10:30 HON PO GROUP<00228> - Announcement (7) practicable but in any event no later than the fifth business day thereafter make an announcement on the website of the Stock Exchange including details as stated in (a) above for the period commencing from the date of the then latest announcement made by the Company in respect of the First Convertible Notes and/or (as the case may be) the Convertible Notes, up to the date on which the total amount of Shares issued pursuant to the conversion amounts to 5% of the issued share capital of the Company as disclosed in the then latest announcement made by the Company in respect of the First Convertible Notes and/or (as the case may be) the Convertible Notes. Reasons for and the benefits of the placing of the Convertible Notes and the use of proceeds The Company needs to raise funds for its operations and expansion. The overall performance of the Hong Kong restaurant industry in which the Company operates and the financial results and position of the Group renders it difficult for the Group to secure substantial debt financing for its business. These factors, together with the amount of funds which the Company seeks to raise, also renders an issue of Shares unattractive to potential third party investors in the Company. The Company has not proposed to make an issue by way of rights to all Shareholders to raise the funds sought by it as it has not identified any willing underwriter of such issue. The Convertible Notes in substance being debt instruments with an option for their holders to convert the debt into equity in the Company represent a more attractive option for potential investors in the Company. The current market conditions and recent investors interest in the Shares have created the opportunity for the Company to issue the Convertible Notes through "best efforts" placing by the Placing Agent. Having taken into account the above and (i) the combination of the Convertible Notes bearing zero interest but having a redemption premium would reduce pressure on the Company's short term cash flow requirements while the annualised costs of funds to the Company would be about 2.5% per annum on the principal amount of the Convertible Notes outstanding on maturity (having regard to the 5% redemption premium payable for the two-year note); and (ii) the two-year maturity of the Convertible Notes will result in improvement of the Group's current ratios and working capital position, the Directors consider that the terms of the Placing and the Convertible Notes are fair and reasonable in the circumstances, and are in the interests of the Company and the Shareholders as a whole. If the placing of the Convertible Notes is successful, the financial resources of the Group will increase significantly. Apart from improvements in the Group's financial position as a result, the funding so obtained would give the Company greater flexibility and improve its bargaining powers with respect to its future investments and also allow it to make longer term investment planning over the next two years. As the actual amount of net proceeds from the Convertible Notes could not now be ascertained, the Company has no immediate plans for specific investment while the general purpose to which such proceeds are to be put to use are as stated in "Use of Proceeds" below. If the proceeds should be deployed for investments, depending on the status of conversion of the Convertible Notes prior to their maturity, the Convertible Notes then outstanding may be redeemed by using funds which may be generated from such investment, working capital which may then be available, debt financing which may then be available, proceeds of further equity or debt issues, proceeds of realisation of investments or a combination of some or all of the above. Investors should note that there is no assurance that the Company will at that time have or utilise funding from any or all of the above sources. Use of Proceeds The maximum aggregate net proceeds from the Placing will be about HK$97.5 million after taking into consideration of the placing commission payable to the Placing Agent and other accrual expenses (e.g. professional fee & printing fee etc.) and will be used for future investment on food and beverage related industries (which may or may not include investments in further restaurants) and/or property investment when suitable opportunities arise and after the actual amount of net proceeds from the Convertible Notes could be ascertained. However, no particular investment targets have been identified by the Company at present. If the First Convertible Notes issue does not proceed (because the requisite shareholders approval could not be obtained) or if some but not all of the First Convertible Notes are issued, then part of the net proceeds from the Placing will be allocated for working capital purposes to make up any shortfall of net proceeds available from the issue of the First Convertible Notes. The following table shows the fund raising activities of the Company during 12 months period immediately preceding the date of this announcement: