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HONKO INT Announcement Resumption HKExnews

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HONKO INT Announcement Resumption HKExnews Powered By Docstoc
					The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this
announcement, makes no representation as to its accuracy or completeness and expressly
disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the contents of this announcement.


                         Pacific Annex Capital Limited
              (incorporated in the British Virgin Islands with limited liability)




                  Honko International Holdings Limited
                               恒利國際集團有限公司*
                      (incorporated in Bermuda with limited liability)
                                Connected Transactions

                                JOINT ANNOUNCEMENT

                    PROPOSED RESTRUCTURING OF
              HONKO INTERNATIONAL HOLDINGS LIMITED
          INVOLVING, INTER ALIA, A GROUP REORGANISATION,
             PROVISIONAL ALLOTMENT OF NEWCO SHARES,
                  SUBSCRIPTION OF NEWCO SHARES,
                SUBSCRIPTION OF CONVERTIBLE NOTES,
                 DEBT SETTLEMENT ARRANGEMENTS,
    WITHDRAWAL OF LISTING OF SHARES OF HONKO INTERNATIONAL
                       HOLDINGS LIMITED AND
    LISTING OF NEWCO SHARES BY WAY OF AN INTRODUCTION ON THE
                         STOCK EXCHANGE

                RESUMPTION OF TRADING OF EXISTING SHARES



Further to the joint announcement of the Investor and Honko dated 19 January, 2001
relating to the Restructuring Proposal, the respective boards of directors of the Investor and
Honko are pleased to provide additional information on the Restructuring Proposal,


                                               1
including the terms of the conditional Compromise Agreements and the Subscription
Agreement.

The conditional Compromise Agreements and the Subscription Agreement are integral parts
of the Restructuring Proposal which comprises the following principal parts:

a)   a scheme of arrangement under section 99 of the Companies Act pursuant to which
     each Existing Share as at the Record Date (except for 1,000,000 new Honko Shares to
     be subscribed at par by Newco as part of the Scheme within ten business days
     following the SGM or at such other time as Honko and Newco may agree) will be
     swapped for one Newco Share. Newco is a company incorporated in Bermuda and will
     become the holding company of the Group following the Group Reorganisation;

b)   an underwritten Provisional Allotment pursuant to which four Provisional Shares,
     nil-paid, shall be provisionally allotted for every Existing Share held by Qualifying
     Scheme Shareholders at the Record Time. Each holder of the Provisional Shares who
     wishes to take up the entitlements must make payment of the Allotment Price of
     HK$0.02 per Provisional Share;

c)   the subscription of 2,800 million Newco Shares by the Investor and of another 1,000
     million Newco Shares by subscribers to be procured by KSL on an underwritten basis,
     at the subscription price of HK$0.01 each;

d)   the repayment of certain secured and unsecured indebtedness of the Group in cash, the
     conversion of certain secured and unsecured indebtedness of the Group into Newco
     Shares, the refinancing of certain finance leases and the waiver of certain debts subject
     to the issue of Settlement Shares;

e)   the Convertible Notes Subscription by subscribers to be procured by KSL of HK$20
     million on a fully underwritten basis and of up to an additional HK$5 million on a
     reasonable endeavours basis, at completion of the Subscription Agreement; and

f)   the withdrawal of listing of all the Honko Shares to be followed by the listing of Newco
     Shares by way of an introduction on the Stock Exchange.

The Restructuring Proposal, if completed, would have the following effects:

(i) up to HK$91.6 million in cash will be raised (assuming that the Convertible Notes
    Subscription amounts to HK$25 million);


                                              2
(ii) certain indebtedness of the Group will be repaid in cash, capitalised, refinanced or
     waived subject to the issue of Settlement Shares;

(iii) the Investor will be interested in about 50.29 per cent. shareholding of Newco before
      conversion of the Convertible Notes; and

(iv) the withdrawal of listing of all the Honko Shares to be followed by the listing of Newco
     Shares by way of an introduction on the Stock Exchange.

Completion of these agreements and the Group Reorganisation are subject to, inter alia,
approval by the Independent Shareholders at the SGM and the fulfilment of the conditions
as set out in section 7 headed "Conditions Precedent" below.

These agreements are conditional. Shareholders and potential investors should be
aware that the Restructuring Proposal may or may not proceed or be completed and
are therefore advised to exercise extreme caution when dealing in the Existing Shares.

At the request of Honko, trading of the Existing Shares on the Stock Exchange was
suspended from 10:00 a.m. on 17 January, 2001 pending the release of this announcement.
Honko has applied to the Stock Exchange for trading of the Existing Shares to resume with
effect from 10:00 a.m. on 16 February, 2001.

1.   INTRODUCTION

     Further to the joint announcement of the Investor and Honko dated 19 January, 2001
     relating to the Restructuring Proposal, the respective boards of directors of the Investor
     and Honko are pleased to provide additional information on the Restructuring Proposal,
     including the terms of the conditional Compromise Agreements and the Subscription
     Agreement.

     Completion of these agreements and the Group Reorganisation are subject to, inter alia,
     approval by the Independent Shareholders at the SGM and the fulfilment of other
     conditions as set out in section 7 headed "Conditions Precedent" below.

2.   SUMMARY OF THE RESTRUCTURING PROPOSAL

     The Restructuring Proposal comprises the following principal parts which are
     inter-conditional on each other:



                                               3
     (a) a scheme of arrangement under section 99 of the Companies Act under which the
         Existing Shares as at the Record Date (except 1,000,000 new Honko Shares to be
         subscribed at par by Newco as part of the Scheme within ten business days
         following the SGM or at such other time as Honko and Newco may agree) will be
         cancelled and extinguished by way of reduction of share capital and be swapped
         with Newco Shares on a one for one basis. Newco is a company incorporated in
         Bermuda which will become the holding company of the Group following the
         Group Reorganisation. The Newco Shares have a par value of HK$0.005 each;

     (b) an underwritten Provisional Allotment pursuant to which four Provisional Shares,
         nil-paid, shall be provisionally allotted for every Existing Share held by Qualifying
         Scheme Shareholders at the Record Time. Each holder of the Provisional Shares
         who wishes to take up the entitlements must make payment of the Allotment Price
         of HK$0.02 per Provisional Share;

     (c) the subscription of 2,800 million Newco Shares by the Investor and of another
         1,000 million Newco Shares by subscribers to be procured by KSL on an
         underwritten basis, at the subscription price of HK$0.01 each;

     (d) the repayment of certain secured and unsecured indebtedness of the Group in cash,
         the conversion of certain secured and unsecured indebtedness of the Group into
         Newco Shares, the refinancing of certain finance leases and the waiver of certain
         debts subject to the issue of Settlement Shares;

     (e) the Convertible Notes Subscription by subscribers to be procured by KSL of
         HK$20 million on a fully underwritten basis and of up to an additional HK$5
         million on a reasonable endeavours basis, at completion of the Subscription
         Agreement; and

     (f) the withdrawal of listing of the Honko Shares to be followed by the listing of
         Newco Shares by way of an introduction on the Stock Exchange.

3.   SHARE EXCHANGE

     Newco is a company incorporated in Bermuda on 16 November, 2000 and will become
     the holding company of the Group pursuant to the Scheme. The Newco Shares have a
     par value of HK$0.005 each.

     The Group Reorganisation including the Share Exchange will be effected by way of a
     scheme of arrangement under section 99 of the Companies Act to be sanctioned by the

                                              4
     Bermuda Court. Pursuant to the Scheme, holders of Existing Shares as appearing in the
     register of members of Honko on the Record Date (except 1,000,000 new Honko Shares
     to be subscribed at par by Newco as part of the Scheme, within ten business days
     following the SGM or at such other time as Honko and Newco may agree, in
     compliance with the requirements under the Companies Act) will be issued one Newco
     Share credited as fully-paid for every Scheme Share held. The Scheme Shares will be
     cancelled by way of reduction of share capital. The Newco Shares to be issued under
     the Share Exchange will rank pari passu in all respects with all Newco Shares then in
     issue (including the rights to receive all dividends and distributions which may be
     declared, made or paid thereafter). Further information on the Scheme will be contained
     in the Scheme Circular.

     As part of the Restructuring Proposal, Newco Shares will be listed on the Stock
     Exchange by way of an introduction after the listing of the Honko Shares are withdrawn
     from the Stock Exchange.

4.   PROVISIONAL ALLOTMENT

     a) Basis of entitlements and Allotment Price

         As part of the Scheme, Newco will propose a Provisional Allotment on a fully
         underwritten basis, pursuant to which four Provisional Shares, nil-paid, will be
         provisionally allotted for every Existing Share held by Qualifying Scheme
         Shareholders at the Record Time. Based on an aggregate of 358,004,664 Existing
         Shares in issue as at the date of the Subscription Agreement, it is expected that a
         maximum of 1,432,018,656 Provisional Shares, nil-paid, with rights attached
         thereto to take up the entitlements in respect thereof, will be issued to Qualifying
         Scheme Shareholders. Each holder of the Provisional Shares who wishes to take up
         the entitlements must make payment of the Allotment Price of HK$0.02 per
         Provisional Share. An aggregate of about HK$28.6 million will be raised under the
         Provisional Allotment.

