Alltronics Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Alltronics Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

PUBLIC FLOAT

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the board of directors of Alltronics Holdings Limited is set out on pages 5 to 18 of this circular.

A letter from the independent board committee of Alltronics Holdings Limited containing its recommendation to the independent shareholders of Alltronics Holdings Limited is set out on page 19 of this circular. A letter from Access Capital Limited containing its advice to the independent board committee and the independent shareholders of Alltronics Holdings Limited is set out on pages 20 to 41 of this circular.

A notice convening an extraordinary general meeting of Alltronics Holdings Limited at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Hong Kong on Monday, 21 July 2008 at 2:00 p.m. is set out on pages 48 to 49 of this circular.

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the accompanying proxy form in accordance with the instructions printed thereon to the branch share registrar of Alltronics Holdings Limited in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjournment thereof (as the case may be). Completion and return of the proxy form shall not preclude you from attending and voting in person at such meeting or any adjournment thereof should you so desire.

3 July 2008

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .	19
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	20
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . .	48
Accompanying document(s): proxy form

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“2009 Net Profit”	the net profit (after taxation) of Dynamic for the financial
	year ending 31 December 2009, based on the audited
	financial statements of Dynamic for the financial year
	ending on that date
“Acquisition”	the proposed acquisition by the Group of the Sale Shares
	and the Sale Loan from the Vendor pursuant to the
	Biodiesel Acquisition Agreement
“associate”	has the same meaning ascribed to such terms in the
	Listing Rules
“Biodiesel Acquisition	the conditional sale and purchase agreement dated 12
Agreement”	June 2008 between the Vendor and the Company relating
	to the Acquisition
“Board”	the Board of Directors
“Company”	Alltronics Holdings Limited, a company incorporated in
	the Cayman Islands and its issued Shares are listed on the
	Stock Exchange
“Completion”	completion of the Acquisition pursuant to the Biodiesel
	Acquisition Agreement
“Conditions”	the conditions precedent to Completion, as set out under
	the section headed “Conditions to Completion” in the
	“Letter from the Board” in this circular
“connected person”	has the same meaning ascribed to such terms in the
	Listing Rules
“Consideration”	the aggregate consideration for the purchase of the Sale
	Shares and Sale Loan
“Consideration Shares”	the new Shares (up to a maximum of 11,000,000 Shares)
	to be issued by the Company at the Issue Price to settle
	part of the Consideration
“Deferred Consideration”	the remaining balance of the Consideration of HK$25.4
	million to be settled by the Group

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DEFINITIONS

“Directors”	the directors of the Company
“Dynamic”	Dynamic Progress International Limited, a private
	limited liability company incorporated in Hong Kong
“EGM”	an extraordinary general meeting of the Company to	be
	convened on Monday, 21 July 2008 at 2:00 p.m.	to
	approve the Biodiesel Acquisition Agreement and
	transactions contemplated therein, the notice of which is
	set out at the end of this circular
“Founders”	the 3 individual founders of Dynamic, who collectively
	hold the entire issued share capital of Good Plan and	are
	third parties independent of the Company and	its
	connected persons
“Good Plan”	Good Plan International Limited, a private limited
	liability company incorporated in Hong Kong and held	by
	the Founders
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of	the
	People’s Republic of China
“Independent Board Committee”	an independent committee of the Board, comprising	the
	independent non-executive Directors, established	to
	advise the Independent Shareholders in relation to	the
	Biodiesel Acquisition Agreement
“Independent Financial Adviser”	Access Capital Limited, a licensed corporation to carry
or “Access Capital”	on Type 1 (dealing in securities), Type 4 (advising	on
	securities), Type 6 (advising on corporate finance) and
	Type 9 (asset management) regulated activities under	the
	SFO and the independent financial adviser appointed to
	advise the Independent Board Committee and	the
	Independent Shareholders regarding the Biodiesel
	Acquisition Agreement
“Independent Shareholders”	Shareholders other than Mr Lam and his associate(s)

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DEFINITIONS

“Initial Consideration”	the initial amount of HK$25.4 million of the
	Consideration to be settled by the Group on Completion
“Issue Price”	HK$2.8 per Share
“Latest Practicable Date”	27 June 2008, being the latest practicable date prior to the
	printing of this circular for the purposes of ascertaining
	certain information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“PRC”	the People’s Republic of China (for the purpose of this
	circular, excluding Hong Kong, Macao Special
	Administrative Region of the PRC and Taiwan)
“Profit Guarantee”	the guarantee by Mr Lam in favour of the Group that the
	2009 Net Profit of Dynamic shall not be less than HK$15
	million as further described in the paragraph headed “The
	Consideration” in the “Letter from the Board” in this
	circular
“Put Option”	the option to be granted by Mr Lam in favour of the
	Group upon Completion in respect of sell back of the Sale
	Shares and the Sale Loan (to the extent that it has not
	been fully repaid by Dynamic by then) to Mr Lam if the
	2009 Net Profit of Dynamic is less than HK$5 million, as
	further described in paragraph headed “Put Option in
	respect of Dynamic” in the “Letter from the Board” in
	this circular
“Sale Shares”	5,100 shares of HK$1 each in Dynamic, representing
	51% of the issued share capital of Dynamic
“Sale Loan”	the entire shareholder’s loan outstanding from Dynamic
	to the Vendor on Completion
“SFO”	the Securities and Futures Ordinance (Cap. 571 of the
	Laws of Hong Kong)
“Shares”	ordinary shares of HK$0.01 each in the capital of the
	Company
“Shareholders”	holders of Shares

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DEFINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Vendor” or “Mr Lam” Mr Lam Yin Kee, the Chairman, an executive Director and controlling shareholder of the Company

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LETTER FROM THE BOARD

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

Board of Directors:

# Mr Lam Yin Kee (Chairman)
Ms Yeung Po Wah
Mr Toshio Daikai

Registered office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

^ Mr Fan, William Chung Yue
@Mr Barry John Buttifant
@Mr Leung Kam Wah
@Ms Yeung Chi Ying

Principal place of business in Hong Kong: Room 1108, 11th Floor Eastwood Centre 5 A Kung Ngam Village Road Shau Kei Wan Hong Kong

Executive Director
^ Non-executive Director
@ Independent non-executive Director

3 July 2008

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

PUBLIC FLOAT

NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

On 12 June 2008, the Company announced that the Company as purchaser and Mr Lam as vendor entered into the Biodiesel Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, through its wholly-owned subsidiary, the Sale Shares (representing 51% equity interests in Dynamic) and the Sale Loan (representing the entire shareholder’s loan outstanding from Dynamic to Mr Lam as at completion of such agreement).

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LETTER FROM THE BOARD

The purpose of this circular is to give you (i) further details of the Biodiesel Acquisition Agreement, (ii) the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Biodiesel Acquisition Agreement, (iii) the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Biodiesel Acquisition Agreement and (iv) other information as required by the Listing Rules.

The notice convening the EGM at which an ordianry resolution will be proposed to the Independent Shareholders to consider and, if thought fit, approve the Biodiesel Acquisition Agreement and the transactions contemplated thereunder is also set out at the end of this circular.

B. THE BIODIESEL ACQUISITION AGREEMENT

The material terms of the Biodiesel Acquisition Agreement are summarized below:

1. Date

12 June 2008

The Biodiesel Acquisition Agreement was executed by the parties after trading hours on that date.

2. The parties

(a) Mr Lam Yin Kee, as vendor; and
(b) the Company, as purchaser to procure its wholly-owned subsidiary to acquire the Sale Shares and the Sale Loan

Mr Lam is the Chairman, an executive Director and controlling shareholder of the Company and therefore he is a connected person of the Company.

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LETTER FROM THE BOARD

3. The assets to be acquired

Pursuant to the Biodiesel Acquisition Agreement, the Company shall procure its wholly-owned subsidiary to acquire the Sale Shares, comprising 5,100 issued ordinary shares of Dynamic, and the Sale Loan, representing the entire shareholder’s loan outstanding from Dynamic to Mr Lam as at completion of such agreement.

The Sale Shares shall represent 51% of the issued share capital of Dynamic. The Sale Loan is an interest free and unsecured shareholder’s loan advanced by Mr Lam to Dynamic for its working capital, and shall be repayable by Dynamic in full on the first anniversary date of the date of commencement of production of Dynamic. The principal amount of the Sale Loan was HK$10 million as at the Latest Practicable Date.

4. Conditions to Completion

Completion is conditional upon a number of conditions precedent as summarized below:

(a) the passing of the necessary resolution(s) by the Independent Shareholders approving the Biodiesel Acquisition Agreement and transactions contemplated in that agreement in accordance with the Listing Rules;
(b) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Consideration Shares on the Stock Exchange;
(c) no indication being received on or before the Completion Date from the Stock Exchange or the Securities and Futures Commission in Hong Kong to the effect that the listing of the Shares may be withdrawn or objected to (or conditions being attached thereto);
(d) the Company being satisfied with its due diligence review of the legal and financial affairs of Dynamic in all material respects;
(e) the warranties given by the Vendor under the Biodiesel Acquisition Agreement remaining true and accurate, and not misleading, in all material respects as at Completion;
(f) the warranties given by the Company under the Biodiesel Acquisition Agreement remaining true and accurate, and not misleading, in all material respects as at Completion; and
(g) all necessary consents, approvals and permits (including any waiver in respect of pre-emption rights in respect of the transfer of shares of Dynamic) required for the transactions under the Biodiesel Acquisition Agreement having been obtained and not revoked.

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LETTER FROM THE BOARD

The Company may waive the Conditions set out in (d) and (e), and the Vendor may waive the Conditions set out in (c) and (f), in each case by written notice to the other party. If all the Conditions are not fulfilled (or waived) by 31 October 2008 (or such later date as may be agreed by the parties in writing), the rights and obligations of the parties under the Biodiesel Acquisition Agreement shall cease, and the Acquisition will not proceed.

