BEST WORLD INTERNATIONAL LIMITED (Company Registration No Z) (Incorporated in the Republic of Singapore)

CIRCULAR DATED 7 NOVEMBER 2013 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. If you are in any doubt as ...
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CIRCULAR DATED 7 NOVEMBER 2013 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant, tax advisor or other professional adviser immediately. If you have sold or transferred all your shares in the capital of the Company held through CDP, you need not forward this Circular to the purchaser or the transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or the transferee. If you have sold or transferred all your shares represented by physical share certificate(s), you should immediately forward this Circular together with the Notice of EGM and the enclosed Proxy Form to the purchaser or transferee or to the stockbroker, bank or agent through whom you effected the sale or transfer for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness of any statements made, reports contained or opinions expressed in this Circular.

BEST WORLD INTERNATIONAL LIMITED (Company Registration No. 199006030Z) (Incorporated in the Republic of Singapore)

CIRCULAR TO SHAREHOLDERS IN RELATION TO (1) THE PROPOSED ACQUISITION BY BEST WORLD LIFESTYLE PTE. LTD. OF 100% OF THE EQUITY INTEREST IN ZHEJIANG SOLIDGOLD PHARMACEUTICAL CO., LTD. (2)

THE PROPOSED ALLOTMENT AND ISSUE OF 15,500,717 NEW ORDINARY SHARES IN THE CAPITAL OF THE COMPANY TO MR. SHI JINYU AT THE ISSUE PRICE OF S$0.199 FOR EACH ORDINARY SHARE PURSUANT TO THE PLACEMENT AGREEMENT (AS DEFINED HEREIN)

IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Form

:

20 November 2013 at 10 a.m.

Date and time of Extraordinary General Meeting

:

22 November 2013 at 10 a.m.

Place of Extraordinary General Meeting

:

26 Tai Seng Street #04-01 Singapore 534057

CONTENTS Page DEFINITIONS........................................................................................................................................

1

LETTER TO SHAREHOLDERS 1.

INTRODUCTION.........................................................................................................................

5

2.

INFORMATION ON SOLIDGOLD...............................................................................................

6

3.

PROPOSED ACQUISITION........................................................................................................

11

4.

RISK FACTORS..........................................................................................................................

17

5.

RELATIVE FIGURES FOR THE PROPOSED ACQUISTION....................................................

19

6.

PROPOSED SUBSCRIPTION....................................................................................................

20

7.

ESCROW ARRANGEMENT.......................................................................................................

24

8.

SERVICE AGREEMENT.............................................................................................................

25

9.

FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION AND PROPOSED SUBSCRIPTION.........................................................................................................................

27

10.

INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS................................... 28

11.

DIRECTORS’ SERVICE CONTRACTS......................................................................................

29

12.

EXTRAORDINARY GENERAL MEETING..................................................................................

29

13.

ACTION TO BE TAKEN BY SHAREHOLDERS.........................................................................

29

14.

DIRECTORS’ RECOMMENDATIONS........................................................................................

30

15.

DIRECTORS’ RESPONSIBILITY STATEMENT.........................................................................

30

16.

DOCUMENTS AVAILABLE FOR INSPECTION..........................................................................

30

NOTICE OF EXTRAORDINARY GENERAL MEETING......................................................................

31

PROXY FORM

ii

DEFINITIONS In this Circular, the following definitions apply throughout unless the context otherwise requires or otherwise stated: “2013 General Mandate”

:

The ordinary resolution passed by the Shareholders at the AGM held on 30 April 2013 pursuant to Section 161 of the Act and the Listing Manual, authorising the Directors to, inter alia, issue Shares in the capital of the Company subject to certain limits which are set out in more detail in Section 6.5 of this Circular

“Act”

:

The Companies Act, Chapter 50 of Singapore, as may be amended, modified or supplemented from time to time

“AGM”

:

The annual general meeting of the Company

“Approving Authority”

:

The Ministry of Commerce of the PRC (and/or its authorised local counterparts)

“Board”

:

The board of Directors of the Company

“CDP”

:

The Central Depository (Pte) Limited

“Circular”

:

This circular to Shareholders dated 7 November 2013

“Company”

:

Best World International Limited

“Compass Consulting”

:

Compass Consulting Pte Ltd

“Controlling Shareholder”

:

A person who: (a)

holds directly or indirectly 15% or more of the total number of issued Shares excluding treasury shares (unless the SGX-ST determines that such a person is not a controlling Shareholder); or

(b)

in fact exercises control over the Company

“Directors”

:

The directors of the Company for the time being

“EGM”

:

The extraordinary general meeting of the Company to be convened on 22 November 2013 at 10 a.m., notice of which is set out on page 31 of this Circular

“EPS”

:

Earnings per share

“Escrow Agent”

:

The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch

“Escrow Agreement”

:

The escrow agreement dated 13 August 2013 entered into between the Company, the Purchaser, SJY and the Escrow Agent

“FY”

:

Financial year ended 31 December

1

DEFINITIONS “Group”

:

The Company and its subsidiaries

“Guangdong Golden Life”

:

Guangdong Golden Life Biotechnology Co., Ltd. (广东金色生命 生物科技有限公司)

“Jilin Quanjin”

Jilin Quanjin Medicine Technology Co., Ltd. (吉林全金医药科技 有限公司)

“Latest Practicable Date”

:

28 October 2013, being the latest practicable date prior to the printing of this Circular

“Listing Manual”

:

The Listing Manual of the SGX-ST, as the same may be amended, varied or supplemented from time to time

“New Articles of Association”

:

The revised Articles of Association of SolidGold after its conversion to a wholly foreign-owned enterprise (as approved by the Purchaser)

“New Business Licence”

:

The new wholly foreign-owned enterprise business licence of SolidGold to be issued by the Registration Authority

“Notice of EGM”

:

The notice of EGM which is set out on page 31 of this Circular

“NTA”

:

Net tangible assets

“Parties”

:

The Purchaser and the Vendors

“PBOC”

:

The People’s Bank of China

“Performance Bonus”

:

The annual performance bonus which SJY is entitled to under the Service Agreement

“Placement Agreement”

:

The placement agreement entered into between the Company, the Purchaser and SJY dated 13 August 2013 in relation to the Proposed Subscription

“PRC”

:

The People’s Republic of China

“Proposed Acquisition”

:

The proposed acquisition by the Purchaser from the Vendors of 100% of the equity interests held by the Vendors in SolidGold on the terms and subject to the conditions of the Sale and Purchase Agreement

“Proposed Subscription”

:

The proposed subscription by SJY of the Subscription Shares at the Subscription Price on the terms and subject to the conditions of the Placement Agreement

“Purchase Consideration”

:

The aggregate purchase consideration of RMB35,000,000 for the Proposed Acquisition under the Sale and Purchase Agreement

“Purchaser”

:

Best World Lifestyle Pte. Ltd., a wholly-owned subsidiary of the Company

2

DEFINITIONS “Registration Authority”

:

The State Administration for Industry and Commerce and its local counterparts

“RMB”

:

Renminbi, the lawful currency of the People’s Republic of China

“Sale Equity Interests”

:

100% of the equity interests in SolidGold to be sold by the Vendors to the Purchaser pursuant to the Proposed Acquisition

“Sale and Purchase Agreement”

:

The sale and purchase agreement dated 13 August 2013 entered into between the Purchaser and the Vendors in relation to the Proposed Acquisition

“Securities Account”

:

A securities account maintained by a Depositor with CDP but does not include a securities sub-account

“Service Agreement”

:

The service agreement dated 13 August 2013 entered into between the Purchaser and SJY

“SFA”

:

Securities and Futures Act, Chapter 289 of Singapore, as amended, modified or supplemented from time to time

“SGX-ST”

:

Singapore Exchange Securities Trading Limited

“Shareholders”

:

Registered holders of Shares except that where the registered holder is CDP, the term “Shareholders” shall, in relation to such Shares, mean the Depositors whose Securities Accounts maintained with CDP are credited with Shares

“Shares”

:

Ordinary shares in the capital of the Company

“SJY”

:

Mr. Shi Jinyu (石金禹), who is one of the Vendors

“SolidGold”

:

Zhejiang SolidGold Pharmaceutical Co., Ltd. (浙江全金药业股 份有限公司)

“Subscription Consideration”

:

The aggregate subscription price of approximately S$3,084,643 payable by SJY for the Subscription Shares pursuant to the Proposed Subscription

“Subscription Price”

:

S$0.199, being the issue price in respect of each Subscription Share

“Subscription Shares”

:

15,500,717 new Shares to be issued to SJY pursuant to the Proposed Subscription

“Substantial Shareholder”

:

A Shareholder who has an interest in not less than 5% of the issued Shares

“Valuation Report”

:

The independent valuation report dated 15 March 2013 issued by Compass Consulting

“Vendors”

:

Mr. Shi Jinyu (石金禹) and Mr. Shi Jinbo (石金波)

3

DEFINITIONS “S$” or “SGD” and “cents”

:

Singapore dollars and cents respectively

“%” or “per cent”

:

Percentage or per centum

The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the meanings ascribed to them respectively in Section 130A of the Act. The term “subsidiary” shall have the meaning ascribed to it in Section 5 of the Act. Words importing the singular shall, where applicable, include the plural and vice versa, and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall, where applicable, include corporations. The headings in this Circular are inserted for convenience only and shall be ignored in construing this Circular. Any discrepancies in tables included herein (if any) between the amounts listed and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word or term defined under the Act, the SFA, the Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the Act, the SFA or the Listing Manual or such statutory modification thereof, as the case may be, unless the context otherwise requires. Any reference to a time of day in this Circular is made by reference to Singapore time unless otherwise stated. Certain names with Chinese characters have been translated into English names. Such translations are provided solely for the convenience of Singapore-based investors, they may not have been registered with the relevant PRC authorities and should not be construed as representations that the English names actually represent the Chinese characters.

4

LETTER TO SHAREHOLDERS

BEST WORLD INTERNATIONAL LIMITED (Company Registration No. 199006030Z) (Incorporated in the Republic of Singapore)

DIRECTORS

REGISTERED OFFICE

Dr Dora Hoan Beng Mui (Co-Chairman and Group CEO/Managing Director) Dr Doreen Tan Nee Moi (Co-Chairman and President) Huang Ban Chin (Chief Operating Officer and Executive Director) Lee Sen Choon (Lead Independent Director) Ravindran Ramasamy (Independent Director) Robson Lee Teck Leng (Independent Director)

26 Tai Seng Street #05-01 Singapore 534057

7 November 2013

To: The Shareholders of the Company Dear Sir/Madam (1)

THE PROPOSED ACQUISITION BY BEST WORLD LIFESTYLE PTE. LTD. OF 100% OF THE EQUITY INTEREST IN ZHEJIANG SOLIDGOLD PHARMACEUTICAL CO., LTD.

(2)

THE PROPOSED ALLOTMENT AND ISSUE OF 15,500,717 NEW ORDINARY SHARES IN THE CAPITAL OF THE COMPANY TO MR. SHI JINYU AT THE ISSUE PRICE OF S$0.199 FOR EACH ORDINARY SHARE PURSUANT TO THE PLACEMENT AGREEMENT (AS DEFINED HEREIN)

1. INTRODUCTION 1.1

On 13 August 2013, the Company announced that:-



(a)

its wholly-owned subsidiary, Best World Lifestyle Pte. Ltd. (the “Purchaser”) had entered into the Sale and Purchase Agreement with Mr. Shi Jinyu (石金禹) (“SJY”) and Mr. Shi Jinbo (石金波) (collectively, the “Vendors”), in relation to the proposed acquisition by the Purchaser of 100% of the equity interests held by the Vendors in SolidGold (“Sale Equity Interests”) on the terms and subject to the conditions of the Sale and Purchase Agreement (the “Proposed Acquisition”); and



(b)

in connection with the Proposed Acquisition, the Company and the Purchaser had entered into the Placement Agreement with one of the Vendors, SJY, in relation to the proposed subscription by SJY of 15,500,717 new Shares (“Subscription Shares”) at a subscription price of S$0.199 for each Share on the terms and subject to the conditions of the Placement Agreement (the “Proposed Subscription”).

