ERATAT LIFESTYLE LIMITED
(Company Registration No: 200705552D)

PROPOSED ISSUE OF NON-CONVERTIBLE BONDS AND WARRANTS

1. BACKGROUND
The board of directors ("Board") of Eratat Lifestyle Limited ("Company", and together with its subsidiaries, the "Group") refers to the announcement dated 3 May 2013 ("Announcement") and wishes to announce that it has on 20 June 2013 entered into a bond and warrant subscription agreement ("Subscription Agreement") with SHK Securities (Nominees) Limited ("Subscriber"), a subsidiary of Sun Hung Kai & Co. Limited. Pursuant to the Subscription Agreement, the Company proposes to issue to the Subscriber and/or its nominees, in consideration for an aggregate subscription price of RMB100,500,000 ("Subscription Price"), up to (i) RMB134,000,000 in aggregate principal amount of redeemable 12.5% per annum non-convertible bonds ("Bonds"), and (ii) 82,500,000 warrants ("Warrants"), each warrant entitling the warrantholder to subscribe for one (1) new share in the capital of the Company ("Shares") pursuant to a deed poll to be executed by the Company ("Deed Poll") upon completion of the issue of the Warrants, in accordance with the terms and subject to the terms and conditions of the Subscription Agreement ("Proposed Bond and Warrant Issue"). The Bonds and the Warrants will not be listed on the Singapore Exchange Securities Trading Limited ("SGX-ST").
2. PRINCIPAL TERMS OF THE PROPOSED BOND AND WARRANT ISSUE
Principal Amount of the
Bonds
: RMB134 million.
Subscription Price for the Proposed Bond and Warrant Issue
: RMB100.5 million.
Interest Rate of the Bonds : The Bonds will bear interest from and including the Issue Date at the rate of 12.5 per cent. per annum calculated by reference to the principal amount thereof and payable quarterly in arrears on each calendar quarter after the Issue Date.
Issue Date of the Bonds Subject to the terms and conditions of the Subscription Agreement, 24 June 2013 or such other date as may be agreed between the Company and the Subscriber ("Issue Date").
Maturity Date of the Bonds : Two (2) years after the Issue Date.
Status of Bonds : The Bonds constitute direct, unsubordinated, unconditional and unsecured obligations of the Company and shall at all times rank pari passu and without any preference or priority among themselves. The payment obligations of the Company under the Bonds shall, save for such exceptions as may be provided by mandatory provisions of applicable law, at all times rank at least equally with all of its other present and future direct, unsubordinated, unconditional and unsecured obligations, other than obligations and priorities created by law.
Transferability of Bonds : Except during closed periods, the Bonds may be transferred by delivery of the Bond certificate together with a specified form of transfer.
Redemption of Bonds on
Maturity
: Unless redeemed or purchased and cancelled as provided in the conditions of the Bonds, the Company will redeem each Bond at
100% of its principal amount together with all accrued interest on the Maturity Date.
Redemption of Bonds for
Taxation Reasons
: At any time, the Company may redeem all (but not part) of the bonds at 100% of their principal amount together with all accrued interest, if the Company has or will become obliged to pay additional taxes as a result of any change in, or amendment to, the law, which cannot be avoided by the Company taking reasonable measures available to it.
Early Redemption of the
Bonds by the Company
: The Company may redeem all (but not part) the Bonds at 100% of their principal amount together with all accrued interest, at any time before the Maturity Date by giving not less than ten (10) business days' notice.
Redemption upon Delisting : In the event the Shares cease to be listed or admitted to trading on the SGX-ST or trading in the Shares on the SGX-ST is halted or suspended for a period exceeding three (3) consecutive trading days, each bondholder shall have the right to require the Company to redeem all (but not less than all) of such bondholder's Bonds at 100% of their principal amount together with all accrued interest.
Compliance with the Prospectus Exemptions in the Securities and Futures Act
: The Warrants will be issued to and subscribed for by the Subscriber and/or its nominees pursuant to the exemptions in, and in accordance with the conditions of Sections 274, 275(1) and/or
275(1A) of the Securities and Futures Act (Cap 289) of Singapore
("SFA").