In view of the insufficient public float of the Company as mentioned below in the paragraph headed “Effect on shareholdings of the Company and public float” in this “Letter from the Board”, the Condition in (b) in respect of the approval for the listing of, and permission to deal in, the Consideration Shares will not be fulfilled until restoration of the Company’s 25% minimum public float. As at the Latest Practicable Date, none of the above Conditions have been fulfilled.

Completion shall take place on the 3rd business day following the fulfilment (or waiver) of the above Conditions (or such other date as may be agreed between the parties).

5. The Consideration

The Consideration for the Sale Shares and the Sale Loan shall be HK$50.8 million (subject to adjustment), of which HK$10 million is for acquisition of the HK$10 million Sale Loan on dollar-for-dollar basis and the balance is for the Sale Shares.

Upon completion of the Biodiesel Acquisition Agreement, the Initial Consideration of HK$25.4 million, representing 50% of the Consideration, will be settled by the Group as to HK$10 million in cash and as to the remaining HK$15.4 million by issue and allotment of a total of 5,500,000 Consideration Shares at HK$2.8 per Share by the Company.

The Deferred Consideration of HK$25.4 million, representing the remaining 50% of the Consideration, will be deferred for settlement until the audited financial statements of Dynamic for the financial year ending 31 December 2009 are issued and subject to adjustment for any deductions made under the Profit Guarantee given by Mr Lam as described below.

Mr Lam has given in favour of the Group a HK$15 million Profit Guarantee in respect of the 2009 Net Profit of Dynamic. If the 2009 Net Profit of Dynamic is HK$15 million or above, the Group will settle the Deferred Consideration as to HK$10 million in cash and the balance of HK$15.4 million by issue and allotment of a total of 5,500,000 Consideration Shares also at the same Issue Price of HK$2.8 per Share by the Company.

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LETTER FROM THE BOARD

deemed zero and Mr Lam shall compensate the Group for an amount being equal to such negative amount in cash. If the 2009 Net Profit of Dynamic is less than HK$5 million (or below zero when net loss is incurred), the Company will exercise the Put Option to sell back the Sale Shares and the Sale Loan to Mr Lam as mentioned below.

Subject to exercise of the Put Option mentioned below, such of the 5,500,000 Consideration Shares (as reduced where appropriate) shall be issued and allotted by the Company and the HK$10 million cash portion of the Deferred Consideration (as reduced where appropriate) shall be paid by the Group, or alternatively the above compensation amount (if any) shall be paid by Mr Lam to the Group, not later than about 30 days after issue of the audited financial statements of Dynamic for the financial year ending 31 December 2009, which shall be issued on or before 30 June 2010. The Company will comply with Listing Rule 14A.57 in respect of the Profit Guarantee.

The Issue Price of HK$2.8 per Share represents:

(a) a premium of approximately 8.1% over HK$2.59, being the closing price per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(b) a premium of approximately 8.1% over HK$2.59, being the closing price per Share as quoted on the Stock Exchange on 12 June 2008 (the “Last Trading Date”), being the last trading day on which the Biodiesel Acquisition Agreement was executed;
(c) a premium of approximately 9.8% over HK$2.55, being the average closing price per Share as quoted on the Stock Exchange for the past 5 consecutive trading days up to and including the Last Trading Date;
(d) a premium of approximately 8.5% over HK$2.58, being the average closing price per Share as quoted on the Stock Exchange for the past 10 consecutive trading days up to and including the Last Trading Date;
(e) a premium of approximately 8.5% over HK$2.58, being the average closing price per Share as quoted on the Stock Exchange for the past 30 consecutive trading days up to and including the Last Trading Date; and
(f) a premium of approximately 318% over HK$0.67, being the audited consolidated net assets value per Share as at 31 December 2007.

The Consideration was arrived at after arm’s length negotiations between the Vendor and the Company based on the factors set out in the paragraph headed “Reasons for, and benefits of, the Acquisition”. The Issue Price was determined after arm’s length negotiations between the parties with reference to the average closing price per Share of approximately HK$2.67 as quoted on the Stock Exchange for 6 months prior to and including the Last Trading Date.

The cash portions of the Consideration will be funded from internal resources of the Group. The Consideration Shares will be issued under the specific mandate to be sought from the Independent Shareholders at the EGM.

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LETTER FROM THE BOARD

6. Put Option in respect of Dynamic

Upon Completion of the Acquisition, Mr Lam will also grant the Put Option in favour of the Group. If the 2009 Net Profit of Dynamic is less than HK$5 million, the Group shall have right to exercise the Put Option to sell back to Mr Lam all the Sale Shares and the Sale Loan (if not yet repaid by Dynamic to the Group by then) free from all encumbrances. The total exercise price of the Put Option is fixed at HK$25.4 million (subject to netting off for any repayment of the Sale Loan made by Dynamic to the Group by then) and shall be settled by Mr Lam in cash.

The Put Option shall be exercised by the Group from the date when the audited financial statements of Dynamic for the financial year ending 31 December 2009 are issued up to 30 days thereafter, provided it will lapse automatically if the 2009 Net Profit of Dynamic is not less than HK$5 million. The exercise of the Put Option is at the discretion of the Group. No premium will be paid or received by the Group for the grant of the Put Option. Where any of the applicable percentage ratios in respect of exercise or non-exercise of the Put Option calculated under Listing Rules 14A.70 (2) and (3) exceeds the de minimis thresholds under Listing Rule 14A.32 and hence approval of the Independent Shareholders by way of ordinary resolution at general meeting is required, Mr Lam and his associate(s) will abstain from voting on the resolution at such meeting. Mr Lam and his associate(s) will also abstain from voting in the board meeting of the Company in respect of the exercise of the Put Option.

Where the Put Option is exercised, the Group shall not settle the remaining 50% of the Consideration, nor Mr Lam shall be obliged to pay any compensation to the Group under the Profit Guarantee because the Sale Shares and the Sale Loan (if any) will be reverted to Mr Lam. The Company will comply with the Listing Rules, including Listing Rules 14A.67 to 14A.71, in respect of the Put Option in due course.

7. Shareholders agreement relating to Dynamic

Upon Completion of the Acquisition, a shareholders agreement will be entered into by the Group, Good Plan and the Founders to regulate their rights and obligations in respect of Dynamic and its affairs. The shareholders agreement will contain provisions normal for joint venture transactions of this type, including those on board composition of Dynamic, right of first refusal of the shareholders of Dynamic in the case of any future transfer of shares in Dynamic and non-competition undertakings from the Founders in favour of Dynamic. Under the shareholders agreement, the Group does not have any further obligation to give financial assistance to Dynamic in addition to the Sale Loan. If and when the Group gives further financial assistance to Dynamic, the Company will comply with the relevant requirements in the Listing Rules.

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LETTER FROM THE BOARD

8. Licence agreement by the Founders in respect of intellectual property rights

Upon Completion of the Acquisition, a licence agreement will be entered into by the Founders and Dynamic, under which the Founders will grant the right to use the intellectual property in respect of the processing of waste oils and other suitable feedstock to produce biodiesel fuels in Hong Kong in favour of Dynamic. In consideration of such licence, Dynamic shall pay Good Plan (through which the Founders hold their interests in Dynamic as described below) a royalty calculated at HK$0.35 per liter of saleable diesel fuels manufactured by Dynamic in Hong Kong, based on the monthly production report prepared by Dynamic. The rate of royalty payable per liter of diesel manufactured shall remain unchanged until and unless as agreed by the shareholders of Dynamic and the Founders.

After Completion, Good Plan and its associates will be connected persons of the Company, and such licence agreement will constitute continuing connected transaction for the Company under Chapter 14A of the Listing Rules.

As at the Latest Practicable Date, Dynamic had not yet commenced commercial production of biodiesel and hence the Company is not yet in a position to estimate the annual amount of the royalty to be paid to Good Plan. The Company will keep itself abreast of the development of the business of Dynamic and the annual amount of the royalty payable by Dynamic as and when sufficient information is available. The Company will comply with the relevant disclosure requirements pursuant to Chapter 14A of the Listing Rules if the Group enters into the Licence Agreement with the Founders. Where the royalty payable by Dynamic based on the amount of diesel fuels manufactured on annual basis (pro-rated as necessary from the date of Completion on which the Licence Agreement will constitute continuing connected transactions) will exceed the de minimis thresholds under Listing Rule 14A.33(3), the Company will comply with the relevant announcement and, where necessary, independent shareholders’ approval requirements in respect of the continuing connected transactions under Chapter 14A of the Listing Rules.

C. FURTHER INFORMATION ON DYNAMIC

Dynamic is a private limited liability company incorporated in Hong Kong on 3 January 1997. It has remained dormant since incorporation until 1 June 2005. Based on the information provided by the Vendor, (a) the audited net loss of Dynamic (both before and after taxation and extraordinary items) for the period from 3 January 1997 to 31 December 2006 was approximately HK$7.5 million; (b) the unaudited net loss of Dynamic (both before and after taxation and extraordinary items) for the year ended 31 December 2007 was approximately HK$5.0 million; and (c) the unaudited net liabilities of Dynamic as at 31 December 2007 was approximately HK$9.5 million.

After Completion, Dynamic will become a 51%-owned subsidiary of the Company and its post-acquisition results, assets and liabilities will be consolidated into the consolidated financial statements of the Company. As the profit and loss level and assets and liabilities of Dynamic for the year ended 31 December 2007 are not significant relative to those of the Group, the Acquisition will not have significant effect on the earnings, assets and liabilities of the Group as a whole based on currently available information.

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LETTER FROM THE BOARD

As of the Latest Practicable Date, the shareholdings of Dynamic were as follows:

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Good Plan is a limited liability company incorporated in Hong Kong and owned by the Founders, who are all individuals independent from the Company and its connected persons.

The Vendor first invested in Dynamic in June 2005 by subscribing 51% of the enlarged share capital of Dynamic at a total cost of HK$3 million and making a shareholder’s loan of HK$10 million to Dynamic. The capital and shareholder’s loan was provided to Dynamic for its initial working capital and setting up of the plant and equipment required for production of biodiesel.

