AV Concept Holdings Limited — Proxy Solicitation & Information Statement 2005

Jun 24, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular to the purchaser or transferee or to the bank, the stockbroker 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 disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 595)

DISCLOSEABLE TRANSACTION

DISPOSALS OF SHARES IN REIGNCOM

24 June 2005

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Appendix	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6

DEFINITIONS

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

“associates” has the same meaning as ascribed to it under the Listing Rules “Board” the board of Directors “Company” AV Concept Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the main board of the Stock Exchange “Directors” the directors of the Company “Disposals” the disposals of a total of 535,505 shares in Reigncom on KOSDAQ since the expiry of the 12-month period following the grant on 10 March 2004 of the Disposal Mandate, which disposals were made during the period from 2 May 2005 to 24 May 2005 “Disposal Mandate” the Shareholders’ approval for the disposal of up to 825,840 shares in Reigncom (being the Company’s then entire interest in Reigncom) which authorisation was for a period of 12 months from the date of the Shareholders’ meeting held on 10 March 2004 “Group” the Company and its subsidiaries “Hong Kong” The Hong Kong Special Administrative Region of the People’s Republic of China “HK$” Hong Kong dollars, the lawful currency of Hong Kong “KOSDAQ” The KOSDAQ Stock Exchange, Inc. in the Republic of Korea “Latest Practicable Date” 21 June 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Purchases” the purchases of a total of 95,000 shares in Reigncom on KOSDAQ by a subsidiary of the Company during the period from 7 to 9 March 2005

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DEFINITIONS

“Reigncom” Reigncom Limited, a company incorporated in the Republic of Korea with limited liability, the shares of which are listed on KOSDAQ “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Won” Korean Won, the lawful currency of the Republic of Korea “%” per cent.

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LETTER FROM THE BOARD

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AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 595)

Directors:

So Yuk Kwan (Chairman) Lee Jeong Kwan So Chi On Lai Yat Hung, Edmund Dr. Hon. Lui Ming Wah, JP Charles Edward Chapman Wong Ka Kit*

Registered office: P.O. Box 309 Ugland House South Church Street George Town Grand Cayman Cayman Islands British West Indies

• Independent non-executive Directors

Principal office: 6th Floor Enterprise Square Three 39 Wang Chiu Road Kowloon Bay Hong Kong 24 June 2005

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION DISPOSALS OF SHARES IN REIGNCOM

INTRODUCTION

The Company issued a circular on 23 February 2004 in respect of its disposal of shares in Reigncom on KOSDAQ and obtained Shareholders’ approval for the disposal of up to its entire interest in 825,840 Reigncom shares for a period of 12 months from the date of the Shareholders’ meeting held on 10 March 2004. It was announced on 3 June 2005 that since the expiry of the 12-month period following the grant of the Disposal Mandate, the Company has made further disposals of 535,505 shares in Reigncom on KOSDAQ commencing on 2 May 2005 and ending on 24 May 2005. As the applicable percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules exceed 5% but fall below 25%, the Disposals constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

The purpose of this circular is to provide you with further information in relation to the Disposals.

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LETTER FROM THE BOARD

BACKGROUND

On 23 February 2004, the Company issued a circular in respect of its disposal of shares in Reigncom on KOSDAQ which at that time constituted a discloseable transaction and its intention to dispose of further shares in Reigncom which might constitute a major disposal for the Company for the purposes of the Listing Rules. It was stated in the circular that it would not be practicable for the Company to seek approval from Shareholders prior to every further disposal of shares in Reigncom given that the shares are traded on KOSDAQ and it would be unlikely that potential buyers would be willing to commit to purchase such shares from the Company conditional upon the Company obtaining Shareholders’ approval. Accordingly, in order to provide the Company with the flexibility to dispose of further shares in Reigncom, the Company obtained Shareholders’ approval for the disposal of up to 825,840 shares in Reigncom (being the number of shares in Reigncom as at the latest practicable date prior to issue of the circular dated 23 February 2004) which authorisation was for a period of 12 months from the date of the Shareholders’ meeting held on 10 March 2004.

On 30 June 2004, Reigncom carried out a bonus issue of shares to all shareholders on a one-forone basis. As a result a further 825,840 shares in Reigncom were issued to the Company resulting in the absolute number of shares in Reigncom held by the Company doubling to 1,651,680. This did not, however, affect the Company’s percentage shareholding in Reigncom which remained the same. The Company did not pay for the bonus shares and did not acquire them in the sense of purchasing or subscribing for such shares. The bonus shares were issued by Reigncom to all its shareholders based upon their then holdings of Reigncom shares. The Company regards the bonus shares issued to it as being entirely derived from its holding of shares in Reigncom. Accordingly, the Company is of the view that the Disposal Mandate given to it by its Shareholders to dispose of shares in Reigncom extends to the bonus shares which derive from its holding of shares as at the date of the above-mentioned Shareholders’ meeting held on 10 March 2004 and that therefore the disposals made on or before 9 March 2005 were in accordance with the Disposal Mandate.