         The purpose of the Provisional Allotment is to allow the Qualifying Scheme
         Shareholders to subscribe for Newco Shares, through which they can participate in
         the Group Reorganisation and to provide working capital for the New Group.

         The detailed timetable of the Provisional Allotment will be determined prior to the
         despatch of the circular relating to the Restructuring Proposal and a further
         announcement will be made if required.


                                              5
b) Allotment Price for each Provisional Share

     The Allotment Price for each Provisional Share is HK$0.02, representing:

     (i)   a discount of 87.7 per cent. to the closing price of HK$0.163 per Existing
           Share as quoted on the Stock Exchange on 16 January, 2001, the date on
           which the Existing Shares were traded immediately prior to suspension of the
           Existing Shares on 17 January, 2001; and

     (ii) a discount of about 88.1 per cent. to the average closing price of HK$0.169
          per Existing Share for the last ten trading days immediately prior to 16
          January, 2001.

     As stated in Honko's annual report for the year ended 31 March, 2000, the Group
     recorded audited net liabilities of about HK$227.7 million as at 31 March, 2000
     and incurred substantial loss of about HK$49.9 million for the year ended 31
     March, 2000. As stated in Honko's interim report for the six months ended 30
     September, 2000, Honko reported an unaudited consolidated loss of about HK$15
     million. The Directors consider the Allotment Price for the Provisional Shares to be
     reasonable.

c) Status of the Provisional Shares

     Upon full payment and issue, and upon the Scheme becoming effective, each
     Provisional Share will rank pari passu in all respects with the Newco Shares as at
     the issue of the Provisional Shares, including the right to receive all dividends and
     distributions which may be declared, made or paid on the Provisional Shares.

     Newco will not apply to any stock exchange for the listing of or dealing in the
     Provisional Shares, in their nil-paid form, and therefore the entitlements to the
     Provisional Shares will not be listed or dealt in on any stock exchange. However,
     entitlements to the Provisional Shares, in their nil-paid form, are transferable.

     Newco will apply to the Stock Exchange for the listing of and permission to deal in
     the Provisional Shares in their fully-paid form.

d)   Substantial Shareholder's commitment to subscribe for his Provisional
     Allotment entitlements




                                          6
     As an integral part of the Provisional Allotment, Mr. Lam, the chairman of Honko
     who is interested (through his nominee companies) in 170,850,000 Existing Shares,
     representing about 47.7 per cent. of the existing issued share capital of Honko, has
     irrevocably undertaken to transfer his nil-paid entitlements to the Provisional
     Shares in full, that is, 683.4 million Provisional Shares, to the Investor at a nominal
     value of HK$10. The Investor has given an irrevocable undertaking to Mr. Lam and
     KSL to take up and subscribe for Mr. Lam's entire entitlements to the Provisional
     Shares in full. The 170,850,000 Existing Shares held by Mr. Lam have been
     pledged to a creditor as security for certain financing arrangements for him. In
     1999, the Group entered into an assignment with Mr. Lam and the creditor,
     pursuant to which Mr. Lam gave the creditor additional security for the said
     borrowings by assigning the rights, titles and benefits of Mr. Lam's loan to the
     Group, to the creditor. The said information is contained in Honko's annual report
     for the year ended 31 March, 2000. Pursuant to the Subscription Agreement, Mr.
     Lam has undertaken to obtain the necessary release from the creditor. Should Mr.
     Lam fail to obtain such release, the Subscription Agreement may not be completed,
     and the Restructuring Proposal may not proceed.

     In addition to the said 170,850,000 Existing Shares, Mr. Lam is also interested in
     3,200,000 Existing Shares, representing about 0.9 per cent. of the existing issued
     share capital of Honko, which have been deposited with a defunct securities
     company. As such Honko Shares are not registered in the name of Mr. Lam and
     have not been returned to Mr. Lam, no Provisional Shares in respect of the said
     3,200,000 Existing Shares will be issued in the name of Mr. Lam.

e) Underwriting arrangement of the Provisional Allotment

     Pursuant to the Subscription Agreement, KSL has undertaken to underwrite the
     Provisional Shares (other than 683.4 million Provisional Shares, nil-paid, to be
     transferred by Mr. Lam and to be taken up by the Investor) in accordance with the
     terms of the Underwriting Agreement. Such issue of about 749 million Newco
     Shares (including Overseas Shareholders' entitlements) under the Provisional
     Allotment would raise proceeds of about HK$15.0 million.

     A fellow subsidiary of KSL is interested in a total of 12,106,000 Existing Shares,
     representing about 3.4 per cent. of the existing issued share capital of Honko. It will
     abstain from voting on all the resolutions approving the Restructuring Proposal.

f)   Conditions


                                           7
     The Provisional Allotment, as an integral part of the Restructuring Proposal, is also
     subject to the conditions precedent of the Restructuring Proposal set out in the
     section headed "Conditions Precedent" having been fulfilled. Details of the
     conditions precedent will be included in the Scheme Circular.

g) Application for excess Provisional Shares

     Qualifying Scheme Shareholders may apply for any excess Provisional Shares
     which would otherwise be allotted to Overseas Shareholders and additionally in
     respect of any Provisional Shares which are not taken up. Application for excess
     Provisional Shares may be made by completing the EAF which will accompany the
     prospectus relating to the Provisional Allotment. The Directors will allocate the
     excess Provisional Shares at their discretion on a fair and reasonable basis, but will
     give preference to topping-up odd lots to whole board lots, where appropriate.

h) Qualifying Scheme Shareholders

     Honko will send the PAL and EAF to Qualifying Scheme Shareholders only. To
     qualify for the Provisional Allotment:

     (i)   a shareholder must be registered as a member of Honko at the Record Time;
           and

     (ii) a shareholder must have an address in Hong Kong as his/her address on the
          register of members of Honko at the Record Time.

i)   Rights of the Overseas Shareholders

     The Provisional Allotment Documents will not be registered or filed under the
     applicable securities or equivalent legislation of any jurisdiction outside Hong
     Kong and Bermuda. As the Directors are of the view that the offer of the
     Provisional Shares to Overseas Shareholders would, or might, in the absence of
     compliance with registration or other special formalities in other territories be
     unlawful or impracticable, no Provisional Shares will be allotted to Overseas
     Shareholders. However, Overseas Shareholders are entitled to vote at the SGM. If
     the resolution relating to, amongst other things, the Provisional Allotment is
     passed, Honko will send the prospectus relating to the Provisional Allotment to
     Overseas Shareholders for their information only, but Honko will not send to them
     the PAL or the EAF. The Provisional Shares which would otherwise be allotted to
     Overseas Shareholders will be made available to the Qualifying Scheme

                                          8
     Shareholders as referred to in the sub-section headed "Application for excess
     Provisional Shares" above.

j)   Fractions of Provisional Shares

     Under the Provisional Allotment, it is not expected that Newco will allot fractions
     of Provisional Shares (nil-paid or fully-paid).

k) Termination of the Underwriting Agreement

     The Underwriting Agreement in respect of the Provisional Allotment contains
     provisions entitling KSL to terminate the arrangement thereunder by notice in
     writing given by KSL to Newco at any time prior to 4:00 p.m. on the fifth business
     day following the Final Acceptance Date, if in the reasonable opinion of KSL:

     (aa) the success of the Provisional Allotment or the taking up of the Provisional
          Shares by Qualifying Scheme Shareholders would be materially and adversely
          affected by:

         (i)   the introduction of any new law, rule or regulation or any change in the
               existing laws, rules or regulations (or the judicial interpretation thereof)
               or other occurrence of any nature whatsoever which may adversely affect
               the business or the financial or trading prospects of the group taken as a
               whole; or

         (ii) the occurrence, happening, coming into effect, change or becoming
              public knowledge of any event or circumstances of a local, national or
              international nature or change (whether or not forming part of a series of
              events or changes occurring or continuing before, on or after the date of
              the Underwriting Agreement) of a political, military, financial, economic,
              currency or other nature (whether or not sui generis with any of the
              foregoing), or in the nature of any local, national or international outbreak
              or escalation of hostilities or armed conflict, or affecting local securities
              markets or the occurrence of any combination of circumstances which
              adversely affects the business of the financial or trading position or
              prospects of the Group as a whole or materially and adversely prejudices
              the success of the Provisional Allotment or the taking up of the
              Provisional Shares by the Qualifying Scheme Shareholders or otherwise
              makes it inexpedient or inadvisable for Newco or KSL to proceed with
              the Provisional Allotment; or

                                          9
         (bb) any material adverse change in market conditions or combination of
              circumstances in Hong Kong (including, without limitation, the suspension of
              or material restriction on trading in securities) occurs which materially and
              adversely affects the success of the Provisional Allotment (such success being
              the taking up of the Provisional Shares by Qualifying Scheme Shareholders)
              or otherwise in the reasonable opinion of KSL makes it inexpedient or
              inadvisable or inappropriate for Newco or KSL to proceed with the
              Provisional Allotment; or

         (cc) any change in the circumstances of Newco or any members of the Group
              which may adversely affect the prospects of Newco; or

         (dd) the termination of the Compromise Agreements or the Subscription
              Agreement.

