First Conversion Price is more favourable as compared to those of the Comparable CB Issues so far as the Independent Shareholders are concerned, we consider that the First Conversion Price is fair and reasonable so far as the Independent Shareholders are concerned, and in the interest of the Company as a whole.

– 54 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Interest rate

Based on the above list of the Comparable CB Issues, interest rates of the Comparable CB Issues generally ranged from nil to 8.00% per annum with an average and median of approximately 2.7% and 1.0% per annum, respectively. The interest rate of the First Convertible Bonds of 4.0% per annum fall within the range and close to the average interest rate, thus we consider that the interest rate of the First Convertible Bonds is fair, reasonable and in the interest of the Company and the Shareholders as a whole.

Term

Based on the above the Comparable CB Issues, the terms of the Comparable CB Issues ranged from 18 months to 60 months, with an average of approximately 29.1 months, respectively. The term of the First Convertible Bonds of 24 months is in line with the aforesaid market practice. Accordingly, we consider that the term of the First Convertible Bonds of 2 years is fair and reasonable.

(f) Other terms of the First Subscription Agreement

We have also reviewed other terms of the First Subscription Agreement including, among others, the conditions precedent, and noted that they are normal commercial terms.

Taking into account the reasons for and benefits of the First Subscription as stated above, and our comparable analysis on the First Subscription Price and the First Conversion Price, we are of the view that the First Subscription Agreement is on normal commercial terms and the terms of the First Subscription are fair and reasonable.

4. Other financing alternatives

As at 31 December 2020, the Group’s gearing ratio was approximately 104% and the Group’s total borrowings was approximately HK$1,694 million. In view of the high gearing ratio, the Company had difficulty securing debt financing from financial institutions. Despite the Company’s enquiries with some financial institutes, none of them were interested in providing loans to the Company. Further, the Directors considered that the debt financing will further intensify the Group’s indebtedness and gearing ratio. The Directors therefore believe equity financing will be more beneficial to the Group. As set out in the Board Letter, the Directors had explored the feasibility of conducting rights issue so as to allow all Shareholders to participate in the future development of the Company. Considering the total amount of funds required, if the Company were to carry out the rights issue, it is expected that a longer time would be required. The Directors also considered that it is not desirable to raise funds only when there is immediate need of funds as the cost of fund raising by then may be higher, and/or there are uncertainties as to whether the Group will be able to raise the amount

– 55 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of funding required for its business development by then, which may depend on the then prevailing market sentiments. Having taken into the financial position and uncertainty in the amount and/or the timing of other funding alternatives, the Directors are of the view that a new equity financing is an imminent priority of the Company and the Subscriptions are the most viable options for the Company. Given the high gearing ratio of the Company as mentioned above, the Subscriptions provide a good opportunity for the Company to raise equity funding to repay its outstanding indebtedness, improve its financial position and mobilise further resources for business development of the Group. The Directors consider that it is in the interest of the Company and its Shareholders as a whole to strengthen the financial position of the Company through the Subscriptions, which will enable the Company to expand its capital base and shareholder base. As such, the Directors believe that the Subscribers will bring in additional resources and investment opportunities to the Company that would be beneficial to the Company and the Shareholders as a whole.

We have also enquired and understand from the Company that it approached a securities firm for potential rights issue in late 2020 and again in May 2021, but no feedback of interest is received. Given the loss position and net liability position of the Group, it would be difficult for the Company to secure other kind of equity fund raising method in reasonable terms at the moment to meet its financing need.

We are of the view and concur with the view of the management of the Company that the First Subscription is in the interest of the Company and the Shareholders as a whole, after taken into consideration that (i) other equity financing alternatives such as placing, rights issue or open offer may lack market demand in reasonable terms, given the continued loss position of the Company, the net liabilities position of the Group, the thin liquidity of the Shares and no feedback of interests is received from a securities firm regarding potential rights issue as stated above; (ii) most of the Group’s assets has been pledged to secure borrowing (as reflected by the amount of pledged bank deposits of approximately HK$764.8 million), making it difficult to secure further debt at reasonable terms and further borrowings would not relieve the Group’s gearing ratio and profitability in the long-run; and (iii) the First Subscription is a feasible means as compared with other funding alternatives and would provide immediate funding to the Company. While the First Subscription is not being in the ordinary and usual course of business of the Group, the First Subscription Agreement is on normal commercial terms and we consider the terms of the First Subscription are fair and reasonable as analysed above.

– 56 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Financial impact of the First Subscription

Net assets/(liabilities) and gearing

As disclosed in the Interim Report, the Group’s current liabilities exceeded its current assets by approximately HK$89.9 million as at 31 December 2020. The Group is in a net liabilities position of HK$81.9 million as at 31 December 2020 and the gearing ratio of the Group represented by the total liabilities divided by total assets was approximately 1.04 times.