For the period from 7 to 9 March 2005 a subsidiary of the Company purchased a total of 95,000 shares in Reigncom on KOSDAQ at average unit prices ranging from approximately 24,054.6 Won to approximately 24,519.6 Won (as shown in the respective contract notes) and an aggregate purchase price of approximately 2,317.2 million Won (equivalent to approximately HK$18.0 million, based on the exchange rates on the relevant dates of purchase quoted from Bloomberg). The Purchases did not constitute a notifiable transaction under the Listing Rules as the applicable percentage ratios were less than 5%. Aside from that, since the date of the Shareholders’ resolution approving the Disposal Mandate, the Group has not purchased or subscribed for any shares in Reigncom. During the 12-month period following the grant of the Disposal Mandate, the Group sold a total of 1,211,175 shares in Reigncom on KOSDAQ.

THE DISPOSALS

Since the expiry of the 12-month period following the grant of the Disposal Mandate, the Group has made further disposals of a total of 535,505 shares in Reigncom on KOSDAQ commencing on 2 May 2005 and ending on 24 May 2005 at average unit prices ranging from approximately 12,681.1 Won to approximately 13,555.8 Won (as shown in the respective contract notes) and an aggregate sales price of approximately 7,046.6 million Won (equivalent to approximately HK$54.9 million, based on the exchange rates on the relevant dates of disposal quoted from Bloomberg). After the disposal, neither the Company nor its subsidiaries hold any shares in Reigncom.

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LETTER FROM THE BOARD

INFORMATION ON REIGNCOM

Reigncom is a Korean company listed on KOSDAQ since 19 December 2003. As at 24 May 2005, the total market capitalization of Reigncom was approximately 174,667.9 million Won (equivalent to approximately HK$1,357.9 million, based on the exchange rate on 24 May 2005 quoted from Bloomberg). Reigncom and its subsidiaries are principally engaged in the design and sale of MP3 players and other electronic products worldwide. The audited profits of the Reigncom group of companies before and after taxation and minority interests for the year ended 31 December 2004 were approximately 52,755.5 million Won and approximately 44,844.5 million Won respectively (equivalent to approximately HK$396.1 million and approximately HK$336.7 million respectively, based on the exchange rate on 31 December 2004 quoted from Bloomberg), and for the year ended 31 December 2003 were approximately 46,140.2 million Won and approximately 41,273.4 million Won respectively (equivalent to approximately HK$300.6 million and approximately HK$268.9 million respectively, based on the exchange rate on 31 December 2003 quoted from Bloomberg). The audited net asset value of the Reigncom group of companies as at 31 December 2004 was approximately 164,024.3 million Won (equivalent to approximately HK$1,231.6 million, based on the exchange rate on 31 December 2004 quoted from Bloomberg).

REASONS FOR AND BENEFITS OF THE DISPOSALS

The Group is principally engaged in the marketing and distribution of electronic components, and the design and manufacture of electronic products. The Directors (including the independent non-executive Directors) consider that it is in the best interests of the Shareholders as a whole for the Group to carry out the disposals of the Group’s remaining interest in Reigncom during the period from 2 May 2005 to 24 May 2005 realising an expected gain on disposal of approximately HK$24 million (after deducting the relevant expenses, Korean taxes and average cost of investment) during such period. The Group’s investment in Reigncom has been accounted for as an investment in the Group’s balance sheet before completion of the Disposals. It is expected that the Group’s earnings and net assets will be enhanced by the amount of the expected gain on disposal of approximately HK$24 million realised from the Disposals. The Directors (including the independent non-executive Directors) believe that the Disposals are fair and reasonable and in the interests of the Shareholders as a whole.

The Group received net proceeds from the Disposals of approximately HK$49.5 million (net of expenses and Korean taxes) which will be used for working capital and financing future business growth of the Group. The Directors do not currently have in mind any specific business project to which they intend to apply the net proceeds.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the Appendix to this circular.

Yours faithfully,

For and on behalf of the Board

AV CONCEPT HOLDINGS LIMITED

So Yuk Kwan

Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

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 or any 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 are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules or which were required to be entered into the register required to be kept under section 352 of the SFO were as follows:

Long position in the Shares

(i) Interests in the Shares

Number of Shares and nature of interests

					Approximate
		Personal	Other		percentage
Name of Directors	Capacity	interests	interests	Total	shareholding
Mr. So Yuk Kwan	Founder of a	–	133,034,300	133,034,300	32.84%
	discretionary trust		(Note)
Mr. Lee Jeong Kwan	Beneficial owner	3,000,000	–	3,000,000	0.74%
Mr. So Chi On	Beneficiary of a	–	133,034,300	133,034,300	32.84%
	trust		(Note)
Mr. Lai Yat Hung, Edmund	Beneficial owner	3,742,607	–	3,742,607	0.92%

Note: B.K.S. Company Limited, which is a wholly-owned subsidiary of Credit Cash Limited, is the legal and beneficial owner of 133,034,300 Shares. The entire issued share capital of Credit Cash Limited is held by Trident Corporate Services (B.V.I.) Limited, which is the trustee of a discretionary trust, the beneficiaries of which include Mr. So Chi On and other family members of Mr. So Yuk Kwan.