         If KSL exercises such right, the obligations under the Underwriting Agreement
         shall cease and the Provisional Allotment will not proceed.

5.   SHARE SUBSCRIPTION

     Pursuant to the Share Subscription, the Investor will subscribe for 2,800 million Newco
     Shares and KSL will, on an underwritten basis, procure subscribers for another 1,000
     million Newco Shares at the subscription price of HK$0.01 for each Subscription
     Share. The subscription price for each Subscription Share has been arrived at after
     extensive negotiations between the relevant parties considering, inter alia, the financial
     position of Honko, various fund raising arrangements, and the creditors' preferences.

     The subscription price for each Subscription Share represents: (i) a discount of about
     93.9 per cent. to the closing price of HK$0.163 per Existing Share as quoted on the
     Stock Exchange on 16 January, 2001; (ii) a discount of about 50 per cent. to the
     Allotment Price of HK$0.02 per Provisional Share; (iii) a discount of about 50 per cent.
     to the subscription price of HK$0.02 per Newco Share to be issued to Mr. Lam and Mr.
     Tam referred to in section 11(b)(i) below; and (iv) a discount of 58.3 per cent. to the
     issue price of HK$0.024 per Newco Share to the Management Creditors.

     It is expected that Newco would raise proceeds of about HK$38 million under the Share
     Subscription. The Newco Shares to be issued under the Share Subscription will not be
     entitled to the Provisional Allotment.


                                              10
6.   CONVERTIBLE NOTES SUBSCRIPTION

     In addition to the Share Subscription, Newco will issue Convertible Notes with face
     value up to HK$25 million at completion of the Subscription Agreement. Pursuant to
     the Subscription Agreement, KSL will procure subscribers for Convertible Notes of
     HK$20 million, on a fully underwritten basis, and of up to an additional HK$5 million,
     on a reasonable endeavours basis.

     The salient features of the Convertible Notes are as follows:

     Principal amount          :       up to HK$25 million

     Issue price               :       at face value

     Term                      :       3 years from the date of issue

     Interest                  :       payable quarterly in arrears at the best lending rate as
                                       quoted by The Hongkong and Shanghai Banking
                                       Corporation Limited

     Conversion Price          :       HK$0.01 per Newco Share, subject to adjustment

     Conversion Period         :       at any time after issue and up to the maturity date

     Conversion                :       conversion may be made in respect of the whole or
                                       part of the principal amount of the Convertible Notes
                                       and shall be made in amounts of not less than a whole
                                       multiple of HK$500,000 on each conversion.

                                       Newco will apply to the Stock Exchange for the
                                       listing of and permission to deal in the new Newco
                                       Shares to be issued upon conversion. These new
                                       Newco Shares will rank pari passu with the Newco
                                       Shares in issue upon conversion.

     Transferability           :       Transferable (subject to Listing Rules and applicable
                                       laws and regulations)

     The conversion price has been arrived at after extensive negotiations between the
     relevant parties considering, inter alia, the financial position of Honko, various fund

                                              11
     raising arrangements, and the creditors' preferences. The conversion price represents: (i)
     a discount of about 93.9 per cent. to the closing price of HK$0.163 per Existing Share
     as quoted on the Stock Exchange on 16 January, 2001; (ii) a discount of about 50 per
     cent. to the Allotment Price of HK$0.02 per Provisional Share; (iii) a discount of about
     50 per cent. to the subscription price of HK$0.02 per Newco Share to be issued to Mr.
     Lam and Mr. Tam referred to in section 11(b)(i) below; and (iv) a discount of 58.3 per
     cent. to the issue price of HK$0.024 per Newco Share to be issued to the Management
     Creditors.

     As part of the Restructuring Proposal, the Convertible Notes will be issued, subject to
     the approval by the Independent Shareholders. KSL will be procuring subscribers for
     the Convertible Notes to the extent referred to above. If the Convertible Notes are
     subscribed by any connected persons, the subscription by such connected parties will
     become connected transactions and will be subject to compliance with the requirements
     of the Listing Rules. Newco has undertaken to promptly notify the Stock Exchange
     once it becomes aware of any dealings in the Convertible Notes by connected persons.

7.   CONDITIONS PRECEDENT

     The Restructuring Proposal is subject to, among others, the following conditions:

     a)   the approval of the Scheme by a majority in number representing three-fourth in
          value of the holders of the Existing Shares present and voting in person or by
          proxy at a court meeting to consider the Scheme, the sanction by the Bermuda
          Court of the Scheme and the delivery of a copy of the order sanctioning the
          Scheme to the Registrar of Companies in Bermuda for registration;

     b)   Independent Shareholders (those Shareholders permitted by the regulatory
          authorities to vote) having approved, inter alia, the Group Reorganisation
          including the Share Exchange, the withdrawal of listing of the Honko Shares and
          the simultaneous listing of the Newco Shares by way of an introduction on the
          Stock Exchange, and the necessary resolutions to approve the Restructuring
          Proposal, at a duly convened SGM;

     c)   the approval by the Bermuda Monetary Authority as to the Scheme, including the
          capital reduction of Honko, the Share Exchange, the issue of Newco Shares for the
          Share Exchange, the issue of the Subscription Shares, the issue of the Provisional
          Shares (nil-paid and fully-paid) and the Convertible Notes;




                                              12
     d)   the completion of the Scheme, including the Share Exchange and the issue by
          Newco of the Newco Shares for the Share Exchange, the issue of the Subscription
          Shares, the issue of the Provisional Shares (nil-paid and fully-paid) and the
          Convertible Notes;

     e)   the execution and completion of the Compromise Agreements and the issue of
          Newco Shares pursuant thereto;

     f)   the Listing Committee of the Stock Exchange granting approval for the withdrawal
          of listing of the Honko Shares and the simultaneous listing of the Newco Shares by
          way of introduction on the Stock Exchange;

     g)   the Executive granting to the Investor the Whitewash Waiver to the effect that,
          subject to approval by Independent Shareholders by way of a poll, neither the
          Investor nor any parties acting in concert with it will be obliged to make a general
          offer under the Takeover Code for the Newco Shares (other than those held or
          acquired by the Investor and parties acting in concert with it which the Investor has
          confirmed to be nil under the section headed "The Investor") as a result of the
          Restructuring Proposal, the Creeper Authorization from Independent Shareholders
          (by way of a poll) to allow the Investor and parties acting in concert with it to
          acquire Newco Shares in accordance with Rule 26 of the Takeover Code and the
          consent of the SFC in respect of the Service Contracts in accordance with Rule 25
          of the Takeover Code (if applicable); and

     h)   the consent or approval of all other relevant government or regulatory authorities
          in relation to the Scheme.

     If the conditions are not fulfilled by the Long Stop Date or such later date as may be
     agreed between Honko, the Investor and the relevant parties, the Compromise
     Agreements will lapse and the parties will be released from all their respective
     obligations thereunder, except for antecedent breaches thereof.

     The Executive is of the view that the Scheme constitutes a share exchange offer and
     therefore the Whitewash Waiver will not be applicable and accordingly, the Investor
     will not seek the Whitewash Waiver and the Creeper Authorization referred to in (g)
     above. The Executive is also of the view that such Service Contracts referred to in (g)
     above do not contain terms better than those contained in the existing contracts and
     therefore do not fall under Rule 25 of the Takeover Code.

8.   USE OF PROCEEDS

                                              13
     Immediately following completion of the Restructuring Proposal, assuming that the
     Convertible Notes Subscription amounts to HK$25 million, a total of about HK$91.6
     million will be raised for Newco and the details are as follows:

     (i) Provisional Allotment                                  HK$28.6 million
     (ii) Share Subscription                                    HK$38.0 million
     (iii) Convertible Notes Subscription up to                 HK$25.0 million*

          Total                                                 HK$91.6 million**

     *   amount to be confirmed upon completion of the Subscription Agreement

     ** before taking account of the proceeds that may be raised upon exercise of the
        Share Purchase Option in full

     Out of the proceeds of about HK$91.6 million to be raised under the Group
     Reorganisation, Newco will transfer about HK$32.1 million to the Group to repay
     certain indebtedness of the Group, including about HK$1.7 million to the secured
     finance lease creditors, about HK$1.7 million to CCT and about HK$28.7 million to the
     unsecured Creditor Banks. The balance of about HK$59.5 million, after deduction of
     expenses for the Group Reorganisation, will be utilised as working capital for the New
     Group.

     Immediately after the repayment to the Bank Creditors and the Financial Creditors
     pursuant to the Restructuring Proposal, the Group will owe to the secured finance lease
     creditors an aggregate of outstanding instalment payments in the total sum of about
     HK$13.6 million, which will be settled by instalments in accordance with substantially
     the existing terms of the finance leases, incorporating certain amendments in order to
     reflect the terms of the Compromise Agreements. Details of which are set out in section
     10(b)(ii) and section 11(a)(ii) below.