Issue of Warrants : 82,500,000 warrants ("Warrants") will be issued to the Subscriber (or its nominee(s)). Each Warrant will entitle the warrantholder to subscribe for one new share ("New Share") at the exercise price of S$0.25 ("Exercise Price"), exercisable during the period commencing on and including the date of issue of the Warrants, which shall be the later of 14 business days after the Issue Date and 2 business days after receipt of the AIP (as defined below) ("Completion Date"), and expiring at 5.00 p.m. on the date falling on the second anniversary of the Completion Date ("Exercise Period"). The Exercise Price of S$0.25 for each Warrant represents a premium of approximately 89% to the closing price of S$0.132 per Share on the Official List of the SGX-ST on 19 June
2013, being the last full market day prior to this Announcement.
Transferability of Warrants : Subject to compliance with the exemptions in Sections 274,
275(1) and 275(1A) of the SFA, the Warrants shall be transferable in lots entitling the warrantholder to subscribe for whole numbers of Shares
Exercise of Warrants : Subject to the conditions of the Warrants, each warrantholder shall have the right by way of exercise of each Warrant held by the warrantholder, during the Exercise Period, to subscribe for one (1) New Share at the Exercise Price provided that (i) no warrantholder or transferee of a Warrant who already holds an aggregate deemed and direct interest in 5% or more of the voting
rights of the Company, may, without prior specific approval of the Shareholders, exercise any Warrants, and (ii) no warrantholder or transferee of a Warrant may, without prior specific approval of the Shareholders, exercise any Warrants if such exercise would result in such warrantholder or transferee (as the case may be) holding an aggregate deemed and direct interest in 15% or more of the voting rights of the Company.
Status of New Shares : The New Shares will, upon allotment and issue, rank pari passu in all respects with the then-issued Shares, except that they will not be entitled to participate in any dividends, rights, allotments or other distributions, the record date for which is before the relevant exercise date.
Listing Approval for the
New Shares
: The issue of New Shares arising from the exercise of the Warrants is subject to the approval-in-principle SGX-ST ("AIP") for the listing and quotation of the New Shares on the official list of the SGX-ST. In this regard, the Company will make an application to the SGX-ST for the approval of the listing and quotation of the New Shares on the Mainboard of the SGX-ST.
Governing Law : The laws of Singapore.
3. PRINCIPAL TERMS OF THE SUBSCRIPTION AGREEMENT
3.1 Conditions Precedent to the Issue of the Bonds and Warrants
Completion of the Proposed Bond and Warrant Issue in respect of the Subscription
Agreement shall be conditional upon, inter alia:
(i) in relation to the issue of Warrants, the AIP being obtained from the SGX-ST prior to the Completion Date and not having been revoked as of the Completion Date and, where the AIP is subject to any conditions, such conditions being acceptable to the Company and the Subscriber and, to the extent that any such conditions are required to be fulfilled on or before the Completion Date, they are so fulfilled;
(ii) all other necessary approval and consents (including any governmental, regulatory and/or corporate approvals and consents), for the transactions contemplated under this Agreement (in particular but without limitation the issue by the Company and the subscription by the Subscriber and/or its nominees of the Bonds, including any shareholders' or directors' approval and other regulatory and/or corporate approvals and consents required for the Subscriber) having been obtained in form and substance satisfactory to the Subscriber in its sole and absolute discretion and remaining valid and subsisting as at the Completion Date, and
(iii) the execution of the Charge Documents (as defined in paragraph 3.3 below) on or prior to the Issue Date.
3.2 Termination of the Subscription Agreement
If any of the conditions precedent set out in the Subscription Agreement is not satisfied or is not waived by the Subscriber on or before the Issue Date or Completion Date (as applicable), the Subscriber shall have the right to either (i) fix a new date(s) for the Completion, or (ii) terminate the Subscription Agreement, whereupon the Subscription Agreement shall be of no further force or effect (but without prejudice to all the parties' respective rights and obligations provided for under the Subscription Agreement that have accrued prior to such termination), or (iii) enter into a new agreement.
3.3 Charge over Shares
Pursuant to the terms of the Subscription Agreement, the Company will be required to procure a charge over all Shares in the Company held by (i) Mr. Lin Jiancheng ("Mr Lin"), the Company's Executive Chairman and CEO, and (ii) Sunny Joy Limited ("Sunny Joy"), in each case in favour of the Bondholders, in order to secure the Company's obligations to redeem the Bonds ("Charge Documents"). As at the date of this announcement, Mr Lin and Sunny Joy have an aggregate direct and deemed interest in 121,525,000 Shares, representing approximately 25.59% of the existing issued share capital of the Company (excluding treasury shares).
