AV Concept Holdings Limited — Proxy Solicitation & Information Statement 2008

Jan 24, 2008

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 the 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.

==> picture [76 x 32] intentionally omitted <==

(Stock Code: 595)

DISCLOSEABLE TRANSACTION: DISPOSAL OF EQUITY INTERESTS IN AV BRECONRIDGE LIMITED AND

RELATED CANCELLATION OF WARRANT HELD BY THE COMPANY IN BRECONRIDGE CORPORATION

24 January 2008

CONTENTS

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

DEFINITIONS

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

• “2005 Agreement” or the “Agreement”

an agreement dated 25 April 2005 (as amended by a supplemental agreement dated 28 April 2005) entered into between AVCC and BC pursuant to which AVCC agreed to dispose of its entire interests in AVB in return for certain interests in BC Shares subject to certain conditions, further particulars of which are set out in the announcement of the Company dated 9 May 2005 and the circular of the Company dated 15 July 2005

• “2005 Disposal”

• the disposal by AVCC to BC of 50% of the issued share capital of AVB and the possible disposal of the remaining 50% of the issued share capital of AVB should a Liquidity Event occur pursuant to the 2005 Agreement

• “Agreed Deductions”

• US$114,811 (approximately HK$895,526) being the sum of (i) US$100,000, the amount AVCC has agreed to compensate BMSAL and BC for bringing the software licences of AVB into good standing pursuant to the 2005 Agreement and (ii) US$14,811, being 50% of the agreed cost of terminating a legal representative, to be deducted from the cash consideration for the Warrant Disposal

• “AVB” or “AV Chaseway”

• AV BreconRidge Limited, formerly known as AV Chaseway Limited, a company incorporated in Hong Kong which was owned as to 50% by AVCC and 50% by BC as at the Latest Practicable Date

• “AVB Disposal”

• the disposal of the remaining 50% of the issued share capital of AVB by AVCC to BMSAL pursuant to the SP Agreement

• “AVCC”

• AV Concept (China) Industrial Co., Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company

• “AVCTI”

• AVC Technology (International) Limited, formerly known as AVC Manufacturing Services Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company

• “BC” or “BreconRidge”

• BreconRidge Corporation, formerly known as BreconRidge Manufacturing Solutions Corporation, a company incorporated in Canada

• “BC Convertibles” or “BreconRidge Convertibles”

• the outstanding preferred shares, options and warrants of BC conferring the holders the rights to subscribe for BC Shares

1

DEFINITIONS

• “BC Group”

BC and its subsidiaries

• “BC Shares”

the common shares of BC

• “BMSAL”

BreconRidge Manufacturing Solutions (Asia) Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of BC

• “Board”

the board of directors of the Company

• “Bond”

the guaranteed bond due 2009 to be issued by BMSAL to AVCC as the consideration for the AVB Disposal

• “BreconRidge Warrant Shares”

• 7.5 million common shares of BC (subject to adjustment) to be issued by BC to AVCC upon the exercise or deemed exercise of the Warrant by AVCC

• “Company” AV Concept Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the Main Board of the Stock Exchange

• “Controlling Shareholders”

• B.K.S. Company Limited and Jade Concept Limited, each being a Shareholder and a company controlled by Mr. So Yuk Kwan, the chairman and an executive director of the Company, which in aggregate hold 245,432,189 Shares, representing approximately 56.87% of the issued share capital of the Company as at the Latest Practicable Date

• “Director(s)”

the director(s) of the Company

• “Exchange Price”

• the exchange price of US$0.60 per BC Share (subject to adjustment)

• “Existing Supply Agreement”

• the supply agreement dated 1 August 2005 and entered into by AVB, AVCTI and BC in respect of the supply by AVB of manufacturing services

• “Extension Fee”

• a sum of US$2 million to be paid in cash on or before the second anniversary of the date of Initial Closing as an extension fee for the Liquidity Event to take place after the second anniversary of Initial Closing

• “Final Closing”

• the disposal of the remaining 50% of the issued share capital of AVB by AVCC to BC in return for additional BC Shares pursuant to the 2005 Agreement

• “First Tranche Shares”

• shares of AVB representing 50% of the issued share capital of AVB as at the date of Initial Closing

2

DEFINITIONS

• “Group”

the Company and its subsidiaries

• “Initial Closing”

the completion of the disposal of 50% of the issued share capital of AVB by AVCC to BC in return for the Warrant pursuant to the 2005 Agreement

• “Latest Practicable Date” 21 January 2008, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular

• “Liquidity Event” the event which consists of the listing of BC or the listing of any entity that has acquired the business or assets of BC on one or more of The Toronto Stock Exchange, the New York Stock Exchange, the NASDAQ, the AMEX Exchange, the AIM Exchange or the Stock Exchange; or the sale of all the shares of BC, or the sale of all or substantially all of the assets of BC, or any other transaction, that will result in AVCC being entitled to receive cash or tradeable shares