Upon the allotment and issue of the First Subscription Shares and the receipt of subscription money, there will be increases in assets and equity.

For the issue of the First Convertible Bonds, it will consist of an equity portion and a liability portion which will be subject to assessment and valuation by a professional valuer in accordance with the Hong Kong Financial Reporting Standards. It is expected that the issue of First Convertible Bonds for repayment of loans will not have an immediate material impact on the net asset value and the gearing of the Group.

Assuming the asset position of the Group has no material change as compared to the asset position of the Group as at 31 December 2020, upon the completion of the issue of Subscription Shares, the net liabilities position of the Company will be improved. Furthermore, the net asset value and gearing of the Group are expected to improve upon conversion of the First Convertible Bonds, given the reduction in the Group’s overall indebtedness.

Working capital

The net proceeds from the Subscriptions will be approximately HK$141.0 million, in which HK$84.5 million will be contributed by the First Subscriber. The fund raised will be applied towards the repayment of indebtedness that will fall due soon, thus working capital of the Group will be improved. The allotment and issue of the First Subscription Shares and the First Convertible Bonds with a terms of 2 years would immediately relieve the net current liabilities position of the Company.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial performance and position of the Company would be following the First Subscription.

– 57 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		For illustrative purpose	only, immediately upon	the Capital	the Capital	Reorganisation	becoming effective, the	allotment and issue of	the Subscription Shares	and the Conversion	Shares upon full	conversion of the	Convertible Bonds at	the initial Conversion	Price	Approx.	No. of Shares %	157,000 0.04%	21,000,000 5.25%		28,000,000 7.01%	25,105,561 6.28%	141,548 0.04%	145,000,000 36.28%	100,000,000 25.02%	80,267,492 20.08%	399,671,601 100.00%
										Immediately upon the	Capital Reorganisation	becoming effective and	the allotment and issue	of the Subscription	Shares only	Approx.	No. of Shares %	157,000 0.06%	21,000,000 7.79%		28,000,000 10.38%	25,105,561 9.31%	141,548 0.05%	65,000,000 24.10%	50,000,000 18.54%	80,267,492 29.76%	269,671,601 100.00%
Potential dilution effect on the shareholding interests of the existing public Shareholders	Set out below are the shareholding structure of the Company:								Immediately upon the Immediately upon the	Capital Reorganisation Capital Reorganisation	becoming effective and becoming effective and	the allotment and issue the allotment and issue	Immediately upon the of the First of the Second	As at the Latest Capital Reorganisation Subscription Shares Subscription Shares	Shareholders Practicable Date becoming effective only only	Approx. Approx. Approx. Approx.	No. of Shares % No. of Shares % No. of Shares % No. of Shares %	Mr. Li Ning (Note 1) 1,570,000 0.10% 157,000 0.10% 157,000 0.07% 157,000 0.08%	Eminent Rise Holdings Limited 210,000,000 13.58% 21,000,000 13.58% 21,000,000 9.56% 21,000,000 10.26%	(Note 1)	Well Pop Group Limited (Note 2) 280,000,000 18.10% 28,000,000 18.10% 28,000,000 12.75% 28,000,000 13.68%	Weltrade Group Limited (Note 3) 251,055,619 16.23% 25,105,561 16.23% 25,105,561 11.43% 25,105,561 12.27%	Mr. Wen Jialong (Note 3) 1,415,489 0.09% 141,548 0.09% 141,548 0.06% 141,548 0.07%	First Subscriber – – – – 65,000,000 29.59% – –	Second Subscriber – – – – – – 50,000,000 24.43%	Public Shareholders 802,674,904 51.90% 80,267,492 51.90% 80,267,492 36.54% 80,267,492 39.22%	Total 1,546,716,012 100.00% 154,671,601 100.00% 219,671,601 100.00% 204,671,601 100.00%

– 58 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

Eminent Rise Holdings Limited (“ Eminent Rise ”) is a company wholly-owned by Mr. Li Ning, the executive Director and the chairman. As such, Mr. Li Ning is deemed to be interested in the Shares held by Eminent Rise.
Well Pop Group Limited (“ Well Pop ”) is a company wholly-owned by Ms. Hao Yuanyuan. As such, Ms. Hao Yuanyuan is deemed to be interested in the Shares held by Well Pop.
Weltrade Group Limited (“ Weltrade ”) is a company wholly-owned by Kerui Jinrong Company Limited, which is in turn owned as to 40% by Mr. Zheng Yue Wen, 20% by Mr. Xiang Hong and 40% by Hallow King Global Investment Limited, which in turn is wholly-owned by Mr. Wen Jialong. As such, Mr. Zheng Yue Wen and Mr. Wen Jialong are deemed to be interested in the Shares held by Weltrade.
The percentages are subject to rounding error.