     Upon exercise of the Share Purchase Option in full, details of which have been set out
     in section 10 headed "Settlement Under the Bank Creditors Compromise Agreement"
     below, Newco may raise an additional sum of up to HK$4.3 million and the same will
     be used as additional working capital.

9.   INDEBTEDNESS POSITION OF THE GROUP




                                             14
  The Group's existing debts to be settled under the Restructuring Proposal amount to
  about HK$230.5 million as at 30 November, 1999 and the details are as follows:

  a) unsecured bank debts owing to various banks amounting to about HK$110 million;

  b)   loan and account payables to ITT amounting to about HK$4.6 million;

  c)   secured finance leases of about HK$26 million;

  d)   secured loans from CCT of HK$17 million;

  e)   unsecured loans from Mr. Lam and Mr. Tam amounting to HK$56 million;

  f)   accrued salary payment amounting to HK$10 million due to the Management
       Creditors; and

  g)   an amount due to a company controlled by a Director arising from foreclosure of a
       property owned and charged by that company as security for banking facilities
       granted to the Group amounting to HK$6.9 million.

  It is expected that following completion of the Restructuring Proposal, the financial
  position of the New Group with Newco as the holding company will change from the
  existing net liabilities position of about HK$227.7 million as at 31 March, 2000 to one
  with a pro-forma net asset value of about HK$21 million, before taking account of the
  proceeds from the Convertible Notes Subscription. The creditors mentioned in this
  section do not include the recipients of the accounts payable incurred by the Group in
  its ordinary course of business.

10. SETTLEMENT        UNDER       THE      BANK      CREDITORS         COMPROMISE
    AGREEMENT

  a) Settlement of Creditor Banks

       The outstanding loan principals and accrued interests due to the Creditor Banks
       (excluding Sanwa Finance and ITT) were estimated to be about HK$110 million as
       at 30 November, 1999. Taking account of the amounts due to Sanwa Finance and
       ITT of about HK$9.0 million and HK$4.6 million respectively, in aggregate, the
       Group will settle the debts due to the Creditor Banks of up to the sum of about
       HK$123.6 million, which shall be settled as follows:


                                          15
    i)    write-off of such accrued and unpaid interest on the loans due to the Creditor
          Banks, so that the aggregate outstanding sum due to them shall not be more
          than the Agreed Sum, being about HK$123.6 million;

    ii)   23.2 per cent. of the Agreed Sum (being about HK$28.7 million, the
          Settlement Amount) shall be repayable immediately in cash upon completion
          of the Bank Creditors Compromise Agreement; and

    iii) 76.8 per cent. of the Agreed Sum (being about HK$94.9 million) shall be
         waived by the relevant Creditor Banks.

    Upon completion of the debt settlement, the Creditor Banks shall release all
    security documents, discharge all personal guarantees, and enter into new finance
    leases, where applicable, for the debts as agreed by the Group and the relevant
    creditors.

    Under the Bank Creditors Compromise Agreement, a Share Purchase Option is
    offered to the Creditor Banks. The value of Newco Shares which the Creditor
    Banks are entitled to elect, at their own discretion, to subscribe for at HK$0.015
    each under the Share Purchase Option, shall be subject to a maximum of HK$4.3
    million, representing 15 per cent. of the value of the subscribing party's portion in
    the Settlement Amount. The Creditor Banks will be allowed to submit excess
    subscriptions, which will be met from any unsubscribed Bank Shares for which
    they had not or only partially exercised their Share Purchase Option. The total
    number of unsubscribed Bank Shares will be allocated to the parties submitting
    excess applications on a basis to be agreed amongst them. For the avoidance of
    doubt, the subscribing parties will receive their respective Settlement Amount after
    deducting the aggregate subscription price for the Newco Shares to be issued to the
    Creditor Banks under the Share Purchase Option. Assuming full exercise of the
    Share Purchase Option, about HK$4.3 million will be deducted off from the total
    Settlement Amount and the total number of Bank Shares to be issued will represent
    about 3.88 per cent. of the enlarged issued share capital of the Newco.

b) Settlement of secured finance leases

    The existing outstanding sums due to secured finance lease creditors (excluding
    Sanwa Finance), including principal and accrued interests, of about HK$17 million
    shall be settled in the following manner:




                                         16
      i)    10 per cent. of the agreed debts (being about HK$1.7 million) shall be
            repayable in cash upon completion of the Bank Creditors Compromise
            Agreement from the proceeds of the Provisional Allotment;

      ii)   40 per cent. of the agreed debts (being about HK$6.8 million) shall be
            refinanced; and

      iii) 50 per cent. of the agreed debts (being about HK$8.5 million) shall be waived
           by the relevant finance lease creditors, subject to the issue of additional
           Settlement Shares referred to in section 12 below.

11. SETTLEMENT UNDER THE MINORITY CREDITORS COMPROMISE
    AGREEMENT

  a) Settlement of the CCT loans

      Under the Minority Creditors Compromise Agreement, the loans from CCT of
      about HK$17 million shall be settled in the following manner:

      i)    10 per cent. of the agreed debts (being HK$1.7 million) shall be repayable in
            cash upon completion of the Minority Creditors Compromise Agreement;

      ii)   40 per cent. of the agreed debts (being HK$6.8 million) shall be refinanced
            substantially on the existing terms against the existing security; and

      iii) 50 per cent. of the agreed debts (being HK$8.5 million) shall be waived
           subject to the issue of additional Settlement Shares referred to in section 12
           below.

  b) Settlement of Directors' loans

      Under the Minority Creditors Compromise Agreement, Mr. Lam and Mr. Tam shall
      not be entitled to receive any cash for settlement. Instead, part of the outstanding
      amount shall be capitalised into Newco Shares and the balance will be waived.
      Accordingly, the outstanding loans of about HK$45.4 million and about HK$10.6
      million due to Mr. Lam and Mr. Tam respectively shall be settled in the following
      manner:

      i)    25 per cent. of the agreed sum (being HK$14.0 million) shall be capitalised
            into 700 million Newco Shares, representing about 9.5 per cent. of the issued

                                          17
        share capital of Newco, at a subscription price of HK$0.02 each, which is
        equal to the issue price of the Provisional Shares; and

   ii) 75 per cent. of the agreed debts (being HK$42 million) shall be waived subject
        to the additional Settlement Shares to be issued referred to in section 12
        below.

   Mr. Lam will receive about 635.8 million Newco Shares as a result of the
   capitalisation of 25 per cent. of his loan into Newco Shares and the waiver of 75
   per cent. of the loan subject to the issue of the Settlement Shares. He will be
   required to transfer 238 million Settlement Shares, representing about 3.2 per cent.
   of the enlarged issued share capital of Newco, to the Investor at an agreed price of
   HK$0.01 each. The agreed price has been arrived at after arm's length negotiations
   amongst the Investor, Honko and Mr. Lam.

   Other than the said 238 million Settlement Shares to be transferred to the Investor,
   the Newco Shares to be issued for settlement of Mr. Lam and Mr. Tam's loans in
   sub-sections (i) and (ii) above shall be subject to a lock-up period and they shall not
   dispose of more than 50 per cent. of such Settlement Shares before the first
   anniversary of the completion date of the Restructuring Proposal, unless otherwise
   approved by the board of directors of the Newco from time to time.

c) Settlement of outstanding salary

   Upon completion of the Minority Creditors Compromise Agreement, the
   outstanding salary of HK$10 million will be paid to the Management Creditors.
   Pursuant to the Minority Creditors Compromise Agreement, Newco has undertaken
   to make available and the Management Creditors have undertaken to subscribe for
   an aggregate of about 416.6 million Newco Shares, representing about 5.6 per cent.
   of the enlarged issued share capital of Newco, at a subscription price of HK$0.024
   each. The subscription price has been arrived at after arm's length negotiation
   amongst the Investor, Honko and the Management Creditors after taking account of
   the relevant creditors' preferences.

d) Settlement of an amount arising from the foreclosure of a property

   An amount of HK$6.9 million due to Regentact Consultants Limited, a company
   controlled by Mrs. Lam, which resulted from the foreclosure of a property owned
   and mortgaged by Regentact Consultants Limited to obtain the Group's bank
   borrowing, will be settled by the issue of 287.5 million Newco Shares, representing

                                        18
      about 3.9 per cent. of the enlarged issued share capital of Newco, at an issue price
      of HK$0.024 each to Regentact Consultants Limited. The issue price has been
      arrived at after arm's length negotiations amongst the Investor, Honko and the said
      creditor after taking account of the relevant creditor's preferences.

  The settlement arrangements set out in sub-sections (b), (c) and (d) above constitute
  connected transactions for Honko under the Listing Rules. Accordingly, the Minority
  Creditors Compromise Agreement containing these settlement arrangements would be
  subject to approval by the Independent Shareholders at the SGM.