1.2

As the Proposed Acquisition constitutes a major transaction within the meaning of Chapter 10 of the Listing Manual, the Proposed Acquisition is subject to and conditional upon the approval of the Shareholders at a general meeting. Accordingly, the Company is convening the EGM to seek Shareholders’ approval for the Proposed Acquisition.



Rule 805(1) of the Listing Manual provides that an issuer must obtain the prior approval of its shareholders in general meeting for, inter alia, the issue of shares, except where a general mandate for such issue has been approved by Shareholders in general meeting. Although the Company has an existing general mandate (being the 2013 General Mandate), and the allotment and issue of the Subscription Shares pursuant to the Proposed Subscription is within the limits of the authority of the 2013 General Mandate, the Company is seeking specific Shareholders’ approval for the allotment and issue of the Subscription Shares to SJY pursuant to the Proposed

5

LETTER TO SHAREHOLDERS Subscription at the same EGM in view that the Proposed Subscription is in connection with the Proposed Acquisition. Further, by obtaining specific Shareholders’ approval for the allotment and issue of the Subscription Shares, the Company need not utilise the 2013 General Mandate to issue the Subscription Shares, which general mandate can then be reserved for any equity fundraising exercises that the Company may undertake in the future.

In the event however that specific approval of the Shareholders is not, for any reason, obtained at the EGM for the allotment and issue of the Subscription Shares to SJY pursuant to the Proposed Subscription, but all the conditions precedent for the completion of the Proposed Subscription (other than the condition precedent in respect of shareholders’ approval being obtained for the allotment and issue of the Subscription Shares) are satisfied or waived (as the case may be), the Company will proceed with the allotment and issue of the Subscription Shares to SJY pursuant to the 2013 General Mandate, subject to the Company obtaining a fresh approval in‑principle of the SGX-ST for the listing of and quotation for the Subscription Shares to be issued pursuant to the 2013 General Mandate, on the Official List of the SGX-ST. Please see Section 6.5 of this Circular for more details of the 2013 General Mandate.



The Proposed Acquisition and the Proposed Subscription are not inter-conditional. While the Proposed Subscription is conditional upon, inter alia, the completion of the Proposed Acquisition taking place on or before the date of completion of the Proposed Subscription, the Proposed Acquisition is not conditional upon the completion of the Proposed Subscription taking place. Accordingly, the ordinary resolution relating to the allotment and issue of the Subscription Shares to be passed at the EGM is subject to and contingent upon the passing of the ordinary resolution relating to the Proposed Acquisition at the EGM, but the ordinary resolution relating to the Proposed Acquisition to be passed at the EGM is not subject to nor contingent upon the passing of the ordinary resolution relating to the allotment and issue of the Subscription Shares at the EGM.

1.3

The purpose of this Circular is to provide the Shareholders with relevant information pertaining to the Proposed Acquisition and Proposed Subscription, including the rationale therefor and the financial effects thereof on the Group, and to seek Shareholders’ approval for the Proposed Acquisition and the allotment and issue of the Subscription Shares at the EGM, notice of which is set out on page 31 of this Circular.



The SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained in this Circular.

2.

INFORMATION ON SOLIDGOLD

2.1 General

SolidGold is a company incorporated in Hangzhou City, Zhejiang Province, PRC on 30 September 2000 and is principally engaged in the business of the development, manufacture and distribution of dietary supplements in the PRC. SolidGold has a track record of about 13 years in the dietary supplements business and as at the Latest Practicable Date, holds about 35 healthcare product permits and three patents with its proprietary brand of products distributed through agents and drugstore chains throughout 31 provinces in the PRC. The SolidGold brand of dietary supplements include fish oils and calcium and vitamin supplements, amongst other products which are widely recognised in the PRC. SolidGold currently leases three floors, having an aggregate gross floor area of approximately 7,573 square metres, at Building 1, 48 Jiuhuan Road, Jiubao Town, Jianggan District, Hangzhou City for its manufacturing plant, office and warehouse, at a monthly rental of RMB149,000 and such lease will expire on 30 June 2015.

6

LETTER TO SHAREHOLDERS

SolidGold’s manufacturing plant, which has a gross floor area of approximately 3,030 square metres, has been in operation in the abovementioned premises since late 2006. As at the Latest Practicable Date, the manufacturing plant has an annual production capacity of 500 million soft capsules, 500 million tablets, 200 million hard capsules and 100 million bags of powder, which accounts for approximately 94% of SolidGold’s products based on its FY2012 sales volume. The remaining approximately 6% of SolidGold’s products, which comprise SolidGold’s fish oil products, are produced by a third party manufacturer, Fu-Hai Biotechnology Co. Ltd (广东富海生物科技有限 公司).



As at the Latest Practicable Date, SolidGold employs about 80 staff in its Hangzhou office serving multiple functions such as marketing, finance, administration, research and development and production. SolidGold has received many awards and accolades in its 13-year history, including “保健食品安全信用优秀单位” (“Most Trusted Health Food Company”)(1) which was awarded in December 2008.

2.2

Share Capital



As at the Latest Practicable Date, SolidGold has a paid-up registered capital of RMB37,500,000, following a capital restructuring exercise in July 2013 which involved a RMB30,000,000 capital reduction undertaken by SolidGold and a RMB4,500,000 capital increase undertaken by SolidGold by way of transferring an amount of RMB4,500,000 from its share premium account to its share capital account. It was agreed between the Purchaser and the Vendors that such capital restructuring exercise would be undertaken to enable the Vendors to settle all outstanding related party balances with SolidGold prior to the completion of the Proposed Acquisition, as required by the Purchaser, so long as the paid-up registered capital of SolidGold as at the date of completion of the Proposed Acquisition shall not be less than RMB37,500,000.



As at the Latest Practicable Date, the Vendors collectively hold 100% of the equity interests in SolidGold in the following proportions:-



Name of Vendor

Proportion of equity interests in SolidGold

Mr. Shi Jinyu

81.71%

Mr. Shi Jinbo

18.29%

Total

100%

2.3

Summary of Financial Information



The audited net loss after tax of SolidGold for FY2012 was RMB24,621,608 (which is approximately S$4,864,873(2)). Such loss was due to the following:



(i)



SolidGold recognising the loss of RMB19,999,999 (which is approximately S$3,951,710) on its disposal of its wholly-owned subsidiary, Guangdong Golden Life, to Shenzhen JunHao ZhiYe Co., Ltd (深圳君豪置业集团有限公司), a company which is wholly-owned by SJY, in FY2012 (notwithstanding that the disposal was only completed in June 2013). Guangdong Golden Life was disposed of at a loss as it was disposed of at a nominal consideration of RMB1. The business of Guangdong Golden Life, which was located in the Guangdong province, was the sale and distribution of healthcare products. The Company understands that Guangdong Golden Life was set up in 2012 with the intention then of shifting the business operations of SolidGold from Hangzhou to Dongguan in the Guangdong province primarily due to SJY’s personal relocation plan to Shenzhen/Hong Kong. During its negotiations

(1)



Based on unofficial translation.

(2)



Unless otherwise stated in this Circular, an exchange rate of SGD1: RMB5.0611 (being the average exchange rate during the period of FY2012) has been used for figures during the period of FY2012.

7

LETTER TO SHAREHOLDERS with the Vendors in relation to the Proposed Acquisition, the Company however decided not to acquire Guangdong Golden Life for the following reasons and accordingly imposed the disposal by SolidGold of Guangdong Golden Life as a condition for the Proposed Acquisition:

(a)

as Guangdong Golden Life only commenced its business operations in July 2012, its operations were still at its infancy and it had not developed any track record, and accordingly the operations of Guangdong Golden Life were not significant compared to the operations of SolidGold;



(b)

unlike SolidGold which has existing manufacturing capabilities (including a valid manufacturing permit) and an existing distribution network built up over the past 13 years, Guangdong Golden Life did not have any existing manufacturing capabilities (including a valid manufacturing permit) nor any track record or established distribution network (since it is a relatively new company) which the Company could leverage on to grow its dietary supplements business in the PRC;



(c)

it is not necessary for the purposes of SolidGold’s business and operations to have a place of operation in Guangdong and in any event, the assets of Guangdong Golden Life which are relevant and useful to SolidGold’s business will be transferred to SolidGold as a condition precedent to the Proposed Acquisition (as further discussed below); and



(d)

Guangdong Golden Life was not profitable and it would be draining on SolidGold’s resources to have more than one place of operation, when it is not necessary for the purposes of SolidGold’s business to have operations in Guangdong.



It was however agreed between the Purchaser and the Vendors as a condition precedent to the Proposed Acquisition that the Vendors will procure the transfer to SolidGold of the assets of Guangdong Golden Life which are relevant and useful to SolidGold’s business, such as its existing employees, intellectual property and distribution agreements (please see Section 3.1(c)(i)(cc) of this Circular for more details). Following such transfer, Guangdong Golden Life will not have any assets which are relevant for the purpose of carrying on the dietary supplements business. Accordingly, the Company believes that it is unlikely for any conflict of interest to arise between SolidGold and Guangdong Golden Life. In any event, SJY has undertaken to the Purchaser, under the Service Agreement, not to directly or indirectly carry on or be engaged in any business in competition with the business of SolidGold (please see Section 8.3(a) of this Circular for further details), and the Company is of the view that such non-compete undertakings will mitigate any potential conflict of interest that may arise between SolidGold and Guangdong Golden Life in future;



SolidGold incurring an exceptional one-time expense of RMB1,999,999 (which is approximately S$395,171) for its disposal of its wholly-owned subsidiary, Jilin Quanjin, to Liu Chi Wei (刘赤卫), who is currently the General Manager of SolidGold, in February 2012 with the intention of winding up Jilin Quanjin. Jilin Quanjin was disposed of at a loss as it was disposed of at a nominal consideration of RMB1. Jilin Quanjin had a net liability value of approximately RMB52,386 as at 29 February 2012. Jilin Quanjin was engaged in the business of selling and distributing healthcare products and was disposed of by SolidGold as it was loss-making and was dormant. The Company understands that the equity interests in Jilin Quanjin were intended to be transferred to SJY for purposes of winding up Jilin Quanjin. However, in order to facilitate the winding up process, SJY delegated the responsibility of carrying out the winding up process (which includes the execution of the relevant documents relating to the winding up) to Liu Chi Wei, and requested that the equity interests in Jilin Quanjin be transferred to Liu Chi Wei as a nominee of SJY solely for the purposes of the winding up of Jilin Quanjin. As Jilin Quanjin had been dormant since January 2012 and it is intended for Jilin Quanjin to be wound up, the Company believes that

(ii)

8

LETTER TO SHAREHOLDERS it is unlikely for any conflicts of interest to arise between SolidGold and Jilin Quanjin. In any event, Liu Chi Wei, being one of the key employees of SolidGold, will be entering into an employment contract with SolidGold for a term of not less than two years from the date of completion of the Proposed Acquisition, which will contain non-compete undertakings from Liu Chi Wei. The execution of such employment contract is one of the conditions precedent for the Proposed Acquisition (as mentioned in Section 3.1(c)(i)(dd) below). The Company is of the view that such non-compete undertakings will mitigate any potential conflicts of interests that may arise between SolidGold and Jilin Quanjin in future. Further, the Company will require each of SJY and Liu Chi Wei to declare, in an annual declaration form to the Company, details of his external appointments, directorships, secondary employment, investment and business (if any) and those of his spouse and/or financially dependent children; and

(iii)



In the absence of these costs, SolidGold would have attained a net profit after tax of approximately RMB2,400,000 (which is approximately S$474,205) for FY2012.