As shown above, assuming there is no other change in the issued share capital and shareholding structure of the Company, the shareholding in the Company held by existing public Shareholders would be diluted from approximately 51.90% as at the Latest Practicable Date to approximately 20.08% upon completion of the subscription of First Subscription Shares and the Second Subscription Shares and the full conversion of the Convertible Bonds. Such maximum dilution is for illusive purpose only as it is provided under the terms of the Convertible Bonds that the conversion right shall only be exercised to the extent it will not (a) trigger a mandatory offer obligation under Rule 26 of the Takeovers Code; nor (b) result in insufficient public float of the Shares as defined under the Listing Rules.

Taking into account (i) the loss making position financial position and the net liabilities position of the Group; (ii) other financing alternatives may not be feasible; (iii) the First Subscription will immediately improve the net liabilities position and the net current liabilities position of the Group; and (iv) the terms of the First Subscription (including the issue of the First Convertible Bonds) are fair and reasonable, we consider that the potential dilution effect on the shareholding of existing public Shareholders in the Company is acceptable so far as they are concerned.

– 59 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION

Having considered the aforementioned principal factors and reasons, we are of the view that (i) the First Subscription is in the interests of the Company and the Shareholders as a whole; (ii) the First Subscription is on normal commercial terms but not in the ordinary and usual course of business of the Group; and (iii) the terms of the First Subscription Agreement (including the First Subscription Price and the First Conversion Price) are fair and reasonable so far as the Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders, and we also recommend the Independent Shareholders, to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the First Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Nuada Limited Kevin Wong Nigel Ng Vice President Manager

Mr. Kevin Wong is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 15 years of experience in corporate finance industry.

Mr. Nigel Ng is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 6 years of experience in corporate finance industry.

– 60 –

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL

The number of issued Shares (i) as at the Latest Practicable Date: (ii) immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares; and (iii) for illustrative purpose only, immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares and the Conversion Shares upon full conversion of the Convertible Bonds are set out below:

HK$

As at the Latest Practicable Date

Authorised:

5,000,000,000 Existing Shares of par value of HK$0.04 each 750,000,000 Preference Shares of par value of HK$0.04 each	200,000,000.00 30,000,000.00
	230,000,000.00

Issued and fully-paid or credited as fully-paid:

1,546,716,012	Existing	Shares	of	par	value	of	HK$0.04	61,868,640.48
	each

Immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares

– I-1 –

GENERAL INFORMATION

APPENDIX I

Authorised:

200,000,000,000 New Shares of par value of HK$0.001 each 200,000,000.000 30,000,000,000 New Preference Shares of par value of 30,000,000.000 HK$0.001 each

230,000,000.000

Issued and fully-paid or credited as fully-paid:

154,671,601 New Shares of par value of HK$0.001 each 154,671.601 65,000,000 New Shares of par value of HK$0.001 each, 65,000.000 being the First Subscription Shares 50,000,000 New Shares of par value of HK$0.001 each, 50,000.000 being the Second Subscription Shares 269,671,601 New Shares of par value of HK$0.001 each 269,671.601

For illustrative purpose only, immediately upon the Capital Reorganisation becoming effective and the allotment and issue of the Subscription Shares and the Conversion Shares upon full conversion of the Convertible Bonds

Authorised:

200,000,000,000 New Shares of par value of HK$0.001 each 200,000,000.000 30,000,000,000 New Preference Shares of par value of 30,000,000.000 HK$0.001 each 230,000,000.000

Issued and fully-paid or credited as fully-paid:

154,671,601 New Shares of par value of HK$0.001 each 65,000,000 New Shares of par value of HK$0.001 each, being the First Subscription Shares 50,000,000 New Shares of par value of HK$0.001 each, being the Second Subscription Shares 80,000,000 New Shares of par value of HK$0.001 each, being the First Conversion Shares 50,000,000 New Shares of par value of HK$0.001 each, being the Second Conversion Shares 399,671,601 New Shares of par value of HK$0.001 each	154,671.601 65,000.000 50,000.000 80,000.000 50,000.000
	399,671.601

154,671,601
New Shares of par value of HK$0.001 each
65,000,000
New Shares of par value of HK$0.001 each,
being the First Subscription Shares
50,000,000
New Shares of par value of HK$0.001 each,
being the Second Subscription Shares
80,000,000
New Shares of par value of HK$0.001 each,
being the First Conversion Shares
50,000,000
New Shares of par value of HK$0.001 each,
being the Second Conversion Shares
399,671,601
New Shares of par value of HK$0.001 each

154,671.601
65,000.000
50,000.000
80,000.000
50,000.000

399,671.601

Note: Each of the Subscription Agreements is not conditional upon the other.