Mr Lin is interested in the Shares held by Sunny Joy as he is the sole shareholder of Sunny
Joy.
3.4 Undertakings of the Company
Pursuant to the terms of the Subscription Agreement, the Company has undertaken with the Subscriber that, during the period from the date of the Subscription Agreement until the Completion Date and for as long as any Bonds are outstanding, the Company shall use its best endeavours to procure that (1) Mr Lin acts as the Chief Executive Officer or Chairman of the Company or as a director, officer or member of the Company's senior management and in each case remains actively involved in the management of the Company's business and affairs and (2) Mr Ye Sanzhi acts as the Chief Operating Officer of the Company or as a director, officer or member of the Company's senior management and in each case remains actively involved in the management of the Company's business and affairs.
4. RATIONALE OF THE PROPOSED BOND AND WARRANT ISSUE AND USE OF PROCEEDS
The Board is of the view that the Proposed Bond and Warrant Issue is beneficial to the Group as it will allow the Group to strengthen its cash position to grow its business and its access to new contacts and opportunities through the Subscriber's network, thereby increasing exposure of the Company's shares to new investor communities, funds and financial institutions in Hong Kong and the PRC.
Upon the full exercise of all the Warrants, the estimated proceeds will be S$20.6 million (or approximately RMB100.9 million). After deducting expenses for the Proposed Bond and Warrant Issue, the aggregate net proceeds from the Bond Issue and full exercise of all Warrants is estimated to be S$41.0 million (or approximately RMB200.8 million).
The Company shall, through its wholly owned subsidiary in Shanghai, use all of the
Subscription Price to:
• Set up a sales and marketing office and showroom in Shanghai (approximately RMB6.5 million, or 7%, of the Subscription Price);
• Set up self-owned flagship shops in Shanghai, with a target of 10 shops by the end of
2013 (approximately RMB33.5 million, or 33%, of the Subscription Price), and
• For use as working capital to secure the supply of apparel products with the Eratat group to support retail shops owned by the Group and by distributors (approximately RMB60.5 million, or 60%, of the Subscription Price).
The Company shall use all of the proceeds from the exercise of the Warrants for working capital purposes, or to effect repayment of the Bonds upon redemption, as the Company sees fit.
Pending the deployment of the proceeds for the purposes mentioned above, such proceeds may be deposited with banks and/or financial institutions, invested in short-term money markets and/or marketable securities, or used for any other purpose on a short-term basis, as the Directors may, in their absolute discretion, deem appropriate in the interests of the Group.
The Board is of the opinion that:
(i) after taking into consideration the Group's present banking facilities, the working capital available to the Group is sufficient to meet its present requirements. Nevertheless, the Company is undertaking the Proposed Bond and Warrant Issue to strengthen its financial position; and
(ii) after taking into consideration the Group's present banking facilities and net proceeds of the Proposed Bond and Warrant Issue, the working capital available to the Group is sufficient to meet its present requirements.
The Company will make periodic announcements on the utilisation of the proceeds from the Proposed Bond and Warrant Issue, as the funds from the Proposed Bond and Warrant Issue are materially disbursed and provide a status report on the utilisation of the proceeds from the Proposed Bond and Warrant Issue in the Company's quarterly results announcements and annual report.
5. FINANCIAL EFFECTS
The financial effects of the Proposed Bond and Warrant Issue set out below are strictly for illustrative purposes and do not necessarily reflect the actual future financial position and results of the Company following the Proposed Bond and Warrant Issue. The table below sets out the financial effects of the Proposed Bond and Warrant Issue based on the following bases and assumptions:
(i) the audited consolidated financial statements of the Group for the full year ended 31
December 2012;
(ii) the financial impact on the consolidated net tangible assets ("NTA") per Share is computed based on the assumption that the Proposed Bond and Warrant Issue was completed on 31 December 2012; and
(iii) the financial impact on the consolidated earnings per Share ("EPS") is computed based on the assumption that the Proposed Bond and Warrant Issue was completed on 31
December 2012.