The unaudited net asset value of SolidGold as at 30 June 2013 was RMB24,645,499 (which is approximately S$5,031,542(3)), which excludes the unaudited net asset value of Guangdong Golden Life and Jilin Quanjin, which were disposed of by SolidGold in June 2013 and in February 2012 respectively. The unaudited net asset value of SolidGold as at 31 August 2013 was RMB24,382,032 (which is approximately S$5,052,852(4)). The major assets of SolidGold comprise fixed assets and intangible assets, stocks and accounts and other receivables.



The unaudited net tangible asset value of SolidGold as at 30 June 2013 was RMB16,664,900 (which is approximately S$3,402,250). Such net tangible asset value does not include any contingent liabilities. The net intangible assets of SolidGold as at 30 June 2013 comprise the healthcare product permits and patents held by SolidGold, which have an aggregate net book value (net of accumulated amortization) of approximately RMB7,980,599 (which is approximately S$1,629,292). The Company has not conducted any independent valuation on such healthcare product permits and patents.



SolidGold incurring an additional interest expense of approximately RMB5,000,000 (which is approximately S$987,928) due to capital loans of approximately RMB63,000,000 taken up by SolidGold for the Vendors for other business endeavours which are not related to SolidGold’s core business. SolidGold has confirmed to the Company that such capital loans and interest expense have been fully repaid as at the Latest Practicable Date.

The sales of SolidGold for FY2011 and FY2012 amounted to RMB43,597,320 and RMB34,130,164 respectively. Based on the sales forecast provided by SolidGold, barring any unforeseen circumstances, the Company expects the sales of SolidGold to increase gradually beyond the sales achieved by SolidGold in FY2012, with a projected steady growth for the foreseeable future. The forecast is deemed feasible by the Company as it is in line with the trend that the Company has experienced over the past years in the PRC which is attributed to the burgeoning affluence of the Chinese middle class and an increasing awareness of health preservation over the last decade.

2.4

Permits and Licences



As at the Latest Practicable Date, SolidGold has the necessary permits and licences to carry out its current operations.



In addition to the healthcare product permits that it holds, SolidGold has also obtained a Hygiene Permit which expired on 8 August 2010 and an Interim Consigned Processing Permit which will expire on 30 December 2013 (the Hygiene Permit and Interim Consigned Processing Permit

(3)



Unless otherwise stated in this Circular, an exchange rate of SGD1: RMB4.8982 has been used for figures as at 30 June 2013.

(4)



Unless otherwise stated in this Circular, an exchange rate of SGD1: RMB4.8254 has been used for figures as at 31 August 2013.

9

LETTER TO SHAREHOLDERS collectively constitute the healthcare product manufacturing permit). According to PRC laws, the expired Hygiene Permit will remain effective until the promulgation of the new Regulation on Supervision and Administration of Dietary Supplements (保健食品监督管理条例). After the promulgation and implementation of this new regulation, SolidGold will be required to apply to the relevant authorities to replace its healthcare product manufacturing permit with a formal healthcare product manufacturing permit. Please see Section 4.3 of this Circular for further details of such regulation which has not been promulgated as at the Latest Practicable Date.

As at the Latest Practicable Date, 11 of the healthcare product permits held by SolidGold have expired. SolidGold has applied for the renewal of such permits and such applications have been accepted and are in the process of being reviewed by the PRC authorities. According to PRC laws, if the applications for renewal have been made and have been accepted by the relevant authority, the existing permits will remain effective until the final decision is made by the relevant authorities. According to the Measures for Administration of Registration of Dietary Supplements (Trial Version), after the application for renewal of a healthcare product permit is submitted (which should be made no later than three months before the expiry date), the local Food and Drug Administration Bureau (“FDAB”) will review the application within five days of the submission of such application and will issue a review opinion within 20 days of such submission. The local FDAB will then submit its review opinion to the State FDAB, which will within 20 days of receiving such opinion, make a decision on the application for renewal. If no rejection opinion is issued within such 20-day period, the local FDAB will issue a renewed approval to the applicant. With respect to SolidGold’s applications for renewal for the 11 expired healthcare product permits, the Company understands that the above-mentioned timeline for the review of such applications by the local FDAB and State FDAB has expired and SolidGold has not received any rejection opinion for renewal with respect to such permits as at the Latest Practicable Date. As such, such applications for renewal are still pending. The actual timeline of the review process in practice is at the sole discretion of the relevant authorities, notwithstanding the timeline of the review process prescribed under PRC laws. As such, the Company is unable to ascertain how long it would take for such applications to be approved by the relevant authorities.

2.5 Vendors

The Vendors are brothers and both of them founded SolidGold when they incorporated SolidGold on 30 September 2000.



SJY is a reputable entrepreneur with substantial experience, extensive network and in-depth industry knowledge of the dietary supplements business in the PRC. SJY is also a member of the Zhejiang Committee of the China People’s Political Consultative Conference. He is currently the managing director of SolidGold. He holds an associate degree (大专) in the field of traditional chinese medicine from Harbin Medical University. SJY has more than 30 years of managerial experience in the pharmaceutical field and his business interests have branched out into the field of property development within the PRC.



Mr Shi Jinbo is a passive shareholder in SolidGold with no executive duties in SolidGold.



The Vendors are independent third parties and are not related to any of the Controlling Shareholders, Substantial Shareholders, Directors, chief executive officer of the Company or their associates.



As at the Latest Practicable Date, each of the Vendors does not have any interests, direct or deemed, in the Company’s issued Shares.

10

LETTER TO SHAREHOLDERS 3.

PROPOSED ACQUISITION

3.1

Salient Terms of the Proposed Acquisition



(a)

Sale and Purchase of the Sale Equity Interests

The Sale Equity Interests will be sold to the Purchaser free from all encumbrances and together with all rights and benefits now and hereafter attaching thereto. (b) Purchase Consideration

The aggregate purchase consideration for the Proposed Acquisition under the Sale and Purchase Agreement shall be RMB35,000,000 (the “Purchase Consideration”) (which is approximately S$7,197,499(5)) and shall be paid to the Vendors in RMB in the following proportions based on their equity interests in SolidGold:Name of Vendor

Amount of Purchase Consideration

Mr. Shi Jinyu

RMB28,598,500

Mr. Shi Jinbo

RMB6,401,500

Total

RMB35,000,000



The Purchase Consideration was determined at arm’s length and on a “willing buyer-willing seller” basis after taking into account and consideration the following factors: (i) the unaudited net asset value of SolidGold of RMB24,645,499 (which is approximately S$5,031,542) as at 30 June 2013;

(ii)

the valuation of SolidGold as at 31 December 2012 as determined by Compass Consulting on the future maintainable profits and net tangible assets basis of valuation, in the Valuation Report commissioned by the Company. Please see Section 3.2 below for further details of such valuation; and



(iii)

SolidGold’s existing channels to the PRC market, manufacturing capability and technical expertise which will aid the development of the Group’s existing PRC market. Please see Section 3.3 below for more details.



Upon confirmation in writing by the Purchaser of the fulfilment of all the conditions precedent set out in the Sale and Purchase Agreement (including those set out in Section 3.1(c) below), the Purchaser shall pay the Purchase Consideration to the Vendors within three months from the date of completion of the Proposed Acquisition or such other period as may be agreed by the Parties in writing.



(c)

Conditions Precedent for the Proposed Acquisition

The completion of the Proposed Acquisition is subject to and conditional upon, inter alia: (i) the following conditions, inter alia, being fulfilled by the Vendors within one month from the date of the Sale and Purchase Agreement (or such other period as may be agreed by the Parties in writing):

(5)



(aa) the execution by SolidGold and each of the distributors of SolidGold (as disclosed to the Purchaser in writing or as selected by the Purchaser) of a distribution agreement, in form and substance satisfactory to the Purchaser;

Based on exchange rate of SGD1: RMB4.8628, being the closing middle rate between the SGD and RMB quoted by Bank of China on 12 August 2013, being the market day preceding the date of the Sale and Purchase Agreement.

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LETTER TO SHAREHOLDERS

(bb) certain valid healthcare product permits which have been issued to SolidGold being delivered to the Purchaser, and the healthcare product permits which SolidGold is in the process of applying for will not be rejected by the relevant authorities;



(cc) the completion of the transfer of the existing employees, intellectual property, distribution agreements and other assets and resources of Guangdong Golden Life as required by the Purchaser, by Guangdong Golden Life to SolidGold at no consideration. As at the Latest Practicable Date, the transfer of the existing employees of Guangdong Golden Life to SolidGold has been effected while the transfer of the other assets is still in progress. Following the transfer of the existing employees to SolidGold, SolidGold has about 80 employees. As the transfer of the abovementioned assets will be effected at no consideration, the net asset value of SolidGold will not be reduced as a result of such transfer;



(dd) the execution of employment contracts between SolidGold and certain key employees as determined by the Purchaser of a term of not less than two years from the date of completion of the Proposed Acquisition which will contain inter alia non-competition undertakings from such employees;



(ee) the material issues revealed in the Purchaser’s due diligence investigations on SolidGold being resolved to the satisfaction of the Purchaser. The Company understands that Hangzhou Health Authority has imposed a fine of RMB2,850,000 on SolidGold for using a counterfeited raw material, namely propolis, in the manufacture of SolidGold’s Quanjin Propolis Soft Capsule. SolidGold is currently taking steps to contest such fine in view that the counterfeited propolis was provided by a third party. In any event, the settlement of all administrative penalties imposed on SolidGold by government authorities of Hangzhou is one of the conditions precedent to the Proposed Acquisition. As at the Latest Practicable Date, the Company is not aware of any other material legal proceedings involving SolidGold or any other material liabilities of SolidGold arising from any legal actions or proceedings which are currently pending;



(ii)

the approval of the Shareholders for the Proposed Acquisition at an extraordinary general meeting of the Company being obtained within three months from the date of the Sale and Purchase Agreement (or such other period as may be agreed by the Parties in writing);



(iii)

the Vendors submitting the Sale and Purchase Agreement and the New Articles of Association to the Approving Authority for approval and obtaining the certificate of approval for foreign investment issued by the Approving Authority approving the Proposed Acquisition (“Certificate of Approval”), within 15 business days after the fulfilment of the conditions precedent mentioned above (or such other period as may be agreed by the Parties in writing); and



(iv)

the Parties completing, inter alia, the following matters in connection with the completion of the Proposed Acquisition within 15 business days after obtaining the Certificate of Approval (or such other period as may be agreed by the Parties in writing):-



(aa) the registration by the Vendors of the Proposed Acquisition with the Registration Authority, including (i) the issuance of the New Business Licence certifying that the Sale Equity Interests have been duly registered in the name of the Purchaser, and (ii) the registration of the New Articles of Association and the name of SolidGold with the Registration Authority so as to convert SolidGold to a limited liability company and wholly foreign-owned enterprise;

12

LETTER TO SHAREHOLDERS

(bb) the resignation of all the directors appointed by the Vendors to the board of directors of SolidGold without any claim against SolidGold and the appointment by the Purchaser of new directors and legal representative in replacement thereof, and the registration of such replacement of the directors and legal representative with the Registration Authority;



(cc) the Vendors having set up RMB mergers and acquisition special accounts in their respective names and having obtained and completed all the regulatory permits and registration which are required for the remittance of offshore RMB as Purchase Consideration into such accounts; and



(dd) the delivery by the Vendors to the Purchaser of the assets of SolidGold, which shall comprise such tangible and intangible assets of SolidGold as agreed between the Purchaser and the Vendors, and as confirmed and verified by the auditor of the Purchaser, the assets so delivered having a net asset value (after taking into account the relevant liabilities) of not less than RMB20,000,000, which amount was arrived at  on a  willing buyer willing seller basis, having considered  the proforma net assets  position of SolidGold after taking into account  all necessary adjustments as required by the Purchaser under the Sale and Purchase Agreement.





