Bloks Group Limited — Proxy Solicitation & Information Statement 2004

Sep 3, 2004

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any 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, company secretary, professional accountant or other professional adviser.

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

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

HONG KONG PHARMACEUTICAL HOLDINGS LIMITED 香港葯業集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code : 182)

DISCLOSEABLE TRANSACTION

DISPOSAL OF PROPERTY

30 August 2004

for identification purpose only

DEFINITIONS

In this circular, unless the context requires otherwise, the following expressions have the following meanings:

“Board”	means	the board of Directors
“Company”	means	Hong Kong Pharmaceutical Holdings Limited, a company incorporated in
		Bermuda with limited liability, the issued shares of which are listed on the Stock
		Exchange
“Directors”	means	the directors of the Company
“Disposal”	means	the proposed disposal of the Property pursuant to the Provisional Agreement
“Formal Agreement”	means	the agreement dated 9 August 2004 entered into pursuant to the Provisional
		Agreement relating to the Disposal
“Group”	means	the Company and its subsidiaries
“Hong Kong”	means	the Hong Kong Special Administrative Region of the PRC
“HK$”	means	Hong Kong dollars, the lawful currency of Hong Kong
“Independent Third Party”	means	any person who is not connected with any of the directors, chief executive or
		substantial shareholders of the Company or any of its subsidiaries or any of their
		respective associates (as defined in the Listing Rules)
“Latest Practicable Date”	means	27 August 2004, being the latest practicable date prior to the printing of this
		circular for ascertaining certain information contained in this circular
“Listing Rules”	means	the Rules Governing the Listing of Securities on the Stock Exchange
“PRC”	means	The People’s Republic of China
“Property”	means	Shop C, Ground Floor, Hong Ping Mansion, No. 59, 59A, 61, 61A, 63A, 65 &
		65A, Hip Wo Street, Kowloon, Hong Kong
“Provisional Agreement”	means	a provisional agreement for sale and purchase dated 23 July 2004 entered into
		between the Vendor and the Purchaser, in relation to, inter alia, the Disposal
“Purchaser”	means	Hung Kee Enterprise Limited, an Independent Third Party
“RMB”	means	Renminbi, the lawful currency of the PRC
“SFO”	means	Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholders”	means	the shareholders of the Company
“Shares”	means	ordinary shares of HK$0.10 each in the capital of the Company
“Stock Exchange”	means	The Stock Exchange of Hong Kong Limited
“Umbrella Finance”	means	Umbrella Finance Co., Ltd., the mortgagee of the Company in respect of the
		Property and the major secured creditor of the Company
“Vendor”	means	Nam Pei Hong Investments Limited, an indirect wholly owned subsidiary of the
		Company

– 1 –

LETTER FROM THE CHAIRMAN

HONG KONG PHARMACEUTICAL HOLDINGS LIMITED 香港葯業集團有限公司 *

(Incorporated in Bermuda with limited liability)

Directors:

Mr. SUN Hiu Lu (Chairman) Ms. HUANG Shuyun (Deputy Chairman and Managing Director) Mr. CHU Kwan Mr. ZHAO Dake Mr. ZHANG Ke, Winston (Chief Financial Officer) Mr. NG Wing Hang[#] Dr. Melvin WONG[#] Mr. CHU Yu Lin, David, JP[#]

# Independent non-executive director

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business: Room 2603, 26th Floor China Merchants Tower Shun Tak Centre 200 Connaught Road Central Hong Kong

30 August 2004

To the shareholders and, for information only, holders of share options granted under the Company’s employee share option scheme

Dear Sir/Madam,

DISCLOSEABLE TRANSACTION

DISPOSAL OF PROPERTY

INTRODUCTION

By an announcement dated 10 August 2004, the Directors announced that on 23 July 2004, a binding provisional agreement for the sale and purchase of the Property was entered into between the Vendor and the Purchaser. Pursuant to the terms of the Provisional Agreement, a Formal Agreement between the Vendor and the Purchaser was signed on 9 August 2004. The consideration for the Disposal of the Property is HK$16,500,000.

The Disposal constitutes a discloseable transaction of the Company under the Listing Rules. The purpose of this circular is to provide Shareholders with further information on the Disposal and other information in compliance with the requirements of Chapter 14 of the Listing Rules.

