PegBio Co., Ltd. — Capital/Financing Update 2002

Apr 3, 2002

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement.

HUNG FUNG GROUP HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

Proposed Compromise of Debts With Creditors and

dismissal of winding up petition

Further to the proposed restructuring of the bank debts owed by the Group to the Bank Group as jointly announced by the Company and Vision Century Group Limited on 22nd February, 2002, the Company has agreed to settle with certain creditors of the Group the debts in the total amount of about HK$34.3 million owed to them by way of (i) payment of approximately HK$2.1 million in cash; (ii) issue of approximately 1,070.3 million new Shares at prices ranging from HK$0.01 to HK$0.015 per Share; and (iii) the issue of the Convertible Note in the principal amount of HK$16,000,000. Upon completion of the Settlements, the Group will be discharged of and released from the debts of about HK$34.3 million in full. The Settlements are subject to the conditions set out below. The Company has further agreed to the Deed for the dismissal of the Petition. Pursuant to the Deed, the Company will repay the Deed Sum over eight instalments with the last instalment to be made in October 2002. The Petitioner has agreed to withdraw the Petition. The Directors expect that the Petition will be withdrawn within one month from the date of this announcement.

The Company and Vision Century Group Limited made a joint announcement dated 22nd February, 2002 (the "Announcement") in relation to, among others, the proposed restructuring of the Group's Total Compromised Debt. Further to the Announcement, the Company has reached agreements with certain other creditors of the Group to restructure the payment of the debts owing to such creditors of a total of about HK$34.3 million.

CN SETTLEMENT AGREEMENT DATED 27TH MARCH, 2002

(i) Parties to the CN Settlement Agreement

The debtor is HCTF, which is a factory established for the Group's production in PRC. The assets and liabilities of the factory have been taken into account in the consolidated accounts of the Group. The creditor is HZIC, a company wholly-owned by the PRC local government. The debt owed by the Group to HZIC relates to "結匯分成" ("foreign exchange conversion charges") pursuant to "工繳費結匯分成協議書" ("foreign exchange conversion charges contract").

HZIC is an independent third party not connected with the directors (including ex-directors within the past 12 months), chief executives or substantial shareholders of the Company, its subsidiaries or any of their respective associates as defined under the Listing Rules.

(ii) Terms of the CN Settlement

As at 28th February, 2002, the outstanding amount due to HZIC was RMB24,650,877 (or HK$23,038,203). Pursuant to the CN Settlement Agreement, HZIC will release and discharge all of the Group's obligations and liabilities to repay such amount. In consideration for this, HZIC will receive before 31st July, 2002 (i) payment in cash of RMB2,200,000 (or HK$2,056,075) by the Group; and (ii) the issue by the Company of the Convertible Note in the principal amount of HK$16,000,000.

The cash payment under the CN Settlement will be funded by internal resources of the Group.

(iii) Terms of the Convertible Note

Principal Amount of HK$16,000,000, convertible into 1,600,000,000

the Convertible Note: new Shares. As at the date of this announcement, the Group has approximately 2,483.9 million issued Shares. Based on the above, the 1,600,000,000 Conversion Shares represent approximately 64.4% of the issued share capital of the Company, approximately 39.2% of the issued share capital of the Company enlarged by the Conversion Shares and approximately 31.0% of the issued share capital of the Company enlarged by the Conversion Shares and the New Shares. Upon completion of the Restructuring Proposal, the Conversion Shares represent about 13.5% of the issued share capital of the Company enlarged by the Conversion Shares and the New Shares.

Maturity: Unless previously converted into Shares, the principal amount outstanding under the Convertible Note together with all interest accrued thereon is repayable on the second anniversary of the date of issue of the Convertible Note.

Interest: 3% per annum on the principal amount outstanding from time to time, payable semi-annually in arrears.