– I-2 –

GENERAL INFORMATION

APPENDIX I

All the Shares in issue and the Subscription Shares (when allotted and fully-paid) to be issued rank pari passu with each other in all respects including as regards to dividends and voting rights. The Subscription Shares to be issued will be listed on the Stock Exchange.

No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or the Subscription Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

There are no arrangements under which future dividends will be waived or agreed to be waived. As at the Latest Practicable Date, no capital of any member of the Group was under option or agreed conditionally or unconditionally to be put under option.

As at the Latest Practicable Date, the Company has 25,450,000 share options conferring the right for the holders to subscribe for 25,450,000 Existing Shares (equivalent to 2,545,000 New Shares) and the 2023 Convertible Bonds in the principal amount of HK$79,950,000 which is convertible into 533,000,000 Existing Shares (equivalent to 53,300,000 New Shares). Save as disclosed Company had no outstanding Shares, options, warrants, conversion rights or any equity or debt securities of the Company was outstanding or was proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital.

– I-3 –

GENERAL INFORMATION

APPENDIX I

3. DISCLOSURE OF INTERESTS

Directors’ and chief executive’s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, were as follows:

Long position in the Existing Shares and underlying shares of the Company

Name of Director Capacity/Nature of interest Mr. Li Ning Interest of controlled corporation (Note 1) Beneficial owner Ms. Dai Wei (Note 2) Beneficial owner Mr. Fan, Anthony Ren Da (Note 2) Beneficial owner Dr. Loke Yu alias Loke Hoi Lam (Note 2) Beneficial owner	Number of Existing Shares and underlying shares 210,000,000 1,570,000 Total: 211,570,000 8,750,000 1,325,000 875,000	Approximate percentage of the issued share capital 13.58% 0.09%
		13.68% 0.57% 0.09% 0.06%

Notes:

The Shares are held by Eminent Rise Holdings Limited, being a company wholly-owned by Mr. Li Ning, the executive Director and the chairman of the Board. As such, Mr. Li Ning is deemed to be interested in the Shares held by Eminent Rise Holdings Limited.
This interest is in the form of share options of the Company.
The percentages are subject to rounding error.

– I-4 –

GENERAL INFORMATION

APPENDIX I

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests and short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

4. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS

As at the Latest Practicable Date, so far as any Directors are aware, the interest or short positions owned by the following parties (other than the Directors or chief executive of the Company) in the Shares, underlying shares or debentures of the Company which are required to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required to be recorded in the register of the Company required to be kept under section 336 of the SFO were as follows:

Long position in the Existing Shares and underlying shares of the Company

		Number of	Approximate
		Existing Shares	percentage of the
	Capacity/Nature	and underlying	issued share
Name	of interest	shares	capital
Well Pop Group	Beneficial owner	280,000,000	18.10%
Limited (Note 1)
	Beneficial owner	533,000,000	34.46%
		(Note 2)
Ms. Hao Yuanyuan	Interest of	280,000,000	18.10%
(Note 1)	controlled
	corporation
	Interest of	533,000,000	34.46%
	controlled	(Note 2)
	corporation
Weltrade Group	Beneficial owner	251,055,619	16.23%
Limited (Note 3)

– I-5 –

APPENDIX I

GENERAL INFORMATION

Name Capacity/Nature of interest Kerui Jinrong Company Limited (Note 3) Interest of controlled corporation Hallow King Global Investment Limited (Note 3) Interest of controlled corporation Mr. Zheng Yue Wen (Note 3) Interest of controlled corporation Mr. Wen Jialong (Note 3) Interest of controlled corporation Beneficial owner Eminent Rise Holdings Limited (Note 4) Beneficial owner	Number of Existing Shares and underlying shares 251,055,619 251,055,619 251,055,619 251,055,619 1,415,489 Total: 252,471,108 210,000,000	Approximate percentage of the issued share capital 16.23% 16.23% 16.23% 16.23% 0.09%
		16.32% 13.58%

Notes:

Well Pop Group Limited is a company wholly-owned by Ms. Hao Yuanyuan. As such, Ms. Hao Yuanyuan is deemed to be interested in the Shares held by Well Pop Group Limited.
This interest is in the form of convertible bonds.
Weltrade Group Limited is a company wholly-owned by Kerui Jinrong Company Limited, which is in turn owned as to 40% by Mr. Zheng Yue Wen, 20% by Mr. Xiang Hong and 40% by Hallow King Global Investment Limited, which in turn is wholly-owned by Mr. Wen Jialong. As such, Mr. Zheng Yue Wen and Mr. Wen Jialong are deemed to be interested in the Shares held by Weltrade Group Limited.
Eminent Rise Holdings Limited is a company wholly-owned by Mr. Li Ning, the executive Director and the chairman of the Board. As such, Mr. Li Ning is deemed to be interested in the Shares held by Eminent Rise Holdings Limited
The percentages are subject to rounding error.