BACKGROUND OF THE DISPOSAL OF THE PROPERTY

Date of the Provisional Agreement: 23 July 2004

Parties:

• (i) The Vendor : Nam Pei Hong Investments Limited, an indirect wholly owned subsidiary of the Company; and

• (ii) the Purchaser : Hung Kee Enterprise Limited, an Independent Third Party

• for identification purpose only

– 2 –

LETTER FROM THE CHAIRMAN

The Company confirm that to the best of the Directors’ knowledge, information and belief, after having made all reasonable enquiry, each of the Purchaser and the ultimate beneficial owner of the Purchaser are an Independent Third Party. So far as the Directors are aware, the Purchaser is an investment company.

Property

Shop C, Ground Floor, Hong Ping Mansion, No. 59, 59A, 61, 61A, 63A, 65 & 65A, Hip Wo Street, Kowloon, Hong Kong. The Property is held by the Vendor and the Property is being used for rental purpose. The Property comprise a total salesable area approximately 904 square feet which are leased to lessees who are Independent Third Party.

Existing tenancy

The existing tenant of the Property is an Independent Third Party. The term of the tenancy agreement is 2 years from 23 March 2004 to 22 March 2006 both days inclusive, and the rent is HK$75,000 per calendar month exclusive of Government rates and management fee.

Consideration and payment terms

The consideration for the sale of the Property is HK$16,500,000 based on market price. The consideration shall be paid by the Purchaser to the Vendor in the following manner:

• (a) an initial deposit of HK$825,000 has been paid to the Vendor’s solicitors as stakeholder upon signing of the Provisional Agreement;

• (b) a further deposit of HK$825,000 has been paid to the Vendor’s solicitors as stakeholder upon signing of the Formal Agreement on or before 6 August 2004; and

• (c) the remaining balance of HK$14,850,000 will be paid to the Vendor upon completion of the Disposal on or before 10 September 2004.

Formal Agreement

Pursuant to the terms of the Provisional Agreement, the Formal Agreement for the Disposal was agreed and signed by the parties on 9 August 2004.

Completion Date:

The sale and purchase pursuant to the Provisional Agreement and the Formal Agreement are scheduled to be completed on or before 10 September 2004. The Provisional Agreement and the Formal Agreement have no provision for both parties to postpone the completion date.

REASON FOR THE DISPOSAL AND USE OF PROCEEDS

The process of selling the Property was solely directed and controlled by Umbrella Finance. The net proceeds of the Disposal, which is approximately HK$16,075,000, will be used for repayment of the mortgage loan of the Property due and owing to Umbrella Finance.

The carrying value of the Property as at 31 March 2003 is HK$14,500,000. Based on the carrying value of the Property as at 31 March 2003, it is expected that the Disposal will result in a gain of approximately HK$2,000,000.

For the two financial year ended 31 March 2002 and 31 March 2003, the net profit/(loss) before and after taxation and extraordinary items in relation to the Property were HK$(6,804) and HK$221,942 respectively.

– 3 –

LETTER FROM THE CHAIRMAN

GENERAL

The Company is an investment holding company and its subsidiaries are principally engaged in the wholesale and retail of medicines and health products in PRC and HK, scientific research, manufacture and sale of biotechnological products in the PRC.

The impacts caused by the Disposal to the Group will decrease the assets and liabilities by HK$14,500,000 and approximately HK$16,075,000 respectively and increase the earnings and the net assets by approximately HK$1,575,000 with reference to the audited financial statement of the Company for the year ended 31 March 2003.

The Disposal constitutes a discloseable transaction for the Company under the Listing Rules.

ADDITIONAL INFORMATION

Your attention is drawn to the general information set out in the appendix.

