If you are in any doubt as to any aspect of this circular or as to the action to be taken, you
should consult appropriate independent advisers.
If you have sold or transferred all your shares in SCUD Group Limited, you should at once
hand this circular to the purchaser or the transferee or to the bank manager, the licensed
securities dealer or other agent through whom the sale or transfer was effected for transmission
to the purchaser or the transferee.

This circular appears for information purposes only and does not constitute an invitation or offer
to acquire, purchase or subscribe for the securities.
SCUD GROUP LIMITED


(incorporated in the Cayman Islands with limited liability)
(Stock Code: 1399)
DISCLOSEABLE TRANSACTION AND
CONNECTED TRANSACTION

Independent Financial Adviser
to the Independent Board Committee and the Shareholders

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

11 January 2008

Page
DEFINITIONS ..................................................... 1
LETTER FROM THE BOARD
INTRODUCTION ................................................ 4
THE ACQUISITION .............................................. 5
SHAREHOLDING STRUCTURE OF CLTT AND CLTE ................... 10
INFORMATION ON THE VENDOR, CLTT, CLTE AND

THE “CHAOLITONG ” BUSINESS ............................ 12
REASONS FOR THE ACQUISITION ................................. 13
CERTAIN EFFECTS OF THE ACQUISITION ........................... 14
FUND RAISING ACTIVITIES INVOLVING ISSUE OF
SECURITIES IN THE PAST 12 MONTHS............................ 15
LISTING RULES IMPLICATIONS ................................... 15
ADDITIONAL INFORMATION...................................... 16
LETTER FROM THE INDEPENDENT BOARD COMMITTEE ............... 17
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ............... 18

APPENDIX – GENERAL INFORMATION ........................

41

CONTENTS

–i–

In this circular, unless the context otherwise requires, the following expressions have
the following meanings:
“Announcement” the announcement dated 20 December 2007 issued by the
Company
“Acquisition” the proposed acquisition by the Purchaser of the Sale Interest
and the Sale Assets pursuant to the Agreement
“Agreement” the sale and purchase agreement dated 12 December 2007
entered into by the Company and the Vendor in respect of the
Sale Interest and the Sale Assets
“Board” the board of Directors
“Business Day” a day (other than a Saturday) on which banks are open for
business in Hong Kong
“CLTE” Chaolitong Electronics Company Limited (
), a company incorporated in the PRC
“CLTT” Chaolitong Technology Company Limited (
), a company incorporated in the PRC
“CLTT Approval Date” The date on which the Company receives all relevant
approvals required from Chinese regulatory authorities for the
purchase of the Sale Interest by the Purchaser from an
Independent Third Party (or such later date as the parties may
agree)
“CLTT Completion Date” the date on which all the conditions to the Agreement are
fulfilled (or waived, as the case may be) and the acquisition
of the Sale Interest and Sale Assets are completed
“Company” SCUD Group Limited, a company incorporated in the
Cayman Islands with limited liability whose issued Shares are
listed on the Main Board of the Stock Exchange
“connected person(s)” has the meaning ascribed to it under the Listing Rules
“Consideration” the aggregate consideration of approximately RMB245
million (equivalent to approximately HK$257.91 million)
payable by the Group for the Sale Interest and the Sale
Assets under the Agreement
“Consideration Shares” Up to 60 million Shares to be allotted and issued at the price
of HK$2.05 per Share, credited as fully paid, to the Vendor if
the relevant profit targets are met
DEFINITIONS

– 1 –

“Directors” Directors of the Company
“EGM” Extraordinary general meeting of the Shareholders to be
convened by the Company to consider, and if thought fit, to
approve the Acquisition;
“FY2005” financial year ended 31 December 2005
“FY2006” financial year ended 31 December 2006
“FY2008” financial year ending 31 December 2008
“FY2009” financial year ending 31 December 2009
“FY2010” financial year ending 31 December 2010
“General Mandate” the general mandate granted to the Directors to exercise the
powers of the Company to allot, issue and deal with shares of
the Company up to 20% of the issued share capital of the
Company pursuant to the ordinary resolution of the
Shareholders passed in the annual general meeting of the
Company held on 10 May 2007
“Group” the Company and its subsidiaries, and following CLTT
Completion Date, would include CLTT
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“IFRS” International Financial Reporting Standard
“Independent Board
Committee”
the board committee comprising Mr. Heng Kwoo Seng, Mr.
Wang Jing Zhong and Mr. Wang Jian Zhang, all independent
non-executive Directors, appointed to advise the Shareholders
in respect of the Acquisition
“Independent Financial
Adviser”
Access Capital Limited, a licensed corporation under the SFO
which engages in types 1 (dealing in securities), 4 (advising
on securities), 6 (advising on corporate finance) and 9 (asset
management) regulated activities and the independent
financial adviser to the Independent Board Committee and the
Shareholders in respect of the Acquisition
“Independent Third Party” Third parties independent of the Company and connected
persons of the Company
“Latest Practicable Date” 8 January 2008, being the latest practicable date for the
purpose of ascertaining certain information contained in this
circular
DEFINITIONS

– 2 –

“Listing Rules” The Rules Governing the Listing of Securities on the Stock
Exchange
“Mr. Ma” Ma Yuk Sang, a Hong Kong resident and a connected person
of the Company by way of his 30% interest in the Purchaser
“NPAT Targets” the net profit after tax targets for FY2008, FY2009 and
FY2010

“Original Shareholders” Zheng Zhenjian ( ), Ma Jie ( ) and Zheng Wei
( ) who together own the entire equity interest in CLTE
and CLTT as at the date of the Agreement
“PRC” the People’s Republic of China
“Purchaser” Joint Smart Holdings Limited, a company incorporated in
Hong Kong and which the share capital is owned by the
Company and the Vendor as to 70% and 30% respectively
“Sale Assets” the production equipment, inventory and intellectual property
rights of CLTE
“Sale Interest” entire equity interest in CLTT
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws
of Hong Kong)
“Share(s)” shares(s) of HK$0.10 each in the share capital of the
Company
“Shareholder(s)” holder(s) of Shares
“Stock Exchange” Ma
“RMB” Renminbi, the lawful currency of Hong Kong
“sq.m.” square metre
“&#%8221; per cent.
Unless otherwise specified, this circular contains translations between RMB and HK$
at the rate of RMB1.00 = HK$1.0527. The translation should not be taken as a
representation that the relevant currency could actually be converted into HK$ at that rate or
at all.
DEFINITIONS

– 3 –

SCUD GROUP LIMITED

(incorporated in the Cayman Islands with limited liability)
(Stock Code: 1399)
Executive Directors:
Mr. Fang Jin (Chairman)
Mr. Lin Chao
Mr. Guo Quan Zeng
Mr. Li Hui Qiu
Non-executive Directors:
Mr. Ho Man
Independent Non-executive Directors:
Mr. Heng Kwoo Seng
Mr. Wang Jing Zhong
Mr. Wang Jian Zhang
Registered Office:
Codan Trust Company (Cayman) Limited
Cricket Square, Hutchins Drive
P.O. Box 2681 GT
Grand Cayman
KY1-111

Cayman Islands
Place of business in Hong Kong:
Room 5505, 55/F., Central Plaza
18 Harbour Road
Wanchai
Hong Kong
11 January 2008
To the Shareholders
Dear Sir or Madam,
DISCLOSEABLE TRANSACTION AND
CONNECTED TRANSACTION
INTRODUCTION

By an announcement dated 20 December 2007, the Board announced that on 12
December 2007, the Company entered into the Agreement with the Vendor pursuant to which
the Vendor agreed to procure the sale of the Sale Interest (being 100% equity interest in
CLTT) to the Purchaser and the sale of the Sale Assets to CLTT. The purpose of this circular
is to provide the Shareholders with further information on the terms of the Agreement.
The Purchaser is ultimately owned as to 70% by the Company and 30% by the Vendor.
The Sale Assets, related senior management and employees who are expected to join CLTT
as from the CLTT Completion Date have previously been responsible for managing the
manufacture and sale of rechargeable battery packs for mobile phones under the “Chaolitong
” brand in China. “Chaolitong ” is one of the largest rivals to the “SCUD
” brand of rechargeable battery packs for mobile phones in China.

LETTER FROM THE BOARD

– 4 –

As the relevant percentage ratios for the 5 tests set out in Rule 14.07 of the Listing
Rules for all the transactions contemplated under the Agreement exceed 5% but are less than
25%, the entering into the Agreement constitutes a discloseable transaction for the Company
under Rule 14.06(2) of the Listing Rules. Further due to the Vendor being a 30%
shareholder of the Purchaser, the Acquisition constitutes a connected transaction (as defined
in the Listing Rules) under Chapter 14A of the Listing Rules.
THE ACQUISITION

The Agreement
Parties:
Vendor: Mr. Ma Yuk Sang.
He is the 30% shareholder of the Purchaser, a 70% indirect subsidiary of
the Company. As a substantial shareholder of an indirect subsidiary of the
Company, Mr. Ma is a connected person of the Company.
Purchaser: The Company.
Subject Matter of the Agreement
Pursuant to the Agreement, the Vendor has agreed to procure the sale of the Sale
Interest (being 100% equity interest in CLTT) to the Purchaser and the sale of the Sale
Assets to CLTT. In light of the fact that the Sale Assets will constitute a new production line
after the Acquisition, as a commercial decision, the Company decided to purchase the Sale
Assets via CLTT, a company that is not currently engaged in any business activities and not
part of the Group prior to the Acquisition. If it had invested through an existing subsidiary
of the Company, then those existing businesses would be subject to the potential risks of the
new business. The Purchaser is ultimately owned as to 70% by the Company and 30% by
the Vendor. The Vendor does not and will not (save through his 30% stake in the Purchaser)
on implementation of the Acquisition, own the Sale Assets. Accordingly he has not and will
not have incurred any “purchase cost” for the Sale Assets before the acquisition by the
Group. The Sale Assets, related senior management and employees who are expected to join
CLTT as from the CLTT Completion Date have previously been responsible for managing
the manufacture and sale of rechargeable battery packs for mobile phones under the
“Chaolitong ” brand in China. “Chaolitong ” is one of the largest rivals to the
“SCUD ” brand of rechargeable battery packs for mobile phones in China. The Sale
Assets do not represent all assets of CLTE. The Sale Assets only represent some of the
assets of CLTE such as fixed assets and intellectual property rights. It does not include
CLTE’s account receivables, interest in real properties and that part of the inventory which
the Group may not acquire.
The Group does not intend to acquire such other assets of CLTE or assume its
liabilities.
LETTER FROM THE BOARD