Save as disclosed above and so far as the Directors were aware, as at the Latest Practicable Date, the Directors are not aware of any interests or short positions owned by any persons (other than the Directors or chief executives of the Company) in the Shares or

– I-6 –

GENERAL INFORMATION

APPENDIX I

underlying shares of the Company which were required to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required to be recorded in the register of the Company required to be kept under section 336 of the SFO.

5. DIRECTOR’S INTERESTS IN ASSETS, CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group since 30 June 2020 (being the date of which the latest published audited financial statements of the Group were made up).

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which does not expire or is not determinable by such member of the Group within one year without payment of compensation (other than statutory compensation).

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or any of their respective close associates (as defined under the Listing Rules) was interested in any business apart from the business of the Group which competes or is likely to compete, either directly or indirectly, with that of the Group.

8. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinions or advice, which is contained in this circular:

Name Qualification

Nuada Limited a corporation licensed to carry on Type 6 (advising on corporate finance) regulated activity under the SFO

The abovenamed expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its letter and/or references to its name in the form and context in which it appears in this circular.

– I-7 –

GENERAL INFORMATION

APPENDIX I

As at the Latest Practicable Date, the abovenamed expert did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

As at the Latest Practicable Date, the abovenamed expert did not have any interest, either directly or indirectly, in any assets which have been since 30 June 2020 (being the date to which the latest published audited consolidated financial statements of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

The letter and recommendation given by the abovenamed expert are given as of the date of this circular for incorporation herein.

9. MATERIAL CONTRACTS

The following contracts (not being contract in the ordinary course of business of the Company) have been entered into by members of the Group within two years immediately preceding the date of this circular which are or may be material:

(a) the First Subscription Agreement; and
(b) the Second Subscription Agreement.

10. LITIGATION

As at the Latest Practicable Date, neither the Company nor any other member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

11. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 30 June 2020, being the date to which the latest published audited consolidated financial statements of the Company were made up.

12. MISCELLANEOUS

Registered office of the Clarendon House Company 2 Church Street Hamilton, HM 11 Bermuda

– I-8 –

GENERAL INFORMATION

APPENDIX I

Principal place of business of	Room 905, 9/F., Star House	Room 905, 9/F., Star House
the Company in Hong Kong	3 Salisbury Road
	Tsim Sha Tsui
	Kowloon, Hong Kong
Principal share registrar and	MUFG Fund Services (Bermuda) Limited
transfer office	4th Floor North, Cedar House
	41 Cedar Avenue
	Hamilton HM 12
	Bermuda
Branch share registrar and	Tricor Tengis Limited
transfer office in Hong Kong	Level 54, Hopewell Centre
	183 Queen’s Road East
	Wanchai, Hong Kong
Authorised representatives	Dai Wei
	Room 905, 9/F., Star House
	3 Salisbury Road
	Tsim Sha Tsui
	Kowloon, Hong Kong
	Ho Suet Man Stella
	Room 905, 9/F., Star House
	3 Salisbury Road
	Tsim Sha Tsui
	Kowloon, Hong Kong
Company secretary	Ms. Ho Suet Man Stella
	_(associate member of the _	_Hong Kong Institute _				of
	Certified Public Accountants)
Legal advisers to the Company	Michael Li & Co.
	19/F., Prosperity Tower
	No. 39 Queen’s Road Central
	Central, Hong Kong
Intendent financial adviser to	Nuada Limited
the Independent Board	a corporation licensed	to	carry	on	Type	6
Committee and the	_(advising on corporate finance) regulated _				activity
Independent Shareholders in	under the SFO
respect of the First	Unit 1606, 16/F
Subscription	OfficePlus@Sheung Wan
	93-103 Wing Lok Street
	Sheung Wan
	Hong Kong

– I-9 –

GENERAL INFORMATION

APPENDIX I

Auditors of the Company


Auditors	of the Company	Crowe (HK) CPA Limited
		Certified Public Accountants
		9/F, Leighton Centre
		77 Leighton Road
		Causeway Bay
		Hong Kong
Principal	bankers	Hang Seng Bank
		Head Office
		83 Des Voeux Road Central
		Hong Kong
		DBS Bank Head Office
		G/F, The Center
		99 Queen’s Road Central
		Hong Kong
		Shanghai Commercial Bank
		Head Office, Lobby Floor
		Shanghai Commercial Bank Tower
		12 Queen’s Road Central
		Hong Kong
		United Overseas Bank
		Head Office
		23/F, Three Garden Road
		Central, Hong Kong
		Bank of China (Hong Kong) Limited
		Bank of China Tower
		1 Garden Road
		Hong Kong

