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

Sep 25, 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

The Company has agreed to settle with certain creditors of the Group involving (i) the payment of approximately HK$0.77 million in cash; and (ii) the issue of 110,020,000 new Shares at prices ranging from HK$0.010 to HK$0.013 per Share. Upon completion of the Settlement, debts of up to approximately HK$2.1 million will be treated as settled in full.

Reference is made to the press announcements of the Company dated 2nd April, 2002, 25th April, 2002, 13th May, 2002, 16th May, 2002 and 30th July, 2002 in relation to, among others, the settlements of certain debts of the Group.

SETTLEMENT AGREEMENTS EXECUTED ON 25TH SEPTEMBER, 2002

(i) Parties to the Settlement Agreements

Debtors: HCTF and H&C Creditors: an aggregate of 10 trade and other creditors

The Creditors are independent third parties not connected with the directors, 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 Settlement

As at 30th June, 2002, the amount outstanding due to the Creditors in respect of the Settlement was approximately HK$2.1 million. Pursuant to the 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 in aggregate (i) the payment in cash of approximately HK$0.77 million by the Group; and (ii) the issue of 110,020,000 new Shares by the Company at prices ranging from HK$0.010 to HK$0.013 per Share.

(iii) New Shares

A total of 110,020,000 new Shares will be issued. The New Shares represent approximately 1.03% of the existing issued share capital of the Company of 10,666,261,900 Shares and approximately 1.02% of the enlarged issued share capital upon allotment and issue of the New Shares.

(iv) Rights of and approval for 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. The New Shares will be issued under the general mandate granted to the Directors at the annual general meeting of the Company held on 23rd August, 2002.

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(v) Conditions of the Settlement

The Settlement is conditional upon approval of the listing of, and permission to deal in, the New Shares being granted by the Listing Committee of the Stock Exchange.

(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.

FINANCIAL IMPACT AND REASONS FOR THE SETTLEMENT

The principal activities of the Group consist of the design, manufacture and sale of a wide range of toys.

As set out in the announcements of the Company dated 16th and 29th May, 2002 in relation to the Restructuring Proposal, the Company has completed a restructuring of its bank indebtedness and a restructuring of its creditor balances with a view to restore the Group back into a stronger financial position. The Settlement will enable the Group to further reduce debts while limiting the cash outflow in reducing such debt. The Settlement also serves to restore the Company’s credibility among its customers and suppliers. The cash payment under the Settlement will be financed by internal resources of the Group. The Directors are of the view that the cash element of the Settlement will not have a material adverse impact on the financial position of the Group. At present, it is not expected that there would be any further negotiations on restructuring of debts with the existing creditors of Group.

TERMS USED IN THIS ANNOUNCEMENT

• “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

• “Creditors” an aggregate of 10 trade and other creditors, being parties to the Settlement Agreements to whom the Group is indebted of a total of approximately HK$2.1 million

• “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 the People’s Republic of China under a processing contract dated 23rd March, 1996 between Hung Cheong Industrial Company and Dongguan Shi Huangjiang Zhen Importing Company. In March 1996, the business of Hung Cheong Industrial Company was acquired by a subsidiary of the Company.

• “H&C” H&C International Toys Limited, a wholly-owned subsidiary of the Company

• “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange

• “New Shares” 110,020,000 new Shares to be issued pursuant to the Settlement with the Creditors

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• “Restructuring Proposal” the restructuring of certain loans to the Group pursuant to a compromise agreement, a placing of new Shares pursuant to a subscription agreement and an open offer announced by the Group on 22nd February, 2002 and completed in May 2002.

• “Settlement” settlement of an aggregate amount of approximately HK$2.1 million owing by HCTF and H&C to the Creditors

• “Settlement Agreements” an aggregate of 11 settlement agreements approved by the Board on 25th September, 2002, respectively, entered into between HCTF and H&C, and the Creditors in relation to the settlement of an aggregate amount of approximately HK$2.1 million owing by HCTF and H&C

• “Share(s)” share(s) of HK$0.01 each in the capital of the Company

• “Shareholders” holder(s) of Shares

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

By Order of the Board Yu Wai Man Executive Director

Hong Kong, 25th September, 2002

"Please also refer to the published version of this announcement in The Standard"

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