(d)



If any of the conditions precedent is not fulfilled or waived within the stipulated periods as mentioned above or such other period as may be agreed by the Parties in writing, the Vendors may (in respect of the condition referred to in Section 3.1(c)(ii) above) be entitled to terminate the Sale and Purchase Agreement by giving written notice to the Purchaser and the Purchaser may (in respect of all the conditions referred to in Sections 3.1(c)(i) to (iv) above) be entitled to terminate the Sale and Purchase Agreement by giving written notice to the Vendors. In the event of such termination, no Party shall have any claim against the other Party for costs, damages, compensation or otherwise save for any antecedent breach of the Sale and Purchase Agreement or any breach of the confidentiality obligations therein. Buy-back of the Sale Equity Interests (i)



The Parties have agreed that it is a pre-requisite for the execution of the Sale and Purchase Agreement that SolidGold is able to obtain the formal healthcare product manufacturing permit and Good Manufacturing Practice certificate, in the event the new Regulation on Supervision and Administration of Dietary Supplements is promulgated by the relevant PRC authorities (further details of which are set out in Section 4.3 of this Circular). If such new regulations are promulgated while SJY is acting as the general manager or senior executive of SolidGold (or while not acting as the general manager or senior executive, is otherwise (as agreed in writing) under the obligation to assist SolidGold in obtaining the relevant licences and permits), but SolidGold fails to obtain the formal healthcare product manufacturing permit and Good Manufacturing Practice certificate within six months after the promulgation of the new regulations (which was agreed between the Purchaser and the Vendors as a reasonable period for SolidGold to obtain such permit and certificate), the Purchaser may by written notice require the Vendors to buy back the Sale Equity Interests from the Purchaser at a price (“Relevant Price”) equal to (aa) the Purchase Consideration plus interests calculated at the one year loan benchmark interest rate as quoted by the PBOC on the date of such notice (such interest to be calculated for the period from the date of payment of the Purchase Consideration until the date of payment of the Relevant Price, on a monthly compounded basis), or (bb) the valuation on the Sale Equity Interests as determined by a valuer to be jointly appointed by the Parties, whichever is higher. All taxes in connection with the buy back of the Sale Equity Interests shall be borne by the Vendors, and all other expenses (such as attorney fees) shall be borne by each Party. 13

LETTER TO SHAREHOLDERS

(ii)

The Parties have also agreed that:



(aa) if SolidGold fails to renew any one of the healthcare product permits (including those permit applications which are currently in the process of being reviewed by the relevant authorities) within two years from the date of completion of the Proposed Acquisition or before 31 December 2015 (whichever is later) (“Deadline”) (“Unrenewed Permits”) and the Vendors are unable to acquire, at their own expense, alternative permits which are equivalent to the Unrenewed Permits and accepted by the Purchaser in writing; or



(bb) if SolidGold suffers any loss in the calendar year 2013 (as determined by auditors to be appointed by the Purchaser),



the Purchaser may serve a written notice to require the Vendors to refund to the Purchaser an amount representing the value of the Unrenewed Permits (as set out in the Sale and Purchase Agreement and which were taken into consideration in arriving at the Purchase Consideration) plus interests calculated at the one year loan benchmark interest rate as quoted by the PBOC on the date of such notice (such interest to be calculated for the period from the date of payment of the Purchase Consideration until the date of payment of the refund, on a monthly compounded basis) or the amount of loss in 2013.



(iii)

In addition, if any Unrenewed Permit (as defined above) for which no alternative permit is available relates to (aa) any core product of SolidGold as identified in the Sale and Purchase Agreement or (bb) any product representing more than 10% of the sales revenues of SolidGold for the period from 1 January of the last calendar year up to the Deadline (as defined above), or if SolidGold suffers any loss in 2013, the Purchaser may (but is not obliged to) require the Vendors to buy back all the Sale Equity Interests from the Purchaser pursuant to the terms set out in Section 3.1(d)(i) above.



(iv)

If the Purchaser decides to require the Vendors to buy back the Sale Equity Interests from the Purchaser, the Vendors shall obtain and complete all approvals from and registrations with the Approving Authority, the Registration Authority and other government authorities as required for the buy back of the Sale Equity Interests, and make full payment of the Relevant Price (as defined in Section 3.1(d)(i) above) to the Purchaser, within two months from the date of the buyback notice issued by the Purchaser.



Effectiveness of Transfer of Sale Equity Interests and Completion Date

(e)

The transfer of the Sale Equity Interests to the Purchaser shall take effect upon the approval being obtained from the Approving Authority in respect of the Sale and Purchase Agreement and the New Articles of Association, and the date of completion of the Proposed Acquisition shall be the date of issuance of the New Business Licence certifying that the Sale Equity Interests have been duly registered in the name of the Purchaser.

(f)



Proposed Acquisition Not Conditional Upon Proposed Subscription Completion of the Proposed Acquisition is not conditional upon the completion of the Proposed Subscription taking place. Accordingly, if the Proposed Subscription is not approved by the Shareholders at the EGM, or the Proposed Subscription is not completed for any reason, the Purchaser can still proceed with the Proposed Acquisition (subject to the conditions precedent for the Proposed Acquisition being fulfilled or waived), without the Company proceeding with the Proposed Subscription.

14

LETTER TO SHAREHOLDERS

In the event that the completion of the Proposed Subscription fails to take place or if SJY fails to pay the Subscription Consideration to the Company according to the terms of the Placement Agreement or the Escrow Agreement, the Purchaser is entitled (but not obliged) to issue a written notice to SJY to invalidate and terminate the Proposed Acquisition and the Sale and Purchase Agreement and have the Sale Equity Interests in SolidGold transferred back to the Vendors (please see Section 6.1(f) for more details).

3.2

Valuation Report



The Company had appointed Compass Consulting to conduct an independent valuation of SolidGold as at 31 December 2012 (the “Valuation Date”).



Compass Consulting is a specialist regional advisory firm set up in 2004 with a presence across Hong Kong, Singapore and Kuala Lumpur and their focus is on transaction support i.e. expert valuation, due diligence and M&A advisory. Its client portfolio comprises mainly quoted companies and investment funds and they have carried out numerous work across Asia Pacific and Greater China.



Compass Consulting has given and has not withdrawn its written consent to the issue of this Circular with the inclusion therein of the references to the Valuation Report and to its name in the form and context in which they respectively appear in this Circular, save for any misstatement or quotation out of context.



Compass Consulting has considered both the future maintainable profits (“FMP”) and net tangible assets (“NTA”) basis of valuation.



(a)

FMP approach

Based on the Valuation Report, under the FMP approach, subject to the assumptions and limitations set out in the Valuation Report, the indicative valuation of SolidGold on a going concern basis as at the Valuation Date was estimated to be around RMB20,000,000 to RMB30,000,000, assuming the range of enterprise value multiples of 2.0 to 3.0 times was applied and that SolidGold was able to sustain a post-tax maintainable earnings of RMB4,500,000.

The indicative range of valuation translated to an implied price earnings and price to book multiples of around 4.6 to 6.9 times and 1.1 to 1.6 times respectively, which were considered reasonable having crosschecked them against the average range of recorded price earnings and price to book multiples of 5.3 to 14.8 and 1.5 to 7.0 respectively underlying comparable companies operating in the health supplement sector as well as initial public offerings that are quoted on equity exchanges across the region.



In addition, a separate analysis was carried out assuming a cost savings of approximately RMB8,700,000, being cost not related to the core business of SolidGold, was taken into consideration; the post-tax maintainable earnings underlying SolidGold could be adjusted to around RMB7,200,000 which translates to an acceptable implied price earnings multiple of 4.9 times vis-a-vis the Purchase Consideration for the Proposed Acquisition of RMB35,000,000.



NTA approach

(b)



The NTA basis on the other hand reflects the net book value or adjusted net book value of SolidGold and it did not take into account any goodwill and other intangible assets in the business. It is assumed that a rationale investor would not acquire a business where its underlying value is lower than the value of its accompanying assets.

15

LETTER TO SHAREHOLDERS

Based on the Valuation Report, the indicative net tangible asset value of SolidGold as at the Valuation Date was approximately RMB19,000,000 (which is approximately S$3,680,601(6)), which was arrived at after considering, inter alia, the following assumptions:



(i)

all assets and liabilities are realizable at their book values;



(ii)

SolidGold’s carrying investment book value of RMB20,000,000 in Guangdong Golden Life was carved out and divested for a nominal value of RMB1 as Guangdong Golden Life does not form part of the Proposed Acquisition with the Vendors; and



(iii) all intercompany and related party balances were assumed to be set off against any outstanding loans, with the remaining balance deemed un-collectible written off against un-distributable profits of SolidGold.



A copy of the Valuation Report is available for inspection at the registered office of the Company at 26 Tai Seng Street, #05-01, Singapore 534057, during normal business hours from the date of this Circular up to and including the date of the EGM.

3.3

Rationale for the Proposed Acquisition



The Proposed Acquisition is part of the Company’s plans to expand and strengthen its foothold in the PRC market and would bring about the following benefits:-



(a)

the Proposed Acquisition will allow the Company to leverage on SolidGold’s existing track record, manufacturing capability and technical expertise to grow its dietary supplements business in the PRC. The Proposed Acquisition will also provide the Company with immediate access to a new revenue stream from the PRC generated by SolidGold’s existing distribution network built up over the past 13 years, which comprises of agents and drugstores throughout 31 provinces in the PRC as at the Latest Practicable Date, in addition to the Company’s existing revenue stream from the PRC attributable primarily to its Dr’s Secret line of skincare which has been marketed in the PRC through its PRC agent since April 2009;



(b)

the Proposed Acquisition will enable the Company to have a wholly-owned subsidiary in the PRC i.e. SolidGold, which can apply for a direct selling licence in the PRC (subject to the necessary conditions to be fulfilled for such application), as part of the Company’s strategy for the PRC market. In order to qualify for a direct selling licence, an applicant is not only required to possess manufacturing capabilities (including a valid manufacturing permit), it is also required, inter alia, to have a minimum number of physical distribution points in cities within the territory in respect of which it is applying for the direct selling licence. As SolidGold is a licensed manufacturing entity and already has existing manufacturing capabilities, an established network of physical distribution points and the requisite healthcare product permits for distribution of healthcare products in the PRC, the Proposed Acquisition will enable the Company to have a wholly-owned subsidiary in the PRC which can apply for a direct selling licence in the PRC within the short to medium term, thereby allowing the Company to gain a foothold in the direct selling business in the PRC. With a direct selling licence, the Company intends to engage, through SolidGold, in the direct selling of, amongst other products, (i) the existing products, and any future products as may be, sold or distributed by the Company, including dietary supplement products which are imported from outside the PRC, and (ii) the existing dietary supplement products, and any future dietary supplement products as may be, manufactured and/or distributed by SolidGold in the PRC. The dietary supplement products locally manufactured in the PRC would generally be more competitively priced and widely accepted by the general public while the dietary supplements imported from outside the PRC would appeal to the higher income families of the burgeoning middle class in the PRC;

(6)



Unless otherwise stated in this Circular, an exchange rate of SGD1: RMB5.1622 has been used for figures as at 31 December 2012.