– 5 –

Consideration
The Company has agreed to pay up to RMB245 million as the total consideration
payable pursuant to the Agreement as follows:–
(i) RMB37 million to be injected into CLTT through the Purchaser to fund the
purchase of the Sale Interest from CLTE as well as to ultimately pay CLTE not
more than RMB36.5 million for the Sale Assets. The Sale Assets (excluding the
raw materials which is the subject of the adjustment detailed below and the
intellectual property rights which were not the subject of the valuation report
referred to below), amount to RMB11,476,845 based on a valuation report dated
10 December 2007 prepared in the PRC and its book value is RMB11,617,981
based on audited accounts for the nine months ended 30 September 2007 prepared
in accordance with PRC GAAP. Such funds would be advanced by the Company
to the Purchaser (a 70% subsidiary of the Company) on the CLTT Approval Date
and, subject to compliance with the relevant Chinese regulatory requirements,
CLTT would then complete the purchase of the Sale Interest and the Sale Assets
on the CLTT Completion Date; and
(ii) up to RMB208 million to the Vendor, of which RMB91 million is to be paid in
cash in HK$ on the CLTT Completion Date to the Vendor and the balance of
RMB117 million is to be satisfied by the issue of an aggregate of 30 million
Consideration Shares to the Vendor at HK$2.05 (based on the 20 day average
closing price immediately preceding 12 December 2007) per Share three months
after the CLTT Completion Date, and of up to an additional 30 million
Consideration Shares at HK$2.05 per Share in three tranches to the Vendor if
CLTT achieves or exceeds the specified NPAT Targets for FY2008, FY2009 and
FY2010 as described below. Therefore, if the NPAT Targets for any of those years
is not met, the maximum number of Consideration Shares will not be issued to
the Vendor and the total consideration payable pursuant to the Agreement will be
reduced accordingly.
The Vendor has confirmed that as part of his arrangements with the Original
Shareholders, assuming the Original Shareholders comply with the agreed terms,
he will be entitled to 0.5% of the Consideration. If the Original Shareholders do
not abide by their undertakings and/or the NPAT Targets are not met, the Original
Shareholders entitlement to the Consideration will be accordingly reduced.
There are four tranches of Consideration Shares to be issued to the Vendor. Save
for the first tranche which will be issued three months after the CLTT Completion
Date, the number of Consideration Shares to be issued in the remaining three
tranches will be issued by the Company at the end of the relevant financial years
subject to the NPAT Targets being met.
LETTER FROM THE BOARD

– 6 –

The NPAT Targets for FY2008, FY2009 and FY2010 and the number of
Consideration Shares to be issued if each NPAT Target is met or exceeded is set
out below:–
Maximum number of
shares to be issued in
each tranche NPAT Target
10,000,000 RMB50 million (approximately HK$52.6 million)
for FY2008
10,000,000 RMB55 million (approximately HK$57.9 million)
for FY2009
10,000,000 RMB60 million (approximately HK$63.2 million)
for FY2010
If any of the NPAT Targets is not met, the corresponding Consideration Shares
will not be issued to the Vendor and the consideration payable pursuant to the
Agreement will be reduced accordingly. Should the NPAT be met or exceeded, the
Company will issue the above Shares as soon as practicable following receipt of
confirmation of the relevant audited NPAT results for the relevant financial year.
The issue price per Consideration Share is HK$2.05. It represents a 13.5%
discount to the closing price of the Shares on 11 December 2007 of HK$2.37 and
a 7.66% discount to the average closing price of the Shares for the 5 trading days
ended on 11 December 2007 of HK$2.22, being the last trading day prior to the
suspension in trading of the Shares on 12 December 2007. Based on the last
closing price of the Shares on 11 December 2007 of HK$2.37, the maximum
number of Consideration Shares is valued at HK$142.2 million.
The Company will make further announcement(s) in accordance with Rule 14A.57
of the Listing Rules if any of the NPAT Targets are not met.
The Consideration was arrived at after arm’s length negotiations between the
Company and the Vendor with reference to the past sales and financial
performance of the “Chaolitong ” business (see “Information on the
Vendor, CLTT, CLTE and the “Chaolitong ” Business” below), the
registered capital of CLTT (RMB2 million) and an agreed valuation of the Sale
Assets (subject to adjustment described below), details of which adjustment which
will be agreed prior to the CLTT Completion Date.
The Company also took into account the synergies and benefits that are expected
to accrue to the Group as a result of such acquisition (see “Reasons for the
Acquisition” below) and the undertakings from the Vendor in respect of the NPAT
Targets. The maximum Consideration of RMB245 million is 7 times, 6.4 times
and 5.8 times the NPAT Target for FY 2008, FY2009 and FY2010 respectively;
and the minimum cash Consideration of RMB128 million (assuming that none of
LETTER FROM THE BOARD

– 7 –

the NPAT Targets are met) is 6.7 times the FY2006 net profit after taxation of
CLTE. By way of illustration only, bearing in mind the differences in time periods
and taking into account the highest and lowest traded price of the Shares prior to
the fire in May 2007 (further details of which are set out in the Company’s
announcement dated 1 June 2007) of HK$3.73 (approximately RMB3.91 based on
the December 2006 exchange rate of HK$1 to RMB1.047) per Share and HK$2.69
(approximately RMB2.82 based on the December 2006 exchange rate of HK$1 to
RMB1.047) per Share and the Group’s net profit after tax of approximately
RMB160 million for FY 2006, the price to earnings ratio would range from 10.69
to 14.82. Taking into account the fact that (i) the Sales Assets are to be deployed
for the same product type (albeit under different brands) as the principal products
of the Group; (ii) the price/earnings multiple of the Shares of 8.8 times and 9.3
times (based on the HK$2.22 (approximately RMB2.32 based on the December
2006 exchange rate of HK$1 to RMB1.047), being the 5 day average closing price
per Share disclosed above and (i) the FY2006 basic earnings per share of
RMB26.35 cents, and (ii) diluted earnings per share of RMB24.93 cents
(assuming all share options issued under the Company’s pre-IPO share option
scheme, the overallotment option exercised as per the Company’s announcement
dated 8 January 2007 and conversion of the convertible bond issued by the
Company to Neng Liang Limited have been exercised, respectively); and (iii)
other factors referred to above, the Directors (including the independent
non-executive Directors) consider the Consideration fair and reasonable and in the
interest of the Company and the Shareholders as a whole.
The revenue and net profit before and after taxation and extraordinary items of
CLTE are set out as follows:
9 months ended
30 September
2007 FY2006 FY2005

Revenue RMB148.3 million RMB154.1 million RMB172.4 million
Net profit before
taxation and
extraordinary
items
RMB31.0 million RMB29.6 million RMB39.6 million
Net profit after
taxation and
extraordinary
items
RMB26.3 million RMB27.4 million RMB36.3 million
The unaudited revenue, net profit before and after taxation and extraordinary
items of CLTE for the year ended 31 December 2007 are approximately
RMB222.4 million, RMB45 million and RMB38.2 million respectively.
The Company expects to fund the cash component of the Consideration partly
through its working capital and partly through the initial public offering proceeds
as an intended use. It is stated in the Company’s prospectus dated 11 December
LETTER FROM THE BOARD

– 8 –

2006 that part of the proceeds from the initial public offering would be used for
the purpose of expanding its sales network including through the acquisition of an
established business of the Group’s competitors.
The Consideration Shares are not subject to any lock-up.
General Mandate
The Consideration Shares will be allotted and issued under the General Mandate which
was granted to the Directors pursuant to an ordinary resolution of the Company passed at its
annual general meeting on 10 May 2007 to allot and issue up to 198,400,249 new Shares,
representing 20% of the aggregate nominal amount of the share capital of the Company in
issue on that date. The General Mandate has not previously been utilised prior to the
entering into of the Agreement. Application will be made by the Company to the Stock
Exchange for the grant of the listing of and the permission to deal in the Consideration
Shares on the Stock Exchange. The issue price per Consideration Shares is HK$2.05. The
maximum number of Consideration Shares which may be issued represents 6.05% of the
total issued share capital of the Company as at the Latest Practicable Date and 5.70% of the
total issued share capital as enlarged by such issue.
CLTT Completion Date
The CLTT Completion Date is when the purchase of the Sale Interest and Sale Assets
are completed.
The Vendor has undertaken to procure that after the CLTT Completion Date, CLTE and
related previous management would not compete with the Group under the “Chaolitong
” brand or otherwise.
Apart from certain agreed key personnel previously involved in the “Chaolitong
” business who are also required to enter into employment contracts with CLTT,
CLTT will employ such other staff as it considers necessary.
Adjustment to the Consideration
The final price for the purchase of the Sale Assets will not exceed RMB36.5 million
but is to be fixed after the details of the Sale Assets are finalized by the Purchaser,
including verification by the Purchaser that certain raw materials are in acceptable condition.
The Purchaser will make its determination by reference to factors such as the audited value
(as at 31 December 2007) of the raw materials available on that date, the age and utility of
such raw materials. To the extent that the Purchaser elects to accept delivery of raw
materials which when aggregated with the agreed value of the other Sale Assets is less than
RMB36.5 million, the Vendor has undertaken to procure that CLTE refunds the difference to
CLTT in cash on a dollar-to-dollar basis. The total amount of raw materials as of 30
September 2007 was approximately RMB36.5 million based on CLTE’s audited accounts
prepared in accordance with PRC GAAP for the nine month period ended 30 September
2007.
LETTER FROM THE BOARD

– 9 –

The Directors (including the independent non-executive Directors) consider the terms
of the Agreement are fair and reasonable and in the interests of the Company and
Shareholders as a whole.
Conditions precedent
Completion of the Acquisition is conditional upon the satisfaction or waiver of the
following conditions, among others:
(i) the due diligence review of, among other things, the business, operations and
financial positions of CLTE and CLTT having been completed to the satisfaction
of the Group;
(ii) a PRC legal opinion from the Group’s PRC legal advisers in such form as
satisfactory to the Company, in relation to, among other things, the due
incorporation of CLTT and the relevant approvals for the transfer of the Sale
Interest;
(iii) all approvals, consents and permits in relation to the transaction have been
obtained, including but not limited to the listing approval of the Consideration
Shares from the Stock Exchange; and
(iv) CLTE and CLTT having entered into the asset transfer agreement in the agreed
form.
SHAREHOLDING STRUCTURE OF CLTT AND CLTE

The following diagrams illustrate the shareholding structure of CLTT and CLTE
immediately before and after Completion.
Immediately before CLTT Completion Date and as at the Latest Practicable Date
CLTT

Zheng Zhenjian
40% 40% 20%
CLTT

Ma Jie Zheng Wei
LETTER FROM THE BOARD

– 10 –

CLTE
Zheng Zhenjian
40% 40% 20%
CLTE

Sale Assets
Ma Jie Zheng Wei
Immediately after the CLTT Completion Date
Great Speed
Enterprises
Limited
Company
70%
100%
30%
100%
The Purchaser
CLTT

Sale Assets
Vendor
Lease agreement
It is expected that after the date of the Agreement, CLTT and CLTE may enter into a
lease agreement whereby CLTT will lease the factory and office premises from CLTE in
Shenzhen. The annual rental payable is expected to be approximately RMB3.6 million
subject to final agreement. The Original Shareholders are also expected to become directors
of CLTT upon the CLTT Approval Date and which, by then, CLTT will have become an
indirect subsidiary of the Company. If such lease is entered into, the lease may be a
continuing connected transaction for the Group as CLTE and the Original Shareholders could
be considered as associates (as defined in the Listing Rules) of the Vendor, being a
LETTER FROM THE BOARD