The Founders of Dynamic, being the shareholders of Good Plan, have extensive experience in and possess intellectual property in respect of the processing of waste oils and other suitable feedstock to produce diesel fuels. Dynamic has its own production plant in Tuen Mun, Hong Kong, which occupies a total gross floor area of approximately 26,000 sq. ft.. The production plant has commenced testing and commissioning since November 2007 after all the relevant licenses have been obtained. Prior to that, Dynamic was still at its development stage with no revenue and therefore, losses were incurred. Since November 2007, Dynamic has focused on improving the production process and quality of output of biodiesel, and negotiation with and entering into contracts with major suppliers of waste oils in Hong Kong. Currently, Dynamic is managed by a team of professionals who have many years of experience in the technology of processing waste oils or other suitable feedstock into diesel fuels, system automation and finance. The management team in addition has established local and

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LETTER FROM THE BOARD

international network in the biodiesel industry. Dynamic expects commercial production of biodiesel to commence in or before September 2008 to generate a stable source of revenue for the Group. The current planned capacity of the plant, having a total of four reactors, is approximately 55,000 liters of biodiesel and 5,000 liters of glycerol on a daily basis.

D. EFFECT ON SHAREHOLDINGS OF THE COMPANY AND PUBLIC FLOAT

To the best of the knowledge of the Directors, the effects of issue of the Consideration Shares under the Biodiesel Acquisition Agreement on the shareholdings of the Company are illustrated below:

Mr Lam and his associate(s) (Note 1) Mr Toshio Daikai (Note 2) Galaxy China Opportunities Fund (Note 3) Other public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate percentage 211,344,000 67.5% 1,101,000 0.4% 32,886,000 10.5% 67,659,000 21.6% 312,990,000 100.0%	Upon issue of 5,500,000 Consideration Shares at Completion No. of Shares Approximate percentage 216,844,000 68.1% 1,101,000 0.4% 32,886,000 10.3% 67,659,000 21.2% 318,490,000 100.0%	Assuming a maximum of 11,000,000 Consideration Shares are issued No. of Shares Approximate percentage 222,344,000 68.6% 1,101,000 0.3% 32,886,000 10.2% 67,659,000 20.9% 323,990,000 100.0%	Assuming a maximum of 11,000,000 Consideration Shares are issued No. of Shares Approximate percentage 222,344,000 68.6% 1,101,000 0.3% 32,886,000 10.2% 67,659,000 20.9% 323,990,000 100.0%
				100.0%

Notes:

Mr Lam has personal interests in 1,344,000 Shares. 210,000,000 Shares are owned by Profit International Holdings Limited, a company incorporated in the British Virgin Islands and is owned as to 95% by Mr Lam and 5% by Ms Yeung Po Wah. Ms Yeung Po Wah is an executive Director of the Company and the spouse of Mr Lam.
Mr Toshio Daikai is an executive Director of the Company.
According to the register of the Company kept under section 336 of the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong), 32,886,000 Shares, representing approximately 10.5% of the entire issued share capital of the Company, are interested in by Galaxy China Opportunities Fund and therefore it is a substantial shareholder of the Company.

The Company has noted that the shareholding percentage held by public (as defined in the Listing Rules) in the Company is less than the minimum 25% prescribed under the Listing Rules. The Company is of the view that the shortfall arose solely from Shares interested in by Galaxy China Opportunities Fund, which is a connected person of the Company only because it is a substantial shareholder of the Company. It is not the controlling or single largest shareholder of the Company, nor does it have any representative on the Board or been involved in the management of the Company. Save as being a substantial shareholder of the Company, Galaxy China Opportunities Fund is independent of and not connected with the Company, the Directors and Mr Lam and his associate(s).

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LETTER FROM THE BOARD

Based on the closing price of HK$2.59 as at the Latest Practicable Date, the total market capitalization of the Company was approximately HK$811 million, of which approximately HK$175 million represented the market capitalization attributable to the Shares held by the public. Based on the information received by the Company, there were over 80 participants holding Shares under the name of HKSCC Nominees Limited as at the Latest Practicable Date. Accordingly, the Company is of the view that there remains an open market in the Shares although the public float of the Company is below 25%. The Company will take steps, including where necessary issue of new shares or procuring Mr Lam to place down his or his associate(s)’ existing shareholdings in the Company to independent third parties, to restore the minimum percentage of the Shares of the Company in the public hands before Completion in accordance with the Listing Rules. The Company will also consider to discuss with Galaxy China Opportunities Fund on any other possible plans in order to restore the public float. As at the Latest Practicable Date, the plans to restore the public float were still being considered by the Company.

As the biodiesel business is a new business for the Group, the plans to restore public float would recognise that the investing public and the Shareholders may also take the Acquisition into consideration. Given the low turnover of the Shares on the Stock Exchange and the current volatility of the stock market situation as a whole, the Company expects to restore its public float to the minimum level of 25% or above in about three (3) months from 12 June 2008 during which the Company will negotiate with the counterparties and finalise the commercial terms of the restoration plan. Further announcement will be made by the Company on the restoration of public float. The Company and Mr Lam also undertook to the Stock Exchange to procure restoration of the Company’s public float to not less than 25% within such period.

The Stock Exchange has stated that it will not grant the approval for the listing of, and permission to deal in, the Consideration Shares on the Stock Exchange before restoration of the Company’s 25% minimum public float. At any time when the percentage of the shares of the Company in public hands is less than the required minimum, and the Stock Exchange has permitted trading in the Shares to continue, the Stock Exchange will monitor closely all trading in the Shares to ensure that a false market does not develop and may suspend trading in the shares if there is any unusual price movement.

E. REASONS FOR, AND BENEFITS OF, THE ACQUISITION

The Group is principally engaged in the manufacturing and sale of electronic products, plastic moulds, plastic and other components for electronic products.

The Directors considered that the Acquisition will be a step forward in diversification of the Group’s income stream and in turn broaden the sources of the Group’s revenue and a key development in the Group’s business strategy. The Acquisition provides the Company with a platform to develop its experience in biodiesel operation, which is in line with the Group’s strategy to explore business opportunities that will generate revenue and cash flows and provide a reliable source of income to the Group. The Directors also expect demand for biodiesel in Hong Kong to grow rapidly, and that the Acquisition will bring additional earnings

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LETTER FROM THE BOARD

and long term value to the Company. As a long term investment, the Directors also consider that the Acquisition will contribute positively to the Company’s future development and growth through a broadening base of business opportunities, which provide a long-term benefit to the Company and its Shareholders.

The current production of biodiesel in Hong Kong is negligible. Through the promotion of the Hong Kong Government, the key driver for the growth in demand for biodiesel in the short term will be from motor vehicles. The current policy of the Environmental Protection Department of the Hong Kong Government is to provide the necessary conditions favourable to a wider use of biodiesel. Apart from continuing to maintain the duty-free policy for biodiesel, the Environmental Protection Department would assist companies interested in setting up biodiesel retail outlets in Hong Kong by providing them with the necessary information, including liaison with the relevant government departments. Further, in view of the rapid growth of the China economy, the rising consumption of energy and the worsening air pollution, the Directors believe that there is a huge potential for biodiesel or other renewable energy sources in Hong Kong and China.

On the back of the rising global prices for oil and petroleum in the recent years, biodiesel prices had also been in the upside trend in the recent years. Given the relatively substantial price difference between the prices of biodiesel and conventional diesel, there is good prospect for users to switch to/or to consume fuels with biodiesel contents, thus in turn, increase the overall demand of biodiesel.

The Consideration was determined by reference to various factors, including the initial investment in Dynamic made by the Vendor, Profit Guarantee of HK$15 million, extensive experience and expertise of the Founders in biodiesel business, governmental support and market potential for biodiesel in Hong Kong, production capacity of plant and equipment held by Dynamic, Dynamic’s current position as a pioneer manufacturer of biodiesel in Hong Kong with relevant operating licenses, and earnings potential and high growth prospects of Dynamic. Risks have been reduced for the Group to acquire the business at the current stage after technical and licensing issues have been resolved. The consideration for the Sale Shares of HK$40.8 million implies a price to earnings multiple of 5.33 times (being equal to HK$80 million (which is the implied value of Dynamic based on the consideration of HK$40.8 million for a 51% interest) divided by the amount of the Profit Guarantee of HK$15 million). The Directors consider such price to earnings multiple is fair and reasonable. Furthermore, the Put Option granted in favour to the Company allows the Company to capture the upside growth potential but also limit the downside operational risk of Dynamic.

The terms of the Biodiesel Acquisition Agreement, including the Consideration and the Issue Price, were agreed at arm’s length negotiation between the Company and Mr Lam. Based on the above factors, the Board accordingly considers that they are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 15 –

LETTER FROM THE BOARD

F. IMPLICATIONS UNDER THE LISTING RULES AND OTHER INFORMATION

As the consideration ratio exceeds 5% but all the percentage ratios in respect of the Acquisition are less than 25%, the Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. Furthermore, Mr Lam is the Chairman, an executive Director and controlling shareholder of the Company and therefore a connected person of the Company. The Biodiesel Acquisition Agreement, under which the Consideration Shares will be issued to Mr Lam, accordingly also constitutes connected transactions for the Company subject to Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. As all of the percentage ratios (other than profit ratio) in respect of the Put Option granted at nil premium is below 0.1%, the grant itself is exempt from the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The EGM will be held to consider and, if thought fit, pass an ordinary resolution to approve the Biodiesel Acquisition Agreement and the transactions contemplated in such agreement. Mr Lam and his associate(s) will abstain from voting on such resolution at the EGM at which votes will be taken by poll.

Shareholders and potential investors in the Company should note that completion of the Acquisition, which is subject to a number of conditions precedent, may or may not take place. Shareholders and potential investors in the Company are advised to exercise caution when dealing in the Shares.

Application has been made to the Stock Exchange for the approval for the listing of, and permission to deal in, the Consideration Shares.

The Acquisition will not result in the change in control of the Company.

G. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising all the independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the terms of the Biodiesel Acquisition Agreement and the transactions contemplated thereunder. Access Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Biodiesel Acquisition Agreement and the transactions contemplated thereunder.