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. on any weekday (except public holidays) at the principal place of business of the Company in Hong Kong at Room 905, 9/F., Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for each of the two years ended 30 June 2019 and 2020;

– I-10 –

GENERAL INFORMATION

APPENDIX I

(c) the interim report of the Company for the six months ended 31 December 2020;
(d) the letter from the Independent Board Committee, the text of which is set out in this circular;
(e) the letter from the Independent Financial Adviser, the text of which is set out in this circular;
(f) the consent letter as referred to in the paragraph headed “8. Expert and consent” in this appendix;
(g) the material contracts referred to in the paragraph headed “9. Material contracts” in this appendix; and
(h) this circular.

– I-11 –

NOTICE OF SGM

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HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(Incorporated in Bermuda with limited liability and carrying on business in Hong Kong as HKRH China Limited) (Stock Code: 2882)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of Hong Kong Resources Holdings Company Limited (the “ Company ”) will be held at Room 905, 9/ F., Star House, 3 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong on Friday, 23 July 2021 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions:

SPECIAL RESOLUTION

THAT subject to and conditional upon: (i) the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting the listing of, and the permission to deal in, the New Shares (as defined below); and (ii) compliance with section 46(2) of the Companies Act 1981 of Bermuda to effect the Capital Reduction (as defined below), with effect from the second business day after the date on which this resolution is passed by the shareholders of the Company (“ Shareholder(s) ”):
(a) every ten (10) issued and unissued existing shares of par value of HK$0.04 each (each an “ Existing Share ”) in the share capital of the Company be consolidated into one (1) consolidated share of par value of HK$0.4 (each a “ Consolidated Share ”); and every ten (10) issued and unissued preference shares of par value of HK$0.04 each in the share capital of the Company be consolidated into one (1) consolidated preference share of par value of HK$0.4 (each a “ Consolidated Preference Share ”) (the “ Share Consolidation ”);
(b) immediately following the Share Consolidation, the issued share capital of the Company be reduced through a cancellation of (a) any fractional Consolidated Share in the share capital of the Company that may arise as a result of the Share Consolidation; and (b) the paid up capital of the Company to the extent of HK$0.399 on each of the then issued Consolidated Shares such that the par value of each issued Consolidated Share be reduced from HK$0.4 to HK$0.001, so as to form a New Share of par value of HK$0.001 (the “ Capital Reduction ”);

– SGM-1 –

NOTICE OF SGM

(c) immediately following the Share Consolidation, each of the authorised but unissued Consolidated Shares be sub-divided into four hundred (100) shares (each a “ New Share ”), so that the par value of each unissued Consolidated Share be reduced from HK$0.4 to HK$0.001; and each of the authorised but unissued Consolidated Preference Shares be sub-divided into four hundred (400) shares, so that the par value of each unissued Consolidated Preference Share be reduced from HK$0.4 to HK$0.001;
(d) the credit arising from the Capital Reduction be transferred to the contributed surplus account of the Company for use by the directors of the Company (“ Director(s) ”) in any manner permitted by the Companies Act 1981 of Bermuda and the memorandum of association and bye-laws of the Company;
(e) following the Share Consolidation, any one or more Directors be and are hereby authorised to do all such acts and things as they consider necessary or expedient in connection with the Share Consolidation, including, without limitation, to aggregate, sell and retain for the benefit of the Company all fractional Consolidated Shares to which each Shareholder is otherwise entitled; and
(f) any one of the Directors be and is hereby authorised to do all such acts and things and execute all documents he considers necessary, desirable or expedient to give effect to the Share Consolidation, the Capital Reduction and the respective transactions contemplated thereunder.”

ORDINARY RESOLUTIONS

“ THAT :
(a) the subscription agreement dated 31 May 2021 (the “ First Subscription Agreement ”) entered into between the Company and Grace Fountain Holdings Limited (the “ First Subscriber ”) (a copy of the First Subscription Agreement has been produced to the meeting and marked “A” and initialed by the chairman of the meeting for identification purpose) in relation to the subscription by the First Subscriber of (i) 650,0000,000 Existing Shares (equivalent to 65,000,000 New Shares) (the “ First Subscription Shares ”, and each a “ First Subscription Share ”) at the subscription price of HK$ HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per First Subscription Share; and (ii) the convertible bonds in the principal amount of HK$52,000,000 which may be converted into 800,000,000 Existing Shares (equivalent to 80,000,000 New Shares) at the initial conversion price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per First Conversion Share (the “ First Conversion Shares ”) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

