Peak Sport Products : Documents on display - (008) Letter from the Board

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PEAK SPORT PRODUCTS CO., LIMITED

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(lnco1porated in the Cay,nan Islands with lbnited liability)

(Stock Code: 1968)

Executive Directors:

Mr. XU Jingnan (Chainnan)

Mr. XU Zhihua (Chief Executive Officer)

Mr. XU Zhida

Non-executive Director:

Registered office:

Cricket Square, Hutchins Drive

P.O. Box 2681

Grand Cayman KYl-1111 Cayman Islands

Ms. WU Tigao Principal Place of Business in Hong Kong:

Units 1613 & 1615, 16th Floor

Independent Non-executive Director:

Dr. XIANG Bing Mr. FENG Lisheng Mr. ZHU Haibin

Tower Tvo, Lippo Centre 89 Queensvay Hong Kong

23 September 2016

To the Shareholders and Optionholders

Dear Sir/Madan1,

PROPOSED PRIVATISATION OF PEAK SPORT PRODUCTS CO., LIMITED BY THE OFFEROR

BY WAY OF A SCHEME OF ARRANGEMENT (UNDER SECTION 86 OF THE COMPANIES LAW)

INTRODUCTION

On 26 July 2016, the Offeror requested the Board to put forward a proposal to the Scheme Shareholders for the privatisation of the Company by way of a scheme of arrangement under Section 86 of the Companies Law involving the cancelJation of the Scheme Shares and, in consideration therefor, the payment to the Scheme Shareholders of the Cancellation Pllce in cash for each Scheme Share, and the withdra,val of the listing of the Shares on the Stock Exchange.

The purpose of this Scheme Document is to provide you with further infonnation regarding the Proposal and the Option Offer, and the expected timetable and to give you notice of the Court Meeting and the EGM (together with proxy forms in relation thereto). Your attention is also drawn to the letter from the

Independent Board Committee set out in Part V of this Scheme Document, the letter from Gram Capital, being the Independent Financial Adviser, set out in Part VI of this Schen1e Docun1ent, the Explanatory Memorand um set out in Part VII of this Scheme Document and the terms of the Scheme set out in Appendix TI[ to this Schen1e Document.

TERMS OF THE PROPOSAL AND THE OPTION OFFER

The Scheme and the Conditions

Subject to the fulfilment or ,vaiver (as applicable) of the Conditions as described in the Explanatory Memorandum, the Proposal will be implemented by way of the Scheme, pursuant to which the issued share capital of the Company will be reduced by cancelling and extinguishing the Scheme Shares. Upon such red uction, the issued share capltal of the Company will be increased to its former amount by the issuance at par to the Offeror of the aggregate number of Shares as is equal to the number of Scheme Shares cancelled. The reserve created in the Company's books of account as a result of the capital reduction will be applied in paying up in full at par the new Shares so issued, credited as fu11y paid, to the Offerer. Upon the Scheme having become effective, assuming no Share Option(s) are exercised before the Scheme Record Date, the Offerer, namely Xu's Sport, will hold approximately 38.81o/o of the issued share capital of the Company.

The Scheme will provide that the Scheme Shares will be cancelled and, in consideration thereof, each Scheme Shareholder will be entitled to receive HK$2.60 in cash for each Scheme Share.

Assuming that the Scheme becomes effective on Monday, 31 October 2016 (Cayman Islands Time), cheques for cash entitlements under the Scheme are expected to be despatched to the Scheme Shareholders by ordinary mail at their own risk on or before Wednesday, 9 November 2016.

The Cancellation Price \'ill not be increased, and the Offeror does not reserve the right to do so.

Comparison of Yalue and financial effects

Cancellation Price

The Cancellation Price of HK$2.60 per Scheme Share represents:

a premium of approximately 35.4% over the closing prjce of HK$1 .92 pr Share as quoted on the Stock Exchange on the trading day immediately before the Initial Announcen1ent Date, being the date of the announcen1ent made by the Company pursuant to Rule 3.7 of the Takeovers Code;

a pren1ium of approxiniately 29.4o/o over the average closing price of approximately HK$2.01 per Share based on the daily closing prices as quoted on the Stock Exchange for the 30 trading days i1nn1ediately before the Initial Announcement Date;

a premium of approximately 33.3o/o over the average closing price of approximately HK$1.95 per Share based on the daily closing prices as quoted on the Stock Exchange for the 60 trading days immediately before the Initial Announcement Date;

a premium of approximately 33.3o/o over the average closing price of approximately HK$1.95 per Share based on the daily closing prices as quoted on the Stock Exchange for the 90 trading days immediately before the Initial Announcement Date;