– 11 –

substantial shareholder of one of the Company’s subsidiaries, namely, the Purchaser. Further
announcement and related compliance with the Listing Rules will be made as and when
required.
INFORMATION ON THE VENDOR, CLTT, CLTE AND THE “CHAOLITONG ”
BUSINESS

CLTT was incorporated in China with limited liability and is not currently engaged in
any business activities. Its total registered capital is RMB2 million, which has been fully
paid. CLTE was incorporated in China with limited liability and is one of the Group’s
largest rivals which principally engaged in the manufacture and sale of rechargeable battery
packs in China for mobile phones under the “Chaolitong ” brand. The Sale Assets
represent the principal operating assets of CLTE. CLTE has a total registered capital of
RMB20 million which has been fully paid. To the best of the Directors’ knowledge,
information and belief, having made all reasonable enquiries, each of the ultimate beneficial
owners of each of CLTT and CLTE, being the Original Shareholders, is not a connected
person of the Company (other than as a result of them being involved in the Acquisition in
the manner stated in this circular).
Based on the Chinese audited accounts for FY2005 and FY2006 prepared under PRC
GAAP provided to the Company, the net profit before and after taxation and extraordinary
items attributable to CLTE which operates the “Chaolitong ” brand business were as
follows:
Net profit before
taxation and
extraordinary
items
Net profit after
taxation and
extraordinary
items
FY2005 RMB39.6 million RMB36.3 million
FY2006 RMB29.6 million RMB27.4 million
Arrangements between the Vendor and the Original Shareholders
Save for the connected person relationship of the Vendor by way of its 30% interest in
the Purchaser, the Vendor has no other interests in the other operations of the Group. As at
the date of the Agreement, the Vendor does not own the Sale Interest or the Sale Assets. The
Company was informed by the Original Shareholders during negotiations that they have
delegated the negotiations and contractual arrangements relating to the Acquisition to the
Vendor and that the Company should primarily deal with the Original Shareholders via the
Vendor. The Original Shareholders are the owners of CLTE. At the start of negotiations with
the Group, the Company was directed by them to discuss with the Vendor due to initial
sensitivities of negotiations between industry competitors. The Group had, prior to signing
the Agreement, engaged a Chinese law firm for legal due diligence, a Chinese accounting
firm for financial due diligence and relied on its own due diligence for business due
diligence since CLTE and the Group are in the same industry. As discussions progressed, it
also became apparent that CLTE had other assets, businesses and liabilities that the Group
would not be interested in. Once the details of the Acquisition had been finalised and also
LETTER FROM THE BOARD

– 12 –

involved the Consideration Shares, the Original Shareholders found that it would be
convenient to nominate a Hong Kong resident to open a securities account in Hong Kong
and hold the Consideration Shares. The Original Shareholders and Vendor therefore agreed
that the Vendor would be a party to the contract with the Company. The Company has been
informed that for his role in the negotiations with the Group, the Vendor and the Original
Shareholders also came to agree private commercial arrangements among themselves. The
Vendor has confirmed that as part of his arrangements with the Original Shareholders,
assuming the Original Shareholders comply with the agreed terms, he will be entitled to
0.5% of the Consideration. If the Original Shareholders do not abide by their undertakings
and/or the NPAT Targets are not met, the Original Shareholders entitlement to the
Consideration will be accordingly reduced. These arrangements were to ensure that the
Vendor would minimise any risk to himself under the Agreement in case the Original
Shareholders did not abide by their agreement to join CLTT and manage the business. The
Group is not party to such arrangements (if any). The structure of the transaction is designed
to ensure (i) that the Group acquires the Assets without associated liabilities (including
taxation liabilities) in an efficient and lawful manner; (ii) accountability and alignment with
the Group of interests of the Vendor for the successful implementation of the transaction;
and (iii) retention of existing key management on terms which is compliant with PRC laws.
So as to safeguard the Group’s interest in the cash flows involved in this Acquisition, a
loan of RMB37 million would only be made to the Purchaser (a 70% subsidiary of the
Company) upon the CLTT Approval Date and, subject to compliance with the relevant
Chinese regulatory requirements, the Purchaser would remit the relevant funds to CLTT.
Once such funds have been injected into CLTT (and not before) payment to CLTE would
only be made on the CLTT Completion Date with the simultaneous completion of the
purchase of the Sale Interest and the Sale Assets. Until such time that funds are paid to
CLTE, only the Group’s authorised signatories (not the Vendor nor the Original
Shareholders) are permitted to deal in such funds. The balance of the Consideration, being
up to RMB208 million in cash and Consideration Shares, will only be paid and/or issued
after CLTT Completion Date when the transfer of the Sale Assets to CLTT has been
completed.
REASONS FOR THE ACQUISITION

The Group is a market leader in the sales and marketing of self-manufactured
rechargeable battery packs for mobile phones in the PRC under its own “SCUD ”
brand. For more information, please visit the Group’s website at http://www.scudcn.com.
The Directors believe that with the acquisition of the Sale Interest, the Sale Assets and
employment of certain previous management of CLTE, the Group will benefit from the
following main factors:
(i) the “Chaolitong ” brand has a solid sales network covering second,
third-tier cities, towns and villages in the PRC, thus complementing the Group’s
lack of sales coverage in these areas whilst increasing the Group’s market share
both under the “SCUD ” and “Chaolitong ” brands within a short
period of time;
LETTER FROM THE BOARD

– 13 –

(ii) the Group’s product variety will be expanded and the rate of its research and
development will improve;
(iii) both of the Group’s production capacity and efficiency will be increased, thus
reducing costs of production and sourcing of raw materials; and
(iv) the level of market competition against the Group will decrease by way of
consolidating two of the largest mobile phone battery pack manufacturers in
China since the “Chaolitong ” brand is one of the largest rivals to the
“SCUD ” brand of battery packs in China. As a result market prices will
become more stable and the overall margin of the Group’s products will improve.
For the first nine months ended 30 September 2007, CLTE had revenue of
approximately RMB148.3 million whilst the revenue for the full year of 2006 amounted to
RMB154.1 million. Net profit before taxation and extraordinary items of CLTE amounted to
RMB31.0 million for the nine months ended 30 September 2007 whilst it was RMB29.6
million for the full year of 2006.
CERTAIN EFFECTS OF THE ACQUISITION

The following table illustrates the shareholding details of the Company before and after
the Acquisition:
Name of shareholders
Shareholding
before
Acquisition (as
at the Latest
Practicable
Date)
Shareholding
after
Acquisition
(assuming
NPAT Targets
not met and
minimum
30 million
Consideration
Shares issued)
Shareholding
after
Acquisition
(assuming all
NPAT Targets
met and
maximum
60 million
Consideration
Shares issued)
Swift Joy Holdings Limited 402,000,000
(40.52%)
402,000,000

(39.33%)
402,000,000

(38.21%)
Right Grand Holdings Limited 180,000,000
(18.15%)
180,000,000

(17.61%)
180,000,000

(17.11%)
Cheer View Holdings Limited 18,000,000
(1.81%)
18,000,000

(1.76%)
18,000,000

(1.71%)
Public 392,001,246
(39.52%)
392,001,246

(38.36%)
392,001,246

(37.27%)
Vendor N/A 30,000,000
(2.94%)
60,000,000

(5.70%)
LETTER FROM THE BOARD

– 14 –

Upon completion of the acquisition of CLTT, it will be accounted for as a subsidiary of
the Company and its results, assets and liabilities will be consolidated in the Group’s
financial statements. On completion of the purchase by CLTT of the Sale Assets, they will
become assets of CLTT and be accounted for accordingly. As the maximum number of
Consideration Shares represent 5.70% of the enlarged issued share capital of the Company,
there will not be a change of control as a result of such issue of Consideration Shares to the
Vendor.
As at the Latest Practicable Date, the authorised share capital of the Company is
HK$500,000,000, all fully paid up with nominal value of HK$0.10 per Share.
The Group expects the earnings of the Group will increase as a result of the
Acquisition in light of the fact that a new production line will be operated by CLTT and
managed by the relevant senior management and employees of CLTE upon CLTT
Completion Date. As the Acquisition involves only the acquisition of assets but not
liabilities of CLTE, there is no material impact on the book value of the assets of the Group
as the increase in the book value of the Group’s assets is set off by the corresponding
decrease in cash in the Group’s accounts.
FUND RAISING ACTIVITIES INVOLVING ISSUE OF SECURITIES IN THE PAST
12 MONTHS

Save for the listing proceeds raised by the Company pursuant to its listing on the Stock
Exchange on 21 December 2006 (and the exercise of the over-allotment option as announced
in the Company’s announcement dated 8 January 2007), the Company had not carried out
any fund raising exercise issuing any equity securities in the 12-month period immediately
preceding the Latest Practicable Date.
The net proceeds from the Company’s listing (together with the exercise of the
over-allotment option) amounted to approximately HK$604 million. Throughout the past 12
months, the Company applied approximately HK$78 million and approximately HK$195
million as capital injection to Scud (Fujian) Electronics Co. Ltd. and Scud (Fujian) Battery
Co. Ltd. respectively (which was subsequently utilized as intended to construct new
factories, funded the establishment of new production lines, promotion and advertising and
repayment of bank borrowing). The Group has also applied (as intended) a further
approximately HK$20 million for the construction of new factories. The unutilised proceeds
are held as deposits with commercial banks in Hong Kong and are expected to be utilised as
stated in the Company’s prospectus dated 11 December 2006.
LISTING RULES IMPLICATIONS

As at the date of the Agreement, the Vendor was interested in 30% of the total issued
share capital of the Purchaser and therefore a substantial shareholder of the Company’s
subsidiary. The Vendor is thus a connected person of the Company. By virtue of the
Vendor’s interest in the Purchaser, the transactions contemplated under the Agreement
constitute connected transactions of the Company under Chapter 14A of the Listing Rules.
Given certain of the applicable percentage ratios exceed 5% but are less than 25%, the
Acquisition constitutes discloseable transactions of the Company under the Listing Rules.
LETTER FROM THE BOARD