Before completion of the Proposed Bond and Warrant Issue

After completion of the Proposed Bond and Warrant Issue

After completion of the Proposed

Bond and Warrant Issue and assuming full exercise of

the Warrants

As at 31

December 2012

As at 31

December 2012

As at 31

December 2012

Share Capital

Issued and paid-up share capital

RMB ('000)

300,721

300,721

401,661

No. of Shares ('000)

474,913

474,913

557,413

NTA (RMB'000)

947,400

946,763

1,047,703

NTA per share (RMB)

2.00

1.99

1.88

EPS per share (RMB)

0.30

0.30

0.25

Before completion of the Proposed Bond and Warrant Issue

After completion of the Proposed Bond and Warrant Issue

After completion

of the Proposed Bond and Warrant Issue and assuming full exercise of the Warrants

As at 31

December 2012

As at 31

December 2012

As at 31

December 2012

Gearing

Total Borrowings

(RMB '000)

-

134,000

134,000

Shareholders' Funds

(RMB '000)

949,159

948,522

1,049,462

Gearing Ratio (times)

-

0.14

0.13

6. COMPLIANCE WITH THE LISTING MANUAL AND THE SFA
Subject to compliance with the exemptions in Sections 274, 275(1) and 275(1A) of the SFA, the Warrants shall be transferable in lots entitling the warrantholder to subscribe for whole numbers of Shares. The Warrants are exercisable in whole or in part during the Exercise Period.
Upon full exercise of the Warrants by the warrantholders, the warrantholders would be issued with an aggregate of 82,500,000 New Shares, representing approximately 14.8% of the enlarged share capital of the Company (excluding treasury shares).
It is a condition of the Deed Poll that no warrantholder or transferee of a Warrant who already holds an aggregate deemed and direct interest in 5% or more of the voting rights of the Company, may, without prior specific approval of the Shareholders, exercise any Warrants.
It is also a condition of the Warrants that no warrantholder or transferee of a Warrant may, without prior specific approval of the Shareholders, exercise any Warrants if such exercise would result in such warrantholder or transferee (as the case may be) holding an aggregate deemed and direct interest in 15% or more of the voting rights of the Company.
7. INFORMATION ON THE SUBSCRIBER
SHK Securities (Nominees) Limited is a company incorporated in Hong Kong with limited liability. It is a subsidiary of Sun Hung Kai & Co. Limited, a company incorporated in Hong Kong and the shares of which are listed on the main board of The Stock Exchange of Hong Kong Limited. The principal business activities of its major subsidiaries are wealth management and brokerage, capital market, consumer finance as well as principal investments.
8. DOCUMENTS FOR INSPECTION
The Subscription Agreement may be inspected at the registered office of the Company during normal business hours at 50 Raffles Place #32-01 Singapore Land Tower Singapore 048623 for a period of three (3) months from the date of this announcement:
9. DIRECTORS AND SUBSTANTIAL SHAREHOLDERS' INTERESTS
Save as disclosed in this announcement and any subsequent announcements made by the Company in relation to the Proposed Bond and Warrant Issue, none of the Directors nor (in so far as the Directors are aware) any substantial Shareholder of the Company or their respective associates has any interest, whether direct or indirect, in the Proposed Bond and Warrant Issue. None of the Directors nor (in so far as the Directors are aware) any substantial Shareholder of the Company or their respective associates have any connection (including business relationship) with the Subscriber.
Shareholders and potential investors should exercise caution when trading in Shares of the Company, and where in doubt as to the action they should take, they should consult their financial, tax or other professional adviser immediately.
10. FURTHER ANNOUNCEMENTS
Further announcements will be made by the Company in relation to the Proposed Bond and
Warrant Issue as and when appropriate.
By order of the Board
Lin Jiancheng
Executive Chairman and CEO
20 June 2013

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