Your faithfully, By Order of the Board

Hong Kong Pharmaceutical Holdings Limited SUN Hiu Lu

Chairman

– 4 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

Directors

As at the Latest Practicable Date, the interests of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which were required 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 which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required to be disclosed pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

• (a) Long positions in shares and underlying shares of the Company

					Number of underlying shares held under	Number of underlying shares held under	Number of underlying shares held under
	Number of shares held,				Equity Derivatives (excluding share options),
	capacity	and nature of	interest		capacity and nature of interest
			Percentage of				Percentage of
	Directly	Through	the Company’s		Directly	Through	the Company’s
	beneficially	controlled	issued share		beneficially	controlled	issued share
Name of Director	owned	corporation		capital	owned	corporation	capital
Mr. SUN Hiu Lu	–	943,400,000		67.2%	–	400,000,000	28.49%
		(Note i)				(Note ii)
Mr. CHU Kwan	–	943,400,000		67.2%	–	400,000,000	28.49%
		(Note i)				(Note ii)

Long positions in shares of associated corporations of the Company

					Percentage of
					the associated
					corporation’s
Name of associated	Relationship with	Name of	Number of	Capacity and	issued share
corporation	the Company	Director	Shares held	nature of interest	capital
Welcome Success	Company’s holding	Mr. SUN Hiu Lu	1	Directly beneficially	50%
Worldwide Ltd.	company			owned
(Note iii)
		Mr. CHU Kwan	1	Directly beneficially	50%
				owned
Hong Tau Investment	Company’s holding	Mr. SUN Hiu Lu	51	Interest of controlled	51%
Ltd.(Note iv)	company			corporation
		Mr. CHU Kwan	51	Interest of controlled	51%
				corporation
Victory Hunter Holdings	Company’s holding	Mr. SUN Hiu Lu	1	Interest of controlled	100%
Limited_(Note v)_	company			corporation
		Mr. CHU Kwan	1	Interest of controlled	100%
				corporation

– 5 –

GENERAL INFORMATION

APPENDIX

Long positions in shares of associated corporations of the Company (continued)

					Percentage of
					the associated
					corporation’s
Name of associated	Relationship with	Name of	Number of	Capacity and	issued share
corporation	the Company	Director	Shares held	nature of interest	capital
Wai Fat International	Company’s holding	Mr. SUN Hiu Lu	1	Interest of controlled	100%
Limited_(Note vi)_	company			corporation
		Mr. CHU Kwan	1	Interest of controlled	100%
				corporation
Tin Ming Management	Company’s holding	Mr. SUN Hiu Lu	1	Interest of controlled	100%
Limited_(Note vii)_	company			corporation
		Mr. CHU Kwan	1	Interest of controlled	100%
				corporation

Notes:

• (i) Hong Tau Investment Ltd. (“Hong Tau”) through its wholly owned subsidiaries, Victory Hunter Holdings Limited (“Victory Hunter”) (which holds 23,400,000 Shares), Wai Fat International Limited (“Wai Fat”) (which holds 130,000,000 Shares) and Tin Ming Management Limited (“Tin Ming”) (which holds 790,000,000 Shares) holds an aggregate of 943,400,000 Shares.

• Hong Tau is owned as to 51% by Welcome Success Worldwide Ltd. (“Welcome Success”), (which is owned equally as to 50% by each of two Directors, Mr. SUN Hiu Lu and Mr. CHU Kwan), and as to 49% by H.H.K. Finance Company Limited (“HHK”). 黑 龍江中盟集團有限公司 Heilongjiang China United Group Company Limited (“Heilongjiang China”) owns 80% interest in HHK.

• Accordingly, each of Mr. SUN Hiu Lu and Mr. CHU Kwan is deemed to be interested in the aggregate of 943,400,000 Shares held by Tin Ming, Wai Fat and Victory Hunter.

• (ii) Pursuant to an option agreement dated 27 February 2000 signed by Hong Tau and a bank (the “Bank”), the Bank has agreed to grant to Hong Tau a first right of refusal for the acquisition of any Shares converted under HK$40 million bank convertible note issued by the Company to the Bank on 27 April 2000 at the same price as the Bank has paid for them at conversion (i.e. HK$0.10, subject to adjustment) if the Bank wishes to sell them.

Hong Tau is owned as to 51% by Welcome Success, (which is owned equally as to 50% by each of two Directors, Mr. Sun Hiu Lu and Mr. Chu Kwan). Accordingly, Mr. Sun Hiu Lu and Mr. Chu Kwan have a long position of 400,000,000 Shares.

• (iii) Welcome Success is owned equally as to 50% by each of Mr. SUN Hiu Lu and Mr. CHU Kwan.

• (iv) 51% of the total issued share capital of Hong Tau are owned by Welcome Success directly.