– 15 –

Pursuant to the Listing Rules, the Acquisition is conditional on the approval by
independent shareholders. However, where no Shareholder is required to abstain from voting
if the Company was to convene a general meeting for the approval of the connected
transaction, a written resolution from the shareholders of a closely allied group of
shareholders who together hold more than 50% in normal value of the Shares to approve the
connected transaction is sufficient. As far as the Directors are aware having made all
reasonable enquiries, no Shareholder has a material interest in the Acquisition. As such, no
Shareholder is required under the Listing Rules to abstain from voting on the Acquisition.
As no Shareholder is required to be abstained from voting on the Acquisition, the Company
has applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver from
the requirement to hold a physical shareholders’ meeting to approve the Acquisition and
instead, this Acquisition will be approved by way of a written resolution from its controlling
shareholders, being Swift Joy Holdings Limited, Right Grand Holdings Limited and Cheer
View Holdings Limited, who together hold more than 50% Shares in the Company. Swift
Joy Holdings Limited, Right Grand Holdings Limited and Cheer View Holdings Limited are
wholly owned companies of Mr. Fang Jin, Mr. Lin Chao and Mr. Guo Quan Zeng
respectively, all of whom are directors of the Company. As at the Latest Practicable Date,
Swift Joy Holdings Limited, Right Grand Holdings Limited and Cheer View Holdings
Limited held 402,000,000 Shares, 180,000,000 Shares and 18,000,000 Shares respectively,
representing in aggregate approximately 60.48% of the total issued share capital of the
Company as of the Latest Practicable Date. The written resolutions were passed on 18
December 2007.
ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter
from the Independent Financial Adviser and the additional information set out in the
Appendices to this circular.
For and on behalf of the Board of
SCUD Group Limited
Fang Jin
Chairman
LETTER FROM THE BOARD

– 16 –

SCUD GROUP LIMITED

(incorporated in the Cayman Islands with limited liability)
(Stock Code: 1399)
11 January 2008
To the Shareholders
Dear Sir or Madam,
DISCLOSABLE TRANSACTION

AND
CONNECTED TRANSACTION

We have been appointed as the Independent Board Committee to advise you in
connection with the Acquisition, details of which are set out in the Letter from the Board
contained in the circular to the Shareholders dated 11 January 2008 (the “Circular”), of
which this letter forms part. Terms defined in the Circular shall have the same meanings
when used herein unless the context otherwise requires.
Having considered the Acquisition and the advice and opinion of the Independent
Financial Adviser in relation thereto as set out on pages 18 to 40 of the Circular, we are of
the opinion that the terms of the Acquisition are fair and reasonable and are entered into on
normal commercial terms so far as the Shareholders are concerned and the Acquisition is in
the interests of the Company and the Shareholders as a whole.
Yours faithfully,
Mr. Heng Kwoo Seng
Independent non-executive
Director
Mr. Wang Jing Zhong
Independent non-executive
Director
Mr. Wang Jian Zhang
Independent non-executive
Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 17 –

The following is the full text of the letter of advice to the Independent Board
Committee and the Shareholders from Access Capital Limited prepared for the purpose of
incorporation in this circular.
Suite 606, 6th Floor
Bank of America Tower
12 Harcourt Road
Central
Hong Kong
11 January 2008
To: The Independent Board Committee and the Shareholders of SCUD Group Limited
Dear Sirs,
DISCLOSEABLE TRANSACTION

AND
CONNECTED TRANSACTION
I. INTRODUCTION

We refer to our appointment as independent financial adviser to advise the Independent
Board Committee and the Shareholders with regard to the terms of the Acquisition. Details
of the Acquisition are contained in the “Letter from the Board” of the circular to the
Shareholders dated 11 January 2008 (the “Circular”), of which this letter forms part. Terms
used in this letter shall have the same meanings as those defined in the Circular unless the
context otherwise specifies.
On 20 December 2007, the Board announced that on 12 December 2007, the Company
entered into the Agreement with the Vendor pursuant to which the Vendor agreed to procure
the sale of the Sale Interest (being 100% equity interest in CLTT) to the Purchaser and the
sale of the Sale Assets to CLTT.
The Purchaser is ultimately owned as to 70% by the Company and 30% by the Vendor.
The Sale Assets, related senior management and employees who are expected to join CLTT
as from the CLTT Completion Date have previously been responsible for managing the
manufacture and sale of rechargeable battery packs for mobile phones under the “Chaolitong
” brand in the PRC. “Chaolitong ” is one of the largest rivals to the “SCUD
” brand of rechargeable battery packs for mobile phones in the PRC.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 18 –

As the relevant percentage ratios for the 5 tests set out in Rule 14.07 of the Listing
Rules for all the transactions contemplated under the Agreement exceed 5% but are less than
25%, the entering into the Agreement constitutes a discloseable transaction for the Company
under Rule 14.06(2) of the Listing Rules. Further due to the Vendor being a 30%
shareholder of the Purchaser, the Acquisition constitutes a connected transaction (as defined
in the Listing Rules) under Chapter 14A of the Listing Rules.
Pursuant to the Listing Rules, the Acquisition is conditional on the approval by
independent shareholders. However, where no Shareholder is required to abstain from voting
if the Company was to convene a general meeting for the approval of the connected
transaction, a written resolution from a closely allied group of shareholders who together
hold more than 50% in normal value of the Shares to approve the connected transaction is
sufficient. As no Shareholder is required to be abstained from voting on the Acquisition, the
Company has applied to the Stock Exchange for a waiver from the requirement to hold a
physical shareholders’ meeting to approve the Acquisition and, instead, this Acquisition will
be approved by way of a written resolution from its controlling shareholders, being Swift
Joy Holdings Limited, Right Grand Holdings Limited and Cheer View Holdings Limited,
who together hold more than 50% Shares in the Company. Swift Joy Holdings Limited,
Right Grand Holdings Limited and Cheer View Holdings Limited are wholly owned
companies of Mr. Fang Jin, Mr. Lin Chao and Mr. Guo Quan Zeng respectively, all of whom
are directors of the Company.
As at the Latest Practicable Date, Swift Joy Holdings Limited, Right Grand Holdings
Limited and Cheer View Holdings Limited held 402,000,000 Shares, 180,000,000 Shares and
18,000,000 Shares respectively, representing in aggregate approximately 60.48% of the total
issued share capital of the Company. The written resolutions were passed on 18 December
2007.
II. THE INDEPENDENT BOARD COMMITTEE

The Board currently consists of four executive Directors, namely Mr. Fang Jin
(Chairman), Mr. Lin Chao, Mr. Guo Quan Zeng and Mr. Li Hui Qiu; one non-executive
Director, namely Mr. Ho Man and three independent non-executive Directors, namely Mr.
Heng Kwoo Seng, Mr. Wang Jing Zhong and Mr. Wang Jian Zhang.
We have been appointed to advise the Independent Board Committee and the
Shareholders as to whether the terms of the Acquisition were agreed on normal commercial
terms and are fair and reasonable so far as the Shareholders are concerned and in the
interests of the Company and the Shareholders as a whole and to give our opinion in
relation to the terms of the Acquisition for their consideration when making their
recommendation to the Shareholders.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 19 –

III. BASIS AND ASSUMPTIONS OF THE ADVICE
In formulating our advice, we have relied solely on the statements, information,
opinions and representations for matters relating to the Group contained in the Circular and
the information, expectations, and representations provided to us by the Company and/or its
senior management staff and/or the Directors. We have assumed that all such statements,
information, expectations, opinions and representations for matters relating to the Group
contained or referred to in the Circular or otherwise provided or made or given by the
Company and/or its senior management staff and/or the Directors and for which it is/they
are solely responsible were true and accurate and valid at the time they were made and
given and continue to be true and valid as at the date of the Circular. We have assumed that
all the opinions and representations for matters relating to the Group made or provided by
the Directors and/or the senior management staff of the Company contained in the Circular
have been reasonably made after due and careful enquiry. We have also sought and obtained
confirmation from the Company and/or its senior management staff and/or the Directors that
no material facts have been omitted from the information provided and referred to in the
Circular.
We consider that we have reviewed all currently available information and documents
which are available to enable us to reach an informed view and to justify our reliance on the
information provided so as to provide a reasonable basis for our opinions. We have no
reason to doubt the truth, accuracy and completeness of the statements, information,
opinions and representations provided to us by the Company and/or its senior management
staff and/or the Directors and their respective advisers or to believe that material information
has been withheld or omitted from the information provided to us or referred to in the
aforesaid documents. We have not, however, carried out an independent verification of the
information provided, nor have we conducted an independent investigation into the business
and affairs of the Company or any of its subsidiaries.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 20 –

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED
In formulating our recommendation, we have taken into consideration the following
principal factors and reasons:
1. Background to and rationales of the Acquisition
1.1 Principal business of the Group
The Group is a market leader in the sales and marketing of
self-manufactured rechargeable battery packs for mobile phones in the PRC under
its own “SCUD ” brand.
1.2 Financial performance of the Group
Historical financial performance
As stated in the Group’s 2006 annual report, the Group achieved
turnover of approximately RMB936.3 million (approximately HK$986.0
million), representing an increase of approximately 32.4% from a turnover of
approximately RMB707.0 million (approximately HK$744.3 million) for the
preceding year, due to the growing demand of rechargeable battery packs
and peripherals for mobile phones and other portable electronic devices in
the PRC. As explained in the 2006 annual report, the increase in the Group’s
turnover was mainly attributable to the increase in both the Group’s own
brand and OEM businesses.
Moreover, profit attributable to equity holders amounted to
approximately RMB160.2 million (approximately HK$168.6 million) for the
year ended 31 December 2006, as compared to approximately RMB86.3
million (approximately HK$90.8 million) for the year ended 31 December
2005. For the year ended 31 December 2006, the gross profit of the Group
increased significantly to approximately RMB240.5 million (approximately
HK$253.2 million) from approximately RMB147.3 million (approximately
HK$155.1 million) in 2005, primarily due to enhancement of production
efficiency and economies of scale, lower purchase cost and a shift of product
mix towards higher margin own brand products.
As stated in the interim report of the Group for the six months ended
30 June 2007 (the “2007 Interim Report”), the Group recorded an unaudited
turnover of approximately RMB542.8 million (approximately HK$571.4
million), representing an increase of approximately 12.5% for the six months
ended 30 June 2006. For the six months ended 30 June 2007, the gross profit
of the Group increased to approximately RMB141.6 million (approximately
HK$149.1 million) from approximately RMB126.0 million (approximately
HK$132.67 million) for the six months ended 30 June 2006, representing an
increase of approximately 12.3%.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 21 –