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Maturity Date” the maturity date of the Bond, being 31 August 2009

• “Model Code”

• the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Listing Rules

• “NASDAQ”

the NASDAQ National Market System in the US

• “New Supply Agreement”

• the new supply agreement entered into between AVB and AVCTI on 18 December 2007

• “Second Tranche Shares”

• shares of AVB representing the remaining 50% of the issued share capital of AVB

• “SFO”

• the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)

• “Shareholders” the shareholders of the Company

• “Shareholders’ Agreement”

the shareholders’ agreement dated 1 August 2005 and entered into by AVCC, BC and AVB in respect of the governing and management of AVB during the joint venture period between the Initial Closing and the Final Closing

3

DEFINITIONS

“Shares” ordinary shares of HK$0.10 each in the share capital of the Company “SP Agreement” the sale and purchase agreement dated 18 December 2007 entered into by AVCC, BMSAL and BC in respect of the AVB Disposal and the Warrant Disposal “Stock Exchange” The Stock Exchange of Hong Kong Limited “Termination Agreement” the termination agreement entered into among AVCC, AVCTI, AVB and BC on 18 December 2007 “Transaction” the AVB Disposal and the Warrant Disposal contemplated under the SP Agreement “Transition Services the transition services agreement entered into between the Agreement” Company and AVB on 18 December 2007 “US” the United States of America “Warrant” a warrant entitling AVCC to subscribe for 7.5 million BC Shares representing approximately 9.2% of the common share capital of BC as enlarged by the 7.5 million BC Shares on the terms and conditions specified in the 2005 Agreement, being the consideration for the sale of 50% of the issued share capital of AVB by AVCC to BC. As set out in the 2005 Agreement, the Warrant shall be exercised or deemed to be exercised in whole but not in part by AVCC, without any further additional payment. The Warrant shall be deemed exercised by AVCC at Final Closing upon the occurrence of a Liquidity Event. AVCC shall have the right to exercise the Warrant at any time after the third anniversary of the date of Initial Closing if a Liquidity Event has not occurred by then

“Warrant Disposal” the disposal of the Warrant by AVCC to BC pursuant to the SP Agreement “%” per cent

For the purpose of this circular, amounts denominated in US$ have been translated, for the purpose of illustration only, into HK$ at a rate of US$1 = HK$7.8. No representation is made that any amount in US$ or HK$ could have been or could be converted at the above rate or at any other rates or at all.

4

LETTER FROM THE BOARD

==> picture [76 x 32] intentionally omitted <==

(Stock Code: 595)

Directors: So Yuk Kwan (Chairman) Lee Jeong Kwan So Chi On Dr. Hon. Lui Ming Wah, SBS, 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 place of business: 6th Floor Enterprise Square Three 39 Wang Chiu Road Kowloon Bay Hong Kong 24 January 2008

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION: DISPOSAL OF EQUITY INTERESTS IN AV BRECONRIDGE LIMITED AND

RELATED CANCELLATION OF WARRANT HELD BY THE COMPANY IN BRECONRIDGE CORPORATION

INTRODUCTION

On 3 January 2008, the Company announced that AVCC, BMSAL and BC entered into the SP Agreement on 18 December 2007 pursuant to which AVCC has agreed to sell and BMSAL has agreed to acquire the remaining 50% of the issued share capital of AVB held by AVCC subject to the terms and conditions of the SP Agreement. BMSAL shall issue the Bond in a principal amount of US$3 million (equivalent to HK$23.4 million) with an interest rate of 8% per annum to AVCC as the consideration for the AVB Disposal. The Bond is exchangeable into up to 5 million BC Shares at the initial Exchange Price of US$0.6 per BC Share. The outstanding principal amount of the Bond with accrued interest shall be payable on the Maturity Date of 31 August 2009.

5

LETTER FROM THE BOARD

Completion of the AVB Disposal is expected to take place on or around 30 January 2008. Upon completion of the AVB Disposal, the Company will cease to have any equity interests in AVB.

Pursuant to the SP Agreement, subject to and upon the completion of the AVB Disposal, BC shall repurchase the Warrant from AVCC at a cash consideration of US$2 million (equivalent to HK$15.6 million) less the Agreed Deductions of US$114,811 (approximately HK$895,526). The receipt of the payment of such cash consideration by AVCC may be subject to Canadian withholding tax provision should AVCC be unable to obtain a withholding tax clearance certificate.

The Transaction is a discloseable transaction for the Company. However, the Company considered it appropriate to obtain shareholders’ approval in respect of the Transaction and related termination of certain provisions in the 2005 Agreement because the 2005 Agreement constituted a major transaction for the Company which was approved by Shareholders at that time. Since no Shareholder would be required to abstain from voting if the Company were to convene a general meeting for the approval of the Transaction and termination of certain provisions in the 2005 Agreement, written shareholders’ approval has been given in lieu of holding a general meeting pursuant to Rule 14.44 of the Listing Rules. The Controlling Shareholders, in aggregate, holding 245,432,189 Shares, representing approximately 56.87% of the existing issued share capital of the Company, have given their written approval in respect of the Transaction and termination of certain provisions in the 2005 Agreement. Accordingly, no extraordinary general meeting of the Company will be convened for the purposes of approving the Transaction and related termination of certain provisions in the 2005 Agreement. The purpose of this circular is to provide you with the relevant information regarding the Transaction and the Group.

BACKGROUND

AVCC, a wholly-owned subsidiary of the Company, entered into the 2005 Agreement with BC pursuant to which AVCC agreed to dispose of its entire equity interests in AVB to BC in two stages subject to the conditions set out in the 2005 Agreement. Details of the 2005 Disposal are set out in the circular of the Company dated 15 July 2005.

The Initial Closing took place in August 2005. Upon the Initial Closing, AVB became a jointlycontrolled entity of the Company, owned as to 50% by the Company and 50% by BC.

The Final Closing was subject to the occurrence of a Liquidity Event under the 2005 Agreement or a change of control in BC as referred to in the 2005 Agreement. A Liquidity Event was originally expected to occur within two to three years from the Initial Closing but up to now, a Liquidity Event has not occurred and the Company understands from BC that a Liquidity Event is not expected to occur within the original expected timing. Accordingly, AVCC, BMSAL and BC entered into the SP Agreement on 18 December 2007 to dispose of the remaining 50% of the issued share capital of AVB held by AVCC to BMSAL.

6

LETTER FROM THE BOARD

THE SP AGREEMENT

Date

18 December 2007

Parties

• (1) AVCC, a wholly-owned subsidiary of the Company

• (2) BMSAL, a wholly-owned subsidiary of BC

• (3) BC

The BC Group is principally engaged in the provision of electronics manufacturing services which include manufacturing, engineering services, test development, component management and global procurement, new product introduction, order fulfillment, distribution services, and product repair and end of life support. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiry, save for the transactions pursuant to the 2005 Agreement, BMSAL, BC and the ultimate beneficial owners of BC are third parties independent of the Company and its subsidiaries and connected persons of the Company and its subsidiaries.

Major terms

Pursuant to the SP Agreement, AVCC has agreed to sell and BMSAL has agreed to acquire the remaining 50% of the issued share capital of AVB held by AVCC. BMSAL shall issue the Bond in a principal amount of US$3 million (equivalent to HK$23.4 million) to AVCC as the consideration for the AVB Disposal. The consideration for the AVB Disposal was determined after arm’s-length negotiation between the parties with reference to the audited net asset value of AVB of approximately HK$13.4 million as at 31 March 2007 and the fact that AVB made a loss of approximately HK$18.7 million for the financial year ended 31 March 2007.

Subject to completion of the AVB Disposal, BC shall repurchase the Warrant from AVCC pursuant to the SP Agreement, at a cash consideration of US$2 million (equivalent to HK$15.6 million) less the Agreed Deductions of US$114,811 (approximately HK$895,526). The cash consideration may be subject to Canadian withholding tax. In the event that the relevant withholding tax clearance certificate from the tax authority in Canada is not obtained in respect of the consideration for the Warrant Disposal two business days before the completion date of the AVB Disposal, an amount of US$500,000 (equivalent to approximately HK$3,900,000) which is the estimated amount required to be withheld calculated based on the relevant tax regulations in Canada shall be deducted from the consideration and withheld by BC for Canadian tax purposes. The consideration for the Warrant Disposal was determined after arm’s-length negotiation between the parties with reference to (i) the financial results of BC (the audited consolidated net loss before and after taxation of BC for the financial year ended 27 May 2007 amounted to approximately US$11.0 million and US$14.5 million respectively), (ii) the Company understands from BC that a Liquidity Event is not expected to occur within the original expected timing provided for in the 2005 Agreement, and (iii) the carrying value of the Warrant as stated in the Company’s interim financial statements as at 30 September 2007 and audited consolidated financial statements as at 31 March 2007 of HK$18.4 million.

7

LETTER FROM THE BOARD

BMSAL and BC have undertaken to procure that following the completion of the AVB Disposal, AVB will repay all outstanding amounts due to the Group from AVB in full by 31 March 2008. As at the date of the SP Agreement, the amount due to the Group from AVB was HK$6 million.

Conditions

The AVB Disposal is conditional upon (i) the obtaining by the Company of any regulatory or shareholder approval(s) or consent(s) which may be required pursuant to any law or legal requirements or pursuant to the rules or requirements of any regulatory body; and (ii) the warranties contained in the SP Agreement remaining true in all respects and not misleading in any respects at the completion of AVB Disposal and at all times between the date of the SP Agreement and the completion of the AVB Disposal. If any of the conditions is not fulfilled (or in the case of condition (ii), waived by the Company) on or before 31 May 2008, or such other date as the parties to the SP Agreement may agree, the SP Agreement shall lapse and cease to have any effect.

The Warrant Disposal is conditional upon the completion of the AVB Disposal.

The Transaction is a discloseable transaction for the Company. However, the Company considered it appropriate to obtain shareholders’ approval in respect of the Transaction and related termination of certain provisions in the 2005 Agreement because the 2005 Agreement constituted a major transaction for the Company which was approved by Shareholders at that time. Since no Shareholder would be required to abstain from voting if the Company were to convene a general meeting for the approval of the Transaction, written shareholders’ approval has been given in lieu of holding a general meeting pursuant to Rule 14.44 of the Listing Rules. The Controlling Shareholders, in aggregate, holding 245,432,189 Shares, representing approximately 56.87% of the existing issued share capital of the Company, have given their written approval in respect of the Transaction and related termination of certain provisions in the 2005 Agreement. Accordingly, no extraordinary general meeting of the Company will be convened for the purposes of approving the Transaction and related termination of certain provisions in the 2005 Agreement. The Company understands that no other approvals or consents are required to be obtained by the Company in respect of the Transaction.

Completion

Completion of the AVB Disposal and the Warrant Disposal is expected to take place on or around 30 January 2008.

Mr. So Yuk Kwan, the chairman and a director the Company, was interested through the Controlling Shareholders in 245,432,189 Shares (representing approximately 56.87% of the issued share capital of the Company) as at the Latest Practicable Date. Mr. So Yuk Kwan has undertaken to BC that he will not, during the period between the date of signing of the SP Agreement to the completion of the AVB Disposal or the termination of the SP Agreement (whichever is earlier), dispose of any of his interest in the Company, held either directly or indirectly if such disposal will result in such interest being reduced to below 50% of the issued share capital of the Company and that to the extent to which Mr. So Yuk Kwan and his associates are not excluded from voting under the Listing Rules, will execute a written majority shareholders’ approval or exercise their voting rights in the Company to approve the SP Agreement

8

LETTER FROM THE BOARD

if approval by Shareholders is required. As set out in the sub-paragraph headed “Conditions” above, the Controlling Shareholders have given their written approval in respect of the Transaction and related termination of certain provisions in the 2005 Agreement.

Principal terms of the Bond

Issuer		:	BMSAL
Principal	amount	:	US$3 million.
Exchange	right	:	The holders of the Bond can exercise the exchange rights attached to the
			Bond or any part thereof in multiples of US$60,000 to exchange such
			outstanding principal amount into BC Shares at any time from the date
			of issue of the Bond to the Maturity Date at the Exchange Price.

The Bond was issued on the basis that it is exempt from the prospectus and registration requirements of the Ontario Securities Act and all other applicable laws and regulations with respect to the issue of the Bond and the exercise of the exchange right. BC shall seek legal advice from competent legal advisors in Canada and Hong Kong as soon as practicable after the date of the SP Agreement as to whether such an exemption is available. If no such exemption is available or BC is of the view that such exemption is not available on terms acceptable to BC, then BC shall promptly notify AVCC prior to the completion of the AVB Disposal, and in such event, the exchange right shall be deemed deleted and removed from the terms of the Bond.

Exchange Price : The initial Exchange Price is US$0.60 per BC Share.

The initial Exchange Price is subject to adjustment for share consolidations, share splits or re-classification of common shares into other securities. The Exchange Price shall be appropriately adjusted so that the holder of the Bond shall be entitled to receive the number of BC Shares which it would have held or been entitled to receive after the happening of the relevant event had the Bond been converted immediately prior to such event.

The initial Exchange Price was arrived based upon arm’s-length negotiation between the parties.

• Exchange Shares : The BC Shares falling to be issued upon exercise of the exchange rights attached to the Bond by AVCC will rank pari passu in all respects with all other BC Shares outstanding at the date of exchange of the Bond.

9

LETTER FROM THE BOARD

Upon exercise of the exchange rights attached to the Bond by AVCC, AVCC shall be entitled to receive accrued and unpaid interest on the principal amount of the Bond that is being exchanged.

The Bond is exchangeable into up to 5 million BC Shares at the initial Exchange Price of US$0.60 per BC Share, representing approximately 6.3% of the common share capital of BC as enlarged by the 5 million BC Shares and approximately 2.7% of the common share capital of BC as enlarged by the 5 million BC Shares and the full conversion/exercise of the BC Convertibles.

• Interest rate : The Bond bears an interest rate of 8% per annum which is payable on the Maturity Date or if the Bond (or part of it) is converted and in respect of the converted Bond, on the date of delivery of the BC Shares.

• Maturity Date : 31 August 2009.

The outstanding principal amount of the Bond with accrued interest shall be paid by BMSAL to AVCC on the Maturity Date.

• Voting : A holder of the Bond will not be entitled to receive notice of, attend or vote at any general meeting of BMSAL or BC.

• Listing : No application will be made for the listing of the Bond on any stock exchange.

• Transferability : The ownership of the Bond is not transferable except with the prior written consent of BMSAL and BC.

• Guarantee : BC shall guarantee the due and punctual performance by BMSAL in respect of BMSAL’s obligations under the Bond.

• Security : The Bond will be secured by a security interest to be granted to AVCC over certain property of BC.

Change of control : BC shall provide notice in writing to the holder of the Bond at least five business days prior to the occurrence of a Change of Control Event. Upon receipt of such notice, the holder of the Bond shall have the right to indicate by notice in writing to BMSAL within five business days of its receipt of such notice, either its intention to exercise its exchange right or request that BMSAL redeems the Bond immediately before the occurrence of the Change of Control Event; failing which, the exchange right shall cease and the entire outstanding principal amount of the Bond and interest thereon will be repaid by BMSAL in cash within ten business days of the date of the notice.

10

LETTER FROM THE BOARD

“Change of Control Event” in such context shall mean a sale, amalgamation, merger, business combination, other arrangement, transaction or reorganisation of BC or the sale of all or substantially all of the shares or assets of BC, whether by a single transaction or a series of transactions, pursuant to which, after giving effect to such transaction or series of transactions, the holders of voting securities of BC immediately prior to the transaction hold, immediately after such transaction, directly or indirectly, securities of BC representing less than 50% of the voting power of BC.

INFORMATION ON AVB

AVB is principally engaged in the manufacture and trading of electronic products. Currently, AVB is a jointly-controlled entity of the Company. Upon completion of the AVB Disposal, the Company will cease to have any equity interest in AVB.

Set out below are the audited losses before and after taxation of AVB for the two years ended 31 March 2007:

	For the year ended	For the year ended
	31 March
	2006	2007
	HK$’000	HK$’000
Loss before taxation	(6,442)	(18,700)
Loss after taxation	(5,320)	(18,700)

The audited net asset value of AVB was approximately HK$13.4 million as at 31 March 2007. Upon the completion of the Initial Closing, AVB was held as to 50% by AVCC and as to 50% by BC. Since then, AVB has been a jointly-controlled entity of the Company and is accounted for by proportionate consolidation, which involves recognising the Company’s share of the jointly-controlled entity’s assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-byline basis. Upon completion of the AVB Disposal, the Company will cease to have any equity interests in AVB.

INFORMATION ON BC

The BC Group is principally engaged in the provision of electronic manufacturing services which include manufacturing, engineering services, test development, component management and global procurement, new product introduction, order fulfillment, distribution and product repair and end of life support.

11

LETTER FROM THE BOARD

Set out below are the audited consolidated profit/(loss) before and after taxation of BC for the financial year ended 28 May 2006 and the financial year ended 27 May 2007 prepared in accordance with accounting principles generally accepted in the US:

	For the financial	For the financial
	year ended	year ended
	28 May 2006	27 May 2007
	US$’000 HK$’000	US$’000 HK$’000
Profit/(Loss) before taxation	7,197 56,137	(10,998) (85,784)
Profit/(Loss) after taxation	8,292 64,678	(14,484) (112,975)

The audited consolidated net asset value of BC as at 27 May 2007 was approximately US$24.3 million (equivalent to approximately HK$189.5 million).

Pursuant to the 2005 Agreement, AVCC received the Warrant entitling it to subscribe for 7.5 million BC Shares on the terms and conditions specified in the 2005 Agreement.

Upon completion of the AVB Disposal, AVCC will receive the Bond. Upon full conversion of the Bond, the Bond is exchangeable into up to 5 million BC Shares at the initial Exchange Price of US$0.6 per BC Share, representing approximately 6.3% of the common share capital of BC as enlarged by the 5 million BC Shares and approximately 2.7% of the common share capital of BC as enlarged by the 5 million BC Shares and the full conversion/exercise of the BC Convertibles.

ANCILLARY AGREEMENTS

Termination Agreement

On 18 December 2007, AVCC, AVCTI, AVB and BC entered into the Termination Agreement to terminate (i) the Shareholders’ Agreement; (ii) certain provisions of the 2005 Agreement in relation to, inter alia, the Final Closing and the exit of the 2005 Disposal by AVCC or BC; and (iii) the Existing Supply Agreement. The Termination Agreement will take effect upon the completion of the AVB Disposal. The Termination Agreement forms part of the commercial arrangements underlying the entering into of the SP Agreement by terminating certain existing contractual arrangements which will become otiose upon completion of the SP Agreement. No consideration has been or will be received or paid by the Company in relation to the Termination Agreement.

New Supply Agreement

On 18 December 2007, AVB and AVCTI entered into the New Supply Agreement to govern the terms on which AVB will provide manufacturing services to AVCTI for certain products to be manufactured for export from the PRC. The New Supply Agreement shall become effective upon completion of the AVB Disposal and, unless otherwise terminated, shall remain in full force and effect for an initial term of 3 years.

12

LETTER FROM THE BOARD

Transition Services Agreement

On 18 December 2007, the Company entered into the Transition Services Agreement with AVB. The Company has agreed to provide to AVB, inter alia, payroll services in respect of the employees of AVB located in Hong Kong until 25 May 2008, financial system support services up until the expiration of 90 business days from the date of completion of the SP Agreement and computer software system support services up until 25 May 2008. AVB will pay the Company a monthly fee of HK$30,000 in respect of such services. On the other hand, AVB will provide certain services to the Company such as administering the salaries and associated government mandatory provident fund contributions and medical insurance claims of certain staff on behalf of the Company pending such functions being taken over by the Company and for a period of 18 months from completion of the SP Agreement at a monthly fee of US$1,200 (approximately HK$9,360), AVB shall continue to accommodate certain staff of the Group and other persons when the Company requires to have access to AVB’s facility in Mainland China on behalf of the Group’s customers, for which the Company shall pay AVB.

REASONS FOR THE TRANSACTION

The 2005 Agreement envisaged a Liquidity Event occurring within 3 years of the Initial Closing. The Initial Closing took place in August 2005 and accordingly the 3 years period expires in August 2008. As stated in the Company’s circular dated 15 July 2005, a “Liquidity Event” comprises “the listing of BreconRidge or the listing of any entity that has acquired the business or assets of BreconRidge on one or more of The Toronto Stock Exchange, the New York Stock Exchange, the NASDAQ National Market system, the AMEX Exchange, the AIM Exchange or the Stock Exchange; or the sale of all the shares of BreconRidge, or the sale of all or substantially all of the assets of BreconRidge, or any other transaction, that will result in AVCC being entitled to receive cash or tradeable shares”.

The events which might constitute a Liquidity Event all relate to BC or transactions relating to BC. The Company understands from BC that a Liquidity Event has not occurred since the Initial Closing. Further the Company understands from BC that it has not applied for the listing of BC’s shares on any stock exchange and BC has no plans which would result in the occurrence of a Liquidity Event prior to the third anniversary of the Initial Closing in August 2008.

In addition, the 2005 Agreement provided for an exit mechanism should there be a change of control event in relation to BC. The Company understands from BC that no such change of control event has taken place since the Initial Closing and that BC has no plans which would result in the occurrence of a change of control event prior to the third anniversary of the Initial Closing.

The 2005 Agreement provided for a number of possible outcomes should no Liquidity Event occur prior to the third anniversary of the Initial Closing. This is described in the Company’s circular dated 15 July 2005 as follows:

“At any time after the third anniversary of Initial Closing, AVCC has the right to indicate its intention to exit the transaction. Further, at any time after the third anniversary of Initial Closing and before AVCC electing to indicate its intention to exit the transaction, AVCC may elect to exercise the Warrant and subscribe for the BreconRidge Warrant Shares. If AVCC elects to exercise the Warrant after the third anniversary of Initial Closing, AV Chaseway would be held as

13

LETTER FROM THE BOARD

to 50% by AVCC and as to 50% by BreconRidge as a jointly-controlled entity and AVCC would hold 7.5 million common shares in BreconRidge (subject to Agreed Adjustment). Based on the number of common shares of BreconRidge in issue as at the date of the Agreement, 7.5 million common shares in BreconRidge represent approximately 9.2% of the issued common share capital of BreconRidge as enlarged by the issue of such common shares and approximately 3.9% of the common share capital of BreconRidge as further enlarged by the full exercise/conversion of the BreconRidge Convertibles.

If AVCC does not elect to exercise the Warrant, at any time after the third anniversary of Initial Closing, AVCC may elect to indicate its intention to exit the transaction contemplated under the Agreement.