16

LETTER TO SHAREHOLDERS

(c)

the Proposed Acquisition would allow both the Company and SolidGold to leverage on each other to create mutually beneficial synergies, which among other things include, wider range of product offerings to the customers of both parties; sharing of regional markets and sales network; sharing of management, product research and development and manufacturing expertise; and greater operational efficiency stemming from supply chain collaboration, which would enhance shareholders’ value; and



(d)

SolidGold’s manufacturing and OEM (original equipment manufacturer) business is aligned with the Company’s strategic intent to tap into the value chain of upstream activities in order to ensure sustainable profitable growth.



For the above reasons, the Board of Directors is of the view that the Proposed Acquisition is in the best interest of the Company.

3.4

Funding for the Proposed Acquisition



The Purchase Consideration payable by the Purchaser will be funded through internal resources and bank borrowings. As at the Latest Practicable Date, the Company has available internal resources of approximately S$1,133,000, which may be partially or fully utilized by the Company to fund the Proposed Acquisition.

4.

RISK FACTORS



The Proposed Acquisition involves some risks, some of which are inherent in the business of SolidGold. Shareholders should evaluate carefully the following risk factors and the other information in this Circular before deciding on how to cast their votes at the EGM. Some of the risks are not yet known to the Company and there may be others in which the Company currently believes are material but may subsequently not turn out to be so. As such, the following should not be considered as a comprehensive list of all risk factors relating to the Proposed Acquisition. If any of the following considerations, risks and uncertainties develops into actual events, the business, financial acquisition, results of operations, cash flows and prospects of the Group following the Proposed Acquisition could be affected.

4.1

The Group is reliant on SolidGold’s key management personnel



The operations of SolidGold are dependent upon the continued services of its key management personnel, including SJY, in view of their expertise and experience in the business of manufacturing and distribution of dietary supplements in the PRC. This is a key risk as the current management of the Group neither has experience in the retail distribution business nor in the manufacturing of dietary supplements in the PRC. Notwithstanding the Service Agreement to be entered into with SJY and the employment contracts to be executed between SolidGold and certain key employees as mentioned in Section 3.1(c)(i)(dd) of this Circular, there is no assurance that the Group will be able to retain such key management personnel. If the Group loses the services of any of SolidGold’s key management personnel without suitable and timely replacements, the profitability and operations of the Group would be adversely affected.

4.2

SolidGold is subject to PRC laws and regulations



As SolidGold is incorporated in the PRC, the business and operations of SolidGold are subject to laws, rules and regulations imposed by the PRC government, including those relating to the manufacture and distribution of dietary supplements. As the legal system in the PRC is still developing, the PRC laws and regulations and the implementation thereof may be subject to change. Furthermore, any change in the political or economic policy of the PRC government may also lead to similar changes in the laws and regulations or the interpretation thereof. There can be no assurance that more stringent laws, regulations or policies will not be implemented or that the existing laws, regulations or policies will not be more stringently enforced. In such an event, the Group may need to incur additional expenses in order to comply with such relevant laws and

17

LETTER TO SHAREHOLDERS regulations and this may in turn affect the financial performance due to the increase in expenses. There is also no assurance that the Group may be able to comply with all existing or future laws and regulations in the PRC. In the event that the Group fails to comply with any relevant law or regulation in the PRC, the Group’s business, reputation, operations and financial condition may be adversely affected and the Group may be subject to penalties, civil liabilities or criminal liabilities. 4.3

The operations of SolidGold may be affected should SolidGold fail to obtain or renew the necessary licences, permits and certifications



SolidGold is required to obtain the relevant licences, permits and certifications from the PRC authorities for the continued operation of its business, including certain healthcare product permits which SolidGold is currently in the process of renewing. These permits, licences and certifications are usually granted for fixed periods and are renewable upon expiry. In addition, new healthcare product regulations, namely the Regulation on Supervision and Administration of Dietary Supplements (保健食品监督管理条例), may be promulgated by the PRC authorities. As at the Latest Practicable Date, the Regulation on Supervision and Administration of Dietary Supplements has not yet been promulgated. Under the Regulation on Supervision and Administration of Dietary Supplements, manufacturers of dietary supplements like SolidGold would be required to apply to the relevant authorities to replace their existing permits with a formal healthcare product manufacturing permit for their business operations. Further conditions and obligations may be imposed on manufacturers of dietary supplements under the new Regulation on Supervision and Administration of Dietary Supplements, including but not limited to the establishment of a credit system of the manufacturers whereby the credit rating of a manufacturer could affect such manufacturer’s application for a formal healthcare product manufacturing permit. The actual conditions and obligations to be imposed will only be known after such regulations are promulgated and implemented.



In the event that SolidGold fails to renew or obtain the relevant licences, permits and certifications which are needed for its operations, or in the event that there is any delay in renewing such licences, permits and certifications, the operations and profitability of the Group would be adversely affected. Furthermore, these licences, permits and certifications may stipulate conditions or restrictions which SolidGold is required to comply with. In the event of a breach of any such condition or restriction, the relevant licence, permit or certification may be suspended or revoked. As the requirements imposed by authorities are also subject to change and new requirements may be imposed from time to time, there is no assurance that the requirements set out in the relevant licences, permits and certifications will be met at all times. Should the licences, permits and certifications be suspended or revoked, SolidGold may not be able to continue its business and operations which are directly associated with the revoked or suspended licence, permit or certification, and this will adversely affect the Group’s operations and profitability.

4.4

SolidGold is subject to foreign exchange controls in the PRC



SolidGold is subject to the relevant PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange (“SAFE”) regulates the conversion of RMB into foreign currencies. Currently, foreign invested enterprises (“FIEs”) are required to apply to SAFE for “Foreign Exchange Registration Certificates for FIEs”. With such registration certifications, FIEs are allowed to open foreign currency accounts including the “basic account” and “capital account”. Currently, conversion within the scope of the “basic account”, for purposes such as the remittance of foreign currencies for payment of dividends, can be effected without the approval of SAFE. However, the conversion of currency in the “capital account”, for capital items such as direct investments, loans and securities, still requires the approval of SAFE.



As SolidGold will be an FIE following the Proposed Acquisition, SolidGold will be required to hold the necessary registration certifications to open foreign currency accounts. The ability of SolidGold to pay dividends or make other distributions may be restricted by, among other things, the availability of funds, and statutory and other legal restrictions including PRC foreign exchange controls. In the event of the above, SolidGold’s ability to repatriate dividends to its shareholders (i.e. the Purchaser) in the future will be adversely affected.

18

LETTER TO SHAREHOLDERS 4.5

Successful integration of SolidGold with the Group may take time



As the Group does not engage in the same business of manufacturing and distribution of dietary supplements in the PRC as SolidGold, the Group may not have readily available resources, management expertise and technical skills required for the operations of SolidGold. For example, the marketing strategies and channels of the Group which are focused on direct selling, may not entirely apply to SolidGold’s existing mode of distribution effected through, inter alia, agents and drugstore chains. In addition, SolidGold, being a separate entity in the PRC, has its own set of operations, internal systems and procedures.



As such, the process of integrating SolidGold with the Group may require a substantial amount of time and resources before the expected synergies may be achieved. Accordingly, the positive impact of the Proposed Acquisition may not be experienced by the Group immediately. The process of integration may also produce unforeseen delays or operating difficulties and substantial expenditures and may absorb significant attention of the Group’s management that would otherwise be available for the ongoing development of the Group’s business. In the event of any of the above, the Group’s future financial position and performance may be adversely affected.

4.6

SolidGold may be affected by the negative publicity relating to food-related products produced in the PRC



While SolidGold possesses the required formal healthcare product manufacturing permits, the negative publicity relating to the safety and quality of food-related products produced in the PRC may cause the dietary supplements manufactured by SolidGold to be negatively received by its existing customers and reduce the number of consumers purchasing dietary supplements manufactured by SolidGold. Such negative publicity, regardless of their validity, may have an adverse impact on the sales of the products manufactured by SolidGold, which would adversely affect the turnover of SolidGold and consequently the Group’s financial performance.

5.

RELATIVE FIGURES FOR THE PROPOSED ACQUISTION



The relative figures computed on the basis of Rule 1006 of the Listing Manual in respect of the Proposed Acquisition are as follows: Rule

Bases of computation

Size of relative figure

1006(a)

Net asset value of assets being disposed of, compared with the Group’s net asset value

Not applicable as this is an acquisition

1006(b)

Net profit(loss) attributable to the assets acquired, compared with the Group’s net profits

(24.50%)(1)

1006(c)

Aggregate value of consideration given, compared with the Company’s market capitalisation based on the total number of issued Shares excluding treasury shares

27.77%(2)

1006(d)

The number of equity securities issued by the Company as consideration for an acquisition, compared with the number of equity securities previously in issue

Not applicable as no equity securities are issued by the Company as consideration for the Proposed Acquisition.



Notes:



(1)

Based on SolidGold’s unaudited net loss for the 6 months ended 30 June 2013 of RMB718,988 (approximately S$143,037 based on the average exchange rate of SGD1:RMB5.0266 for the period of 1 January 2013 to 30 June 2013) and the Group’s unaudited net profits of S$583,780 for the 6 months ended 30 June 2013.

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LETTER TO SHAREHOLDERS

(2)

Based on (A) the aggregate value of consideration of RMB55,000,000 (which is approximately S$11,310,356 based on the closing middle rate between the SGD and RMB of SGD1:RMB4.8628 as quoted by Bank of China on 12 August 2013, being the market day preceding the date of the Sale and Purchase Agreement), which comprises (i) the Purchase Consideration of RMB35,000,000 payable under the Sale and Purchase Agreement and (ii) the maximum amount of Performance Bonus of RMB20,000,000 payable under the Service Agreement, and (B) the market capitalisation of the Company of approximately S$40,731,946 (determined by multiplying the existing number of Shares in issue excluding treasury shares (ie. 204,683,147 Shares) by S$0.199, being the weighted average price of the Company’s Shares transacted on 12 August 2013, being the market day preceding the date of the Sale and Purchase Agreement).



As the relative figures computed on the bases set out in Rules 1006(b) and 1006(c) exceed 20% but are less than 100%, the Proposed Acquisition amounts to a major transaction under Chapter 10 of the Listing Manual and is subject to and conditional upon the approval of the Shareholders at a general meeting to be convened.

6.

PROPOSED SUBSCRIPTION

6.1

Salient Terms of the Proposed Subscription



(a)

Upon the terms and subject to the conditions of the Placement Agreement, SJY has agreed to subscribe for 15,500,717 Subscription Shares. For more information on SJY, please see Section 2.5 of this Circular.



(b)

As at the Latest Practicable Date, the issued and paid-up share capital of the Company is S$17,688,637.20 comprising 204,683,147 Shares (excluding 1,573,000 Shares which are held as treasury shares). Upon completion of the Proposed Subscription and the issue of the Subscription Shares and assuming no new Shares are issued between the Latest Practicable Date and the date of completion of the Proposed Subscription, the issued and paid-up share capital of the Company will increase to S$20,773,279.88 comprising 220,183,864 Shares (excluding 1,573,000 Shares which are held as treasury shares). The Subscription Shares, when issued and fully paid, shall rank pari passu in all respects with and carry all rights similar to the existing Shares, except that they will not rank for any dividend, right, allotment or other distribution, accruing on a record date which falls on or before the date of completion of the Proposed Subscription.