– SGM-2 –

NOTICE OF SGM

(b) subject to the fulfillment of the conditions precedent set out in the First Subscription Agreement, the Directors be and are hereby granted a specific mandate to allot and issue the First Subscription Shares and First Conversion Shares in accordance with the terms of the First Subscription Agreement; and
(c) any one or more Directors be and are hereby authorised for and on behalf of the Company to take any action and execute such other documents as he/she considers necessary, desirable or expedient to carry out or give effect to or otherwise in connection with the First Subscription Agreement and the transactions contemplated thereunder, including, without limitation, the allotment and issue of the First Subscription Shares, the issue of the First Convertible Bonds, and the allotment and issue of the First Conversion Shares upon conversion of the First Convertible Bonds.”
“ THAT :
(a) the subscription agreement dated 31 May 2021 (the “ Second Subscription Agreement ”) entered into between the Company and Excel Horizon Investments Limited (the “ Second Subscriber ”) (a copy of the Second Subscription Agreement has been produced to the meeting and marked “B” and initialed by the chairman of the meeting for identification purpose) in relation to the subscription by the Second Subscriber of (i) 500,0000,000 Existing Shares (equivalent to 50,000,000 New Shares) (the “ Second Subscription Shares ”, and each a “ Second Subscription Share ”) at the subscription price of HK$0.05 (equivalent to HK$0.50 as adjusted for the effect of the Capital Reorganisation) per Second Subscription Share; and (ii) the convertible bonds in the principal amount of HK$32,500,000 which may be converted into 500,000,000 Existing Shares (equivalent to 50,000,000 New Shares) at the initial conversion price of HK$0.065 (equivalent to HK$0.65 as adjusted for the effect of the Capital Reorganisation) per Second Conversion Share (the “ Second Conversion Shares ”) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) subject to the fulfillment of the conditions precedent set out in the Second Subscription Agreement, the Directors be and are hereby granted a specific mandate to allot and issue the Second Subscription Shares and Second Conversion Shares in accordance with the terms of the Second Subscription Agreement; and

– SGM-3 –

NOTICE OF SGM

(c) any one or more Directors be and are hereby authorised for and on behalf of the Company to take any action and execute such other documents as he/she considers necessary, desirable or expedient to carry out or give effect to or otherwise in connection with the Second Subscription Agreement and the transactions contemplated thereunder, including, without limitation, the allotment and issue of the Second Subscription Shares, the issue of the Second Convertible Bonds, and the allotment and issue of the Second Conversion Shares upon conversion of the Second Convertible Bonds.”

By order of the Board Hong Kong Resources Holdings Company Limited Mr. Li Ning Chairman

Hong Kong, 30 June 2021 Registered Office: Principal place of business in Hong Kong: Clarendon House Room 905, 9/F., Star House, 2 Church Street 3 Salisbury Road, Hamilton, HM 11 Tsim Sha Tsui, Bermuda Kowloon, Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company. A member who is the holder of two or more shares may appoint more than one proxy to represent him/her/it to attend and vote on his/her/its behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
In the case of joint holders of a share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he was solely entitled thereto; but if more than one of such joint holders are present at the above meeting, the vote of the person, whether attending in person or by proxy, whose name stands first on the register of members of the Company in respect of such share shall be accepted to the exclusion of the vote(s) of the other joint holder(s).
To be valid, a form of proxy, together with the power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority must be deposited at the Company’s branch share registrar, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours (i.e. 11:00 a.m. on Wednesday, 21 July 2021) before the time appointed for the holding of the above meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude any member from attending and voting at the above meeting (or any adjournment thereof) in person.
The register of members of the Company will be closed from Tuesday, 20 July 2021 to Friday, 23 July 2021 (both days inclusive) during which period no transfer of shares will be registered. In order to be qualified to attend and vote at the above meeting, all properly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not later than 4:30 p.m. on Monday, 19 July 2021.
Any voting at the meeting shall be taken by poll.
In the case of any inconsistency between the Chinese translation and the English text hereof, the English text shall prevail.