• (v) Victory Hunter holds 23,400,000 shares of the Company and is a direct wholly owned subsidiary of Hong Tau.

• (vi) Wai Fat holds 130,000,000 shares of the Company and is a direct wholly owned subsidiary of Hong Tau.

• (vii) Tin Ming holds 790,000,000 shares of the Company and is direct wholly owned subsidiary of Hong Tau.

As at the Latest Practicable Date, no short positions were recorded in the Register of Directors’ and Chief Executive’s Interests and Short Positions required to be kept by the Company under Section 352 of the SFO.

– 6 –

GENERAL INFORMATION

APPENDIX

• (b) Rights to acquire Shares

			Number of the
			share options
			outstanding as at
			the Latest
Name of Director	Exercise period	Exercise price	Practicable Date
		(HK$)
Mr. SUN Hiu Lu	16 May 2000 - 15 May 2010	0.639	27,000,000
Ms. HUANG Shuyun	16 May 2000 - 15 May 2010	0.639	25,000,000
	30 October 2000 - 29 October 2010	0.460	2,000,000
Mr. CHU Kwan	16 May 2000 - 15 May 2010	0.639	25,200,000
	30 October 2000 - 29 October 2010	0.460	1,000,000
Mr. ZHAO Dake	16 May 2000 - 15 May 2010	0.639	27,000,000
Mr. ZHANG Ke, Winston	10 July 2001 - 9 July 2011	1.000	3,000,000
	22 February 2004 - 21 February 2012	0.880	1,500,000
	22 February 2005 - 21 February 2012	0.880	1,500,000
Mr. NG Wing Hang	2 May 2003 - 1 May 2013	0.380	300,000
	1 March 2004 - 28 February 2006	0.285	1,000,000
Dr. Melvin WONG	27 May 2003 - 1 May 2013	0.380	300,000
	1 March 2004 - 28 February 2006	0.285	1,000,000
Mr. CHU Yu Lin, David	1 March 2004 - 28 February 2006	0.285	1,000,000

Save as disclosed above, as at the Latest Practicable Date, none of the directors or the chief executives of the Company had, or was taken or deemed to have under Divisions 7 and 8 of Part XV of the SFO any interests in any shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) or any interests which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO or which were required to be notified to the company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules.

Substantial Shareholders and other Shareholder

As at the Latest Practicable Date, so far as is known to the Directors, the persons (other than the Directors or chief executives of the Company) had an interest or short position in the shares and underlying shares which would fall to be disclosed to the Company under the provisions of the Division 2 and 3 of Part XV of the SFO.

	Number of Shares held	Number of Shares held	Long position in Shares	Long position in Shares
Name of Shareholder	Direct interest	Deemed interest	Direct interest	Deemed interest
Heilongjiang China United
Group Company Limited	–	943,400,000 (Note i)	–	400,000,000 (Note ii)
H.H.K. Finance Company Limited	–	943,400,000 (Note i)	–	400,000,000 (Note ii)
Welcome Success Worldwide Ltd.	–	943,400,000 (Note i)	–	400,000,000 (Note ii)
Hong Tau Investment Ltd.	–	943,400,000 (Note i)	400,000,000 (Note ii)	–
Ms. CAI Ling Ti	–	943,400,000 (Note iii)	–	427,000,000 (Note iii)
Ms. WONG Yee Lan	–	943,400,000 (Note iv)	–	426,200,000 (Note iv)
Tin Ming Management Limited	790,000,000	–	–	–
Wai Fat International Limited	130,000,000	–	–	–
Mr. XU Yao Chang	91,000,000	–	–	–

Notes:

(i) Hong Tau through its wholly owned subsidiaries, Victory Hunter (which holds 23,400,000 Shares), Wai Fat (which holds 130,000,000 Shares) and Tin Ming (which holds 790,000,000 Shares) holds an aggregate of 943,400,000 Shares.

Hong Tau is owned as to 51% by Welcome Success, (which is owned equally as to 50% by each of two Directors, Mr. Sun Hiu Lu and Mr. Chu Kwan), and as to 49% by HHK. Heilongjiang China owns 80% interest in HHK.

Accordingly, each of Hong Tau, Welcome Success, HHK and Heilongjiang China is deemed to be interested in 943,400,000 Shares held by Tin Ming, Wai Fat and Victory Hunter.