(c)

Upon completion of the Proposed Subscription, SJY will hold 15,500,717 Shares, representing approximately 7.04% of the enlarged total issued Shares in the capital of the Company immediately after the completion of the Proposed Subscription, assuming no new Shares are issued between the Latest Practicable Date and the date of completion of the Proposed Subscription.



(d)

The aggregate subscription price payable by SJY for the Subscription Shares is approximately S$3,084,643, based on the Subscription Price of S$0.199 for each Subscription Share, which represents a premium of approximately 0.71% to the volume weighted average price of the Shares of S$0.1976 for trades done on the SGX-ST for the full market day on 13 August 2013 (being the full market day on which the Placement Agreement was signed).



(e)

Pursuant to the Placement Agreement, SJY has represented, warranted and undertaken to and for the benefit of the Company, inter alia, that:



(i)

he does not fall within the categories set out in Rule 812(1) of the Listing Manual;



(ii)

any on-sale of the Subscription Shares pursuant to any arrangement that he may have with any third parties will be in compliance with Section 272B of the SFA;



(iii)

he is not acting in concert with any Directors and/or Substantial Shareholders of the Company which would trigger the requirement for a mandatory offer to be carried out pursuant to Rule 14.1 of the Singapore Code on Take-overs and Mergers; and

20

LETTER TO SHAREHOLDERS

(iv)

he is not acting in accordance with the instructions of any Directors and/or Substantial Shareholders of the Company.



(f)

The Placement Agreement also provides that (i) if completion of the Proposed Subscription fails to take place or (ii) if SJY fails to pay the Subscription Consideration to the Company according to the terms of the Placement Agreement or the Escrow Agreement, the Purchaser is entitled (but not obliged) to issue a written notice to SJY to invalidate and terminate the Proposed Acquisition and the Sale and Purchase Agreement and have the Sale Equity Interests in SolidGold transferred back to the Vendors. In such circumstance, no party shall be entitled to claim any payment, damage, loss, compensation or indemnity in respect of the termination of the Sale and Purchase Agreement, but this will not prejudice the right of any party to claim compensation according to the Placement Agreement or the Escrow Agreement.



(g)

The Proposed Subscription will be undertaken by way of private placement in accordance with Section 272B of the SFA. Accordingly, no prospectus or offer information statement will be issued by the Company in connection with the Proposed Subscription.



(h)

The Proposed Subscription would not result in any transfer of controlling interest in the Company.



(i)

SJY has confirmed to the Company that upon the issuance of the Subscription Shares, he will be the beneficial owner of the Subscription Shares and he will not hold any of the Subscription Shares on trust for or as a nominee of any other person, and he does not take instructions from any other person with respect to the benefits or voting rights in relation to the Subscription Shares.



(j)

No introductory fee has been paid or is payable by the Company in relation to the Proposed Subscription.

6.2

Conditions Precedent for the Proposed Subscription



Completion of the Proposed Subscription is conditional upon, inter alia, the following conditions having been fulfilled or waived:-



(a)

the approval of the Shareholders at an extraordinary general meeting having been obtained for the Proposed Acquisition and the Proposed Subscription, including the allotment and issue of the Subscription Shares to SJY;



(b)

the completion of the Proposed Acquisition occurring on or before the date of completion of the Proposed Subscription;



(c)

the Company obtaining approval in‑principle for the listing and quotation of the Subscription Shares on the Official List of the SGX-ST and such approval not having been revoked and, where such approval is subject to conditions, such conditions being reasonably acceptable to the Company and, to the extent that any conditions for the listing and quotation of the Subscription Shares on the Official List of the SGX-ST are required to be fulfilled on or before the date of completion of the Proposed Subscription, they are so fulfilled;



(d)

the allotment, issue and subscription of the Subscription Shares and all the transactions contemplated by the Placement Agreement not being prohibited by any statute, order, rule, regulation, directive or request promulgated or issued after the date of the Placement Agreement by any legislative, executive or regulatory body or authority (including without limitation, the Monetary Authority of Singapore and the SGX-ST) in Singapore or any other jurisdiction, which is applicable to the Company and/or SJY, including but not limited to the provisions of the Listing Manual or the SFA;

21

LETTER TO SHAREHOLDERS

(e)

there having been, as at the date of completion of the Proposed Subscription, no occurrence of any event nor the discovery of any fact rendering untrue or incorrect in any respect, any of the warranties contained in the Placement Agreement as if they were repeated on and as of the date of completion of the Proposed Subscription; and



(f)

the fulfilment of SJY’s obligations with respect to the deposit of the Subscription Consideration into the escrow account referred to in Section 7 below.



If any of the conditions precedent is not satisfied on or before the date falling six (6) months after the date of the Placement Agreement (or such other date as may be agreed between the Company and SJY in writing), the Placement Agreement shall cease and determine thereafter and none of the parties thereto shall have any claim against the other for damages, losses, compensation or otherwise.



As stated above, completion of the Proposed Subscription is conditional upon, inter alia, the approval of the Shareholders having been obtained for the Proposed Acquisition and the completion of the Proposed Acquisition occurring on or before the date of completion of the Proposed Subscription. Accordingly, if the Proposed Acquisition is not approved by the Shareholders at the EGM or if the Proposed Acquisition is not completed for any reason, the Company will not proceed with the Proposed Subscription.

6.3 Completion

Completion of the Proposed Subscription shall take place within 10 business days immediately following the date on which all the conditions precedent set out in the Placement Agreement have been fulfilled or otherwise waived, or such other date as may be agreed between the Company and SJY in writing.

6.4 Moratorium

To demonstrate his commitment to the Group, SJY has undertaken that he will not sell, realise, transfer or otherwise dispose or enter into any agreement that will directly or indirectly constitute or will be deemed as a disposal of any part of his shareholding interests in the Subscription Shares for a period of 12 months commencing from the date of completion of the Proposed Subscription.

6.5

Shareholders’ Approval for the Allotment and Issue of the Subscription Shares



Rule 805(1) of the Listing Manual provides that an issuer must obtain the prior approval of its shareholders in general meeting for, inter alia, the issue of shares, except where a general mandate for such issue has been approved by Shareholders in general meeting.



The Company intends to seek specific approval of the Shareholders for the allotment and issue of the Subscription Shares to SJY pursuant to the Proposed Subscription at the EGM for the reasons set out in Section 1.2 of this Circular. In the event however that specific approval of the Shareholders is not, for any reason, obtained at the EGM for the allotment and issue of the Subscription Shares to SJY pursuant to the Proposed Subscription, but all the conditions precedent for the completion of the Proposed Subscription (other than the condition precedent in respect of shareholders’ approval being obtained for the allotment and issue of the Subscription Shares) are satisfied or waived (as the case may be), the Company will proceed with the allotment and issue of the Subscription Shares to SJY pursuant to the 2013 General Mandate, subject to the Company obtaining a fresh approval in‑principle of the SGX-ST for the listing of and quotation for the Subscription Shares to be issued pursuant to the 2013 General Mandate, on the Official List of the SGX-ST.

22

LETTER TO SHAREHOLDERS

Pursuant to the 2013 General Mandate, the Directors are authorised, inter alia, from the date of the AGM held on 30 April 2013 until the conclusion of the next AGM or the date by which the next AGM is required by law to be held (whichever is the earlier), to, inter alia, issue Shares in the capital of the Company up to an amount not exceeding in aggregate 50% of the total number of issued Shares (excluding treasury shares) in the capital of the Company of which the aggregate number of Shares to be issued other than on a pro-rata basis to Shareholders of the Company does not exceed 20% of the total number of issued Shares (excluding treasury shares) in the capital of the Company at the time of passing of the resolution, after adjusting for any new Shares arising from the conversion or exercise of convertible securities, any new Shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time of passing of the resolution, and any subsequent bonus issue, consolidation or subdivision of the Shares. As at the date of the AGM held on 30 April 2013, the Company had 204,680,997 issued Shares (excluding treasury shares). After taking into account the issue of 2,150 new Shares arising from the exercise of 2,150 bonus warrants by the warrantholders of the Company between 30 April 2013 and the Latest Practicable Date (which new Shares were issued pursuant to the general mandate granted by Shareholders at the annual general meeting of the Company held on 30 April 2010), the adjusted issued share capital of the Company for the purposes of the 2013 General Mandate would comprise 204,683,147 issued Shares (excluding treasury shares).



No Shares had previously been issued pursuant to the 2013 General Mandate. Accordingly, pursuant to the 2013 General Mandate, the Directors are authorised to issue up to 20% of the adjusted total number of issued Shares (i.e. up to 40,936,629 Shares) on a non pro-rata basis. The proposed allotment and issue of the 15,500,717 Subscription Shares to SJY, which represent approximately 7.57% of the adjusted total number of issued Shares mentioned above, is within the authority of the 2013 General Mandate.

6.6

Rationale for the Proposed Subscription



Since 2010, one of the subsidiaries of the  Company in the PRC has been licensing to SolidGold its healthcare products permits which SolidGold uses to manufacture and distribute healthcare products authorised under such permits. Through SolidGold, the Company became acquainted with SJY, who is SolidGold’s managing director.



The Proposed Subscription would align the interests of SJY with the interests of the Group following completion of the Proposed Acquisition, which in the short and medium term, will be invaluable for the Group’s application for a direct selling licence in the PRC through SolidGold. Given SJY’s shareholding interests in the Company following the completion of the Proposed Acquisition and the Proposed Subscription, the Group will be able to tap on SJY’s substantial experience, extensive network and in-depth industry knowledge of the dietary supplements business in the PRC to expand and strengthen its foothold in the dietary supplements business in the growing PRC market.



Further, the Proposed Subscription, when completed, will result in an injection of funds into the Company and consequently will increase its working capital in order to fund its existing business operations and future expansions.

6.7

Use of Proceeds from the Proposed Subscription



Assuming that 15,500,717 Subscription Shares are issued at the Subscription Price of S$0.199 for each Subscription Share, the estimated net proceeds from the Proposed Subscription would be approximately S$3,034,643, after deducting the estimated expenses of approximately S$50,000 incurred in connection with the Proposed Subscription (the “Net Proceeds”). The Net Proceeds will be used by the Group for general working capital purposes.

23

LETTER TO SHAREHOLDERS

Pending deployment, the Net Proceeds may be deposited with banks and/or financial institutions or invested in short term money markets and/or marketable securities, as the directors of the Company may deem appropriate in the interests of the Company and its subsidiaries. The Company will make periodic announcements on the utilization of the Net Proceeds as and when such proceeds are materially disbursed.



The Directors are of the opinion that, barring unforeseen circumstances and after taking into account the estimated Net Proceeds, the cash and cash equivalents, internal resources and available banking facilities, the working capital available to the Group is sufficient to meet its present requirements.

6.8

Approval in-Principle



Pursuant to an application of the Company, the SGX-ST has on 30 October 2013 granted the approval in-principle for the listing of and quotation for the Subscription Shares on the Official List of the SGX-ST, subject to the following conditions:



(a)

compliance with the SGX-ST’s listing requirements;



(b)

Shareholders’ approval being obtained for the Proposed Subscription;



(c)

a written undertaking from the Company that it will comply with Rules 704(30), 810(1)(c) and 1207(20) of the Listing Manual in relation to the use of the proceeds from the Proposed Subscription and where proceeds are to be used for working capital purposes, the Company will disclose a breakdown with specific details on the use of the proceeds for working capital in the Company’s announcements on use of proceeds and in its annual report;



(d)

a written undertaking from the Company that it will comply with Rule 803 of the Listing Manual; and



(e)

a written confirmation from the Company that it will not issue the Subscription Shares to persons prohibited under Rule 812(1) of the Listing Manual.



