Bao Yuan Holdings Limited (SEHK:692) entered into a memorandum of understanding to acquire China Household Furniture Holdings Limited from Kuang Yuan Wei on August 24, 2012. The deal is subject to financial and legal due diligence on the China Household Furniture by Bao Yuan Holdings and a formal agreement being signed. Also, the members of senior management of Zhongshan Prado should have signed service contract undertaking to continue their services with Zhongshan Prado for not less than 12 months after completion. It is agreed that within 3 months after the signing of memorandum of understanding, parties can neither enter into discussion or negotiation with any third party other than Bao Yuan Holdings in relation to the shares of deal or other corporate assets or interests (including the direct or indirect interests of the target companies in their subsidiaries), nor enter into any agreement or arrangement.

As of October 18, 2012, Bao Yuan Holdings Limited entered into agreement to acquire China Household Furniture Holdings Limited from Kuang Yuan Wei for HKD 60 million in promissory notes. The consideration is subject to adjustments. The purchase consideration will be satisfied with secured promissory note in a principal amount of HKD 60 million with interest at 4% per annum due on the third year from the date of issue or March 31, 2016 whichever is later. Kuang Yuan Wei has agreed that the audited consolidated net profit after tax of China Household (audited CNPAT) for the period from January 1, 2012 to December 31, 2013 will not be less than HKD 15 million, the audited CNPAT for year ending December 31, 2014 will not be less than the guaranteed amount; and audited CNPAT for year ending December 31, 2015 will not be less than the guaranteed amount. Any shortfall amount of the guaranteed amount for a period of the guaranteed amount will be set off against the principal amount of the promissory note with a cap of HKD 15 million for each period of the guaranteed amount.

Upon completion, China Household Furniture will become a subsidiary of Bao Yuan Holdings Group. For the year ending December 31, 2011, China Household Furniture reported nil revenue, the loss before and after taxation was HKD 0.09 million and net liabilities of HKD 0.11 million. For the eight months ending August 31, 2012, the turnover of China Household Furniture was HKD 81.69 million and profit before and after taxation was HKD 13.6 million and HKD 10.19 million respectively and the net asset value was HKD 9.97 million. The existing key management of China Household Furniture will be retained in the enlarged Group. The deal is subject to having obtained from a qualified People's Republic of China (PRC) legal adviser appointed by Bao Yuan Holdings a PRC legal opinion, approval by the shareholders of Bao Yuan Holdings and any third party. The conditions precedent should be satisfied in 6 months from the date of the sale and purchase agreement or such later date or time as Bao Yuan Holdings and Kuang Yuan Wei may agree in writing. The Directors of Bao Yuan Holdings consider that the terms of sale and purchase agreement and the transactions contemplated there under are on normal commercial terms, fair and reasonable and in the interests of Bao Yuan Holdings and the shareholders as a whole. Completion of deal shall take place within five business days upon satisfaction of deal conditions.

As of December 14, 2012, the special general meeting of Bao Yuan Holdings will be held on January 3, 2013. As of December 14, 2012, the Directors of Bao Yuan Holdings recommended the shareholders to vote in favor of the transaction at the special general meeting. As on January 3, 2013, the shareholders approved the deal. GA Valuation Limited acted as independent professional valuer, Fortune Financial Capital Limited acted as financial advisor, Computershare Hong Kong Investor acted as registrar and Ascenda Cachet CPA Limited acted as an accountant to Bao Yuan Holdings Limited.

Bao Yuan Holdings Limited (SEHK:692) completed the acquisition of China Household Furniture Holdings Limited from Kuang Yuan Wei on January 3, 2013.