a premium of approximately 27.5% over the average closing price of approximately HK$2.04 per Share based on the daily closing prices as q uoted on the Stock Exchange for the 120 trading days immediately before the Initial Announcement Date;

a pren1ium of approxi1nately 10.6% over the closing price of HK$2.35 per Share as quoted on the Stock Exchange on the Last Trading Day;

a premium of approximately 15.6% over the average closing price of approximately HK$2.25 per Share based on the daily closing prices as quoted on the Stock Exchange for the 30 trading days up to and including the Last Trading Day;

a premium of approximately 20.9o/o over the average closing price of approximately HK$2.15 per Share based on the daily closing prices as quoted on the Stock Exchange for the 60 trading days up to and including the Last Trading Day;

a premium of approximately 24.4% over the average closing price of approximately HK.$2.09 per Share based on the daily closing prices as quoted on the Stock Exchange for the 90 trading days up to and including the Last Trading Day;

a premium of approximately 27.5% over the average closing price of approximately HK$2.04 per Share based on the daily closing prices as quoted on the Stock Exchange for the 120 trading days up to and including the Last Trading Day;

a premium of approximately 9.?o/o over the audited consolidated net asset value per Share of approximately HK$2.37 as at 31 December 2015; and

a premium of approxi1nately 5.3% over the closing price of HK$2.47 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Cancellation Price has been determined on a commercial basis after taking into account the prices of the Shares traded on the Stock Exchange, the trading multiples of comparable companies listed on the Stock Exchange and Vith reference to other privatisation transactions in Hong Kong in recent years.

Dividends

The Con1pany's ability to pay dividends is limited by its memorandun1 and articles of association and Cayman Islands law, v,rhich allows the Company to declare and pay dividends out of profits or, subject to being able to pay its debts as they fall due in the ordinary course of business and to approval by way of an ordinary resolution of Shareholders, its share premium account. Shareholders whose names appear on the register of members of the Company as at the record date for entitlement to dividend, if any, declared by the Company on or before the Effective Date Vi11 be entitled to receive such dividend (if any). The Cornpany does not expect to declare any dividend on or before the Effective Date.

The Option Offer

As at the Latest Practicable Date, there were certain outstanding Share Options granted under the Share Option Scheme, pursuant to which up to a maximum of 12,562.000 new Shares may be issued. and of which the outstanding Share Option held by Ms. Wu Bingrui (the spouse of Mr. Xu Zhida, an Offeror Concert Party) entitled her to subscribe for 300,000 new Shares, and the balance of the Share Options were held by Dr. Xiang Bing (being an independent non-executive Director) and certain employees of the Group. The relevant per Share exercise price under the Share Options is HK$1.938.

Pursuant to the Option Offer made by the Offerer, the Option Offer Price is offered for the Shares underlying each vested and unvested Share Option held as at the Option Offer Record Date in consideration for the canceJJation of the relevant Share Options. The total amount of cash required for the Option Offer is approximately HK$8,3 I 6,044.

The Option Offer Price of HK$0.662 represents the "see-through" price for the outstanding Share Options, which is the relevant Cancellation Price minus the relevant per Share exercise price under the Share Options.

The Option Offer is conditional upon the Scheme becoming effective and binding.

You are urged to read carefully the details in respect of the Share Options and the Option Offer set out in the section headed "9. Share Options and the Option Offer" in the Explanatory Memorandum and to Appendix VI - Form of Option Offer Letter to this Scheme Document.

Irrevocable Undertakings

Each of the Optionholders has undertaken not to exercise his/her Share Option(s) prior to the Effective Date.

Financial Resources

On the assumption that no outstanding Share Option(s) ,vill be exercised or lapse before the Scheme Record Date, the amount of cash required to satisfy the consideration payable for the cancellation of the Scheme Shares (before taking into accou nt the Option Offer to be made) is approximately HK$2,4 l I ,047,985, and the amount of cash required for the Option Offer is approximately HK$8.316,044.

On the assumption that all the outstanding (vested and unvested) Share Options Vill be exercised before the Schen1e Record Date. the an1ount of cash required to satisfy the consideration payable for the cancellation of the Scheme Shares is approximately HK$2,443,709,185.

The Offerer intends to finance the cash required for the cancellation of the Scheme Shares and the Option Offer by a loan faci lity fron1 CMB. Huatai Financial, the financial adviser to the Offerer, is satisfied that sufficient financial resources are available to the Offerer for discharging its obligations in respect of the cancellation of the Scheme Shares and the Option Offer in full.