09:36 PEARL ORIENTAL<00600> - Announcement & Resumption (6) 5. U Son Investment & Development Limited is a nominee assigned by a shareholder of U Wa Hotel Management Limited who holds approximately 31.9% of the issued share capital of U Wa Hotel Management Limited. 6. Xuhui Investment & Development Limited is a nominee assigned by a shareholder of U Wa Hotel Management Limited who holds approximately 7.1% of the issued share capital of U Wa Hotel Management Limited. 4. REASONS FOR THE PLACING AND THE SUBSCRIPTION AND USE OF PROCEEDS The principal activity of the Company is investment holding. The principal activities of the Company's subsidiary companies are engaged in (i) manufacturing and distribution of leather products; and (ii) health care and medical-related business. As stated in the announcement issued by the Company on 22 December 2004 regarding the 2004 Placing, the Directors considered the 2004 Placing to be beneficial to the Company as it would strengthen the financial position and broaden the shareholders base of the Company and raise funds (a total of approximately HK$64.1 million) mainly for future investment purposes in hotel and casino-related gaming business in Macau (approximately HK$50 million has been designated for this purpose). On 6 January 2005, the Company announced the proposed acquisition of certain interest in a hotel and casino-related gaming business in Macau for a total consideration of approximately HK$514 million (approximately HK$238 million will be satisfied in cash and approximately HK$276 million will be satisfied by way of issuing consideration shares). Taking into account the current securities market condition in Hong Kong, the timeframe required and the certainty to execute the Placing and the Subscription, and the Placing Price per Share, and the Subscription Price per Share, the Directors consider this equity fund raising method is the most appropriate arrangement (under the current circumstances) as compared to other equity fund raising methods, such as rights issue or open offer. Although the percentage shareholding of the existing Shareholders would be diluted due to the 2004 Placing and the Acquisition and the percentage shareholding of the existing Shareholders would be further diluted by approximately 10.1% on an enlarged basis as a result of the Subscription, the Board considers the completion of the Subscription would secure the funding requirement to satisfy the completion of the Acquisition and consequently the Company and the Shareholders will be able to enjoy the potential benefits arising from the completion of the Acquisition. Taking into account the reasons mentioned above, the Board considers the aforesaid level of dilution to the percentage shareholding of the existing Shareholders to be acceptable. The net proceeds from the Subscription are estimated to be approximately HK$199 million, of which approximately HK$188 million will be applied to satisfy a portion of the cash consideration payable for the Acquisition and the remaining balance of approximately HK$11 million will be applied as additional general working capital of the Company. In the event that the Acquisition does not proceed, the Company will continue to look for other investment opportunities, including but not limited to, hotel and casino-related gaming business in Macau, and to apply the funds raised from the Subscription accordingly. Save for the 2004 Placing (expected completion date to be on or about 14 January 2005 pending for the resumption of trading of the Shares), the Company did not have any equity fund raising activities in the past 12 months. The net proceeds generated from the 2004 Placing have been designated for the purpose as disclosed above and in the announcement dated 22 December 2004. 5. CONNECTED TRANSACTION As Mr. Law is a Director and a substantial Shareholder and, accordingly, he is a connected person of the Company as defined under the Listing Rules, the Subscription will constitute a connected transaction of the Company under the Listing Rules. Accordingly, Mr. Law and his associates will abstain from voting at the Extraordinary General Meeting to be held to consider the Subscription. A circular containing, among other things, further details of the Placing and the Subscription, the letter from the independent financial adviser to the independent board committee of the Company and the Independent Shareholders in relation to their opinion on the Subscription, the letter from the independent board committee of the Company in relation to their recommendation to the Subscription and