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GENERAL INFORMATION

APPENDIX

(ii) Interests in underlying Shares

Certain Directors were granted share options to subscribe for Shares under the Company’s share option scheme, details of which as at the Latest Practicable Date were as follows:

s:
		Number of
		shares option	Exercise period
		outstanding	of share options	Exercise price
	Date of grant of	as at the Latest	(both dates	of share
Name of Directors	share options	Practicable Date	inclusive)	options
		(Note 1)		HK$
Lee Jeong Kwan	23 March 2004	2,000,000	23 March 2005 –	1.52
			12 May 2012
Lai Yat Hung, Edmund	23 March 2004	500,000	23 March 2005 –	1.52
			12 May 2012
So Chi On	23 March 2004	400,000	23 March 2005 –	1.52
			12 May 2012

Notes:

1. The vesting period of the share options is from the date of grant until the commencement of the exercise period.

2. The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests and short positions in the shares, underlying shares and debentures of the Company or any 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 are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules or which were required to be entered into the register required to be kept under section 352 of the SFO.

(b) Persons or corporations who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders of members of the Group

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by the Directors and the chief executive of the Company, the following persons or corporations 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 Division 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group, or had any option in respect of such capital.

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GENERAL INFORMATION

APPENDIX

Long position in the Shares

		Percentage of
	Number of	the Company’s issued
Name	Shares held	share capital
B.K.S. Company Limited_(Note 2)_	133,034,300 (Note 1)	32.84%
Credit Cash Limited	133,034,300 (Note 1)	32.84%
Trident Corporate Services (B.V.I.)
Limited	133,034,300 (Note 1)	32.84%
Madam Yeung Kit Ling	133,034,300 (Note 1)	32.84%
Madam Leung Hoi Man	133,034,300 (Note 1)	32.84%

Notes:

1. 133,034,300 Shares are beneficially held by B.K.S. Company Limited which is a wholly-owned subsidiary of Credit Cash Limited. Credit Cash Limited is a company wholly-owned by Trident Corporate Services (B.V.I.) Limited, which is the trustee of a discretionary trust, the beneficiaries of which include Mr. So Chi On, Madam Yeung Kit Ling and other family members of Mr. So Yuk Kwan. Madam Leung Hoi Man is the spouse of Mr. So Chi On. Therefore, B.K.S. Company Limited, Credit Cash Limited, Trident Corporate Services (B.V.I.) Limited, Madam Yeung Kit Ling and Madam Leung Hoi Man are interested in the same block of Shares.

2. The following Director(s) is/are director(s)/employee(s) of the company/companies which has/have 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:

3. Mr. So Yuk Kwan is a director of B.K.S. Company Limited.

So far as is known to any director or chief executive of the Company, as at the Latest Practicable Date, the following companies/persons were interested in 10 per cent. or more of the nominal value of the voting share capital of the following subsidiary of the Company:

		Percentage of
Name of subsidiary	Name of shareholder	shareholding
AVC Germany Limited	Mr. Ralf Burkhardtsmayer	30%
AVC Germany Limited	Cross Cultural Link Consultant Limited	10%

Save as disclosed above, the Directors and the chief executive of the Company are not aware that there is any person or corporation (other than the Directors and chief executive of the Company whose interests are disclosed in 2(a) above) who/which, as at the Latest Practicable Date, 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/which was, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or had any option in respect of such capital.

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GENERAL INFORMATION

APPENDIX

3. COMPETING BUSINESS

As at the Latest Practicable Date, none of the directors or proposed directors of the Company and its subsidiaries and their respective associates had any interests in a business, other than the Group’s business, which competes or is likely to compete with the business of the Group.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the directors or proposed directors of the Company and its subsidiaries had entered, or was proposing to enter, into any service contract with the Company or its subsidiaries which is not expiring or may not be terminated by the Company within a year without payment of any compensation (other than statutory compensation).

5. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

6. GENERAL

• (a) The secretary of the Company is Ms. Chan Lap Sau, Anita, ACIS .

• (b) The qualified accountant of the Company is Mr. Lai Yat Hung, Edmund, who is a qualified accountant with the Institute of Chartered Accountants in England and Wales.

• (c) The share registrar and transfer office of the Company in the Cayman Islands is HSBC Financial Services (Cayman) Limited, HSBC House, Mary Street, P.O. Box 1109 GT, Grand Cayman, Cayman Islands, British West Indies. The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) The English text of this circular should prevail over the Chinese text in the case of inconsistency.

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