However, the Group recorded an unaudited loss attributable to
shareholders of the Company of approximately RMB125.3 million
(approximately HK$131.9 million) for the six months ended 30 June 2007 as
compared to the audited profit attributable to shareholders of the Company
of approximately RMB79.7 million (approximately HK$83.9 million) for the
six months ended 30 June 2006. As explained in the 2007 Interim Report,
due to the serious fire at its production plant in Fuzhou on 31 May 2007,
most of the Group’s inventory had been destroyed and the Group’s
production had been significantly disrupted. As a result, the Group incurred
losses from inventory and fixed assets caused by the fire of approximately
RMB220.2 million (approximately HK$231.8 million) before taking account
of approximately RMB52.2 million (approximately HK$54.9 million) in
respect of the agreed compensation from insurers. As stated in the 2007
Interim Report, it will take time for the production facilities to fully resume
their normal operations, and the results for the third quarter of 2007 was
expected to be challenging, whereas the results in the fourth quarter of 2007
should improve and the Directors anticipated a full resumption of normal
operations of the Group in early 2008.
General outlook of the Group’s business
Based on the “Statistic Report of the Telecommunications Industry,
December 2006” published by the Ministry of Information Industry, the
number of mobile phone users in the PRC reached 461 million as at 31
December 2006, representing an increase of 17.3% from 393 million as
compared with 2005. According to the China Statistical Yearbook 2006
( ) compiled by the National Bureau of Statistic of China
( ), the total population in the PRC amounted to
1.31 billon at the year end of 2005 with an average annual compound growth
rate of approximately 0.8% over the years from 1995 to 2005. Based on the
above, the penetration rate is approximately 35.2 mobile phones users for
every 100 people, a relatively low penetration rate with significant growth
potential in the rural market particularly.
In addition, according to the “Existing Development and Trend of the
Mobile Phone Battery Industry of China Mainland, 2006-2007” issued by
FPDisplay Research Centre, the demand for replacement rechargeable
batteries reached 183 million pieces in 2006 and is expected to increase to
205 million pieces in 2007.
The Group placed a great deal of emphasis in its distribution system
which enables the Group to establish an extensive market coverage and a
customer services network in the PRC in an effective and highly cost
effective manner. In 2007, the Group has invested in its distribution network
through various measures, including renovation of counters in raising brand
awareness and the Group has set up new offices in various major cities and
to strengthen and retain quality of the Group’s expanding network of
distributors.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 22 –

As stated in the 2007 Interim Report, the Directors believe that the
continuing growth of the China economy will contribute to the increasing
demand for communication products, computer and consumer electronics
(“3C products”) and in turn will lead to the increasing demand for
rechargeable battery packs to power such devices. In addition, the Directors
believes that the Group will also benefit from the trend of more advanced
multimedia functions of mobile phones and the higher power consumption of
mobile phones. The Directors also expect that with the operation of the 3G
network in the PRC in the near future, the Group will be presented with
further opportunities. Accordingly, the Directors believe that it would be
crucial for the Group to position itself appropriately to capture the
opportunities in the expanding market.
1.3 Reasons for and benefits of the Acquisition
The Directors believe that with the acquisition of the Sale Interest, the Sale
Assets and employment of certain previous management of CLTE, the Group will
benefit from the following main factors:
(i) the “Chaolitong ” brand has a solid sales network covering
second, third-tier cities, towns and villages in the PRC, thus
complementing the Group’s lack of sales coverage in these areas whilst
increasing the Group’s market share both under the “SCUD ” and
“Chaolitong ” brands within a short period of time, which is in
line with the Group’s long term strategy to expand its market coverage
and product range and position the Group to capture additional market
share in the highly fragmented and competitive rechargeable battery
market in the PRC.
Based on the information provided by the Group, the following
summarizes the scale of the distribution channels of the Group (under
the “SCUD ” brand), and that of the “Chaolitong ” brand
respectively:
SCUD

( )
Chaolitong
( )
No. of Distributors 360 211
No. of provinces, municipalities and
autonomous regions covered 31 31
No of cites covered 259 309
No. of sale counters in districts 32,765 1,637
No. of sale counters in town 2,273 12,674
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 23 –

(ii) the Group’s product variety will be expanded and the rate of its
research and development will improve, thus reducing the lead time to
launch new products;
(iii) both of the Group’s production capacity and efficiency will be
increased, thus reducing costs of production and sourcing of raw
materials and achieving economies of scale; and
(iv) the level of market competition will reduce by way of consolidating
two of the largest mobile phone battery pack manufacturers in the PRC
since the “Chaolitong ” brand is one of the largest rivals to the
“SCUD ” brand of battery packs in the PRC and expand the
Group’s market coverage as a result of the Acquisition.
Taking into account (i) the outlook of the Group’s business as outlined
above; and (ii) the background to, and reasons for, the Acquisition are consistent
with the Group’s corporate strategy to capture a substantially larger market share
of the anticipated increase in demand for rechargeable battery packs in the PRC in
future, we concur with the view of the Directors that the Acquisition is consistent
with the Group’s business strategy with potential synergies and commercial
benefit to the Group and hence, we concur with the view of the Directors that the
Acquisition is in the interests of the Company and the Shareholders as a whole.
2. The Agreement
2.1 Parties
Vendor: Mr. Ma Yuk Sang.
Mr. Ma Yuk Sang is the 30% shareholder of the Purchaser, a 70% indirect
subsidiary of the Company. As a substantial shareholder of an indirect subsidiary
of the Company, Mr. Ma is a connected person of the Company.
Purchaser: The Company.
2.2 Subject Matter of the Agreement
Pursuant to the Agreement, the Vendor has agreed to procure the sale of the
Sale Interest (being 100% equity interest in CLTT) to the Purchaser and the sale
of the Sale Assets to CLTT. In light of the fact that the Sale Assets will constitute
a new production line after the Acquisition, as a commercial decision, the
Company decided to purchase the Sale Assets via CLTT (a company that is not
currently engaged in any business activities and not part of the Group prior to the
Acquisition) to minimise potential risks related to the new business of operating
the Sale Assets.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 24 –

The Purchaser is ultimately owned as to 70% by the Company and 30% by
the Vendor. The Vendor does not and will not (save through his 30% stake in the
Purchaser) on implementation of the Acquisition, own the Sale Assets.
The Sale Assets, related senior management and employees who are expected
to join CLTT as from the CLTT Completion Date have previously been
responsible for managing the manufacture and sale of rechargeable battery packs
for mobile phones under the “Chaolitong ” brand in China. “Chaolitong
” is one of the largest rivals to the “SCUD ” brand of rechargeable
battery packs for mobile phones in China. The Sale Assets do not represent all
assets of CLTE. The Sale Assets only represent some of assets of CLTE such as
fixed assets and intellectual property rights. It does not include CLTE’s accounts
receivables, interest in real properties and that part of the inventory which the
Group may not acquire.
The Group does not intend to acquire such other assets of CLTE or assume
its liabilities.
As stated in the “Letter from the Board” in the Circular, the Company is not
a party to any of the arrangements (if any) entered into between the Vendor and
the Original Shareholders in relation to Acquisition and the consideration thereof.
The Directors confirm that the Group has adopted the current structure of the
transaction, which is designed to ensure (i) that the Group acquires the Sale
Assets without associated liabilities (including taxation liabilities) in an efficient
and lawful manner; (ii) accountability and alignment with the Group of interests
of the Vendor and the successful implementation of the transaction; and (iii)
retention of existing key management on terms which is compliant with the PRC
laws. By acquiring the Sale Assets through the acquisition of the Sale Interest, the
Group would effectively absorb the existing business operations of “Chaolitong
” (including its distribution network and the business brands) and secure
the services of its key management (including the Original Shareholders) and
staff.
2.3 Consideration for the Acquisition Agreement and the method of settlement
The Company has agreed to pay up to RMB245 million as the total
consideration payable pursuant to the Agreement as follows:
(i) RMB37 million to be injected into CLTT through the Purchaser to fund
the purchase of the Sale Interest from CLTE as well as to ultimately
pay CLTE not more than RMB36.5 million for the Sale Assets. The
Sale Assets (excluding the raw materials which is the subject of the
adjustment detailed below and the intellectual property rights which
were not the subject of the valuation report referred to below), amount
to RMB11,476,845 based on a valuation report dated 10 December
2007 prepared in the PRC and its book value is RMB11,617,981 based
on audited accounts for the nine months ended 30 September 2007
prepared in accordance with PRC GAAP. Such funds would be
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 25 –

advanced by the Company to the Purchaser (a 70% subsidiary of the
Company) on the CLTT Approval Date and, subject to compliance with
the relevant Chinese regulatory requirements, CLTT would then
complete the purchase of the Sale Interest and the Sale Assets on the
CLTT Completion Date; and
(ii) up to RMB208 million to the Vendor, of which RMB91 million is to be
paid in cash in HK$ on the CLTT Completion Date to the Vendor and
the balance of RMB117 million is to be satisfied by the issue of an
aggregate of 30 million Consideration Shares to the Vendor at HK$2.05
(based on the 20 day average closing price immediately preceding
suspension of trading in the Shares) per Share three months after the
CLTT Completion Date, and of up to an additional 30 million
consideration Shares at HK$2.05 per Share in three tranches to the
Vendor if CLTT achieves or exceeds the specified NPAT Targets for
FY2008, FY2009 and FY2010 as described below. Therefore, if the
NPAT Targets for any of those years is not met, the maximum number
of Consideration Shares will not be issued to the Vendor and the total
consideration payable pursuant to the Agreement will be reduced
accordingly;
The Vendor has confirmed that as part of his arrangements with the Original
Shareholders, assuming the Original Shareholders comply with the agreed terms,
he will be entitled to 0.5% of the Consideration. If the Original Shareholders do
not abide by their undertakings and/or the NPAT Targets are not met, the Original
Shareholders entitlement to the Consideration will be accordingly reduced.
There are four tranches of Consideration Shares to be issued to the Vendor.
Save for the first tranche which will be issued three months after the CLTT
Completion Date, the number of Consideration Shares to be issued in the
remaining three tranches will be issued by the Company at the end of the relevant
financial years subject to the NPAT Targets being met.
The NPAT Targets for FY2008, FY2009 and FY2010 and the number of
Consideration Shares to be issued if each NPAT Target is met or exceeded is set
out below:
Maximum number of
shares to be issued
in each tranche NPAT Target
10,000,000 RMB50 million (approximately HK$52.6 million)
for FY2008
10,000,000 RMB55 million (approximately HK$57.9 million)
for FY2009
10,000,000 RMB60 million (approximately HK$63.2 million)
for FY2010
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 26 –

If any of the NPAT Targets is not met, the corresponding Consideration
Shares will not be issued to the Vendor and the consideration payable pursuant to
the Agreement will be reduced accordingly. Should the NPAT be met or exceeded,
the Company will issue the above Shares as soon as practicable following receipt
of confirmation of the relevant audited NPAT results for the relevant financial
year.
The issue price of HK$2.05 per Consideration Share represents:
(i) a discount of approximately 13.5% to the closing price of the Shares of
HK$2.37 per Share on 11 December 2007, being the last trading day
prior to the suspension in trading of the Shares on 12 December 2007;
and
(ii) a discount of approximately 7.66% to the average closing price of
approximately HK$2.22 per Share for the last five (5) consecutive
trading days up to and including the 11 December 2007.
Based on the last closing price of the Shares of HK$2.37, the maximum
number of Consideration Shares is valued at HK$142.2 million.
The Consideration was arrived at after arm’s length negotiations between the
Company and the Vendor with reference to the past sales and financial
performance of the “Chaolitong ” business, the registered capital of CLTT
(RMB2 million) and an agreed valuation of the Sale Assets (subject to adjustment
described below), details of which adjustment which will be agreed prior to the
CLTT Completion Date.
The Consideration Shares are not subject to any lock-up.
2.4 CLTT Completion Date
The CLTT Completion Date is when the purchase of the Sale Interest and
Sale Assets are completed.
The Vendor has undertaken to procure that after the CLTT Completion Date,
CLTE and related previous management would not compete with the Group under
the “Chaolitong ” brand or otherwise. Apart from certain agreed key
personnel previously involved in the “Chaolitong ” business who are also
required to enter into employment contracts with CLTT, CLTT will employ such
other staff as it considers necessary.
The Directors have advised that the Group is in the process of finalising the
relevant employment contracts with certain key personnel (including the Original
Shareholders) and the non-competition undertakings from the relevant individuals.
It is the intention of the Company to enter into legally binding agreements of the
above before the CLTT Completion Date.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 27 –