– 16 –

LETTER FROM THE BOARD

H. EGM

The notice of EGM is set out at the end of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the proxy form enclosed in this circular in accordance with the instructions printed thereon to the branch share registrar of Alltronics Holdings Limited in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish but the authority of your proxy will be invalidated forthwith. Votes at the EGM will be taken by poll.

According to the articles of association of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless voting by way of a poll is required by the rules of the Stock Exchange or (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or
(e) if required by the rules of the Stock Exchange, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five per cent. (5%) or more of the total voting rights at such meeting.

– 17 –

LETTER FROM THE BOARD

I. GENERAL

The Board considers that the Biodiesel Acquisition Agreement was entered into on normal commercial terms after arm’s length negotiation and the terms of the Biodiesel Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends all Independent Shareholders to attend and vote at the EGM in favour of the ordinary resolution to approve the Biodiesel Acquisition Agreement and the transactions contemplated thereunder as set out in the notice of the EGM at the end of this circular. The recommendation of the Independent Board Committee is set out in their letter immediately following this letter.

Your attention is drawn to (i) the letter from the Independent Board Committee, (ii) the letter from the Independent Finance Adviser to the Independent Board Committee and the Independent Shareholders and (iii) the additional information set out in the appendix to this circular. The notice of the EGM is set out at the end of this circular.

Yours faithfully, By order of the Board of Alltronics Holdings Limited Lam Yin Kee Chairman

– 18 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of a letter from the Independent Board Committee to the Independent Shareholders regarding the terms of the Biodiesel Acquisition Agreement for the purpose of inclusion in this circular.

3 July 2008

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

We have been appointed to form this Independent Board Committee to consider and advise you on the terms of the Biodiesel Acquisition Agreement, details of which are set out in the circular issued by the Company to the Shareholders dated 3 July 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.

We wish to draw your attention to the letter from the Board and the letter of advice from Access Capital Limited set out on pages 5 to 18 and pages 20 to 41 of the Circular respectively. Having taken into account the principal factors and reasons considered by Access Capital Limited, its conclusion and advice, we concur with the view of Access Capital Limited and consider that the Biodiesel Acquisition Agreement is on normal commercial terms; and that the terms of the Biodiesel Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Biodiesel Acquisition Agreement and the transactions contemplated under such agreement.

Yours faithfully,

Independent Board Committee

Mr Barry John Buttifant Mr Leung Kam Wah Ms Yeung Chi Ying Independent Non-executive Independent Non-executive Independent Non-executive Director Director Director

– 19 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Access Capital prepared for the purpose of inclusion in this circular.

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Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

3 July 2008

To: The Independent Board Committee and

the Independent Shareholders of Alltronics Holdings Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

I. INTRODUCTION

We refer to our appointment as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with regard to the terms of the Biodiesel Acquisition Agreement (the “Acquisition”), details of which are contained in the “Letter from the Board” of the circular to the Shareholders dated 3 July 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 12 June 2008, the Company as purchaser and Mr Lam as vendor entered into the Biodiesel Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, through its wholly-owned subsidiary, the Sale Shares (representing 51% equity interests in Dynamic) and the Sale Loan (representing the entire shareholder’s loan outstanding from Dynamic to Mr Lam as at completion of such agreement).

The Consideration for the Sale Shares and the Sale Loan shall be HK$50.8 million (subject to adjustment), of which HK$10 million is for the acquisition of the Sale Loan and the balance is for the Sale Shares. Upon completion of the Biodiesel Acquisition Agreement, the Group will settle 50% of the Consideration as to HK$10 million in cash and as to HK$15.4 million by issue and allotment of 5,500,000 Consideration Shares at HK$2.80 per Share. The remaining 50% of the Consideration will be deferred for settlement and subject to adjustment for any deductions made under the Profit Guarantee given by Mr Lam.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Mr Lam has given in favour of the Group a HK$15 million Profit Guarantee in respect of the 2009 Net Profit of Dynamic for the financial year ending 31 December 2009. If the 2009 Net Profit of Dynamic is HK$15 million or above, the Group will settle the remaining 50% of the Consideration as to HK$10 million in cash and the balance of HK$15.4 million by issue and allotment of 5,500,000 Consideration Shares also at HK$2.80 per Share. If the 2009 Net Profit of Dynamic is less than HK$15 million (but is equal to or more than HK$5 million), an amount being equal to 5.33 multiplied by 51% of the shortfall will be deducted from the remaining 50% of the Consideration on dollar-for-dollar basis, and the HK$10 million cash portion and the last tranche of the 5,500,000 Consideration Shares at HK$2.80 per Share will be reduced accordingly. Where the remaining 50% of the Consideration after such deduction is negative, Mr Lam shall compensate the Group for an equivalent amount in cash.

In addition to the above Profit Guarantee, if the 2009 Net Profit of Dynamic is less than HK$5 million, the Group has right under the Put Option to sell back to Mr Lam all the Sale Shares and the Sale Loan (if not yet repaid by Dynamic to the Group by then) at the fixed price of HK$25.4 million (subject to netting off for any repayment of the Sale Loan made by Dynamic to the Group by then) in cash. The exercise of the Put Option is at the discretion of the Group. The Company will comply with the Listing Rules, including Listing Rules 14A.67 to 14A.71, in respect of the Put Option in due course.

As at the Latest Practicable Date, Mr Lam and his associates collectively are directly and indirectly interested in approximately 67.5% of the entire issued share capital of the Company, and will abstain from voting on such resolution at the EGM at which votes will be taken by poll.

II. THE INDEPENDENT BOARD COMMITTEE

The Board currently consists of three executive Directors, namely Mr Lam Yin Kee, Ms Yeung Po Wah and Mr Toshio Daikai, one non-executive Director, Mr Fan, William Chung Yue, and three independent non-executive Directors, namely Mr Barry John Buttifant, Mr Leung Kam Wah and Ms Yeung Chi Ying.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr Barry John Buttifant, Mr Leung Kam Wah and Ms Yeung Chi Ying, has been established to advise the Independent Shareholders as to whether the terms of the Biodiesel Acquisition Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders on how to vote on the resolution to be proposed at the EGM to approve the Biodiesel Acquisition Agreement and the transactions contemplated thereunder.

We have been appointed to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Biodiesel Acquisition Agreement were agreed on normal commercial terms and are fair and reasonable so far as the Independent 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 Biodiesel Acquisition Agreement for the consideration of the Independent Board Committee when making their recommendation to the Independent Shareholders.

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 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, 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 accurate 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.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation, we have taken into consideration the following principal factors and reasons:

1. Background of the Group

1.1 Principal business of the Group

The Group is principally engaged in the manufacturing and sale of electronic products, plastic moulds, plastic and other components for electronic products.

1.2 Financial performance of the Group

As stated in the annual report of the Company for the year ended 31 December 2007, the Group recorded turnover of approximately HK$575 million, representing a decrease of approximately 2.9% compared with approximately HK$592 million for the year ended 31 December 2006. Turnover for electronic products dropped slightly by HK$2 million to HK$464 million, and turnover for components for electronic products dropped by HK$3 million to HK$72 million. The decreases were mainly due to the reduction of sales to the United States market, especially during the second half of 2007. Total sales of plastic moulds and plastic components dropped by HK$12 million during the year.

During the year 2007, sales of the Group’s major product, irrigation controllers, remained strong and achieved a total turnover of HK$262 million as compared to HK$245 million in 2006. However, such increase in sales of irrigation controllers was off-set by the drop in sales of other electronic products sold to the United States market, such as carbon monoxide detectors. As a result, the overall sales of electronic products dropped slightly by HK$2 million.

Decrease in turnover for the Group’s components for electronic products was mainly due to the fall in sales to the United States market as a result of keen competition and the downturn in the United States economy. Drop in sales of plastic moulds and plastic components was mainly due to the Group’s intention to reduce the scale of the plastic and moulds operations so as to reallocate more resources on other higher margin products.

Despite the reduction in overall turnover, the increase in labour costs and overhead and the consistent appreciation in the value of Renminbi during the year 2007, gross profit margin for the year improved from 22.1% for the year 2006 to 23.2%. The increase was mainly due to the change in product mix with the proportion of sales of electronic products increased from 78.7% to 80.8%. During the year 2007, the Group also adjusted its product prices to compensate part of the increased material costs and overhead.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.3 Reasons for, and benefits of, the Acquisition

As stated in the “Letter from the Board”, the Directors considered that the Acquisition will be a step forward to diversify the Group’s income stream and in turn broaden the sources of the Group’s revenue and a key development to the Group’s business strategy. The Acquisition provides the Company with a platform to develop its experience in biodiesel operation, which is in line with the Group’s strategy to explore business opportunities that will generate revenue and cash flows and provide a reliable source of income to the Group.

Having regard to the Group’s exposure to the United States market which constituted approximately 63% of the Group’s consolidated revenue in the year ended 31 December 2007, and the state of the United States economy and its housing market, the Directors are of the view that the Acquisition would provide the Group with the opportunity to mitigate this exposure and the prospect of a more balanced revenue and income base.

1.4 General market overview of biodiesel in Hong Kong

The current production of biodiesel in Hong Kong is negligible. Through the promotion of the Hong Kong Government, the key driver for the growth in demand for biodiesel in the short term is likely to be from motor vehicles. According to the vehicle registration, licensing, inspection and examination statistics issued by the Transport Department of Hong Kong as of March 2008, the total number of licensed motor vehicles in Hong Kong registered a growth of approximately 7.8% from 2003 to 2007. As of 31 March 2008, the Transport Department of Hong Kong has issued licenses for 568,612 motor vehicles, of which approximately 22.5% are operating on diesel engine/fuel. Based on the increasing number of motor vehicles and the promotion of the Hong Kong Government as mentioned below, it is envisaged that goods vehicles could potentially be the major growth driver for the future increase in demand for biodiesel.