– 7 –

GENERAL INFORMATION

APPENDIX

• (ii) Pursuant to an option agreement dated 27 February 2000 signed by Hong Tau and the Bank, the Bank has agreed to grant to Hong Tau a first right of refusal for the acquisition of any Shares converted under HK$40 million bank convertible note issued by the Company to the Bank on 27 April 2000 at the same price as the Bank has paid for them at conversion (i.e. HK$0.10, subject to adjustment) if the Bank wishes to sell them.

• Hong Tau is owned as to 51% by Welcome Success and as to 49% by HHK. Heilongjiang China owns 80% interest in HHK. Accordingly, Hong Tau, Welcome Success, HHK and Heilongjiang China have a long position of 400,000,000 shares.

• (iii) Ms. CAI Ling Ti is a spouse of Mr. SUN Hiu Lu. She is deemed to be interested in those shares through the interests of her spouse.

• (iv) Ms. WONG Yee Lan is a spouse of Mr. CHU Kwan. She is deemed to be interested in those shares through the interests of her spouse.

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by the Directors, the following party was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of another member of the Group:

Name of subsidiary	Name of substantial	Percentage of
of the Company	shareholder	direct interest held
Shanghai Hua Xin High	Shanghai International Asset Management (HK) Co., Ltd.	20%
Biotechnology Inc. (“Hua Xin”)
	Shanghai CSA Shenglongda Biotech (Group) Co., Ltd.	10%
Guizhou Ensure Chain Pharmacy	貴州合鼎實業有限公司	49%
Co., Ltd. (“Ensure Chain”)	Guizhou Hop Ting Enterprise Company Limited

Save as disclosed in this circular, there is no person known to the Directors, who as at the Latest Practicable Date was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the any members of the Group, or had any options in respect of such capital.

3. LITIGATION

Save as disclosed below, none of the members of the Group is engaged in any litigation or claims of material importance and no litigation or claims of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

1. On 21 October 1998, a writ of summons was issued against a subsidiary of the Company (the “Defendant”) by a supplier of petrochemical products (the “Plaintiff ”) in respect of a claim for unpaid invoices for the sum of about HK$8,800,000, together with interest and unspecific costs. On 19 May 1999, a judgement was delivered against the Defendant, under which the Defendant was ordered to pay the Plaintiff for the sum of HK$6,194,467.33 plus interest at the rate of 1.5% per month from 21 October 1998 to 12 May 1999 and thereafter at judgement rate until payment and costs. Accordingly, the amount of judgement debt had been accounted for in the audited consolidated accounts of the Group for the year ended 31 March 1999. The Directors has been in negotiation with the Plaintiff for settlement of the judgement debt and interest. As at the Latest Practicable Date, no settlement proposal has been reached between both parties. As far as the Directors know, the Plaintiff has formally notified the Defendant in writing that unless the settlement proposal is submitted for their consideration on or before the first week of August 2004, the Plaintiff may restore the legal actions against the Defendant which include but not limited to petition the Defendant for winding up.

2. On 31 March 1999, a writ of summons was issued against the Company by Goldon Investment Limited (the “Landlord”), an Independent Third Party, in respect of a claim for a sum of about HK$2,249,000 plus interest, mesne profits and damages together with unspecified costs. On 27 April 1999, the Company filed a defence and counterclaim which stated that the Company is entitled to set off the rental deposit paid to the Landlord of about HK$3,614,000 against the amounts due to the Landlord. On 10 August 2004, judgement was delivered against the Company in the amount of HK$17,153,624.92 (the “Judgement Debt”) together with (1) interest to run on HK$2,249,142.60 at the annual rate of 1% over Hong Kong prime from 31 March 1999 until 10 August 2004, and (2) interest to run on HK$14,904,482.32 from 1 December 2000 to 10 August 2004 at an annual rate of 1% over Hong Kong prime, and (3) thereafter interest is to run on the entire of the Judgement Debt at the judgement rate until payment. On 23 August 2004, the Landlord issued the statutory demand in respect of non-repayment of the Judgement Debt under the judgement. In view of the need to ensure that the Company has sufficient fund to meet the obligations of the Judgement Debt, the Directors are in discussion with the major creditor and controlling shareholder of the Company with a view to restructuring the Judgement Debt with the Landlord.