– SGM-4 –

NOTICE OF SGM

If tropical cyclone warning signal no. 8 or above is hoisted or “extreme conditions” caused by super typhoons or a black rainstorm warning signal is in force at 7:00 a.m. on Friday, 23 July 2021, the meeting will be postponed and further announcement for details of alternative meeting arrangements will be made. The meeting will be held as scheduled even when tropical cyclone warning signal no. 3 or below is hoisted, or an amber or red rainstorm warning signal is in force. You should make your own decision as to whether you would attend the meeting under bad weather conditions and if you should choose to do so, you are advised to exercise care and caution.
PRECAUTIONARY MEASURES FOR THE SGM

The health of our shareholders, staff and stakeholders is of paramount importance to us. In view of the ongoing Novel Coronavirus (COVID-19) pandemic, the Company will implement the following precautionary measures at the SGM to protect attending shareholders, staff and stakeholders from the risk of infection:

(i) Compulsory body temperature checks will be conducted for every shareholder, proxy or other attendee at each entrance of the meeting venue. Any person with a body temperature of over 37.4 degrees Celsius may be denied entry into the meeting venue or be required to leave the meeting venue.
(ii) The Company encourages each attendee to wear a surgical face mask throughout the meeting and inside the meeting venue, and to maintain a safe distance between seats.
(iii) No refreshment will be served, and there will be no corporate gift.

In addition, the Company reminds all shareholders that physical attendance in person at the meeting is not necessary for the purpose of exercising voting rights. Shareholders may appoint the chairman of the meeting as their proxy to vote on the relevant resolution(s) at the meeting instead of attending the meeting in person, by completing and return the proxy form attached to this document.

If any shareholder chooses not to attend the meeting in person but has any question about any resolution or about the Company, or has any matter for communication with the board of directors of the Company, he/ she is welcome to send such question or matter in writing to our registered office or to our email at [email protected]. If any shareholder has any question relating to the meeting, please contact the Company’s branch share registrar, Tricor Tengis Limited as follows:

Tricor Tengis Limited Level 54, Hopewell Centre 183 Queen’s Road East, Hong Kong Email: [email protected] Tel: (852) 2980 1333 Fax: (852) 2810 8185

As at the date hereof, the Board comprises Mr. Li Ning (Chairman), Mr. Wang Chaoguang (Co-chairman) and Ms. Dai Wei as executive Directors; Mr. Hu Hongwei as non-executive Director; and Dr. Loke Yu alias Loke Hoi Lam, Mr. Fan, Anthony Ren Da and Mr. Chan Kim Sun as independent non-executive Directors.

– SGM-5 –

AI assistant

3DG Holdings (International) Limited — Proxy Solicitation & Information Statement 2021

50788_rns_2021-06-29_66597e2e-4d36-4b97-9ee2-1d4bbfaccec4.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(1) PROPOSED CAPITAL REORGANISATION; (2) PROPOSED CHANGE IN BOARD LOT SIZE;

(3) CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE;

(4) SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND

(5) NOTICE OF SGM

CONTENTS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

(4) SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

INTRODUCTION

LETTER FROM THE BOARD

(1) PROPOSED CAPITAL REORGANISATION

Effects of the Capital Reorganisation

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions of the Capital Reorganisation

LETTER FROM THE BOARD

Application for listing

Reasons for the Capital Reorganisation

Fractional entitlement to New Shares

Arrangement on odd lot trading

Exchange of share certificates for New Shares

Adjustments in relation to other securities of the Company

Share options

Convertible bonds

LETTER FROM THE BOARD

(2) PROPOSED CHANGE IN BOARD LOT SIZE

LETTER FROM THE BOARD

(3) THE SUBSCRIPTIONS

(A) The First Subscription

The First Subscription Agreement

The First Subscription Shares, the First Convertible Bonds and the First Conversion Shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

The First Subscription Price

The First Conversion Price

Conditions of the First Subscription

Completion of the First Subscription

The First Subscription Agreement and the Second Subscription Agreement are not inter-conditional upon each other.

(B) The Second Subscription

The Second Subscription Agreement

The Second Subscription Shares, the Second Convertible Bonds and the Second Conversion Shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

The Second Subscription Price

The Second Conversion Price

LETTER FROM THE BOARD

Conditions of the Second Subscription

Completion of the Second Subscription

The First Subscription Agreement and the Second Subscription Agreement are not inter-conditional upon each other.

Ranking of the Subscription Shares and the Conversion Shares

Application for listing

Specific Mandates

REASONS FOR THE SUBSCRIPTIONS

LETTER FROM THE BOARD

USE OF PROCEEDS

LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST TWELVE-MONTH PERIOD

IMPLICATIONS UNDER THE LISTING RULES

THE INDEPENDENT BOARD COMMITTEE AND THE INDEPENDENT FINANCIAL ADVISER

THE SGM

LETTER FROM THE BOARD

RECOMMENDATIONS

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

HONG KONG RESOURCES HOLDINGS COMPANY LIMITED 香港資源控股有限公司

CONNECTED TRANSACTION IN RELATION TO THE SUBSCRIPTION OF NEW SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

3DG Holdings (International) Limited Proxy Solicitation & Information Statement 2021