In line with the rapid rise of crude oil price in the international market, prices of petroleum products in Hong Kong have increased substantially over the past 10 years. Demand of diesel fuel in Hong Kong relies heavily on import. According to 2007 annual report of Hong Kong Energy Statistics issued by the Census and Statistics Department of Hong Kong, over 80% of the imported diesel fuel and its related products in Hong Kong were imported from Singapore and Korea. Diesel prices recorded annual growth rates of approximately 6% and 9% in 2006 and 2007 respectively. The price of light diesel for motor vehicles surged for the past ten years from HK$6.91 per liter in 1997 to HK$9.37 per liter in 2007, accounting for a compounded annual growth rate of approximately 3%. For illustration purposes only, based on information provided by Dynamic, the indicative selling price of biodiesel for vehicles by Dynamic is expected to be in the range of HK$8 to HK$9 per liter, whereas the current selling price of conventional diesel is around HK$11.7 per liter.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the written reply by the Secretary for Environment dated 14 November 2007 (source: Hong Kong Government’s website) , the current policy of the Environmental Protection Department of the Hong Kong Government is to provide the necessary conditions, including but not limited to, duty free policy for biodiesel, favourable to a wider use of biodiesel. Apart from continuing to maintain the duty-free policy for biodiesel, the Environmental Protection Department would assist companies interested in setting up biodiesel retail outlets in Hong Kong by providing them with the necessary information, including liaison with the relevant government departments. Further, in view of the rapid growth of the China economy, the rising consumption of energy and the worsening air pollution, the Directors believe that there is a huge potential for biodiesel or other renewable energy sources in Hong Kong and China.

On the back of the rising global prices for fuel oil and petroleum in the recent years, biodiesel prices had also been in the upward trend in the recent years. As stated in the “Letter from the Board”, given the relatively substantial price difference between the prices of biodiesel and conventional diesel, there is good prospect for users to switch to/or to consume fuels with biodiesel contents, thus in turn, increase its overall demand.

Taking into account the background to, and reasons for, the Acquisition which are consistent with the Group’s business strategy to diversify in its revenue stream and the prospect of enhancing the Group’s profitability due to the potential increase in demand for biodiesel in Hong Kong in future, we concur with the view of the Directors that the Acquisition is consistent with the Group’s business strategy with potential commercial benefit to the Group and that the Acquisition is in the interests of the Company and the Shareholders as a whole.

2. The Biodiesel Acquisition Agreement

2.1 Parties

(a) Mr Lam, as Vendor; and
(b) the Company, as purchaser to procure its wholly-owned subsidiary to acquire the Sale Shares and the Sale Loan

2.2 The assets to be acquired

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.3 Consideration

Mr Lam has given in favour of the Group a HK$15 million Profit Guarantee in respect of the Net Profit of Dynamic for the financial year ending 31 December 2009. If the 2009 Net Profit of Dynamic is HK$15 million or above, the Group will settle the Deferred Consideration as to HK$10 million in cash and the balance of HK$15.4 million by issue and allotment of a total of 5,500,000 Consideration Shares also at the same Issue Price of HK$2.80 per Share by the Company.

If the 2009 Net Profit of Dynamic is less than HK$15 million (but equal to or more than HK$5 million), an amount being equal to 5.33 multiplied by 51% of the shortfall will be deducted from the Deferred Consideration on dollar-for-dollar basis as applied to the HK$10 million cash portion first until it becomes zero and then to the last tranche of the 5,500,000 Consideration Shares. The last tranche of the 5,500,000 Consideration Shares and the HK$10 million cash portion as reduced will be issued and paid by the Group accordingly. Where the Deferred Consideration after such deduction is negative, the Deferred Consideration will be deemed zero and Mr Lam shall compensate the Group for an amount being equal to such negative amount in cash. If the 2009 Net Profit of Dynamic is less than HK$5 million (or below zero when net loss is incurred), the Company may exercise the Put Option to sell back the Sale Shares and the Sale Loan to Mr Lam as mentioned below.

Subject to exercise of the Put Option mentioned below, the 5,500,000 Consideration Shares (as reduced where appropriate) shall be issued and allotted by the Company and the HK$10 million cash portion of the Deferred Consideration (as reduced where appropriate) shall be paid by the Group, or alternatively the above compensation amount (if any) shall be paid by Mr Lam to the Group, not later than about 30 days after issue of the audited financial statements of Dynamic for the financial year ending 31 December 2009 (which shall be issued on or before 30 June 2010).

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The cash portions of the Consideration will be funded by internal resources of the Group. The Consideration Shares will be issued under the specific mandate to be sought from the Independent Shareholders at the EGM.

The Consideration was determined by reference to various factors, including the initial investment in Dynamic made by the Vendor (at an initial cost of HK$3 million and a shareholder’s loan of HK$10 million), Profit Guarantee of HK$15 million, extensive experience and expertise of the Founders in biodiesel business, governmental support and market potential for biodiesel in Hong Kong, production capacity of plant and equipment held by Dynamic, Dynamic’s current position as a pioneer manufacturer of biodiesel in Hong Kong with relevant operating licenses, and earnings potential and high growth prospects of Dynamic. Risks have been reduced for the Group to acquire the business at the current stage after technical and licensing issues have been resolved. The consideration for the Sale Shares of HK$40.8 million implies a price to earnings multiple of 5.33 times (being equal to HK$80 million (which is the implied value of Dynamic based on the consideration of HK$40.8 million for a 51% interest) divided by the amount of the Profit Guarantee of HK$15 million). The Directors consider such price to earnings multiple is fair and reasonable. Furthermore, the Put Option granted in favour to the Company allows the Company to capture the upside growth potential but also limit the downside operational risk of Dynamic.

2.4 Put Option in respect of Dynamic

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

non-exercise of the Put Option calculated under Listing Rules 14A.70 (2) and (3) exceeds the de minimis thresholds under Listing Rule 14A.32 and hence approval of the Independent Shareholders by way of ordinary resolution at general meeting is required, Mr Lam and his associate(s) will abstain from voting on the resolution at such meeting. Mr Lam and his associate(s) will also abstain from voting in the board meeting of the Company in respect of the exercise of the Put Option.

2.5 Shareholders agreement relating to Dynamic

2.6 Licence agreement by the Founders in respect of intellectual property rights

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.7 Information relating to Dynamic

As of the Latest Practicable Date, the shareholdings of Dynamic were as follows:

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Good Plan is a limited liability company incorporated in Hong Kong and owned by the Founders, who are all individuals independent from the Company and its connected persons. After Completion, Dynamic will become a 51%-owned subsidiary of the Company and the accounts of Dynamic will be consolidated into the accounts of the Company.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Dynamic is principally engaged in scientific research and development of environmental recycling and protection in Hong Kong, including the production of biodiesel. Biodiesel produced from renewable and biological resources such as waste oils, vegetable oils or animal fats is a viable alternative fuel to conventional petroleum-based diesel. It is expected that alternative fuels such as biodiesel can significantly reduce global dependence on oil. In order to give priority to the use of vegetable oils for food consumption purposes, Dynamic focuses on using waste oils or oils from plants not used for food consumption as feedstock for the production of biodiesel. The Founders of Dynamic, being the shareholders of Good Plan, have extensive experience in and possess intellectual property in respect of the processing of waste oils and other suitable feedstock to produce diesel fuels. Dynamic has its own production plant in Tuen Mun, Hong Kong, which occupies a total gross floor area of approximately 26,000 sq. ft.. The production plant has commenced testing and commissioning since November 2007 after all the relevant licenses have been obtained. Prior to that, Dynamic was still at its development stage with no revenue and therefore, losses were incurred. Since November 2007, Dynamic has focused on improving the production process and quality of output of biodiesel, and negotiation with and entering into contracts with major suppliers of waste oils in Hong Kong. Currently, Dynamic is managed by a team of professionals who have many years of experience in the technology of processing waste oils or other suitable feedstock into diesel fuels, system automation and finance. The management team in addition has established local and international network in the biodiesel industry.

Dynamic expects commercial production of biodiesel to commence in or before September 2008 to generate a stable source of revenue for the Group. The current planned capacity of the plant, having a total of four reactors, is approximately 55,000 liters of biodiesel and 5,000 liters of glycerol on a daily basis. We understand from the Company that based on Dynamic’s current business plan and production capacity, it does not envisage to incur any significant capital expenditure in generating the scale of business to meet the Profit Guarantee of HK$15 million. Based on our discussion with the management of the Company and our understanding that majority of the construction work for the production of biodiesel has been completed, we concur with the Directors’ view that no significant capital expenditure for Dynamic for the commercial production of biodiesel is required.

3. Factors in assessing the consideration of the Acquisition

3.1 Basis for determining the Consideration

The consideration of the Sale Shares of HK$40.8 million implies a price to earning ratio (“PER”) of 5.33 times (being equal to HK$80 million (which is the implied value of Dynamic based on the consideration of HK$40.8 million for a 51% interest) divided by the amount of the Profit Guarantee of HK$15 million).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In our analysis of the consideration of the Acquisition, we are not aware of any companies listed in Hong Kong which are engaged in the production of biodiesel. Alternatively, based on the best of our knowledge, we have identified a population of 3 companies, which are engaged in biodiesel business with operations located in the PRC, listed on the London Stock Exchange – AIM (“AIM”), NASDAQ and OTC Bulletin Board (in United Stated) respectively, and as set out in the table below (together the “Comparables”) and we have, accordingly, compared the market statistics of the Comparables with the consideration of Sale Shares under the Acquisition.