Conversion: The noteholder will have the right to convert the Convertible Note into Conversion Shares at any time from the date of issue of the Convertible Note until the Maturity Date at the conversion price of HK$0.01 per Share, subject to adjustment. It is intended that the Convertible Note could be converted in whole or in part.

The Conversion Shares shall, when issued, rank pari passu in all respects with all other Shares in issue on the date of conversion including the right to any dividends or distributions.

Completion: Subject to the satisfaction of the conditions, completion of the CN Settlement will take place on or before 31st July, 2002.

Application for Listing: Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

Voting: The noteholder will not be entitled to vote at any of the general meetings of the Company by reason of being the holder of the Convertible Note.

Redemption The Company has the right to redeem all or part of outstanding principal amount of the Convertible Note at the face value of the Convertible Note being redeemed (together with accrued interest thereon) prior to the Maturity Date.

The CN Settlement Agreement keeps silent on the transferability of the Convertible Note. It is intended by both parties that the noteholder shall not be entitled to assign its rights, title or interest in or to the Convertible Note without the prior written consent of the Company. The Company has undertaken to notify the Stock Exchange promptly if it becomes aware of any dealings in the Convertible Note by Connected Persons.

(iv) Conditions of the CN Settlement

The CN Settlement Agreement is conditional upon:

(a) passing at a general meeting of the Shareholders necessary ordinary resolutions approving, among others, an increase in authorised share capital of the Company, the CN Settlement Agreement, the Convertible Note and its issue (including issue of Convertible Shares pursuant to conversion of the Convertible Note);

(b) Bermuda Monetary Authority giving its approval of any matters requiring its approval including, without limitation, the issue of Convertible Note;

(c) approval of the listing of, and permission to deal in, the Conversion Shares being granted by the Stock Exchange;

(d) the Shares remaining listed on the Stock Exchange and the Stock Exchange not having notified the Company that its listing will or may be withdrawn; and

(e) trading in the Shares on the Stock Exchange will be resumed.

The CN Settlement Agreement and the Restructuring Proposal are not inter-conditional.

SHARE SETTLEMENT AGREEMENTS DATED 27TH MARCH, 2002

(i) Parties to the Share Settlement Agreements

The debtor is HCTF. The Creditors are an aggregate of 30 creditors who are mainly suppliers and trade creditors of the Group. The Creditors do not include HZIC or its associates.

The Creditors are independent third parties not connected with the directors (including ex-directors within the past 12 months), chief executives or substantial shareholders of the Company, its subsidiaries or any of their respective associates as defined under the Listing Rules.

(ii) Terms of the Share Settlement

As at 28th February, 2002, the outstanding amount due to the Creditors in respect of the Share Settlement was RMB12,063,092 (or HK$11,273,918). Pursuant to the Share Settlement Agreements, the Creditors will release and discharge all of the Group's obligations and liabilities to repay such amount. In consideration for this, the Creditors will receive before 31st July, 2002 (i) payment in cash of RMB19,011 (or HK$17,767) by the Group; and (ii) the issue by the Company of 1,070,280,000 New Shares.

(iii) New Shares

A total of 1,070,280,000 New Shares at prices ranging from HK$0.01 to HK$0.015 per Share will be issued. The issue prices of New Shares were agreed based on arms' length negotiation with each of the Creditors.

As at the date of this announcement, the Group has approximately 2,483.9 million issued Shares. Based on the above, the New Shares represent approximately 43.1% of the issued share capital of the Company and approximately 30.1% of the issued share capital of the Company as enlarged by the New Shares. The New Shares also represent approximately 20.8% of the issued share capital as enlarged by the New Shares and Conversion Shares upon conversion in full of the Convertible Note thereafter, based on the initial conversion price of HK$0.01 per Share (subject to adjustment).

Upon completion of the Restructuring Proposal and Share Settlement, the Share Settlement will not result in any creditor holding 10% or more of the Shares.

(iv) Rights of the New Shares

The New Shares will rank pari passu in all respects with the Shares in issue on the date of issue of the New Shares.