12. ADDITIONAL SETTLEMENT SHARES TO BE ISSUED TO FINANCIAL
    CREDITORS FOR THE DEBTS TO BE WAIVED AND THE CASH
    ALTERNATIVE PROVIDED BY KSL

  In order to facilitate some of the Financial Creditors to participate in the future
  development of the New Group, Newco will issue two Settlement Shares to the
  Financial Creditors for every dollar of debts waived. In aggregate, the Financial
  Creditors will, under the Restructuring Proposal, waive about HK$59.0 million (that is,
  about HK$8.5 million from finance lease creditors other than Sanwa Finance, about
  HK$8.5 million from CCT and about HK$42 million from Mr. Lam and Mr. Tam who
  have made loans available to the Group). Accordingly, the Financial Creditors will in
  aggregate receive 118,021,465 Newco Shares representing about 1.6 per cent. of the
  issued shares of Newco upon completion of the Restructuring Proposal.

  Honko has arranged for KSL to acquire part or all of the Settlement Shares (up to a
  maximum of about 34 million Newco Shares out of the said 118 million Newco Shares)
  from the Financial Creditors (other than from Mr. Lam and Mr. Tam) who may not be
  interested in holding such shares, at a price of HK$0.02 each provided that notification
  is given to KSL in this regard before signing of the Compromise Agreements. KSL has
  been notified and has agreed to acquire 5,872,129 Newco Shares from two out of four
  finance lease creditors. At present, KSL has not decided how to deal with these Newco
  Shares.

  Other than the Settlement Shares held by Mr. Lam and Mr. Tam in relation to the
  settlement of Directors' loans described in sub-section 11(b) above, the Settlement
  Shares retained by the Financial Creditors will not be subject to any lock-up period.

13. REASONS FOR THE RESTRUCTURING PROPOSAL




                                          19
The Group is principally engaged in the manufacture, sourcing and distribution of
electronic parts and investment holding and currently has about 1,200 employees in
Hong Kong and the PRC.

In an announcement made on 27 August, 1998, Honko advised its Shareholders that the
Group was experiencing a very tough operating environment at that time because of the
ongoing impact of the Asian financial crisis and the prevailing unfavourable market
conditions. As at the date of this announcement, all the Group's bank facilities have
either been frozen, capped or rolled over through the goodwill of its banks. During the
year ended 31 March, 2000, certain fixed assets, an investment property owned by a
member of the Group and a property owned by a company controlled by Mrs. Lam and
which had been pledged to banks for a total sum of about HK$13.1 million, were
disposed of to settle part of the Group's indebtedness. Details are set out in sub-section
11(d) headed "Settlement of an amount arising from the foreclosure of a property".
Such disposals did not have any material adverse impact on the operations of the
Group. Other than these actions, none of the banks has taken any legal action to enforce
its security position against the Group.

However, 13 legal actions against the Group have been served by certain of the
financial creditors of the Group in respect of finance leases during the year ended 31
March, 2000, with an aggregate amount of about HK$21 million. Of the 11 out of these
13 actions, a number of these financial creditors have obtained judgements from courts
against the Group. However, as at the date of this announcement, none of these
financial creditors has taken any steps to repossess the leased production assets. The
remaining 2 legal actions have been held up by the respective plaintiffs and no
judgement has yet been entered against the Group. Should these financial creditors
proceed with further actions and enforce their security and take possession of the
Group's leased production assets held under the respective finance lease
agreements, the Group may not be able to continue its current operations as
carried out in the normal course of business.

After extensive negotiations, Honko has entered into the Compromise Agreements to
implement the Restructuring Proposal. The Subscription Price, the issue price of the
Settlement Shares, the Allotment Price and the conversion price for the Convertible
Notes have been determined based on commercial negotiations among the Investor,
Honko , the Creditor Banks, the Financial Creditors and Other Creditors. The
Restructuring Proposal is considered by the Directors as the most appropriate plan in
resolving the liquidity problem of the Group. The Directors believe that in the absence
of the Restructuring Proposal, the Group will remain in financial difficulties. The
Directors further believe that in the absence of the Restructuring Proposal, the finance

                                         20
  lease creditors or other creditors may eventually opt for enforcing their security and/or
  take possession of the Group's productive assets in accordance with the terms of the
  respective finance leases. In such case, the Directors believe that the Group may not be
  able to continue its operations in the normal course of business.

14. APPOINTMENT OF DIRECTORS TO THE BOARD OF NEWCO

  There will be a total of 5 executive directors comprising the board of Newco upon
  completion of the Restructuring Proposal. Dr. Li, Mr. Wong, and Mr. Chan are the
  present directors of Newco, and Mr. Lam and Mr. Mok Shau Chuen will be appointed
  to the board of Newco upon completion of the Restructuring Proposal. Details of the
  terms of appointments are set out in section 18 below. The Investor will also nominate
  2 independent non-executive directors to the board of Newco in accordance with the
  requirements of the Listing Rules.

  Each of Mr. Lam and Mr. Mok Shau Chuen will enter into a Service Contract with the
  members of the New Group and the details are set out in section 18 below.

15. EFFECTS OF THE RESTRUCTURING PROPOSAL ON THE FINANCIAL
    POSITION OF THE NEW GROUP

  Upon completion of the Restructuring Proposal and assuming no Share Purchase
  Options are exercised, the indebtedness of the Group of about HK$230.5 million will be
  settled according to the terms of the Compromise Agreements and the New Group with
  Newco as the holding company will have a net asset value of about HK$21 million,
  before taking account of the proceeds from the Convertible Notes Subscription and the
  exercise of the Share Purchase Option.

  The effect on the pro-forma net asset value of the Group/New Group upon completion
  of the Restructuring Proposal is estimated as follows:

                                                                      HK$M         HK$M

  Audited net liabilities of the Group at 31 March, 2000                           (227.7 )
  Unaudited loss for the six-month period ended 30 September, 2000                  (15.0 )
  Effects of the Restructuring Proposal:
    Share Subscription by Investor and subscribers procured by KSL      38.0
    Provisional Allotment                                               28.6
    Written off or capitalisation of indebtedness                      207.1
    Estimated professional fees                                        (10.0 )      263.7

                                             21
  Pro-forma net asset value upon completion of the Restructuring Proposal                         21.0



  Further financial information on the Group/New Group will be contained in the Scheme
  Circular.

  Following completion of the Restructuring Proposal, the respective boards of directors
  of Honko and Newco believe that the New Group will have sufficient working capital
  for its requirements for the 12 months thereafter. The auditors of Honko will review the
  New Group's cash flow projections and the statement regarding sufficiency of working
  capital will be included in the Scheme Circular.

16. EFFECTS OF    THE  RESTRUCTURING    PROPOSAL                                         ON       THE
    SHAREHOLDING STRUCTURE OF HONKO AND NEWCO

  The detailed shareholding structure of Honko and Newco immediately before and after
  the Restructuring Proposal and after full conversion of the Convertible Notes is set out
  below.

                                                       Shareholding of        Shareholding of
                                        Existing         Newco upon            Newco Shares
                                     shareholding of completion of the after full conversion
                                         Honko      Restructuring Proposalof the Convertible Notes Notes
                                    number (million) number (million)        number (million)

  Mr. Lam
  (a) corporate and
         personal interests          174.1    48.63%     174.1   2.35%        174.1   1.76%       (4)

  (b) Capitalisation of
        Director's loans
        (section 11(b)(i))                -    0.00%     329.7   4.45%        329.7   3.33%       (6)

  (c) Settlement of
        Director's loans
        (sections 11(b)(ii) & 12)         -    0.00%      68.1   0.92%         68.1   0.69%

  Mrs. Lam
  (a) an amount arising from

                                                  22
       foreclosure payable to
       a company controlled
       by Mrs. Lam
       (section 11(d))                -   0.00%    287.5   3.89%    287.5   2.91%

(b) Outstanding salary
    (section 11(c))                   -   0.00%    125.0   1.69%    125.0   1.26%       (5)

Ms. Lam Ching Wah
 Outstanding salary
 (section 11(c))                      -   0.00%    104.2   1.41%    104.2   1.05%       (7)

Mr. Lam Hung Kit
 Outstanding salary
 (section 11(c))                      -   0.00%     83.2   1.13%     83.2   0.84%       (7)

Mr. Ho Chi Fai
 Outstanding salary
 (section 11(c))                      -   0.00%    104.2   1.41%    104.2   1.05%       (1)

Mr. Tam
(a) Capitalisation of
       Director's loans
       (section 11(b)(i))             -   0.00%    132.3   1.79%    132.3   1.34%       (1)

(b) Settlement of
      Director's loans
      (sections 11(b)(ii) & 12)       -   0.00%     15.9   0.21%     15.9   0.16%       (1)

Other public shareholders         183.9   51.36%   183.9   2.49%    183.9   1.86%       (1)

Investor                              -   0.00% 3,721.4 50.29%     4,921.4 49.72%       (2)

Debts owing to certain finance
  lease creditors and CCT
  (section 12)                        -   0.00%     28.1   0.38%     28.1   0.28% (1) & (5)

Debts owing to various banks,
  Sanwa Finance and ITT
  (section 10)                        -   0.00%    286.8   3.88%    286.8   2.90% (1),(5)&(8)

                                             23
    KSL
    (a) Acquisition of Newco
          Shares from certain
          finance lease creditors      -     0.0%     5.9   0.08%      5.9   0.06%     (3)

    (b) Underwriting of
          Provisional Allotment        -     0.0%   748.6 10.11%     748.6   7.56% (1)&(9)

    (c) Subscribers to be
          procured by KSL
          under the Share
          Subscription and the
          Convertible Notes
          Subscription                 -     0.0% 1,000.0 13.52%    2,300.0 23.23% (1)&(2)

                                    358.0 100.00% 7,398.9 100.00%   9,898.9 100.00%

Notes:

(1) The total Newco Shares in the public hand immediately following completion of the
    Restructuring Proposal amounts to about 33.79 per cent..