		Closing
		price as at
		the Latest	Historical	Historical/
	Stock	Practicable	earnings	Implied
	Exchange	Date	per share	PER
		HK$	HK$	(Times)
China Biodiesel	AIM	2.603 5	0.4141	6.29
International Holding
Company Limited
Gushan Environmental	NASDAQ	90.09 6	1.967 2	45.80
Energy Limited
China Clean Energy Inc	OTC	6.01 6	1.219 3	4.93
	Bulletin
	Board
Minimum				4.93
Maximum				45.80
Average				19.01
Sale Shares	N.A.	N.A.	N.A.	5.33

Notes:

Based on the historical profit attributable to equity holders of the company for the year ended 31 December 2007 of RMB16.57 million and 45,411,765 shares in issue.
Based on the historical profit attributable to equity holders of the company for the year ended 31 December 2007 of USD31.57 million and 125,329,350 shares in issue.
Based on the historical profit attributable to equity holders of the company for the year ended 31 December 2007 of USD3.36 million and 21,512,269 shares in issue.
HK$1.00 = RMB0.8811
HK$1.00 = GBP0.0653
HK$1.00 = USD0.1281

Source: Bloomberg and the latest financial statements or the prospectus of the Comparables

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Given that there is no publicly available financial information on the privatelyowned biodiesel manufacturers in Hong Kong and the absence of any listed comparables in Hong Kong, we are of the view that it is appropriate to compare the market statistics of the Comparables which are engaged in similar business as Dynamic with operations located in the PRC (i.e. with close proximity to Hong Kong) as a measure of comparison.

Although Dynamic has yet to commence commercial production, the Vendor has, through the Profit Guarantee and the Put Option, provided the Company with an assurance of a minimum level of profitability of Dynamic’s biodiesel manufacturing business in its expected first full year of commercial production. As such, we consider it is appropriate to use the working assumption that Dynamic would contribute to a minimal level of profitability in 2009, and derived the appropriate range of PER as assessed in the following.

As shown in the above table, the PER of the Comparables ranges from approximately 4.93 times to 45.80 times and the average PER of the Comparables is approximately 19.01 times. On the assumption that the net profit of Dynamic for the year ending 31 December 2009 to be equal to HK$5 million, and hence the Company shall not be entitled to exercise the Put Option, the amount of shortfall from the Guarantee Profit would equal to HK$10 million. Accordingly, the adjustment to the Deferred Consideration would equal to HK$27.183 million (being 51% of the above-mentioned shortfall of HK$10 million, multiply by the factor of 5.33), which would require the Vendor to compensate the Company a cash sum of HK$1.783 million. Taking account of this compensation and the initial consideration payable of HK$25.4 million, the net effective consideration would equal to HK$23.617 million (including the Sale Loan of HK$10 million), which equates to a price earning ratio of 9.26 times the attributable net profit of Dynamic of HK$2.55 million, or 51% of HK$5 million net profit assumed under this scenario. The PER of 5.33 times (or 9.26 times assuming that 2009 Net Profit of Dynamic is HK$5 million) under the Acquisition is (i) within the range of the PERs of the Comparables; (ii) below the average PER of the Comparables; and (iii) at the low end of the range of the above-mentioned PER range.

Having considered the factors outlined above, including, (i) the market multiples for the Comparables; (ii) the reasons for and benefits of the Acquisition; and (iii) the consideration for the acquisition of the Sale Loan is on a dollar-for-dollar basis, we concur with the view of the Directors that the Consideration under the Acquisition to be fair and reasonable, and is in the interests of the Company and its Shareholders as a whole.

Shareholders should note that given the current stage of Dynamic’s business development, and the absence of any need for Dynamic’s shareholders to provide any further funding, the Directors are of the view that Dynamic’s future earning potential is the only relevant and primary reason for the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.2 Comparison with market prices of the Shares

Under the Biodiesel Acquisition Agreement, the issue price per Share of HK$2.8 represents:

(a) a premium of approximately 8.1% over HK$2.59, being the closing price per Share as quoted on the Stock Exchange at the Latest Practicable Date;
(b) a premium of approximately 8.1% over HK$2.59, being the closing price per Share as quoted on the Stock Exchange on 12 June 2008 (the “Last Trading Date”), being the last trading day on which the Biodiesel Acquisition Agreement was executed;
(c) a premium of approximately 9.8% over HK$2.55, being the average closing price per Share as quoted on the Stock Exchange for the past 5 consecutive trading days up to and including the Last Trading Date;
(d) a premium of approximately 8.5% over HK$2.58, being the average closing price per Share as quoted on the Stock Exchange for the past 10 consecutive trading days up to and including the Last Trading Date;
(e) a premium of approximately 8.5% over HK$2.58, being the average closing price per Share as quoted on the Stock Exchange for the past 30 consecutive trading days up to and including the Last Trading Date;
(f) a premium of approximately 4.9% over HK$2.67, being the average closing price per Share as quoted on the Stock Exchange for 6 months prior to and including the Last Trading Date;
(g) a premium of approximately 318% over HK$0.67, being the audited consolidated net assets value per Share as at 31 December 2007.

The Consideration was arrived at after arm’s length negotiations between the Vendor and the Company based on the factors set out in the paragraph headed “Reasons for, and benefits of, the Acquisition” in the “Letter from the Board”. The Issue Price was determined after arm’s length negotiations between the parties with reference to the average closing price per Share of approximately HK$2.67 as quoted on the Stock Exchange for 6 months prior to and including the Last Trading Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We would like to draw Shareholders’ attention to the following chart, which sets out the historical closing price performance of the Shares as quoted on the Stock Exchange from 1 June 2006 up to the Latest Practicable Date (the “Review Period”):

==> picture [402 x 241] intentionally omitted <==

----- Start of picture text -----

4.0
3.5
Issue price: HK$2.80
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Source: Bloomberg
1/6/20061/7/20061/8/20061/9/20061/10/20061/11/20061/12/20061/1/20071/2/20071/3/20071/4/20071/5/20071/6/20071/7/20071/8/20071/9/20071/10/20071/11/20071/12/20071/1/20081/2/20081/3/20081/4/20081/5/20081/6/2008
----- End of picture text -----

The Shares have been traded on an upward trend since June 2006 and the highest closing price of the Shares during the Review Period was noted on 23 July 2007 at HK$3.41. The price of the Shares subsequently declined and traded within the range of HK$3.07 to HK$2.58 from 15 October 2007 to the Latest Practicable Date. From 31 October 2007 to the Latest Practicable Date (except for the period from 24 December 2007 to 21 January 2008, 31 January 2008, 12 March 2008 and 4 June 2008), the Shares were traded at or below the issue price of HK$2.80.

3.3 Trading volume

The table below sets out the highest and the lowest closing prices of the Shares as quoted on the Stock Exchange and the average daily trading volume of the Shares during the Review Period:

					Percentage of
				Average daily	average daily
				trading	trading
				volume	volume to
	Highest	Lowest	Average	for the	total number
	closing	closing	closing	month/	of issued
Month/period	price HK$	price HK$	price HK$	period Shares	shares %
2006
June	1.03	1.00	1.02	490,091	0.16
July	1.02	0.98	1.00	496,857	0.16
August	1.02	0.99	1.01	489,273	0.16
September	1.26	1.00	1.08	1,702,714	0.54
October	1.25	1.11	1.17	685,200	0.22
November	1.28	1.13	1.18	521,429	0.17
December	1.45	1.29	1.33	385,895	0.12

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Percentage of	Percentage of
				Average daily	average	daily
				trading	trading
				volume	volume to
	Highest	Lowest	Average	for the	total number
	closing	closing	closing	month/	of issued
Month/period	price HK$	price HK$	price HK$	period Shares	shares %
2007
January	1.85	1.47	1.66	522,818		0.17
February	2.50	2.03	2.12	522,278		0.17
March	3.17	2.43	2.91	953,045		0.30
April	3.20	2.91	3.05	424,235		0.14
May	3.18	2.95	3.03	548,350		0.18
June	3.00	2.92	2.96	515,250		0.16
July	3.41	2.91	3.17	1,202,429		0.38
August	3.28	3.10	3.23	1,142,609		0.37
September	3.26	3.21	3.24	548,368		0.18
October	3.26	2.70	3.03	654,333		0.21
November	2.80	2.47	2.72	814,364		0.26
December	2.91	2.64	2.74	604,000		0.19
2008
January	3.01	2.56	2.86	403,682		0.13
February	2.68	2.59	2.63	449,684		0.14
March	2.83	2.58	2.66	179,316		0.06
April	2.64	2.55	2.60	177,048		0.06
May	2.64	2.47	2.56	76,000		0.02
June (up to
the Latest
Practicable
Date)	2.81	2.53	2.59	98,158		0.03

Source: Bloomberg

As indicated from the above table, the Shares have been thinly traded and rather illiquid during the Review Period. Taking into account the historical price performance and the thin trading volume of the Shares during the Review Period, we are of the view that the adoption of six months average closing price prior to and including the Last Trading Date, as a basis for arriving at the issue price per Consideration Share, is fair and reasonable, in particular, the issue price per Consideration Share represents a substantial premium over the audited consolidated net assets value per Share as at 31 December 2007.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Effect on shareholdings of the Company and public float

As stated in the “Letter from the Board”, the effects of issue of the Consideration Shares under the Biodiesel Acquisition Agreement on the shareholdings of the Company are illustrated below:

Mr Lam and his associate(s) (Note 1) Mr Toshio Daikai (Note 2) Galaxy China Opportunities Fund (Note 3) Other public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate percentage 211,344,000 67.5% 1,101,000 0.4% 32,886,000 10.5% 67,659,000 21.6% 312,990,000 100.0%	Upon issue of 5,500,000 Consideration Shares at Completion No. of Shares Approximate percentage 216,844,000 68.1% 1,101,000 0.4% 32,886,000 10.3% 67,659,000 21.2% 318,490,000 100.0%	Assuming a maximum of 11,000,000 Consideration Shares are issued No. of Shares Approximate percentage 222,344,000 68.6% 1,101,000 0.30% 32,886,000 10.2% 67,659,000 20.9% 323,990,000 100.0%	Assuming a maximum of 11,000,000 Consideration Shares are issued No. of Shares Approximate percentage 222,344,000 68.6% 1,101,000 0.30% 32,886,000 10.2% 67,659,000 20.9% 323,990,000 100.0%
				100.0%

Notes:

Mr Lam has personal interests in 1,344,000 Shares. 210,000,000 Shares are owned by Profit International Holdings Limited, a company incorporated in the British Virgin Islands and is owned as to 95% by Mr Lam and 5% by Ms Yeung Po Wah. Ms Yeung Po Wah is an executive Director of the Company and the spouse of Mr Lam.
Mr Toshio Daikai is an executive Director of the Company.
According to the register of the Company kept under section 336 of the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong), 32,886,000 Shares, representing approximately 10.5% of the entire issued share capital of the Company are interested in by Galaxy China Opportunities Fund and therefore it is a substantial shareholder of the Company.