If AVCC indicates its intention to exit the transaction, BreconRidge may:

• (i) within 15 business days elect to proceed to Final Closing by paying cash to AVCC as the aggregate consideration for the First Tranche Shares and the Second Tranche Shares. Such cash payment shall be in the amount of US$22 million if the Extension Fee has not been paid before the second anniversary of Initial Closing or US$20 million if the Extension Fee has been paid. The Warrant under these circumstances will be terminated and cease to have any effect. In such case, AV Chaseway would become a wholly owned subsidiary of BreconRidge and AVCC would not hold any shares in BreconRidge;

• (ii) if BreconRidge does not elect to proceed to Final Closing, BreconRidge may within another 15 business days elect to maintain the joint venture relationship by terminating the Warrant and paying cash of US$11 million (or US$9 million if the Extension Fee has been paid) to AVCC as the consideration for acquiring the First Tranche Shares. In such case, AV Chaseway would be held as to 50% by the Company and as to 50% by BreconRidge as a jointly-controlled entity and AVCC would not hold any shares in BreconRidge; and

• (iii) in the event BreconRidge does not elect to maintain the joint-venture relationship after expiration of the relevant period, BreconRidge is deemed to have elected to exit the transaction contemplated under the Agreement. In such case, AV Chaseway would become a wholly owned subsidiary of AVCC and AVCC would not hold any shares in BreconRidge. Upon the exit of the transaction, BreconRidge shall pay to AVCC an additional amount of US$3 million in cash as consideration for taking part in the operation of AV Chaseway during the period from Initial Closing to the exit date.”

The Company did not consider it to be in its best interests to wait until the third anniversary of the Initial Closing and then exercise the Warrant with AVB thereafter continuing to remain a jointly controlled entity of the Company. The Company wished to dispose of its interest in AVB and did not wish to be responsible for AVB’s funding or losses going forward. Further, following the AVB Disposal, the Group will cease to be involved in manufacturing and will be able to concentrate its resources on its other businesses. In addition, BC has not obtained any listing of the BC Shares on any stock exchange and BC recorded a net loss after taxation of approximately US$14.5 million (equivalent to approximately HK$113.1

14

LETTER FROM THE BOARD

million) for the year ended 27 May 2007. The Company considers it preferable to receive a cash consideration in return for cancellation of the Warrant rather than exercising the Warrant and receiving BC Shares.

The Company understands from BC that if after the third anniversary of the Initial Closing, the Company had elected to exit the transaction as contemplated under the 2005 Agreement, BC would have elected not to maintain the joint venture relationship and would have returned to AVCC the 50% interest in AVB held by BC and paid US$3 million to the Company. AVB is loss-making (AVB recorded net losses after taxation for the two financial years ended 31 March 2006 and 2007 of approximately HK$5.3 million and approximately HK$18.7 million respectively). The Company wishes to dispose of its remaining 50% interest in AVB and not reacquire the initial 50% interest in AVB which was sold to BC pursuant to the 2005 Agreement. The AVB Disposal results in the Company disposing of its entire interest in AVB for a consideration of US$5 million. The Directors consider this to be better for the Company and its Shareholders than the alternative of receiving US$3 million and having to take AVB back as a whollyowned subsidiary and becoming responsible for AVB’s on-going losses and its funding requirements. The Company understands from BC that the AVB Disposal was also considered by BC to be preferable to the alternative under the 2005 Agreement.

The Directors are of the view that the entering into of the SP Agreement and the termination of the 2005 Agreement are in the best commercial interests of the Company and are in the interests of the Shareholders as a whole.

The Warrant held by AVCC is not transferable. The carrying value of the Warrant as stated in the Company’s interim financial statements as at 30 September 2007 and audited consolidated financial statements as at 31 March 2007 is HK$18.4 million. Upon the third anniversary of the Initial Closing without the occurrence of a Liquidity Event, AVCC may exercise its conversion rights attached to the Warrant to subscribe for 7.5 million BC Shares and would continue to retain its 50% interest in the share capital of AVB. BC recorded a net loss after taxation of approximately US$14.5 million (equivalent to approximately HK$113.1 million) for the year ended 27 May 2007 and AVB recorded net losses after taxation for the two financial years ended 31 March 2006 and 2007 of approximately HK$5.3 million and approximately HK$18.7 million respectively. The Company considers that the Transaction provides a good opportunity for the Group to realize its investments in the Warrant and AVB.

The Group is principally engaged in marketing and distribution of electronic components, and the design, manufacture and sale of electronic products. Upon completion of the AVB Disposal, the Group will no longer have any equity interests in AVB and will cease to be engaged in manufacturing business and will be able to focus its resources on the other business operations of the Group.