Such approval in-principle of the SGX-ST is not to be taken as an indication of the merits of the Proposed Subscription, the Subscription Shares, the Company and/or its subsidiaries.

7.

ESCROW ARRANGEMENT



Pursuant to the Escrow Agreement and the Placement Agreement, it is agreed that:



(a)

within five (5) business days after satisfaction of the relevant conditions precedent set out in the Placement Agreement (namely the conditions precedent described in Sections 6.2(a) to (e) above, including the condition precedent with respect to the completion of the Proposed Acquisition taking place on or before the completion of the Proposed Subscription):



(i)

SJY will deposit the Subscription Consideration of approximately S$3,084,643 into an escrow account, to be held in escrow by the Escrow Agent in accordance with the terms and conditions therein; and



(ii)

the Purchaser will deposit the Purchase Consideration of RMB35,000,000 into a separate escrow account, to be held in escrow by the Escrow Agent in accordance with the terms and conditions therein;



(b)

following the deposit of the Subscription Consideration by SJY into the escrow account, the Company shall on the date of completion of the Proposed Subscription allot and issue the Subscription Shares to SJY. Upon presentation by the Company of evidence of allotment and issuance of the Subscription Shares to SJY on the date of completion of the Proposed 24

LETTER TO SHAREHOLDERS Subscription, each of SJY and the Company shall issue the relevant payment instructions to the Escrow Agent for the release of the Subscription Consideration and the Purchase Consideration, which shall be paid to the Company and the Vendors respectively on the same day; and

(c)

upon receipt of the relevant payment instructions issued by SJY and the Company (as the case may be) to the Escrow Agent as provided in the Escrow Agreement, the Escrow Agent shall forthwith (i) pay all or part of the Subscription Consideration (less bank charges) held in escrow to the Company and (ii) pay all or part of the Purchase Consideration (less bank charges) to the Vendors, in the manner specified in the relevant payment instructions.

8.

SERVICE AGREEMENT

8.1

Appointment of SJY



Given the track record of SJY, SJY will be appointed as Group Manager (China) of the Purchaser pursuant to the Service Agreement to manage SolidGold and advance the Company’s interest in the PRC, and SJY will be seconded to SolidGold to act as the general manager of SolidGold. SJY has extensive experience, in-depth industry knowledge as well as an established network in the dietary supplements industry in the PRC and would be able to provide continuity in the operation and management of SolidGold. The employment of SJY shall be a period of three (3) years commencing from the date of receipt of the full amount of the Purchase Consideration by the Vendors under the Sale and Purchase Agreement (“Initial Term”), unless terminated earlier pursuant to the Service Agreement or extended upon agreement of the Purchaser and SJY. Under the Service Agreement, the Purchaser will have to pay compensation to SJY in the event that the Purchaser terminates his employment without cause prior to the expiry of the Initial Term.

8.2

Salary and Performance Bonus



During the term of the Service Agreement, SJY will be entitled to a monthly basic salary of RMB15,000. To incentivise SJY to grow revenues and make SolidGold profitable following the completion of the Proposed Acquisition and to align the interests of SJY and the Company, SJY is entitled, inter alia, to the Performance Bonus based on part of the net profits after tax of SolidGold during the Initial Term (as defined in Section 8.1 above), to be computed in accordance with the terms of and subject to adjustments as provided in the Service Agreement. The amount of Performance Bonus which SJY is entitled to will be as follows:



(a)

the net profits after tax of SolidGold for the calendar year 2014 will be paid to SJY following the confirmation of such profits in writing by the Purchaser and SJY after the end of 2014; and



(b)

the net profits after tax of SolidGold for the calendar year 2015 will be paid to SJY following the confirmation of such profits in writing by the Purchaser and SJY after the end of 2015,



Provided That:



(i)

the total amount of Performance Bonus payable to SJY under the Service Agreement shall be capped at RMB20,000,000 (or its equivalent in SGD converted at the central parity rate between the SGD and RMB quoted by Bank of China on the date of payment);



(ii)

in the event that SolidGold suffers any loss in the calendar year 2014 based on the audited financial results of SolidGold, the amount of Performance Bonus payable to SJY in respect of the calendar year 2015 shall be reduced by the amount of such loss;



(iii) in the event that SolidGold makes a profit in the calendar year 2014 but suffers a loss in the calendar year 2015, based on the audited financial results of SolidGold, SJY shall not be required to refund any Performance Bonus received in respect of the calendar year 2014; and

25

LETTER TO SHAREHOLDERS

(iv)

in the event that SolidGold suffers a loss in both calendar years 2014 and 2015, or the loss suffered by SolidGold in the calendar year 2014 is more than the profit made by SolidGold in the calendar year 2015, SJY shall not be entitled to any Performance Bonus.



The net profits after tax of SolidGold referred to in paragraphs (a) and (b) above may include nonrecurring or one-off/extraordinary income and expenses. However, under the Service Agreement, SJY will not be able to effect or carry out any of the reserved matters set out in the Service Agreement without obtaining the prior approval of the board of directors of SolidGold.



The cap of RMB20,000,000 for the Performance Bonus payable to SJY under the Service Agreement was commercially agreed between the Purchaser and SJY after taking into consideration the following factors:-



(aa) SJY will be utilising his extensive experience, in-depth industry knowledge and established network in the dietary supplements industry in the PRC to assist the Company to obtain the relevant healthcare product manufacturing permits and other permits and licences which are not only necessary for the business of SolidGold, but are also essential for the application for a direct selling licence in the PRC; and



(bb) as the approval process for the direct selling licence may take anywhere between 24 months to 36 months, it will be in the Company’s interest to develop a sustainable revenue stream which generates profit for SolidGold during the transition period when the Company is still unable to carry out its core business of direct selling through SolidGold. In this respect, the Company can tap on SJY’s aforesaid expertise to expand the distribution network of SolidGold and to also tap into the upstream value chain of research and development and manufacturing of dietary supplements. As such, the Company is of the view that SJY would be able to help grow revenues and make SolidGold profitable during the transition period to place SolidGold in a fundamentally sound position even after the tenure of his Service Agreement.



In view of the above factors, the Company is of the view that the current arrangement for the Performance Bonus payable to SJY, including the cap of RMB20,000,000 for the Performance Bonus, is reasonable.



It is also agreed that notwithstanding any early termination of SJY’s employment during the Initial Term (as defined in Section 8.1 above), SJY may still receive the Performance Bonus after such termination so long as he complies with his Obligations (as defined below) under the Service Agreement.



As the Company will be able to tap on SJY’s substantial experience, extensive network and in-depth industry knowledge of the dietary supplements business in the PRC to expand and strengthen its foothold in the dietary supplements business in the growing PRC market, and in view that SJY will provide assistance to the Company in applying for, obtaining and maintaining the relevant healthcare product manufacturing permits and other permits and licences which are necessary for the business of SolidGold (“Obligations”) and essential for the Company’s proposed application for a direct selling licence in the PRC through SolidGold, which would enable the Company to gain a foothold in the direct selling business in the PRC market, the Directors believe that such benefits to the Company would justify the payment of the Performance Bonus to SJY to reward him for his efforts.



Under the Service Agreement, it is agreed that in the event that SJY fails to make payment for (i) the buy-back of the Sale Equity Interests (as described in Sections 3.1(d)(i) and (iii) of this Circular) or (ii) the refund of the value of the Unrenewed Permits or the loss in 2013 (as described in Section 3.1(d)(ii) of this Circular), the Purchaser may directly deduct such amounts from the Performance Bonus payable to SJY.

26

LETTER TO SHAREHOLDERS 8.3

Non-Solicitation and Restrictive Covenants



SJY has undertaken with the Purchaser that, except with the written consent of the Purchaser, he will not, during the term of his employment and for the period of two years from the date he ceases to be an employee of the Purchaser (“Cessation Date”), inter alia:



(a)

carry on or be engaged directly or indirectly in any business in competition with the business of SolidGold carried on prior to the Cessation Date;



(b)

solicit or entice away or attempt to solicit or entice away from SolidGold any person, firm, company or organisation who shall at any time prior to the Cessation Date, have been a customer, client, agent or correspondent of SolidGold; or



(c)

solicit or entice away or attempt to solicit or entice away from SolidGold any person who is an employee of SolidGold.

9.

FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION AND PROPOSED SUBSCRIPTION



The proforma financial effects of the Group after the Proposed Acquisition and the Proposed Subscription set out below are for illustrative purposes only and should not be taken as an indication of the actual future financial performance or position of the Group following the Proposed Acquisition and the Proposed Subscription, nor a projection of the future financial performance or position of the Group after completion of the Proposed Acquisition and the Proposed Subscription.



The proforma financial effects of the Proposed Acquisition and the Proposed Subscription are based on the Company’s audited financial statements for FY2012 and the audited accounts of SolidGold for FY2012.

9.1

NTA per Share



Assuming that the Proposed Acquisition and the Proposed Subscription had been completed on 31 December 2012, the NTA per Share of the Group would be as follows:Before the Proposed Acquisition and the Proposed Subscription

After the Proposed Acquisition and the Proposed Subscription

46,311

55,544

Number of issued Shares (’000)

204,681

220,182

NTA per share (Singapore cents)

22.63

25.23

NTA (S$’000)

9.2 EPS

Assuming the Proposed Acquisition and the Proposed Subscription had been effected on 1 January 2012, the EPS of the Group would be as follows: Before the Proposed Acquisition and the Proposed Subscription

After the Proposed Acquisition and the Proposed Subscription

1,800

(3,191)(1)

204,711

220,212

0.88

(1.45)

Net profit/(loss) after tax (S$’000) Weighted average number of issued Shares (’000) EPS (Singapore cents) 27

LETTER TO SHAREHOLDERS

Note:



(1)

9.3

Share Capital



The Proposed Acquisition does not have any financial effect on the share capital of the Company.



The financial effects of the Proposed Subscription on the issued share capital of the Company as at the Latest Practicable Date are as follows:-



This is determined on the basis that the Proposed Acquisition will be financed as follows: 11% from internal resources and 89% from bank borrowings. On such basis, the amount of bank borrowings to be obtained is S$6,500,000. For illustrative purposes, we have assumed a one-year term loan is obtained at the current market interest rate fixed at 1.94% per annum.

Issued share capital of the Company as at the Latest Practicable Date (excluding 1,573,000 Shares being held as treasury shares) Add: Issue of the Subscription Shares Issued share capital of the Company immediately after the Proposed Subscription (excluding 1,573,000 Shares being held as treasury shares) 10.