The Company has noted that the shareholding percentage held by public (as defined in the Listing Rules) in the Company is less than the minimum 25% prescribed under the Listing Rules. The Company is of the view that the shortfall arose solely from Shares interested in by Galaxy China Opportunities Fund, which is a connected person of the Company only because it is a substantial shareholder of the Company. It is not the controlling or single largest shareholder of the Company, nor does it have any representative on the Board or been involved in the management of the Company. Save as being a substantial shareholder of the Company, Galaxy China Opportunities Fund is independent of and is not connected with the Company, the Directors and Mr Lam and his associate(s).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company will take steps, including where necessary issue of new shares or procuring Mr Lam to place down his or his associate(s)’ existing shareholdings in the Company to independent third parties, to restore the minimum percentage of the Shares of the Company in the public hands before Completion in accordance with the Listing Rules. The Company will also consider to discuss with Galaxy China Opportunities Fund on any other possible plans in order to restore the public float. As at the Latest Practicable Date, the plans to restore the public float were still being considered by the Company.

As the biodiesel business is a new business for the Group, the plans to restore public float would recognise that the investing public and the Shareholders may also take the Acquisition into consideration. Given the low turnover of the Shares on the Stock Exchange and the current volatility of the stock market situation as a whole, the Company expects to restore its public float to the minimum level of 25% or above in about three (3) months from 12 June 2008 during which the Company will negotiate with the counterparties and finalise the commercial terms of the restoration plan. The Company and Mr Lam also undertook to the Stock Exchange to procure restoration of the Company’s public float to not less than 25% within such period.

As stated in the “Letter from the Board”, the Stock Exchange has stated that it will not grant the approval for the listing of, and permission to deal in, the Consideration Shares on the Stock Exchange before restoration of the Company’s 25% minimum public float.

As at the Latest Practicable Date, Mr Lam and his associate(s) are currently interested in an aggregate of 211,344,000 Shares, representing approximately 67.5% of the existing issued share capital of the Company. Immediately after the issue of the Consideration Shares upon Completion, Mr Lam and his associate(s) will be interested in 216,844,000 Shares, representing approximately 68.1% of the enlarged issued share capital of the Company. On this basis, the interest of the existing public Shareholders will be diluted from approximately 21.6% (as at the Latest Practicable Date) to approximately 21.2% of the enlarged issued share capital of the Company following the issue of the initial 5,500,000 Consideration Shares, representing a dilution effect of approximately 1.9%.

Assuming the 2009 Net Profit of Dynamic is HK$15 million or above, a further 5,500,000 Consideration Shares will be issued to Mr Lam and Mr Lam and his associate(s) will be interested in 222,344,000 Shares, representing approximately 68.6% of the enlarged issued share capital of the Company. The shareholding interest of the existing public Shareholders will as a result of the additional Consideration Shares be diluted further from 21.2% to 20.9%, representing a dilution effect of approximately 1.4%.

Taking into account the other reasons and factors set out in this letter, in particular, the issue price for the Consideration Shares is (i) at a premium to the average closing price per Share for the 6 months prior to and including the Last Trading Date and (ii) at a substantial premium over the audited consolidated net assets value per Share as at 31 December 2007; 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Expected financial impact on the Group as a result of the Acquisition

5.1 Assets and equity

Upon Completion of the Acquisition, Dynamic will become a 51%-owned subsidiary of the Company and the accounts of Dynamic will be consolidated into the Group’s financial statements. Upon Completion, the consolidation of the assets of Dynamic into the Group’s financial statements will be partly offset by the decrease in “Cash and cash equivalents” for the cash portion of the Consideration, whilst the “Equity” will increase as a result of the issuance of the 5,500,000 Consideration Shares.

If the 2009 Net Profit of Dynamic is HK$15 million or above, the “Cash and cash equivalents” will be decreased by another HK$10 million and a further increase in “Equity” for the issuance of additional 5,500,000 Consideration Shares.

5.2 Net tangible asset value position

Set out in the following is a table illustrating the possible effects of the Acquisition on the consolidated net tangible asset value (“NTAV”) of the Company assuming (i) the long-term recoverability of the Sale Loan (as explained in the following paragraph) and (ii) Dynamic will return a net profit after tax of HK$5 million under scenario A (which would entail a cash compensation of HK$1,783,000 from the Vendor as described above), or of HK$15 million under scenario B (which would entail the full settlement of the Deferred Consideration of HK$10 million in cash and the issue of a further 5,500,000 Consideration Shares).

The assumption that the Sale Loan would be fully recoverable by the Company in the long-term is reasonable as should Dynamic return a financial loss or a net profit of less than HK$5 million in 2009 which may adversely impact the recoverability of the Sale Loan, the Company would likely to exercise the Put Option and recover its investments in the Sale Shares and the Sale Loan from the Vendor. In the event that the Company transpires to return the range of profit envisaged under the Profit Guarantee, the Company can, as the majority shareholder of Dynamic, require the Sale Loan to be repaid from Dynamic’s future profitability before paying a dividend. Accordingly, on the assumption that (i) the Sale Loan is repayable on the first anniversary date of the date of commencement of production of Dynamic under the Biodiesel Acquisition Agreement; and (ii) Dynamic expects commercial production of biodiesel to commence in or before September 2008 as stated in the “Letter from the Board”, the Directors consider it is reasonable to assume Dynamic will have the ability to repay the Sale Loan to the Company in future. We concur with this view.

As stated previously, the Directors expect Dynamic to commence commercial production in the second half of 2008 with the view of achieving break-even production level shortly thereafter. Given that Dynamic has largely completed the installation of its production infrastructure and its rapid production plan to achieve breakeven, the Directors consider it is reasonable to assume that Dynamic would not incur any significant operating loss in 2008 and hence the NTAV position of Dynamic as at 31 December 2008 would be similar to the position in the previous year end.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

NTAV effects:

NTAV of the Company as at 31 December 2007 and the assumed position as at 31 December 2008 *Add:* Sales Loan acquired 51% of other net assets of Dynamic as per its unaudited balance sheet at 31 December 2007 (without taking into account the shareholder’s loan of HK$10 million) *Less:* Cash payment in Initial Consideration Shares issued under Initial Consideration Immediately after Completion of the Acquisition Scenario A. Assumes Dynamic achieves net profit of HK$5,000,000 for the year ending 31 December 2009: Cash compensation from Vendor 51% of attributable net profit of Dynamic in 2009 Position based on the 2009 financial result Scenario B. Assumes Dynamics achieves net profit of HK$15,000,000 for the year ending 31 December 2009: Cash payment as Deferred Consideration Shares issued under Deferred Consideration 51% of attributable net profit of Dynamic in 2009 Position based on the 2009 financial result	NTAV HK$ 198,602,000 10,000,000 246,271 (10,000,000)	Number of Shares in issue 312,990,000 5,500,000	NTAV per Share HK$ 0.635 0.624 0.638 0.606
	198,848,271	318,490,000
	1,783,000 2,550,000
	203,181,271	318,490,000
	(10,000,000) 7,650,000	5,500,000
	196,498,271	323,990,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above table, under scenario A, the NTAV per Share of the Company would be HK$0.638 whereas under scenario B, the NTAV per Share position would be HK$0.606, as compare with the NTAV per Share of HK$HK$0.635 of the Company as at 31 December 2007. As such, the above-mentioned NTAV per Share position under scenario B represents a modest dilution of approximately 4.6% from the Company’s 2007 position. The Directors consider that this theoretical modest dilution is acceptable as Dynamic would have achieved the Guaranteed Profit as an ongoing business.

Shareholders should note that the Acquisition may give rise to goodwill, which will be determined based on the difference between the Consideration and the fair value of Dynamic as at Completion Date. The extent to which any goodwill impairment provision may be required in the Group’s future financial statements would depend on the assessment as to whether any impairment on goodwill may be necessary, which would in turn depend on the ability of Dynamic to generate sustainable profit going forward.

5.3 Gearing

As the cash consideration for the Acquisition will be satisfied by internal resources of the Group, there will be no material impact on the gearing ratio of the Group as a result of the Acquisition.

V. RECOMMENDATION

In considering the terms of the Biodiesel Acquisition Agreement, we have taken into account the following factors:

the reason for and benefits of the Acquisition;
the terms of the Biodiesel Acquisition Agreement with regard to the basis of the consideration, in particular, the Profit Guarantee, the adjustment to the consideration if the 2009 Net Profit of Dynamic is not met and the Put Option which provide certain downside protection for the Company;
the other factors (namely the price performance and trading volume of the Shares, the comparison of PER multiples); and
the expected financial impact of the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 Biodiesel Acquisition Agreement to be on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and the Acquisition are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the relevant resolution which will be proposed at the EGM to approve the Acquisition.

Yours faithfully,

For and on behalf of ACCESS CAPITAL LIMITED Jimmy Chung Principal Director

– 41 –

GENERAL INFORMATION

APPENDIX

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purposes of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately after the issue of all the 11,000,000 Consideration Shares are set out as follows:

As at the Latest Practicable Date Authorised share capital: 10,000,000,000 Shares	HK$ 100,000,000

Issued and to be issued: 312,990,000 issued Shares 11,000,000 Consideration Shares	3,129,900 110,000
323,990,000	3,239,900

All the issued Shares rank pari passu with each other in all respects including the rights to voting, dividends and return of capital. The Consideration Shares will, when issued and fully paid, rank pari passu in all respects with the then issued Shares on the date of allotment and issue.

As at the Latest Practicable Date, options granted under the Company’s share option scheme entitling the holders to subscribe for a total of 1,110,000 Shares were outstanding.