2.5 Adjustment to the Consideration
The final price for the purchase of the Sale Assets will not exceed RMB36.5
million but is to be fixed after the details of the Sale Assets are finalized by the
Purchaser, including verification by the Purchaser that certain raw materials are in
acceptable condition. The Purchaser will make its determination by reference to
factors such as the audited value (as at 31 December 2007) of the raw materials
available on that date, the age and utility of such raw materials. To the extent that
the Purchaser elects to accept delivery of raw materials which when aggregated
with the agreed value of the other Sale Assets is less than RMB36.5 million, the
Vendor has undertaken to procure that CLTE refunds the difference to CLTT in
cash on a dollar-to-dollar basis. The total amount of raw materials as of 30
September 2007 was approximately RMB36.5 million based on CLTE’s audited
accounts prepared in accordance with PRC GAAP for the nine month period
ended 30 September 2007.
2.6 Conditions precedent
Completion of the Acquisition is conditional upon the satisfaction or waiver
of the following conditions, among others:
(i) the due diligence review of, among other things, the business,
operations and financial positions of CLTE and CLTT having been
completed to the satisfaction of the Group;
(ii) a PRC legal opinion from the Group’s PRC legal advisers in such form
as satisfactory to the Company, in relation to, among other things, the
due incorporation of CLTT and the relevant approvals for the transfer
of the Sale Interest;
(iii) all approvals, consents and permits in relation to the transaction have
been obtained, including but not limited to the listing approval of the
Consideration Shares from the Stock Exchange; and
(iv) CLTE and CLTT having entered into the asset transfer agreement in the
agreed form.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 28 –

3. Shareholding structure of CLTT and CLTE
The following diagrams illustrate the shareholding structure of CLTT and CLTE
immediately before and after Completion.
Immediately before CLTT Completion Date and as at the Latest Practicable
Date
CLTT

Zheng Zhenjian
40% 40% 20%
CLTT

Ma Jie Zheng Wei
CLTE

Zheng Zhenjian
40% 40% 20%
CLTE

Sale Assets
Ma Jie Zheng Wei
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 29 –

Immediately after the CLTT Completion Date
Great Speed
Enterprises
Limited
Company
70%
100%
30%
100%
The Purchaser
CLTT

Sale Assets
Vendor
3.1 Lease agreement
It is expected that after the date of the Agreement, CLTT and CLTE may
enter into a lease agreement whereby CLTT will lease the factory and office
premises from CLTE in Shenzhen. The annual rental payable is expected to be
approximately RMB3.6 million subject to final agreement. The Original
Shareholders are also expected to become directors of CLTT upon the CLTT
Approval Date and which, by then, CLTT will have become an indirect subsidiary
of the Company. If such lease is entered into, the lease may be a continuing
connected transaction for the Group as CLTE and the Original Shareholders could
be considered as associates (as defined in the Listing Rules) of the Vendor, being
a substantial shareholder of one of the Company’s subsidiaries, namely, the
Purchaser. In such event, the Company will comply with the relevant provisions
of the Listing Rules accordingly.
4. Information on the Vendor, CLTT, CLTE and the “Chaolitong ”
CLTT was incorporated in China with limited liability and is not currently
engaged in any business activities. Its total registered capital is RMB2 million, which
has been fully paid. CLTE was incorporated in China with limited liability and is one
of the Group’s largest rivals which principally engaged in the manufacture and sale of
rechargeable battery packs in China for mobile phones under the “Chaolitong ”
brand. The Sale Assets represent the principal operating assets of CLTE. CLTE has a
total registered capital of RMB20 million which has been fully paid. To the best of the
Directors’ knowledge, information and belief, having made all reasonable enquiries,
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 30 –

each of the ultimate beneficial owners of each of CLTT and CLTE, being the Original
Shareholders, is not a connected person of the Company (other than as a result of them
being involved in the Acquisition in the manner stated in the Circular).
Based on the Chinese financial information prepared under PRC GAAP provided
to the Company, the historical revenue, net profit before and after taxation and
extraordinary items attributable to CLTE (which operates the “Chaolitong ”
brand business) were as follows:
Revenue
Net profit before
taxation and
extraordinary
items
Net profit after
taxation and
extraordinary
items
Year ended 31 December
2005 (Audited)
RMB172.4 million RMB39.6 million RMB36.3 million
Year ended 31 December
2006 (Audited)
RMB154.1 million RMB29.6 million RMB27.4 million
9 months ended 30
September 2007 (Audited)
RMB148.3 million RMB31.0 million RMB26.3 million
Year ended 31 December
2007 (Unaudited)
RMB222.4 million RMB45.0 million RMB38.2 million
5. Factors in assessing the consideration of the Acquisition
5.1 Comparison with market prices of the Shares
Under the Agreement, the issue price per Consideration Share of HK$2.05
also represents:
(a) a premium of approximately 14.5% over the closing price of HK$1.79
per Share as quoted on the Stock Exchange as at the Latest Practicable
Date;
(b) a discount of approximately 2.4% to the average closing price of
approximately HK$2.1 per Share for the last ten (10) consecutive
trading days up to and including the 11 December 2007;
(c) the equivalent to the average closing price of approximately HK$2.05
per Share for the last twenty (20) consecutive trading days up to and
including the 11 December 2007; and
(d) a premium of approximately 122.8% to the latest published net asset
value of approximately RMB0.874 (approximately HK$0.92) per Share
as at 30 June 2007, based on the total equity attributable to
shareholders of the Company of approximately RMB867.2 million and
992,001,246 Shares in issue as set out in the 2007 Interim Report of
the Group for the six months ended 30 June 2007.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 31 –

We would also like to draw Shareholders’ attention to the following chart,
which sets out the historical closing price performance of the Shares since its
floatation on the 21st December 2006 as quoted on the Stock Exchange up to the
Latest Practicable Date (“Review Period”):
Historical daily closing price
0
0.5
1
1.5
2
2.5
3
3.5
4
12
/
2
1
/
06
1/
2
1
/
0
7
2/
2
1
/
0
7
3/
2
1
/
0
7
4/
2
1
/
0
7
5/
2
1
/
0
7
6/
2
1
/
0
7
7/
2
1
/
0
7
8/
2
1
/
0
7
9/
2
1
/
0
7
10
/
2
1
/
07
11
/
2
1
/
07
12
/
2
1
/
07
01/
07/
08
Issue price HK$ 2.05
Source: Bloomberg
Since the Group’s floatation in December 2006, the Shares have been trading
above the issue price. The highest price since floatation of the Shares was noted
in May 2007 at HK$3.73. The price of the Shares subsequently declined and
dropped below the issue price of HK$2.05 in early August 2007. In mid-August,
the lowest price of the Shares since floatation was recorded, HK$1.82. In
September 2007, the price of the Shares rose above the issue price of HK$2.05.
From September up to the Latest Practicable Date, the Shares have been trading
within the range of HK$1.79 to HK$2.81.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 32 –

Trading volume
The below table sets out the highest and the lowest closing prices of
the Shares as quoted on the Stock Exchange during the Review Period:
Period/
month
Highest
closing
price
Lowest
closing
price
Average
closing
price
Average
daily
trading
volume for
the period/
month
Percentage
of average
daily
trading
volume to
toal no. of
issued
shares
HK$ HK$ HK$ Shares %
2006

December 3.05 2.02 2.737 75,019,833 7.56%
2007

January 3.37 3.07 3.211 11,541,682 1.16%
February 3.5 3.09 3.224 4,720,167 0.48%
March 3.17 2.7 2.895 5,100,129 0.51%
April 3.19 3.137 3.05 4,461,389 0.45%
May 3.73 3.13 3.428 4,079,857 0.41%
June 3.55 2.68 2.934 5,109,850 0.52%
July 2.72 2.45 2.555 2,178,524 0.22%
August 2.38 1.6 1.986 2,418,435 0.24%
September 2.81 2.33 2.552 3,493,105 0.35%
October 2.57 2.15 2.29 1,576,571 0.16%
November 2.25 1.88 2.051 542,000 0.05%
December 2.37 2 2.237 987,000 0.10%
2008

January (up
to Latest
Practicable
Date) 2.08 1.79 1.99 1,260,800 0.13%
As indicated from the above table, the Shares have been thinly traded
and rather illiquid for the past year. Given the abovementioned thin trading
volume of the Shares, we are of the view that the adoption of recently traded
share price, i.e. the average closing price for the last twenty (20) consecutive
trading days prior to the suspension of the Shares, as a basis for arriving at
the issue price per Consideration Share for the Acquisition is fair and
reasonable.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 33 –

5.2 Price earnings ratio analysis
The following table (Table A) summarized the relevant price earnings ratios
(“PER”) based on the consideration amounts, the relevant NPAT Targets for the
years ending 2008, 2009 and 2010 and the historical profit of CLTE for the year
ended 31 December 2006 and 2007:
Table A
Total Consideration
payable (assuming
the relevant NPAT
targets are met)
Minimum Cash
Consideration and
the initial 30
million
Consideration
Shares
RMB245 million RMB186.4 million
Year end
NPAT