– 8 –

GENERAL INFORMATION

APPENDIX

1. On 13 January 2001, a writ of summons was issued by a subsidiary of the Company against its customer (the “Defendant”) in respect of a claim for unpaid invoices for the sum of about US$973,000 plus interests and costs. As at the Latest Practicable Date, no acknowledgment of service or defence has been filed by the Defendant. The Company has made full provision against the trade receivable in the audited consolidated accounts of the Group for the year ended 31 March 1999.

2. On 7 July 2003, a writ of summon was issued against a subsidiary of the Company by a design company in respect of a claim for unpaid fees for the sum of about HK$1,000,000 together with interest at judgement rate. On 31 October 2003, the defendant filed a defence. As at the Latest Practicable Date, the hearing date for the case has not yet been fixed.

3. On 27 September 2003, a writ has been served by 莊鶴玲 (ZHUANG He Ling) against Hua Xin for non-repayment of a loan amounting to RMB2,000,000 plus interest and default penalty, totaling RMB56,342. On 29 September 2003, 上海 市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai) ordered the freezing of Hua Xin’s bank deposit in the amount of RMB2,056,342 or the confiscation of Hua Xin’s assets of value to the extent of the claimed sum pending the delivery of the judgement. A judgement was delivered on 22 March 2004. However, Hua Xin failed to repay according to the judgement. On 15 June 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai) ordered the freezing of Hua Xin’s bank deposit in the amount of RMB2,069,092 plus the further interest payable on the judgement debt. On 26 July 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai) issued a notice to seize the real property of Hua Xin located at 上海市徐㶅區冠生園路 230 弄 5號房產 (property No. 5, Lane 230, Guanshengyuan Road, Xuhui District, Shanghai).

4. In April 2004, an arbitration application has been filed by 上海金橋出口加工區開發股份有限公司 (Shanghai Jinqiao Export Processing Zone Development Company Limited) against Hua Xin, claiming repossession of the leased premises that are being used by Defendant as manufacturing factory, repayment of the outstanding rental payments for the period from 1 January 2003 to 31 December 2003 in the amount of US$116,127 and other costs (including the mesne profit and default penalty) for the period up to 21 March 2004 in the amount of approximately US$196,327 and RMB208,000. The lease agreement terminated on 31 December 2003. Since the leased premises is still being occupied by Hua Xin as at the Latest Practicable Date, 上海金橋出口加工區開發股份有限公司 (Shanghai Jinqiao Export Processing Zone Development Company Limited) also claims Hua Xin for the mesne profit for the period commencing from 1 January 2004. As at the Latest Practicable Date, the judgement has not been delivered.

5. On 25 June 2004 and 28 June 2004, two litigations were commenced by 劉新垣 (LIU Xin Yuan) against Hua Xin, claiming non-repayment of a loan amounting to RMB493,585 plus interest amounting to approximately RMB20,027, and non-repayment of another loan amounting to RMB2,050,000 plus interest and default penalty, amounting to approximately RMB529,162. On 28 June 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai) ordered the freezing of Hua Xin’s bank deposits in the amounts of RMB523,757.27 and RMB2,602,068.25 respectively or the confiscation of Hua Xin’s assets of value to the extent of such amounts pending the delivery of the judgement. On 2 August 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai), reached a verdict and ruled that Hua Xin shall, within ten days from the date of the verdict, repay the principal amount of the loan of RMB493,585 plus the overdue interest. The court costs of RMB11,189.11 will be borne by Hua Xin. On 12 August 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District, Shanghai) reached a verdict and ruled that Hua Xin shall, within one month from the date of the verdict, repay the principal amount of the loan of RMB2,050,000 plus the overdue interest. The court costs of RMB36,435 will be borne by Hua Xin.