(2) This table is prepared on the assumption that Convertible Notes with face value up to
    HK$25 million will be issued and the Investor will subscribe for Convertible Notes up
    to HK$12 million and the same have been converted in full and KSL has procured
    subscribers for Convertible Notes up to HK$13 million and the same have been
    converted in full. However, the Investor is considering whether it will subscribe or
    procure subscribers for Convertible Notes up to HK$12 million.

(3) In accordance with the terms of the Compromise Agreements, KSL has agreed to
    acquire 5,872,129 Settlement Shares from the finance lease creditors.

(4) Mr. Lam's interests in 3,200,000 Existing Shares are included. These Existing Shares
    represent about 0.9 per cent. of the existing issued share capital of Honko, which have
    been deposited with a defunct securities company. As such shares are not registered in
    the name of Mr. Lam and have not been returned to Mr. Lam, no Provisional Shares
    will be issued to Mr. Lam in respect of the said 3,200,000 Existing Shares.




                                               24
(5) These creditors are parties independent of Honko and do not have any shareholding in
    Honko.

(6) These are the balances of Newco Shares held by Mr. Lam after 238 million Newco
    Shares have been transferred to the Investor.

(7) Ms. Lam Ching Wah and Mr. Lam Hung Kit are a sister and a brother of Mrs. Lam
    respectively.

(8) Assuming the Creditor Banks exercise the Share Purchase Option in full.

(9) Assuming KSL has to take up all the Provisional Shares underwritten by it.

    Immediately upon completion of the Restructuring Proposal, the Investor will hold
    about 50.29 per cent. of the Newco's issued share capital. If all holders of the
    Convertible Notes convert their respective holdings of the Convertible Notes in full, the
    Investor's shareholding will be decreased slightly to about 49.72 per cent. of the
    enlarged issued share capital of Newco.

17. INFORMATION ON AND RESOURCES OF THE INVESTOR

    The Investor is a company incorporated on 17 May, 2000 in the British Virgin Islands
    which is beneficially owned as to 60 per cent. by Dr. Li, 30 per cent. by Mr. Wong and
    10 per cent. by Mr. Chan. Dr. Li, Mr. Wong and Mr. Chan are also directors of the
    Investor.

    Details of the shareholders of the Investor are set out in section 18 headed
    "Management and Service Contracts" below.

    The Investor and each of its shareholders as set out above are independent third parties
    not connected with, or acting in concert with, the chief executive(s), directors and
    substantial shareholders of Honko or its subsidiaries or their respective associates (as
    defined in the Listing Rules).

    The Investor, its directors and shareholders as set out above and parties acting in
    concert with any of them currently do not own or control or have direction over any
    Existing Shares or convertible securities in Honko. The Investor hereby confirms that
    neither it, nor any of its directors or shareholders or any of their respective concert
    parties has dealt in the Existing Shares or convertible securities in Honko in the
    previous 6 months. Other than the signing of the Compromise Agreements and the

                                             25
  Subscription Agreement and such transactions incidental to or being contemplated
  under the Restructuring Proposal, the Investor has not engaged in any business since
  incorporation and does not have any material assets or liabilities.

  KCL, based on the information, including relevant bank letters, provided by the
  Investor and its shareholders, has confirmed that it is satisfied that the Investor has
  sufficient financial resources for completion of its obligations under the Compromise
  Agreements, the Subscription Agreement and the Restructuring Proposal.

18. MANAGEMENT AND SERVICE CONTRACTS

  Upon completion of the Restructuring Proposal, Mr. Lam, and Mr. Mok Shau Chuen,
  who are existing Directors, will be appointed as directors of Newco. It is the intention
  of the Investor that the board of Newco will comprise a total of 5 executive directors
  and 2 independent non-executive directors upon completion of the Restructuring
  Proposal.

  The particulars of the proposed directors of Newco are as follows:

  Dr. Li, aged 39, will become the Chairman of Newco and will be responsible for the
  overall strategy of the New Group. Dr. Li joined Pam & Frank International Holdings
  Limited, a company listed on the Stock Exchange, as an executive director since June,
  2000. Mr. Li received his PhD. in Mathematics from the University of Michigan at Ann
  Arbor, the USA. He once worked as an instructor in Mathematics at the Massachusetts
  Institute of Technology, the USA where he was consecutively awarded research grants
  from the National Science Foundation. He has extensive working experience in a
  number of major international investment banks, including Bankers Trust, Salomon
  Brothers and IBJ Asia Limited and has extensive experience in capital raising and risk
  management. Since late 1996, he has been in charge of building up capital markets and
  derivative businesses in multi-asset classes in Northern Asia and was a director of a
  private company before setting up a financial and technology investment firm.

  Mr. Wong, aged 33, will become a director of Newco and will be responsible for
  business development. Mr. Wong joined Pam & Frank International Holdings Limited,
  a company listed on the Stock Exchange, in August 2000 as an independent
  non-executive director and became an executive director since November 2000. Mr.
  Wong graduated from Boston University in the USA with a Bachelor of Science Degree
  in Manufacturing Engineering. Mr. Wong was the managing director of Winox
  Holdings Limited, a private company in Hong Kong, which has been engaging in the


                                          26
manufacture, sale and distribution of watch components since the 1970s. Mr. Wong has
10 years of experience in managing business of original equipment manufacturers.

Mr. Chan, aged 39, will also become a director of Newco overseeing legal and
compliance matters. Mr. Chan has been admitted as a practising solicitor since 1991.
He was the group legal manager of Stelux Holdings International Limited, a company
listed on the Stock Exchange, between 1994 and 1997. Between 1997 and 1999, he was
an executive director of Great Wall Electronic International Limited, a company listed
on the Stock Exchange, which engaged in the electronics business. He was responsible
for the group's operations, personnel, and general administration. He is a director of
Lingnan Education Organization Limited and a school manager of Lingnan Dr. Chung
Wing Kwong Memorial Secondary School. He is currently a consultant with a law firm,
J. Chan, Yip, So & Partners.

The particulars of Mr. Lam, and Mr. Mok Shau Chuen have been set out in the annual
report of Honko for the year ended 31 March, 2000.

Other than Mr. Lam, and Mrs. Lam, all the Directors will resign as directors of Honko
upon completion of the Restructuring Proposal. Mr. Ho Chi Fai, and Ms. Lam Ching
Wah, who are Directors, and Mr. Lam Hung Kit and Mr. Lau Chi Fai, who are
members of the senior management of the Group, will become members of the senior
management of the New Group. The particulars of these members have been set out in
the annual report of Honko for the year ended 31 March, 2000.

Each of Mr. Lam, Mr. Mok Shau Chuen, Mrs. Lam, Ms. Lam Ching Wah, Mr. Ho Chi
Fai, Mr. Lau Chi Fai and Mr. Lam Hung Kit will enter into a service contract with
various members of the New Group in order to formalise the existing arrangements of
the employment of the management team. The terms of the relevant Service Contracts
have been agreed by Newco, Honko, the individual management staff with the consent
of the Investor. The Service Contracts may constitute special deals under Rule 25 of the
Takeover Code. If this is the case, the Service Contracts will require the Executive's
consent and a vote of the Independent Shareholders who are not involved or interested
in the transactions in question and according to the requirements of the Takeover Code.
The Executive is of the view that such Service Contracts referred to above do not
contain terms better than those contained in the existing contracts and therefore do not
fall under Rule 25 of the Takeover Code.

In addition to the above-mentioned executives, other members of the management team
of Honko will be retained to work for the New Group.


                                        27
19 INFORMATION ON THE GROUP AND THE INVESTOR'S FUTURE
   INTENTION REGARDING THE NEW GROUP

  It is stated in Honko's interim report for the six months ended 30 September, 2000 that
  despite the financial difficulties experienced by the Group, the Group recorded a
  turnover of approximately HK$117.1 million for the period which was mainly derived
  from its manufacturing operations. The Group had fixed assets consisting mainly of
  plant and machinery having an unaudited book value of about HK$8.4 million and
  investment properties of HK$1.5 million. Since the investment properties have been
  foreclosed, the remaining fixed assets mainly consist of plant and machinery.

  The Directors have reviewed, inter alia, the unaudited consolidated management
  accounts of the Group up to 31 December, 2000, the existing level of operations of the
  Group and the prevailing conditions of the market in which the Group operates. Based
  on the above review, the Directors confirm that there has not been any material adverse
  change to the financial or trading position of the Group. The Directors are pleased that
  the financial creditors of the Group have entered into the conditional Compromise
  Agreements which represent a significant development in the Directors' effort to resolve
  the financial difficulties of and improve the financial position of the Group.