Number of Shares

S$

204,683,147

17,688,637.20

15,500,717

3,084,642.68

220,183,864

20,773,279.88

INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS

10.1 Interest in Shares

The interests of the Directors and Substantial Shareholders of the Company as at the Latest Practicable Date and (assuming there is no change to the issued share capital of the Company other than the allotment and issue of the Subscription Shares pursuant to the Proposed Subscription) immediately after the completion of the Proposed Subscription is set out below. As at the Latest Practicable Date(1)

Immediately after completion of the Proposed Subscription(2)

Number of Shares

Number of Shares

Direct Interest

Deemed Interest

Total Interest

%(1)

Direct Interest

Deemed Interest

Total Interest

%(2)

Dr. Dora Hoan Beng Mui(3)

12,352,000

75,100,000

87,452,000

42.73

12,352,000

75,100,000

87,452,000

39.72

Dr. Doreen Tan Nee Moi(4)

12,352,000

75,100,000

87,452,000

42.73

12,352,000

75,100,000

87,452,000

39.72

9,000,000



9,000,000

4.40

9,000,000



9,000,000

4.09

75,000



75,000

0.04

75,000



75,000

0.03

Ravindran Ramasamy

















Robson Lee Teck Leng

66,000



66,000

0.03

66,000



66,000

0.03

Directors

Huang Ban Chin Lee Sen Choon

28

LETTER TO SHAREHOLDERS

Direct Interest

As at the Latest Practicable Date(1)

Immediately after completion of the Proposed Subscription(2)

Number of Shares

Number of Shares

Deemed Interest

Total Interest

%(1)

Direct Interest

Deemed Interest

Total Interest

%(2)

Substantial Shareholders (Other than Directors) D2 Investment Pte Ltd Li Lihui(5) Pek Jia Rong SJY

(6)

75,000,000



75,000,000

36.64

75,000,000



75,000,000

34.06

100,000

12,352,000

12,452,000

6.08

100,000

12,352,000

12,452,000

5.66

100,000

12,352,000

12,452,000

6.08

100,000

12,352,000

12,452,000

5.66









15,500,717



15,500,717

7.04



Notes:



(1)

Based on 204,683,147 issued Shares as at the Latest Practicable Date (excluding 1,573,000 Shares which are held as treasury shares).



(2)

Based on the enlarged issued share capital comprising 220,183,864 Shares immediately after the completion of the Proposed Subscription (excluding 1,573,000 Shares which are held as treasury shares).



(3)

Dr. Dora Hoan Beng Mui is deemed to be interested in 75,000,000 Shares held by D2 Investment Pte Ltd and 100,000 Shares held by an immediate family member, Li Lihui.



(4)

Dr. Doreen Tan Nee Moi is deemed to be interested in 75,000,000 Shares held by D2 Investment Pte Ltd and 100,000 Shares held by an immediate family member, Pek Jia Rong.



(5)

Li Lihui is deemed to be interested in the 12,352,000 Shares held by an immediate family member, Dr. Dora Hoan Beng Mui.



(6)

Pek Jia Rong is deemed to be interested in the 12,352,000 Shares held by an immediate family member, Dr. Doreen Tan Nee Moi.

10.2 Interest in the Proposed Acquisition and the Proposed Subscription

Save for their shareholdings in the Company, none of the Directors or Controlling Shareholders of the Company have any direct or indirect interest in the Proposed Acquisition and the Proposed Subscription.

11.

DIRECTORS’ SERVICE CONTRACTS



No person is proposed to be appointed as a director of the Company in connection with the Proposed Acquisition and/or the Proposed Subscription. Accordingly, no service contract for such appointment is proposed to be entered into between the Company and any such person.

12.

EXTRAORDINARY GENERAL MEETING



The EGM, notice of which is set out on page 31 of this Circular, will be held at 26 Tai Seng Street, #04-01, Singapore 534057 on 22 November 2013 at 10 a.m., for the purpose of considering and, if thought fit, passing with or without any modification, the ordinary resolutions set out in the Notice of EGM.

13.

ACTION TO BE TAKEN BY SHAREHOLDERS



If a Shareholder is unable to attend the EGM and wishes to appoint a proxy to attend and vote on his behalf, he should complete, sign and return the attached proxy form in accordance with the instructions printed thereon as soon as possible and, in any event, so as to reach the registered office of the Company at 26 Tai Seng Street, #05-01, Singapore 534057, not less than 48 hours before the time fixed for the EGM.

29

LETTER TO SHAREHOLDERS

The completion and return of a proxy form by a Shareholder will not prevent him from attending and voting in person at the EGM if he wishes to do so. A Depositor shall not be regarded as a member entitled to attend, speak and vote at the EGM unless his name appears in the Depository Register 48 hours before the time appointed for holding the EGM.

14.

DIRECTORS’ RECOMMENDATIONS



The Directors have considered and reviewed, inter alia, the terms of the Sale and Purchase Agreement and the Placement Agreement, the rationale for the Proposed Acquisition and the Proposed Subscription, the financial effects of the Proposed Acquisition and the Proposed Subscription and all other information set out in this Circular. The Directors are collectively of the view that the Proposed Acquisition and the Proposed Subscription are in the best interests of the Company.



Accordingly, the Directors recommend that Shareholders vote in favour of the ordinary resolutions relating to the Proposed Acquisition and the Proposed Subscription at the EGM.

15.

DIRECTORS’ RESPONSIBILITY STATEMENT



The Directors collectively and individually accept full responsibility for the accuracy of the information given in this Circular and confirm after making all reasonable enquiries that, to the best of their knowledge and belief, this circular constitutes full and true disclosure of all material facts about the Proposed Acquisition, the Proposed Subscription and the Group, and the Directors are not aware of any facts the omission of which would make any statement in this Circular misleading.



Where information in this Circular has been extracted from published or otherwise publicly available sources or obtained from a named source, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from those sources and/or reproduced in this Circular in its proper form and context.

16.

DOCUMENTS AVAILABLE FOR INSPECTION



Copies of the following documents are available for inspection at the registered office of the Company at 26 Tai Seng Street, #05-01, Singapore 534057, during normal business hours from the date of this Circular up to and including the date of the EGM:-



(a)

the Sale and Purchase Agreement;



(b)

the Placement Agreement;



(c)

the Valuation Report;



(d)

the Annual Report of the Company for FY2012; and



(e)

the Memorandum and Articles of Association of the Company.

Yours faithfully, For and on behalf of the Board of BEST WORLD INTERNATIONAL LIMITED

Huang Ban Chin Chief Operating Officer and Executive Director

30

NOTICE OF EXTRAORDINARY GENERAL MEETING

BEST WORLD INTERNATIONAL LIMITED (Company Registration No. 199006030Z) (Incorporated in the Republic of Singapore)

NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Best World International Limited (the “Company”) will be held at 26 Tai Seng Street, #04-01, Singapore 534057 on 22 November 2013 at 10 a.m., for the purpose of considering and, if thought fit, passing with or without modifications, the following ordinary resolutions: All capitalised terms used in this Notice of EGM which are not defined herein shall, unless the context otherwise requires, have the same meanings ascribed to them in the Circular to Shareholders dated 7 November 2013 issued by the Company. ORDINARY RESOLUTIONS RESOLUTION 1 – THE PROPOSED ACQUISITION OF 100% OF THE EQUITY INTEREST IN ZHEJIANG SOLIDGOLD PHARMACEUTICAL CO., LTD. That:(a)

approval be and is hereby granted for the proposed acquisition by Best World Lifestyle Pte. Ltd. of 100% of the equity interest in Zhejiang SolidGold Pharmaceutical Co., Ltd. on the terms and subject to the conditions of the sale and purchase agreement dated 13 August 2013 entered into between Mr. Shi Jinyu and Mr. Shi Jinbo (as vendors) and Best World Lifestyle Pte. Ltd. (as purchaser) (the “Proposed Acquisition”); and

(b)

the Directors and each of them be and are hereby authorised and empowered to do all acts and things, including without limitation, entering into all such transactions, arrangements and agreements and executing all such documents, as they may consider necessary or expedient for the purposes of or in connection with the Proposed Acquisition and to give effect to this resolution.

RESOLUTION 2 – THE PROPOSED ALLOTMENT AND ISSUE OF 15,500,717 NEW SHARES AT AN ISSUE PRICE OF S$0.199 FOR EACH SHARE TO MR. SHI JINYU PURSUANT TO THE PLACEMENT AGREEMENT That contingent upon the passing of Resolution 1:(a)

approval be and is hereby given to the Directors of the Company to allot and issue 15,500,717 new Shares in the capital of the Company (“Subscription Shares”) at an issue price of S$0.199 for each Subscription Share, on the terms and subject to the conditions of the placement agreement dated 13 August 2013 entered into between the Company, Best World Lifestyle Pte. Ltd. and Mr. Shi Jinyu (the “Proposed Subscription”); and

(b)

the Directors and each of them be and are hereby authorised and empowered to do all acts and things, including without limitation, entering into all such transactions, arrangements and agreements and executing all such documents, as they may consider necessary or expedient for the purposes of or in connection with the allotment and issue of the Subscription Shares, the Proposed Subscription and to give effect to this resolution.

BY ORDER OF THE BOARD

Huang Ban Chin Chief Operating Officer and Executive Director 7 November 2013 Singapore 31

NOTICE OF EXTRAORDINARY GENERAL MEETING Notes: (1)

A member of the Company entitled to attend and vote at the EGM is entitled to appoint not more than two proxies to attend and vote in his stead. A member of the Company, which is a corporation, is entitled to appoint its authorised representative or proxy to vote on its behalf. A proxy need not be a member of the Company.

(2)

The instrument or form appointing a proxy, duly executed, must be deposited at the registered office of the Company at 26 Tai Seng Street, #05-01, Singapore 534057 not less than 48 hours before the time fixed for holding the EGM in order for the proxy to be entitled to attend and vote at the EGM.

(3)

A Depositor’s name must appear on the Depository Register maintained by CDP 48 hours before the time fixed for holding the EGM in order for the Depositor to be entitled to attend and vote at the EGM.

32

BEST WORLD INTERNATIONAL LIMITED

IMPORTANT 1. For investors who have used their CPF monies to buy Best World International Limited shares, this Circular is forwarded to them at the request of their CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

(Company Registration No. 199006030Z) (Incorporated in the Republic of Singapore)

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

PROXY FORM

(Please see notes overleaf before completing this Form)

3. CPF investors who wish to attend the EGM as OBSERVERS have to submit their requests through their respective Agent Banks so that their Agent Banks may register with the Company Secretary of Best World International Limited not less than 48 hours before the time set for holding of EGM.

I/We*,

(Name)

(NRIC)

of

(Address)

being a member/members* of Best World International Limited (the “Company”), hereby appoint: Name

Address

NRIC/Passport No.

Proportion of Shareholdings Number of Shares

%

and/or (delete as appropriate) Name

Address

NRIC/Passport No.

Proportion of Shareholdings Number of Shares

%

or failing him/her/them*, the Chairman of the Meeting as my/our* proxy/proxies* to vote for me/us* on my/our* behalf at the Extraordinary General Meeting (the “Meeting”) of the Company to be held on 22 November 2013 at 26 Tai Seng Street, #04-01, Singapore 534057 at 10 a.m. and at any adjournment thereof. I/We* direct my/our* proxy/proxies* to vote for or against the resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies* will vote or abstain from voting at his/her/their* discretion. Number of Votes For

Against

Ordinary Resolution 1: To approve the Proposed Acquisition Ordinary Resolution 2: To approve the proposed allotment and issue of the Subscription Shares to Mr. Shi Jinyu pursuant to the Proposed Subscription Dated this

day of

2013. Total Number of Shares held in: (1) CDP Register of Shareholders (2) Register of Members

Signature(s) of Member(s) / Common Seal of Corporate Shareholder



* To delete as appropriate

IMPORTANT: PLEASE SEE NOTES OVERLEAF BEFORE COMPLETING THIS FORM

Number of Shares

Notes: 1.

Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members of the Company, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2.

A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3.

Where a member appoints more than one proxy, he/she shall specify the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy, failing which the appointment shall be deemed to be alternative.

4.

Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting at the Meeting. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the Meeting in person.

5.

The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 26 Tai Seng Street, #05-01, Singapore 534057 not less than 48 hours before the time appointed for the Meeting.

6.

The instrument appointing a proxy or proxies must be under the hand of the appointer or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or proxies is signed by an attorney on behalf of the appointer, the letter or power of attorney or a duly certified copy thereof must be lodged with the instrument of proxy, failing which the instrument may be treated as invalid.

7.

A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his names in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

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