Target
Attributable
(70%)
amount of
NPAT to
the Group
Effective
PER
Effective
PER
(RMB
million)
(RMB
million) (times) (times)
31 December 2008 50.0 35.0 7.0 5.3
31 December 2009 55.0 38.5 6.4 4.8
31 December 2010 60.0 42.0 5.8 4.4
Historical figures
31 December 2007
(unaudited) N/A 26.7 N/A 7.0
31 December 2006 N/A 19.2 N/A 9.7
In assessing the above-mentioned range of PERs, we have compared them
against the Company’s own PER multiples.
Based on the above, we observe that the historical range of PERs of the
Company of between 9.7 times and 13.4 times the historical 2006 net profit of the
Group recorded before the fire incident in May 2007, and the range of PERs (as
set out in Table B) of between 7.4 and 8.4 times the Group’s 2006 earnings, are
mostly higher than the effective PERs (“Effective PERs”) indicated in Table A.
In addition, Shareholders’ attention is also drawn to the audited net profit
before taxation and extraordinary items of CLTE for the 9 months to 30
September 2007, as set out under paragraph 4 above, which reported a figure of
RMB31.0 million. This amount exceeded the corresponding figure of the audited
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 34 –

figure in the year ended 31 December 2006 of RMB29.6 million. With the
improvement in profitability continued for the last quarter of 2007, based on the
unaudited net profit after taxation and extraordinary items of CLTE for year ended
31 December 2007 as set out under paragraph 4 above, the effective PER for the
year ended 31 December 2007 is approximately 7.0 times of CLTE’s earnings.
Taking into account of the above observation and recognizing that the price
of the Shares represents the market multiples on the traded Shares, whereas under
the Acquisition, the Group is acquiring a controlling interest in CLTT (and the
underlying business of CLTE), the Directors are of the view that the imputed
PERs under the Consideration to be fair and reasonable.
For illustration purpose only, taking into account the highest and lowest
traded price of the Shares prior to the fire incident in May 2007 of HK$3.73
(approximately RMB3.54 based on the exchange rate of RMB1 to HK$1.0527) per
Share and HK$2.69 (approximately RMB2.55 based on the exchange rate of
RMB1 to HK$1.0527) per Share and the Group’s net profit after tax of
approximately RMB160 million for FY 2006, the price to earnings ratio would
range from 9.7 to 13.4.
The following table (Table B) set out the PERs of the shares based on the
price to earnings multiple of the Shares based on the 2006 historical earnings of
the Group and the issue price of the Considerations Shares of HK$2.05, and the 5
trading days average closing price of the shares price to 11 December 2007 of
HK$2.22.
Table B
Based on the
FY2006 basic
earnings per
share of
RMB26.35

cents
Based on the
FY2006

diluted
earnings per
share of
RMB24.93

cents
1
Share price
Price to
earnings ratio
Price to
earnings ratio
HK$2.22 (approximately RMB2.10
2
being the 5 day average closing price
per Share up to 11 December 2007) 8.0 8.4
HK$2.05 (approximately RMB1.94
2
being issue price for the
Consideration Shares) 7.4 7.9
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 35 –

Notes:
1. assuming all share options issued under the Company’s pre-IPO share option scheme,
the over-allotment option exercised as per the Company’s announcement dated 8 January
2007 and conversion of the convertible bond issued by the Company to Neng Liang
Limited have been exercised.
2. based on the exchange rate of RMB1 to HK$1.0527
In additional to the above analysis, we have also identified a population of
(i) 2 companies listed on the Stock Exchange and (ii) 4 companies listed on the
Taiwan Stock Exchange, NASDAQ and Singapore Stock Exchange as set out in
the table below, which are engaged in the manufacturing of batteries (together the
“Comparables”) and we have, accordingly, compared their market statistics of the
Comparables with the consideration for the Acquisition.
Stock
Exchange
Closing
price as
at Latest
Practical
Date
Historical
earnings
per share
Historical
PER
HK$ HK$ (Times)
Hong Kong companies:
BYD Company Limited HK 50.6 2.07 24.44
Coslight Technology International Group
Limited
HK 4.32 0.33 12.93

Outside Hong Kong companies:
China Bak Battery, Inc. US 37.68 0.08 483.00
Dynapack International Technology
Corporation
Taiwan 21.03 1.51 13.90
GP Batteries International Limited Singapore 6.54 0.60 10.81
Simplo Technology Co., Limited Taiwan 31.37 2.15 14.62
Minimum 10.81
Maximum 483.00
Notes:
1. HK$1.00 = United States dollar 0.1282 HK = The Stock Exchange of Hong Kong Limited
2. HK$1.00 = New Taiwanese dollar 4.1597 US = NASDAQ
3. HK$1.00 = Singapore dollar 0.1834 Taiwan = Taiwan Stock Exchange
Singapore = Singapore Exchange Limited
Source: Bloomberg and the latest annual reports of the Comparables
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 36 –

As shown in the above table, the PER of the Comparables ranges from
approximately 10.81 times to 483.0 times. Excluding China Bak Battery, Inc.
which has an exceptional high PER due to the substantial decrease in earnings, as
compared to other companies, the PER of the remaining comparables companies
ranges from 10.81 times to 24.44 times, which are higher than the Effective PERs
as indicated in Table A.
5.3 Price to book ratio analysis
The Group reported an unaudited net tangible asset value (“NTAV”)of
RMB864,799,000 as at 30 June 2007, which is equivalent to the NTAV per Share
of approximately RMB87.18 cents based on 992,001,246 Shares in issue. The
following table (Table C) sets out the expected changes to the NTAV per Share as
a result of the implementation of the Acquisition, and the fulfillment of the NPAT
targets in the coming years.
Table C
Changes to
NTAV

Cumulative
NTAV

NTAV per
Share
Issue of
Consideration
Shares
Cumulative
shares in
issue
(RMB) (RMB) (RMB cents)
As at 30 June 2007 864,799,000 87.18 992,001,246
Adjusted by:
Cash payable for the Sale
Assets (36,500,000)
Addition of assumed book
value of the Sale Assets 36,500,000
Cash payable to the Vendor
and initial issue of 30
million Consideration
Shares (91,000,000) 30,000,000 1,022,001,246
773,799,000 75.71 1,022,001,246

Increase in attributable
(70%) share of NPAT and
issue of further
Consideration Shares for
the year ending:
31 December 2008 35,000,000 808,799,000 78.37 10,000,000 1,032,001,246
31 December 2009 38,500,000 847,299,000 81.31 10,000,000 1,042,001,246
31 December 2010 42,000,000 889,299,000 84.53 10,000,000 1,052,001,246
Based on the above calculations, the NTAV per Share of the Group would be
reduced from RMB87.18 cents per Share to RMB75.71 cents per Share by the
implementation of the Acquisition, represent a dilution of approximately 13.16%.
In the event that the NPAT Targets are fulfilled in each of the relevant year, the
resultant position in the NTAV per Share would be improved to RMB84.53 cents
per Share, representing a smaller dilution of approximately 3% from the NTAV
per Share position as at 30 June 2007.
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 37 –

We have discussed the above-mentioned dilution calculation with the
management of the Company. Their view is that the calculations have not taken
into account of the value of the brand and the established distribution network of
Chaolitong which has immense strategic values to the Group. In
particularly, the Directors consider that it would be very costly for the Group to
penetrate market presence in the various markets where Chaolitong has
already secured a stronghold. Furthermore, the Directors are satisfied with the
proposed issue of further Consideration Shares upon the fulfillment of the relevant
NPAT targets, which they consider will provide attractive motivation for
performance. Accordingly, the Directors consider that the overall terms of the
Consideration to be fair and reasonable and are in the interest of the Company as
a whole.
Having considered the factors outlined above, we concur with the view of
the Directors that the terms of the consideration under the Acquisition to be fair
and reasonable, and is in the interest to the Company and its Shareholders.
6. Other effects on the Group and the Shareholders
6.1 Total assets, total liabilities and net asset value
Upon completion of the acquisition of CLTT, it will be accounted for as a
subsidiary of the Company and its results, assets and liabilities will be
consolidated in the Group’s financial statements. On completion of the purchase
by CLTT of the Sale Assets, they will become assets of CLTT and be accounted
for accordingly. The consolidation of the assets into the Group’s financial
statement will be partly offset by the decrease in “Bank balances and cash” for
the cash portion of the Consideration.
Whilst the “Share capital and reserve” will increase as a result of the
issuance of the initial 30 million Consideration Shares and a further increase of
30 million Consideration Shares if the relevant profit targets are met.
The implementation of the Acquisition is expected to give rise to goodwill.
Goodwill represents the excess of the cost of a business combination over the
Group’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities. Goodwill is initially recognised as an asset at
cost and is subsequently measured at cost less any accumulated impairment losses.
The extent to which any goodwill impairment provision may be required in the
Group’s future financial statement would depend on the assessment as whether
any impairment on goodwill may be necessary.
6.2 Cash position and gearing
As the cash consideration for the Acquisition will be satisfied by the internal
resources of the Group, the “Bank balances and cash” classified under current
assets of the consolidated balance sheet of the Group will be reduced by
approximately RMB128 million in cash (subject to adjustment).
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 38 –

As the cash consideration for the Acquisition will be satisfied by the internal
resources, and the CLTT and the Sale Assets do not involve borrowings, there will
be no material impact on the gearing ratio of the Group as a result of the
Acquisition.
6.3 Shareholding
The shareholding positions of the Company before and after the Acquisition
are set out below:
Name of
shareholders
Shareholding before
Acquisition (as at the
Latest Practicable Date)
Shareholding after
Acquisition (assuming
NPAT Targets not met
and minimum 30 million
Consideration Shares
issued)
Shareholding after
Acquisition (assuming all
NPAT Targets met and
maximum 60 million
Consideration Shares
issued)
Number of
Shares %
Number of
Shares %
Number of
Shares %
Swift Joy Holdings
Limited 402,000,000 40.52 402,000,000 39.33 402,000,000 38.21
Right Grand
Holdings Limited 180,000,000 18.15 180,000,000 17.61 180,000,000 17.11
Cheer View Holdings
Limited 18,000,000 1.81 18,000,000 1.76 18,000,000 1.71
Public Shareholders 392,001,246 39.52 392,001,246 38.36 392,001,246 37.27
Vendor N/A N/A 30,000,000 2.94 60,000,000 5.70
992,001,246 100.00 1,022,001,246 100.00 1,052,001,246 100.00

Immediately after the issue of the initial Consideration Shares, the Vendor
will be interested in 30,000,000 Shares, representing approximately 2.94% of the
enlarged issued share capital of the Company. On this basis, the interest of the
existing public Shareholders will be diluted from approximately 39.52% (as at the
Latest Practicable Date) to approximately 38.36% of the enlarged issued share
capital of the Company following the issue of the initial 30 million Consideration
Shares, representing a dilution effect of approximately 2.9%.
Assuming the relevant NPAT Targets are met, a further 30 million
Consideration Shares will be issue to the Vendor and the Vendor will be interested
in 60 million Shares, representing approximately 5.7% of the enlarged issued
share capital of the Company. The shareholding interest of the existing public
Shareholders, will as a result of the issue of the additional Consideration Shares
be diluted by a further approximately 2.8% from 38.36% to 37.27%.
Taking into account the market performance of the Shares and the internal
resources available to the Group, the Vendor and the Company believe that by
issuing the Consideration Shares to the Vendor which, in turn, will save the
Group’s internal resources for deployment in the business operations in the future.
Also taking into account the other reasons and factors set out in this letter,
in particular, the issue price for the Consideration Shares is (i) equivalent to the
average closing price for the last twenty (20) consecutive trading days up to and
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 39 –

including the 11 December 2007; and (ii) the liquidity of the Shares on the Stock
Exchange and the possible effects on the Group and the Shareholders as a result
of the Acquisition, we are of the view that the slight dilution effect to the existing
public Shareholders as a result of issuing Consideration Shares is acceptable.
RECOMMENDATION