(v) Conditions of the Share Settlement

The Share Settlement Agreements are conditional upon:

(a) passing at a general meeting of the Shareholders necessary ordinary resolutions approving, among others, an increase in authorised share capital of the Company, the Share Settlement Agreements, the issue and subscription of the New Shares;

(b) Bermuda Monetary Authority giving its approval of any matters requiring its approval including, without limitation, the issue and subscription of the New Shares;

(c) approval of the listing of, and permission to deal in, the New Shares being granted by the Stock Exchange;

(d) the Shares remaining listed on the Stock Exchange and the Stock Exchange not having notified the Company that its listing will or may be withdrawn; and

(e) trading in the Shares on the Stock Exchange will be resumed.

The Share Settlement Agreements and the Restructuring Proposal are not inter-conditional.

(vi) Application for listing

Application will be made to the Stock Exchange for the granting of the listing of, and permission to deal in, the New Shares.

(vii) Completion

Subject to the satisfaction of the conditions, all cash payment under the Share Settlement and completion of the Share Settlement Agreements will take place on or before 31st July, 2002. The cash payment under the Share Settlement will be funded by the internal resources of the Group.

Upon completion of the Share Settlement Agreements, the Group will be discharged of and released from the debts of approximately HK$11.3 million in full. The Other Liabilities as at 30th September, 2001 was approximately HK$134.1 million. The Directors are continuing their negotiations with a number of other creditors of the Group with a view to securing further settlement arrangements with such creditors in respect of outstanding liabilities remained after the settlement of approximately HK$34.3 million debts and further announcement will be made when further agreements are reached.

FINANCIAL IMPACT AND REASONS FOR THE SETTLEMENTS

The Company is undergoing a restructuring of its bank indebtedness. The Company has been endeavored to further restructure its debts with a view to restoring the Group back into a stronger financial position. The Settlements will enable the Group to substantially reduce debts while limiting the cash outflow in the reduction of such debt. The Directors are of the view that the cash element of the Settlements will not have a material adverse impact on the trading and financial position of the Group.

DISMISSAL OF WINDING UP PETITION

On 19th January, 2002, the Company received the Petition issued by the Petitioner for the winding up of the Company in relation to a claim by the Petitioner of an amount of HK$2,135,529 together with interest thereon. On 22nd March, 2002, the Company entered into the Deed with the Petitioner to settle the Deed Sum over eight instalments with the last instalment to be made in October 2002. Up to the date of this announcement, the Group has paid two instalments totalling HK$1.5 million to the Petitioner pursuant to the Deed. The remaining six instalments in an aggregate amount of HK635,529 will be paid on a monthly basis on or before 1st October, 2002 by the internal resources of the Group. Pursuant to the Deed, all enforcement proceedings, including the Petition, shall be withdrawn and dismissed by the Petitioner. The Directors expect that the Petition will be withdrawn within one month from the date of this announcement. No long-stop date was stipulated in the Deed. Save as disclosed, there are no other outstanding winding up petition filed against the Company or its subsidiaries as at the date of this announcement.

GENERAL

A circular containing, among others, details of the Settlements and the Restructuring Proposal, and the notice of the special general meeting of the Company to consider the Settlements and Restructuring Proposal will be despatched to the shareholders of the Company as soon as possible.

TERMS USED IN THIS ANNOUNCEMENT

"associates" has the meaning ascribed to it in the Listing Rules

"Bank Group" the creditor banks and financial institutions of the Group, including Dao Heng Bank Limited, DBS Kwong On Bank Limited, Citic Ka Wah Bank Limited, Equitable PCI Bank, Inc., HSBC, Jian Sing Bank Limited, Bank of China (HK) Limited and Chiyu Banking Corporation Limited

"Board" board of Directors

"Company" Hung Fung Group Holdings Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the Stock Exchange

"Connected Person(s)" a director, chief executive or substantial shareholder of the Company or any of its subsidiaries or an associate of any of them as defined under the Listing Rules