DISCLOSURE OF INTERESTS

(a) Directors and chief executive

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which

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APPENDIX

GENERAL INFORMATION

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 were taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Interests in the Shares of the Company:

						% of the
			Number of Shares			issued share capital of
		Personal	Family	Corporate		the
		interests	interests	interests	Total	Company
Mr Lam Yin	Long	12,344,000	–	210,000,000	222,344,000	71.0%
Kee	positions	(Note 1)		(Note 2)
Ms Yeung Po	Long	–	222,344,000	–	222,344,000	71.0%
Wah	positions
Mr Toshio	Long	1,101,000	–	–	1,101,000	0.4%
Daikai	positions

Notes:

Each of Mr Lam Yin Kee and Ms Yeung Po Wah is taken to be interested in the entire 11,000,000 Consideration Shares pursuant to Part XV of the SFO and such Shares have been included in the 12,344,000 Shares as shown above.
210,000,000 Shares are owned by Profit International Holdings Limited, a company incorporated in the British Virgin Islands and is owned as to 95% by Mr Lam Yin Kee and 5% by Ms Yeung Po Wah. Ms Yeung Po Wah is an executive Director of the Company and the spouse of Mr Lam Yin Kee.
(ii) Interests in an associated corporation:

Name: Profit International Holdings Limited

						% of the
						issued share
			Number of shares			capital of the
		Personal	Family	Corporate		associated
		interests	interests	interests	Total	corporation
Mr Lam Yin	Long	950	–	–	950	95.0%
Kee	positions
Ms Yeung Po	Long	50	–	–	50	5.0%
Wah	positions

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company held any interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which 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 were taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange.

(b) Substantial shareholders

As at the Latest Practicable Date, according to the register of interests kept by the Company under section 336 of the SFO and so far as was known to the Directors and chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying Shares 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 were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any option in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Group:

(i) Interests in the Shares of the Company:

				% of the
				issued share
		Nature of	Number of	capital of the
Name		interest	Shares	Company
Profit International	Long	Beneficially	210,000,000	67.1%
Holdings Limited	positions	owned
Galaxy China	Long	Beneficially	32,886,000	10.5%
Opportunities	positions	owned
Fund	Short	Beneficially	4,000,000	1.3%
	positions	owned

Note: Mr Lam Yin Kee and Ms Yeung Po Wah are directors and beneficial owners of Profit International Holdings Limited.

– 44 –

GENERAL INFORMATION

APPENDIX

(ii) Other members of the Group:

	Approximate
	percentage of
	shareholding held
	by substantial	Name of the
	shareholder (other	substantial
Name of subsidiary	than the Group)	shareholder
Dynamic Progress International	49%	Good Plan
Limited		International Limited
Southchina Engineering and	19%	Mr Lam On Bong
Manufacturing Limited	15%	Mr Ieong Kin San
	15%	Mr Leung Hon Kwong

According to the register of interests kept by the Company under section 336 of the SFO and so far as was known to the Directors and chief executive of the Company, save as disclosed above and the Put Option, there were no other persons (other than the Directors or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares or underlying Shares 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 were, 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 in any option in respect of such capital.

SERVICE CONTRACTS

None of the Directors has any existing or proposed service contracts with the Company or any of its subsidiaries other than contracts expiring or determinable by the Group within one (1) year without payment of compensation (other than statutory compensation).

DIRECTORS’ OTHER INTERESTS

Save for (a) the Biodiesel Acquisition Agreement and (b) the tenancy agreement dated 31 March 2007 between Alltronics Tech. Mftg. Limited (a wholly-owned subsidiary of the Company) as tenant and Profit Home Investments Limited (in which Ms Yeung Po Wah, an executive Director, holds 60% shareholding interest) as landlord under which the Group has rented Flat B, 39th Floor, Broadview Villa, 20 Broadwood Road, Happy Valley, Hong Kong as Directors’ quarter at monthly rental of HK$100,000 from 1 April 2007 to 31 March 2009 (as announced by the Company on 4 April 2007), none of the Directors:

had any direct or indirect interest in any assets which have been 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 as at the Latest Practicable Date since 31 December 2007 (being the date to which the latest published audited accounts of the Group were made up); and

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GENERAL INFORMATION

APPENDIX

was materially interested in any contract or arrangement entered into by any member of the Group which contract or arrangement was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

COMPETING INTERESTS

None of the Directors or their respective associate(s) is interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name

Qualification

Access Capital Limited A licensed corporation to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO

As at the Latest Practicable Date, the Independent Financial Adviser did not have:

any direct or indirect interest in any assets which have since 31 December 2007 (being the date to which the latest published audited accounts of the Group were made up) been 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
any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and reference to its name, in the form and context in which it is included.

MATERIAL ADVERSE CHANGE

There has been no material adverse change in the financial or trading position of the Group since 31 December 2007, being the date to which the latest published audited financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX

LITIGATION

So far as the Directors were aware, no member of the Group was engaged in any litigation, arbitration or claims of material importance and no litigation, arbitration or claims of material importance was known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

MISCELLANEOUS

The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal place of business of the Company in Hong Kong is situated at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong.
The qualified accountant and secretary of the Company is Mr Leung Fuk Cheung. He is currently a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
The branch share registrar of the Company in Hong Kong is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong during normal business hours on any business day from the date hereof up to and including the date of the EGM:

the Biodiesel Acquisition Agreement;
the letter of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, as set out in this circular;
the consent letter of the Independent Financial Adviser referred to in the section headed “Expert and consent” in this appendix; and
the tenancy agreement dated 31 March 2007 between Alltronics Tech. Mftg. Limited (a wholly-owned subsidiary of the Company) as tenant and Profit Home Investments Limited as landlord in respect of the Directors’ quarter at Flat B, 39th Floor, Broadview Villa, 20 Broadwood Road, Happy Valley, Hong Kong.

– 47 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [65 x 44] intentionally omitted <==

ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) of Alltronics Holdings Limited (the “Company”) will be held at Vinson Room, Pacific Place Conference Centre, Level 5, One Pacific Place, 88 Queensway, Hong Kong on Monday, 21 July 2008 at 2:00 p.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution of the Company which will be proposed as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the sale and purchase agreement dated 12 June 2008 (the “Biodiesel Acquisition Agreement”) between the Company as purchaser and Mr Lam Yin Kee as vendor, a copy of which having been produced at the meeting marked “A” and signed by the chairman of the meeting for identification purposes, under which the Company conditionally agreed to procure its wholly-owned subsidiary to purchase 51% of the entire issued share capital of Dynamic Progress International Limited (“Dynamic”) and the entire shareholder’s loan owed to Mr Lam Yin Kee by Dynamic for a total consideration of HK$50.8 million, which will be settled as to HK$20 million in cash (subject to adjustment) and the remaining balance of HK$30.8 million by issue and allotment of 11,000,000 new ordinary shares (subject to adjustment) of the Company at the price of HK$2.8 each, and the transactions contemplated thereunder (including the issue and allotment of the said new ordinary shares of the Company) be and are hereby approved, confirmed and ratified, and the directors and secretary of the Company be and are hereby authorized to sign, execute and deliver any agreements, deeds, instruments and any other documents (and, where necessary, to affix the seal of the Company on them in accordance with the articles of association of the Company) in connection with the Biodiesel Acquisition Agreement and to do such acts and things as necessary, desirable or expedient to give effect to the transactions contemplated under the Biodiesel Acquisition Agreement.”

On behalf of the Board Alltronics Holdings Limited Lam Yin Kee Chairman

Hong Kong, 3 July 2008

– 48 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

A member of the Company who is entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint a proxy to attend and vote on his behalf. A proxy need not be a member of the Company but must attend in person to represent the member. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
In order to be valid, the form of proxy (enclosed under the circular of the Company dated the same date of this notice) together with any power of attorney or other authority under which it is signed, or a certified copy of such power of attorney or authority, must be deposited with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the Meeting, or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.

– 49 –

AI assistant

Alltronics Holdings Limited — Proxy Solicitation & Information Statement 2008

49498_rns_2008-07-02_f74ff607-c0b4-4d48-ac62-4fd8b1432bda.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

ALLTRONICS HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

PUBLIC FLOAT

NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

ALLTRONICS HOLDINGS LIMITED

Ms Yeung Po Wah

Mr Toshio Daikai

Executive Director

To the Shareholders

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

PUBLIC FLOAT

NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

LETTER FROM THE BOARD

B. THE BIODIESEL ACQUISITION AGREEMENT

1. Date

2. The parties

3. The assets to be acquired

4. Conditions to Completion

LETTER FROM THE BOARD

5. The Consideration

LETTER FROM THE BOARD

6. Put Option in respect of Dynamic

7. Shareholders agreement relating to Dynamic

8. Licence agreement by the Founders in respect of intellectual property rights

C. FURTHER INFORMATION ON DYNAMIC

LETTER FROM THE BOARD

D. EFFECT ON SHAREHOLDINGS OF THE COMPANY AND PUBLIC FLOAT

LETTER FROM THE BOARD

E. REASONS FOR, AND BENEFITS OF, THE ACQUISITION

LETTER FROM THE BOARD

F. IMPLICATIONS UNDER THE LISTING RULES AND OTHER INFORMATION

G. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

H. EGM

I. GENERAL

ALLTRONICS HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 51% EQUITY INTEREST IN BIODIESEL BUSINESS INVOLVING ISSUE OF NEW SHARES

I. INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II. THE INDEPENDENT BOARD COMMITTEE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

III. BASIS AND ASSUMPTIONS OF THE ADVICE

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. The Biodiesel Acquisition Agreement

2.1 Parties

2.2 The assets to be acquired

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.4 Put Option in respect of Dynamic

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.5 Shareholders agreement relating to Dynamic

2.6 Licence agreement by the Founders in respect of intellectual property rights

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Factors in assessing the consideration of the Acquisition

3.1 Basis for determining the Consideration

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.3 Trading volume

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Effect on shareholdings of the Company and public float

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Expected financial impact on the Group as a result of the Acquisition

5.1 Assets and equity

5.2 Net tangible asset value position

NTAV effects:

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.3 Gearing

V. RECOMMENDATION

Alltronics Holdings Limited Proxy Solicitation & Information Statement 2008