  Following completion of the Restructuring Proposal, the New Group will continue to
  carry on its existing business of investment holding, manufacturing, sourcing and
  distribution of electronic parts.

  In the circumstances, the Directors and/or the Investor, as the case may be, are satisfied
  that the Group is maintaining and the New Group will maintain a sufficient level of
  operations to warrant the continued listing of the Existing Shares and/or the Newco
  Shares, as the case may be, on the Stock Exchange pursuant to paragraph 38 of the
  listing agreement. Provided that, inter alia, the financial creditors of the Group do not
  take any steps to that effect before completion of the Restructuring Proposal, the
  Directors are of the view that the Group will still maintain a sufficient level of
  operations immediately upon completion of the Restructuring Proposal.

  The Investor is an investment holding company incorporated for the acquisition of a
  controlling stake in Honko and/or Newco. The Investor intends that following the
  completion of the Restructuring Proposal, the New Group will continue to engage in its
  existing business principally of manufacturing, sourcing and distribution of electronic
  parts and investment holding. The Investor intends to retain the services of the existing
  management to continue to manage the core businesses of Newco.


                                           28
   Since the Group has incurred substantial losses of about HK$66.4 million and HK$49.9
   million for the two years ended 31 March, 2000, the Investor considers that its priority
   is to review the financial position, business operations and assets portfolio of the New
   Group with a view to restoring the profitability of the New Group's businesses. The
   Investor will tighten the New Group's financial and internal control. The Investor does
   not expect any material change of employees of the New Group by reason only of the
   Restructuring Proposal.

   The Investor will explore suitable business opportunities which are complementary to
   the Group's existing business, including expansion of customer base or participation in
   new investments, although no such investment or business has been identified at this
   stage. Any future investments or business that might be conducted by the New Group
   will be subject to regulatory and shareholders' approval, if required by the applicable
   laws and regulations, and will be in full compliance with the relevant Listing Rules.

   The Investor has undertaken that it will not inject its assets into the New Group within
   12 months from completion of the Restructuring Proposal. The Investor will review the
   financial position, business operations and assets portfolio of the Group before it can
   conclude which business(es) is/are viable at that time and most suitable to Honko.

   As part of the Restructuring Proposal, the Investor intends that the listing of Honko
   Shares will be withdrawn and that Newco Shares will be listed on the Stock Exchange
   by way of an introduction.

20. APPLICATION FOR LISTING

   An application will be made to the Stock Exchange for the withdrawal of the listing of
   the Honko Shares. An application will be made by Newco to the Stock Exchange for
   the listing of, and permission to deal in, the Newco Shares by way of an introduction.

   The Stock Exchange has indicated that Newco is required to satisfy all the requirements
   for listing under Chapter 8 of the Listing Rules. If Newco wishes to apply for waivers
   from strict compliance with certain provisions of the Listing Rules, the Stock
   Exchange's approvals will be required and the grant of such waivers will be
   subject to the Stock Exchange's discretion. The respective boards of directors of
   the Investor and Honko agree to set a board lot size for the Newco Shares such
   that the theoretical board lot value of one board lot immediately upon listing
   should not be less than HK$2,000. Both Newco and its controlling shareholder
   have undertaken to either change the trading method or proceed with a
   consolidation of Newco Shares as soon as practicable, in accordance with the

                                           29
  requirements of paragraph 30 of the Listing Agreement, if their trading price
  approaches HK$0.01 after listing.

21. GENERAL

  As part of the Restructuring Proposal, Honko will apply to the Stock Exchange for
  the withdrawal of the listing of the Honko Shares. An application will be made by
  Newco to the Stock Exchange for the listing of, and permission to deal in, the
  Newco Shares by way of an introduction. Each of Newco, its controlling
  shareholder, its board of directors and the board of directors of the Investor have
  undertaken to the Stock Exchange to take appropriate actions to ensure that
  sufficient public float exists for Newco Shares in accordance with the requirements
  of Rule 8.08 of the Listing Rules.

  The Stock Exchange has stated that it will closely monitor trading in the Newco
  Shares to ensure no less than 25 per cent. of the Newco Shares are held by the
  public. The Stock Exchange will also closely monitor all future acquisitions or
  disposals of assets by the New Group. The Stock Exchange has the discretion to
  require Newco to issue a circular to the shareholders of Newco irrespective of the
  size of the proposed transaction, particularly when such proposed transaction
  represents a departure from the principal activities of the New Group. The Stock
  Exchange also has the power to aggregate a series of transactions and any such
  transactions may result in Newco being treated as if it were a new listing applicant.
  If the Stock Exchange believes that: -

  (i) a false market exists or may exist in the Newco Shares; or

  (ii) there are too few Newco Shares in public hands to maintain an orderly
        market;

  it will consider exercising its discretion to suspend trading in the Newco Shares.

  The Compromise Agreements and the Subscription Agreement are conditional
  agreements. Shareholders and potential investors should be aware that the
  Restructuring Proposal may or may not proceed or be completed and are
  therefore advised to exercise extreme caution when dealing in the Existing Shares.

  The Scheme Circular containing amongst other things, the details on the Restructuring
  Proposal, the Subscription, the Provisional Allotment, the Share Purchase Option, the
  issue of the Settlement Shares, the issue of the Convertible Notes, the financial

                                         30
    information of the Group, the recommendation of the Independent Board Committee,
    the advice of its independent financial adviser and the notice of the SGM to consider
    the necessary resolutions relating to the Restructuring Proposal, will be despatched to
    the Shareholders as soon as practicable.

    The Minority Creditors Compromise Agreement entered into between among other
    parties, Honko and the Directors, and the transactions contemplated thereunder will
    constitute connected transactions for Honko under the Listing Rules and are therefore
    subject to approval by Independent Shareholders.

    KSL, Mr. Lam and parties acting in concert with him, or other parties involved or
    interested in the transactions in question will abstain from voting on the resolutions
    approving the Restructuring Proposal at the SGM.

    KCL is the financial adviser to the Investor and Ernst & Young Corporate Finance
    Limited is the financial adviser to Honko in respect of the Restructuring Proposal.

22. RESUMPTION OF TRADING

    At the request of Honko, trading in the Existing Shares on the Stock Exchange was
    suspended from 10:00 a.m. on 17 January, 2001 pending the issue of this
    announcement. Honko has applied to the Stock Exchange for trading in the Shares to
    resume with effect from 10:00 a.m. on 16 February, 2001.

DEFINITIONS USED

"Agreed Sum"                  means an outstanding sum of not more than HK$123.6
                              million due to the Creditor Banks, after writing off such
                              accrued and unpaid interest of total unsecured indebtedness
                              owed by the Group to the Creditor Banks

"Allotment Price"             means the price at which the Provisional Shares may be
                              taken up, being HK$0.02 per Provisional Share

"associate"                   has the same meaning as defined in the Listing Rules

"Bank Creditors               means the agreement dated 18 January, 2001 entered into
  Compromise Agreement"       between Honko and certain of its subsidiaries, the Investor,
                              Newco, the Creditor Banks and KSL in relation to, inter alia,
                              the

                                            31
                          settlement of debts due to the Creditor Banks

"Bank Shares"             means about 286.8 million Newco Shares which may be
                          subscribed by the Creditor Banks under the Share Purchase
                          Option, subject to a maximum of about HK$4.3 million

"Board"                   means the board of Directors

"CCT"                     means CCT Strategies Holdings Limited, a secured creditor

"Companies Act"           means the Companies Act of Bermuda

"Compromise Agreements"   means the Bank Creditors Compromise Agreement and the
                          Minority Creditors Compromise Agreement

"Convertible Notes"       means the variable rate convertible notes in Newco
                          registered form for up to HK$20 million on a fully
                          underwritten basis and up to an additional HK$5 million on a
                          reasonable endeavours basis, which are convertible into
                          Newco Shares at a subscription price of HK$0.01 each
                          (subject to adjustment)

"Convertible Notes        means subscription of the Convertible Notes
  Subscription"

"Creditor Banks"          means collectively the secured and unsecured creditor banks
                          of the Group, Sanwa Finance and ITT

"Creeper Authorization"   means an authorisation by a vote of the Independent
                          Shareholders pursuant to Note 15 of Rule 26.1      of    the
                          Takeover Code without which authorisation, the Investor and
                          parties acting in concert with it cannot acquire additional
                          voting rights in Newco for the 12-month period immediately
                          following Completion, unless further acquisition is
                          authorised by way of a separate vote of Independent
                          Shareholders

"Director(s)"             means director(s) of Honko

"Dr. Li"                  Dr. Li Zhong Yuan

                                       32
"EAF"                        means the excess application form

"Executive"                  means the executive director of the Corporate Finance
                             Division of the SFC and any delegate(s) of the executive
                             director

"Existing Shares"            means the existing Honko Shares

"Final Acceptance Date"      means the last time for acceptance of the Provisional
                             Allotment and payment of Allotment Price in full

"Financial Creditors"        means collectively the creditors of the secured finance leases
                             (other than Sanwa Finance), CCT, Mr. Lam and Mr. Tam,
                             the Directors who have made loans to the Group

"Group"                      means Honko and its subsidiaries

"Group Reorganisation"       means a reorganisation of the Group by way of the Scheme,
                             the Provisional Allotment, Share     Subscription,
                             Convertible Notes Subscription, and debt settlement
                             arrangements, the withdrawal of listing of Honko and the
                             listing of the Newco Shares on the Stock Exchange by way
                             of introduction

"HK$"                        means Hong Kong dollars, the lawful currency of Hong
                             Kong

"Hong Kong"                  means the Hong Kong Special Administrative Region of the
                             People's Republic of China

"Honko"                      means Honko International Holdings Limited

"Honko Shares"               means shares of HK$0.10 each in the share capital of Honko

"Independent Board           means an independent board committee of the board of
   Committee"                 Directors to be established to advise  the Independent
                             Shareholders

"Independent Shareholders"   means Shareholders other than Mr. Lam and his associates,

                                           33
                         the Investor and any parties acting in concert with any of
                         them or involved in or interested in the transactions in
                         connection with the Restructuring Proposal

"Investor"               means Pacific Annex Capital Limited, a company
                         incorporated in the British Virgin Islands with limited
                         liability, and is controlled by Dr. Li, Mr. Wong and Mr.
                         Chan

"ITT"                    means ITT Intermatell, one of the Creditor Banks

"KCL"                    means Kingsway Capital Limited, a fellow subsidiary of
                         KSL, is a registered investment adviser under the Securities
                         Ordinance (Chapter 333 of the Laws of Hong Kong), the
                         financial adviser to the Investor, and the financial adviser to
                         Honko in relation to the documentation of the Provisional
                         Allotment

"KSL"                    means Kingsway SW Securities Limited, a fellow subsidiary
                         of KCL, is a registered dealer under the Securities Ordinance
                         (Chapter 333 of the Laws of Hong Kong)

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

"Long Stop Date"         means 30 June, 2001 or such later date as may be agreed
                         between the parties to the Compromise Agreements

"Management Creditors"   means Mr. Ho Chi Fai, Ms. Lam Ching Wah and Mrs. Lam
                         (all are Directors) and a member of
                         senior management, Mr. Lam Hung Kit to whom Honko
                         owes outstanding salaries of HK$10 million in aggregate

"Minority Creditors      means the agreement dated 18 January, 2001 entered into
  Compromise             between Honko and certain of its subsidiaries, the Investor,
  Agreement"             Newco, the Other Creditors and KSL in relation to, inter alia,
                         the settlement of debts due to such creditors

"Mr. Chan"               Mr. Chan Chung Yin, Victor


                                       34
"Mr. Lam"                   Mr. Lam Yat Keung, chairman and managing director of
                            Honko

"Mr. Tam"                   Mr. Tam King Ho, a Director who has made loans to the
                            Group

"Mr. Wong"                  Mr. Wong Chong Kwong, Derek

"Mrs. Lam"                  Ms. Lam Pik Wah, the wife of Mr. Lam

"New Group"                 means the Group after completion of the Restructuring
                            Proposal with Newco as the holding company of Honko

"Newco"                     means TechCap Holdings Limited, a company incorporated
                            in Bermuda and proposed to become the holding company of
                            Honko

"Newco Shares"              means shares of HK$0.005 each in the share capital of
                            Newco

"Other Creditors"           means Mr. Lam, Mr. Tam, the Management Creditors, CCT
                            and Regentact Consultants Limited, a company controlled by
                            Mrs. Lam

"Overseas Shareholder(s)"   means holders of Existing Shares whose addresses on the
                            register of members of Honko
                            at the Record Time are outside Hong Kong

"PAL"                       means provisional allotment letter

"Provisional Allotment"     means an underwritten Provisional Allotment on the basis of
                            4 Provisional Shares of Newco for every Existing Share at a
                            subscription price of HK$0.02 per Provisional Share

"Provisional Allotment      means the prospectus relating to the Provisional Allotment,
  Documents"                the PAL and the EAF



"Provisional Shares"        means up to 1,432,018,656 new Newco Shares to be issued
                            under the Provisional Allotment

                                          35
"Qualifying Scheme         means Shareholders on the register of members of Honko at
Shareholder(s)"            the Record Time and which are not Overseas Shareholders



"Record Date"              means 4:00 p.m. (Hong Kong time) on the business day
                           immediately preceding the date (Bermuda time) on which the
                           Scheme becomes effective

"Record Time"              means 4:00 p.m. (Hong Kong time) on the date of the SGM,
                           being the record time for the determination of the
                           entitlements for the Provisional Allotment under the Scheme

"Restructuring Proposal"   means the restructuring proposal in relation to, inter alia, the
                           execution of the Compromise Agreements and the
                           Subscription Agreement

"Sanwa Finance"            means Sanwa Finance (Hong Kong) Limited, one of the
                           Creditor Banks

"Scheme"                   means Honko's proposed scheme of arrangement pursuant to
                           section 99 of the Companies Act under which all of the
                           Existing Shares (except 1,000,000 new Honko Shares to be
                           subscribed at par by Newco as part of the Scheme within ten
                           business days following the SGM or at such other time as
                           Honko and Newco may agree) will be cancelled and the
                           resulting reserve will be applied towards writing off the
                           accumulated losses of Honko, the Scheme Shareholders as
                           appearing in the register of Honko on the Record Date
                           should receive one Newco Share for every Scheme Share
                           held by them on the Record Date

"Scheme Circular"          means the circular containing, among other things, the details
                           of the Restructuring Proposal to be despatched to
                           Shareholders

"Scheme Shares"            means the Existing Shares in issue on the Record Date

"Scheme Shareholders"      means the holders of the Scheme Shares


                                         36
"Service Contracts"        means the contracts to be entered into by Newco and/or
                           Honko and certain individual management staff

"Settlement Amount"        means a maximum of about HK$28.7 million

"Settlement Shares"        means 118,021,465 Newco Shares to be issued to Financial
                           Creditors for the debts due from the Group to be waived

"SFC"                      Securities and Futures Commission

"SGM"                      means the special general meeting of the Shareholders of
                           Honko to be held to consider, inter alia, the implementation
                           of the Scheme and the Restructuring Proposal

"Share Exchange"           means the Scheme Shareholders as appearing in the register
                           of Honko on the Record Date should receive one Newco
                           Share for every Scheme Share held by them on the Record
                           Date

"Shareholder(s)"           means shareholder(s) of Honko

"Share Purchase Option"    means the share purchase option offered to the Creditor
                           Banks pursuant to which each of them is entitled to elect, at
                           its own discretion, to subscribe for Newco Shares in lieu of
                           part of the Settlement Amount at a subscription price of
                           HK$0.015 per Newco Share, subject to a maximum of 15 per
                           cent. of the subscribing party's attributable Settlement
                           Amount, and such option must be exercised on or before
                           completion of and in accordance to the Bank Creditors
                           Compromise Agreement

"Share Subscription"       means a subscription of 2,800 million Newco Shares by the
                           Investor and another 1,000 million Newco Shares by
                           subscribers to be procured by KSL on an underwritten basis,
                           at the subscription price of HK$0.01 each

"Stock Exchange"           The Stock Exchange of Hong Kong Limited

"Subscription Agreement"   means the agreement dated 18 January, 2001 entered into
                           between Honko, Mr. Lam,

                                        37
                               Newco, the Investor, and KSL in relation to, inter alia,
                               subscription of Newco Shares and Convertible Notes

"Subscription Price"           means HK$0.01 the subscription price for each Subscription
                               Share

"Subscription Shares"          means the Newco Shares to be subscribed by the Investor
                               and by subscribers to be procured by KSL will be on an
                               underwritten basis, under the Share Subscription at the
                               Subscription Price

"Takeover Code"                means the Hong Kong Code on Takeovers and Mergers

"Underwriting Agreement"       means the underwriting agreement in an agreed form to be
                               entered into between Honko,
                               Newco and KSL in relation to the Provisional Allotment

"USA"                          means the United States of America

"Whitewash Waiver"             means a waiver from the obligation to make a mandatory
                               general offer under Rule 26 of the Takeover Code pursuant
                               to Note 1 of the Notes on Dispensation from Rule 26 of the
                               Takeover Code

       By Order of the Board                          By Order of the Board
   Pacific Annex Capital Limited               Honko International Holdings Limited
         Dr. Li Zhong Yuan                               Lam Yat Keung
              Director                           Chairman and Managing Director

Hong Kong, 15 February, 2001

* for identification only

The Directors jointly and severally accept full responsibility for the accuracy of the
information contained in this announcement (other than the information relating to the
Convertible Notes, Newco, as well as the Investor and its intention regarding the future of
the New Group) and confirm, having made all reasonable enquiries, that to the best of their
knowledge, the opinions expressed in this announcement (other than the information
relating to the Convertible Notes, Newco, as well as the Investor and its intention regarding
the future of the New Group) have been arrived at after due and careful consideration and

                                             38
there are no other facts not contained in this announcement, the omission of which would
make any statement in this announcement misleading.

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

Please also refer to the published version of this announcement in the i-Mail.




                                              39

				
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