"CN Settlement" the proposed settlement of RMB24,650,877 debt owed by HCTF to HZIC pursuant to the CN Settlement Agreement

"CN Settlement settlement agreement dated 27th March, 2002

Agreement" entered into between HCTF and HZIC in relation to the settlement of RMB24,650,877 debt owing by HCTF to HZIC

"Conversion Shares" the Shares which may fall to be issued upon conversion of the Convertible Note

"Convertible Note" the HK$16,000,000 convertible note of the Company to be issued, which carries interest at the rate of 3% per annum, as partial settlement for the CN Settlement

"Creditors" an aggregate of 30 creditors, being parties to the Share Settlement Agreements to whom the Group is indebted of a total of RMB12,063,092

"Deed" the deed of settlement entered into with the Petitioner dated 22nd March, 2002 for the Company to settle the Deed Sum and for the Petitioner to withdraw the Petition

"Deed Sum" the amount of HK$2,135,529 in payment agreed pursuant to the Deed to settle the amount owing to the Petitioner by the Group

"Director(s)" director(s) of the Company

"Group" the Company and its subsidiaries

"HCTF" Dongguan Shi Huangjiang Zhen Hung Cheong Toys Factory, a processing factory established in PRC under a processing contract dated 23rd March, 1996 between Hung Cheong Industrial Company and HZIC. In March 1996, the business of Hung Cheong Industrial Company was acquired by a member of the Group.

"HZIC" Dongguan Shi Huangjiang Zhen Importing Company

"Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange

"Maturity Date" maturity date of Convertible Note, which is the second anniversary of the date of issue of the Convertible Note

"New Shares" 1,070,280,000 new Shares to be issued pursuant to the Share Settlement to the Creditors as partial settlement of the debts of about HK$11.3 million

"Other Liabilities" other liabilities of the Group, which sum as at 30th September, 2001 was approximately HK$134.1 million. The Other Liabilities comprise (i) financial indebtedness mainly due to PRC banks and convertible bondholders of approximately HK$70.4 million; and (ii) liabilities due mainly to trade creditors of approximately HK$63.7 million, both as at 30th September, 2001.

"Petition" the winding up petition against the Company filed by the Petitioner and received by the Company on 19th January, 2002

"Petitioner" Midas Printing Limited, the petitioner for the Petition

"PRC" the People's Republic of China

"Restructuring Proposal" the proposed restructuring of certain bank loans to the Group pursuant to a compromise agreement, a placing of new Shares pursuant to a subscription agreement and an open offer jointly announced by the Company and Vision Century Group Limited on 22nd February, 2002.

"Settlements" the Share Settlement and the CN Settlement

"Share(s)" share(s) of HK$0.01 each in the share capital of the Company

"Shareholders" holder(s) of the Shares

"Share Settlement" settlement of an aggregate amount of RMB12,063,092 owed by HCTF to Creditors

"Share Settlement an aggregate of 30 share settlement agreements all

Agreements" dated 27th March, 2002, entered into between HCTF and the Creditors in relation to the settlement of an aggregate amount of RMB12,063,092 owed by HCTF

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"Total Compromised all claims and other monies (including principal,

Debt" interest and expenses) owed by the Group to the Bank Group and their related companies as at completion of the compromise agreement and the subscription agreement in relation to the Restructuring Proposal. The Total Compromised Debt outstanding as at 17th December, 2001 was approximately HK$99.7 million

Exchange rate of HK$1.00 = RMB1.07 is used throughout this announcement.

By Order of the Board

Lo Ming Chi, Charles

Chairman

Hong Kong, 2nd April, 2002

The directors of the Company jointly and severally accept full responsibility for the accuracy of the information contained in this announcement and confirm, having made all reasonable enquiries, that to the best of their knowledge, the opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any in this announcement misleading.

"Please also refer to the published version of this announcement in the Hong Kong i-mail"