6. On 1 June 2004, litigation was commenced by上海銀行股份有限公司延安支行 (Bank of Shanghai Co., Ltd., Yanan Branch) (“Bank of Shanghai”) against Hua Xin, claiming non-repayment of bank loan amounting to RMB2,845,000 plus interest up to 31 May 2004 amounting to approximately RMB19,118. On 10 June 2004, 上海市靜安區人民法院 (the People’s Court of Jingan District, Shanghai) ordered the freezing of Hua Xin’s bank deposits in the aggregate amount of RMB3,000,000 or the confiscation of Hua Xin’s assets of value to the extent of the claimed sum pending the delivery of the judgement. On 7 July 2004, 上海市靜安區人民法院 (the People’s Court of Jingan District, Shanghai), reached a verdict and ruled that Hua Xin shall, within ten days from the date of the verdict, repay the principal of the loan of RMB2,845,000 plus the overdue interest. The court costs of RMB39,850.60 will be borne by Hua Xin. As at the Latest Practicable Date, Hua Xin has not made the repayment. Under the loan agreement, the Bank of Shanghai shall be entitled to exercise its right, as mortgagee, to dispose of the pledged security of 中國上海市浦東新區桂橋路 1150號 (No. 1150, Gui Qiao Road, Pu Dong, Shanghai, the PRC) by way of either auction or sale at a discounted price. Hua Xin shall continue to be liable for any shortfall amount under the loan.

– 9 –

GENERAL INFORMATION

APPENDIX

1. On 18 June 2004, 王春雷 (WANG Chun Lei), 方正 (FANG Zheng), 李彤 (LI Tong), 劉一勞 (LIU Yi Lao), 熊筱兵 (XIONG Xiao Bing), 王明康 (WANG Ming Kang) and 夏仲強 (XIA Zhong Qiang), the noteholders of the convertible notes in the aggregate principal amount of HK$12,254,400 issued by the Company (the “Convertible Notes”), issued statutory demands in respect of non-repayment of the aggregate principal amount under the Convertible Notes. The noteholders jointly hold 49% interests in Ensure Chain. The sums were due for payment under the statutory demand on 8 July 2004, and the amounts are still outstanding as at the Latest Practicable Date. As at the Latest Practicable Date, the statutory demands remain outstanding. The Directors have had negotiations with the noteholders on possible settlement, and once had come to agreement on a settlement proposal which however was not executed as Umbrella Finance was not agreeable to it. As far as the Directors are aware, Umbrella Finance has also been in negotiation with the noteholders separately but failed to bring forth any result. The directors are still trying their best endeavour in trying to settle with the noteholders, but the noteholders refuse to negotiate and proceed further legal actions. Currently, the Company does not have sufficient internal resources to meet the demanded sum.

2. In June 2001, 上海德昌投資發展有限公司 (Shanghai De Chang Investment Development Company Limited) (“De Chang”) lent a total sum of RMB$3,000,000 at an interest rate of 6% per annum to Hua Xin repayable on 31 December 2003. The loan remained unsettled as at the due date and therefore litigation was commenced by De Chang against Hua Xin, claiming non-repayment of loan amounting to RMB3,000,000 plus interest up to 30 June 2004 amounting to RMB540,000. On 19 August 2004, 上海市浦東新區人民法院 (the People’s Court of Pudong New District to De Chang, Shanghai), reached a verdict and ruled that Hua Xin shall, within ten days from the effective date of the verdict, repay to De Chang the principal of the loan of RMB3,000,000. The costs of the proceedings amounted to an aggregate of RMB45,930, out of which RMB7,006 shall be borne by De Chang and RMB38,924 shall be borne by Hua Xin.

4. SERVICE CONTRACT

Mr. ZHANG Ke, Winston has a service contract with a subsidiary of the Company commencing on 9 July 2001 which is subject to termination by either party giving not less than 3 months’ written notice. Apart from the foregoing, no other Directors has entered or proposes to enter into a service contract with any member of the Group.

5. GENERAL

• (a) The Secretary of the Company is Ms. CHAN Meily, an associate member of the Hong Kong Institute of Company Secretaries.

• (b) The Qualified Accountant of the Company is Mr. JIM Pak Keung, a fellow member of The Association of Chartered Certified Accountants.

• (c) The registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and the principal place of business of the Company in Hong Kong is Room 2603, 26th Floor, China Merchants Tower, Shun Tak Centre, 200 Connaught Road Central, Hong Kong.

• (d) The share registrar and transfer office of the Company in Bermuda is Butterfield Corporate Services Limited, Rosebank Centre, 14 Bermudiana Road, Pembroke, Bermuda. The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited, G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (e) This circular has been prepared in both English and Chinese. In the case of any discrepancy, the English text shall prevail.

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