In considering the terms of the Acquisition, we have taken into account the following
factors:
– the principal activities and the financial performance of the Group as described in
paragraphs 1.1 and 1.2 above;
– the reasons for and benefits of the Acquisition;
– the terms of the Agreement with regard to the basis of the consideration, and the
condition precedents requiring the satisfaction of due diligence review and the
fulfillment of all relevant consents /approvals.
– the other factors (namely the price performance and trading volume of the Shares,
the comparison of price to the various financial ratios and) in considering the
Agreement; and
– the expected financial and/or strategic impact of the Acquisition.
After having considered the above principal factors and based on the information
provided and the representations made to us, we consider the terms of the Agreement to be
fair and reasonable so far as the Shareholders are concerned; and that the Acquisition is in
the interests of the Company and the Shareholders as a whole. Accordingly, we advise the
Independent Board Committee to recommend to the Shareholders to vote in favour of the
resolution which would have been proposed at the general meeting of the Company to
approve the Acquisition.
Yours faithfully
For and on behalf of
ACCESS CAPITAL LIMITED

Ambrose Lam
Chairman
Jimmy Chung
Executive Director
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 40 –

RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules for the
purpose of giving information with regard to the Group. The Directors collectively and
individually accept full responsibility for the accuracy of the information contained in this
circular and confirm, having made all reasonable enquires, that to the best of their
knowledge and belief, there are no other facts the omission of which would make any
statement herein misleading.
DISCLOSURE OF DIRECTORS’ INTERESTS
(i) Directors’ interests and short positions in the shares, underlying shares and
debentures of the Company
As at the Latest Practicable Date, the interests and short positions of the Directors and
chief executives of the Company in the shares, underlying shares and debentures of the
Company and its associated corporation (within the meaning of Part XV of the Securities
and Futures Ordinance (the “SFO”)) which: (a) were required to be notified to the Company
and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including
interests and short positions which they are taken or deemed to have under such provisions
of the SFO) or pursuant to the Model Code for Securities Transactions by Directors of
Listed Issuers (the “Model Code”), or (b) were required to be entered in the register kept by
the Company pursuant to Section 352 of the SFO, were as follows:
Name of
Director Capacity
Number of
ordinary
shares
Number of
ordinary
shares
subject to
options
granted
Percentage of
the issued
share capital
of the
Company
Fang Jin Corporate interest
(Note 1)
402,000,000 – 40.52%
Beneficial interest – 5,000,000 0.50%
Lin Chao Corporate interest
(Note 2)
180,000,000 – 18.15%
Beneficial interest – 4,000,000 0.40%
Guo Quan Zeng Corporate interest
(Note 3)
18,000,000 – 1.81%
Beneficial interest – 3,500,000 0.35%
Li Hui Qiu Beneficial interest – 2,600,000 0.28%
APPENDIX GENERAL INFORMATION

– 41 –

Notes:
1. These Shares are directly held by Swift Joy Holdings Limited, whose entire issued share capital is
held by Fang Jin.
2. These Shares are directly held by Right Grand Holdings Limited, whose entire issued share capital is
held by Lin Chao.
3. These Shares are directly held by Cheer View Holdings Limited, whose entire issued share capital is
held by Guo Quan Zeng.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors and
chief executives of the Company had: (a) under Divisions 7 and 8 of Part XV of the SFO,
nor were they taken or deemed to have under such provisions of the SFO, any interests or
short positions in the shares, underlying shares or debentures of the Company or any
associated corporations (within the meaning of Part XV of the SFO); (b) any interests which
are required to be entered into the register kept by the Company pursuant to Section 352 of
the SFO; or (c) any interests which are required to be notified to the Company and the
Stock Exchange pursuant to the Model Code.
(ii) Interests and short positions of Shareholders discloseable under the SFO
So far as is known to the Directors and chief executives of the Company, as at the
Latest Practicable Date, the following persons (other than directors or chief executive of the
Company) had interests or short positions in the shares or underlying shares of the Company
which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3
of Part XV of the SFO, or which were recorded in the register required to be kept by the
Company under Section 336 of the SFO:–
Name of Shareholder Capacity
Number of
issued
ordinary
shares/
underlying
shares held
Percentage of the
issued share
capital of the
Company as at
Latest
Practicable Date
Swift Joy Holdings Limited Beneficial owner 402,000,000 40.52%
Right Grand Holdings Limited Beneficial owner 180,000,000 18.15%
Baring Asset Management
Limited
Investment manager 88,844,000 8.96%
SAS Rue la Boetie Interest through controlled
corporation (Note 1)
93,001,246 9.38%
Credit Agricole S.A. Interest through controlled
corporation (Note 1)
93,001,246 9.38%
APPENDIX GENERAL INFORMATION

– 42 –

Name of Shareholder Capacity
Number of
issued
ordinary
shares/
underlying
shares held
Percentage of the
issued share
capital of the
Company as at
Latest
Practicable Date
Calyon S.A. Interest through controlled
corporation (Note 1)
93,001,246 9.38%
Calyon Capital Markets
International SA
Interest through controlled
corporation (Note 1)
93,001,246 9.38%
Calyon Capital Markets Asia
B.V.

Interest through controlled
corporation (Note 1)
93,001,246 9.38%
CLSA B.V. Interest through controlled
corporation (Note 1)
93,001,246 9.38%
CLSA Capital Partners Limited Interest through controlled
corporation (Note 1)
93,001,246 9.38%
CLSA Private Equity
Management Limited
Interest through controlled
corporation (Note 1)
93,001,246 9.38%
Aria Investment Partners II,
L.P.

Interest through controlled
corporation (Note 1)
93,001,246 9.38%
Neng Liang Limited Beneficial owner 93,001,246 9.38%
Northern Trust Fiduciary
Services (Ireland) Limited
Trustee 63,082,000 6.06%
Ma Jie Interests of a party to an
agreement to acquire
interests in a listed
corporation
60,000,000 6.05%
Zheng Wei Beneficial owner 60,000,000 6.05%
Zheng Zhen Jian Beneficial owner 60,000,000 6.05%
Ma Yuk Sang Beneficial owner (Long) 60,000,000 6.05%
Other (Short) 60,000,000 6.05%
APPENDIX GENERAL INFORMATION

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Notes:
1. Based on the disclosure of interests forms filed with the Stock Exchange, SAS Rue la Boetie has
33.3% control over Credit Agricole S.A., which in turn has 33.3% control over Calyon S.A., which in
turn has 33.3% control over Calyon Capital Markets International SA, which in turn has 33.3%
control over Calyon Capital Markets Asia B.V., which in turn has 33.3% control over CLSA B.V.,
which in turn has 33.3% control over CLSA Capital Partners Limited, which in turn has 33.3%
control over CLSA Private Equity Management Limited, which in turn has 1% control over Aria
Investment Partners II, L.P., which in turn has 33.3% control over Neng Liang Limited. As such,
each of the above entities is deemed to be interested in the 93,001,246 shares held by Neng Liang
Limited under the SFO.
Save as disclosed above, the Directors and the chief executives of the Company are not
aware that there is any party who, as at the Latest Practicable Date, had an interest or short
positions in the shares and underlying shares of the Company which would fall to be
disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO,
or who is, directly or indirectly, interested in 10% or more of the nominal value of any class
of share capital carrying rights to vote in all circumstances at general meetings of any other
member of the Group or had any options in respect of such shares.
LITIGATION

As at the Latest Practicable Date, none of the Company nor any of its subsidiaries is
engaged in any litigation or arbitration of material importance and no litigation or claim of
material importance is known to the Directors to be pending or threatened against the
Company or any of its subsidiaries.
SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has a service agreement with
the Company which is not determinable by the Group within one year without payment of
compensation, other than statutory compensation.
DIRECTORS’ INTEREST IN COMPETING BUSINESS
None of the Directors or their respective associates are interested in any business apart
from the Group’s businesses which competes or is likely to compete, either directly or
indirectly, with the Group’s businesses as at the Latest Practicable Date.
APPENDIX GENERAL INFORMATION

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DIRECTORS’ INTEREST IN ASSETS
As at the Latest Practicable Date, none of the Directors have any material interest,
either direct or indirect, in any assets which had been, since the date to which the latest
published audited financial statements of the Company were made up acquired or disposed
of by or leased to any member of the Group or are proposed to be acquired or disposed of
by or leased to any member of the Group.
DIRECTORS’ INTERESTS IN CONTRACTS
No contracts of significance to which the Company was a party and in which a
Director had a material interest and which is significant to the Group’s business, whether
directly or indirectly, subsisted at the date of this circular.
CONSENT AND EXPERT

The following table lists the qualification of the professional adviser who has given
opinion or advice, which is contained in this circular:
Name Qualification
Access Capital Limited A licensed corporation under the SFO which
engages in types 1 (dealing in securities), 4
(advising on securities), 6 (advising on corporate
finance) and 9 (asset management)
The Independent Financial Adviser has given and has not withdrawn its written consent
to the issue of this circular with the inclusion of its letter and/or opinions and/or the
references to its name in the form and context in which it respectively appears.
As at the Latest Practicable Date, (i) the Independent Financial Adviser did not have
any interest, either direct or indirect, in any assets which had been, since the date to which
the latest published audited financial statements of the Company were made up acquired or
disposed of by or leased to any member of the Group or are proposed to be acquired or
disposed of by or leased to any member of the Group; and (ii) the Independent Financial
Adviser did not have any shareholding interests in any member of the Group and it did not
have any right, whether legally enforceable or not, to subscribe for or nominate persons to
subscribe for securities of any members of the Group.
MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse
changes in the financial or trading position of the Group since 31 December 2006, the date
to which the latest published audited consolidated accounts of the Group were made up.
APPENDIX GENERAL INFORMATION

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MISCELLANEOUS
a. In the event of any inconsistency, the English text of this circular shall prevail over the
Chinese text.
b. The company secretary and qualified accountant of the Company is Mr. Yeung Mun Tai
(FCCA, CPA).
c. The registered office of the Company is at Codan Trust Company (Cayman) Limited,
Cricket Square, Hutchins Drive, P.O. Box 2681 GT, Grand Cayman, KY1-111, Cayman
Islands and the place of business in Hong Kong is at Suite 5505, 55/F., Central Plaza,
18 Harbour Road, Wanchai, Hong Kong.
DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s
place of business in Hong Kong at Suite 5505, 55/F., Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong during normal business hours on any weekday (except public holidays)
from the date of this circular up to and including 25 January 2008:
(a) the letter from the Independent Board Committee, the text of which is set out on
page 17 of this circular;
(b) the letter issued by the Independent Financial Adviser, the text of which is set out
on pages 18 to 40 of this circular;
(c) the consent letter from the Independent Financial Adviser referred to in the
paragraph headed “Consent and Expert” in this Appendix;
(d) the annual report of the Group for the year ended 31 December 2006 and the
interim report of the Group for the period ended 30 June 2007;
(e) the Agreement;
(f) the memorandum and articles of association of the Company; and
(g) a copy of this circular.
APPENDIX GENERAL INFORMATION

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