The Directors (including the independent non-executive Directors) consider that the Transaction is on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

15

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE TRANSACTION ON THE GROUP

The Group expects to record a gain arising from disposal on the AVB Disposal and the Warrant Disposal of approximately HK$15.5 million after taking into account of the loss on disposal of the Warrant of approximately HK$2.8 million (representing the deficit of the consideration for the Warrant Disposal under the carrying value of the Warrant as at 30 September 2007), gain on disposal of 50% interest in AVB of approximately HK$20.4 million (representing the present value of the principal amount and interest of the Bond (assuming that the exchange right attached to the Bond is not exercised from the date of issue of the Bond to the Maturity Date) over 50% of the net asset value of AVB as at 30 November 2007 per unaudited management accounts), estimated transaction cost in respect of the Transaction of HK$1.2 million and the Agreed Deductions of approximately HK$895,526. The calculation of the gain on disposal excludes the estimated amount of US$500,000 (approximately HK$3,900,000) required to be withheld should AVCC be unable to obtain a withholding tax clearance certificate.

Upon completion of the AVB Disposal and the Warrant Disposal, the net asset value of the Group is expected to increase by approximately HK$15.5 million arising from (i) an increase in the Group’s cash of US$2 million (equivalent to HK$15.6 million), being the consideration for the Warrant Disposal; (ii) the Group recording the Bond as an asset of approximately HK$22.7 million (representing the present value of the principal and interest of the Bond assuming that the exchange right attached to the Bond is not exercised from the date of issue of the Bond to the Maturity Date), being the consideration for the AVB Disposal; (iii) a deduction of the Warrant with a carrying value of HK$18.4 million as at 30 September 2007 from assets of the Group; (iv) a deduction of 50% of the net assets of AVB of approximately HK$2.3 million (as at 30 November 2007 per unaudited management accounts) from the net assets of the Group; and (v) a deduction in respect of the estimated transaction cost for the Transaction of HK$1.2 million and the Agreed Deductions of approximately HK$895,526 from the net assets of the Group. The above impact on the net assets of the Group has not taken into account the estimated amount of US$500,000 (approximately HK$3,900,000) required to be withheld should AVCC be unable to obtain a withholding tax clearance certificate.

The estimated net proceeds of the Transaction will amount to approximately HK$36.2 million representing US$2 million (being the consideration for the Warrant Disposal) plus the present value of the principal amount and interest of the Bond (assuming that the exchange right attached to the Bond is not exercised from the date of issue of the Bond to the Maturity Date) less the estimated transaction cost for the Transaction and the Agreed Deductions. The calculation of the net proceeds excludes the estimated amount of US$500,000 (approximately HK$3,900,000) required to be withheld should AVCC be unable to obtain a withholding tax clearance certificate. In addition, BC has undertaken to procure that following the completion of the AVB Disposal, AVB will repay all outstanding amounts due to the Group from AVB in full by 31 March 2008. As at the date of the SP Agreement, AVB owed the Group HK$6 million. The repayment of such moneys to be required by AVB to the Group has not been taken into account in the calculation of the above-stated net proceeds of the Transaction.

The Company intends to use the proceeds from the Warrant Disposal as general working capital for the Group. BMSAL shall issue the Bond to AVCC as the consideration for the AVB Disposal. The Bond will mature in August 2009 and is exchangeable into the BC Shares on or before the Maturity Date. The Company has not made any specific plans for the use of the redemption proceeds that may arise from the Bond.

16

LETTER FROM THE BOARD

Currently AVB is a jointly-controlled entity of the Company held as to 50% by AVCC and as to 50% by BC. AVB is accounted for by proportionate consolidation, which involves recognising the Company’s share of the jointly-controlled entity’s assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-by-line basis. Upon completion of the AVB Disposal, the Company will cease to have any equity interest in AVB and the income, expenses, assets and liabilities of AVB will no longer be consolidated into the consolidated financial statements of the Company.

GENERAL

Each of the (i) Transaction and (ii) the acquisition of 6.3% of the common share capital of BC as enlarged by the 5 million BC Shares upon full conversion of the Bond constitutes a discloseable transaction for the Company. However, as the Transaction involves the termination of certain provisions of the 2005 Agreement (which was a major transaction for the Company which was approved by Shareholders at that time), the Company considered it appropriate to obtain shareholders’ consent in respect of the Transaction and related termination of certain provisions in the 2005 Agreement. Since no Shareholder would be required to abstain from voting if the Company were to convene a general meeting for the approval of the Transaction, written shareholders’ approval has been given in lieu of holding a general meeting pursuant to Rule 14.44 of the Listing Rules. The Controlling Shareholders, in aggregate, holding 245,432,189 Shares, representing approximately 56.87% of the existing issued share capital of the Company, have given their written approval in respect of the Transaction and related termination of certain provisions in the 2005 Agreement. Accordingly, no extraordinary general meeting of the Company will be convened for the purposes of approving the Transaction and related termination of certain provisions in the 2005 Agreement. The purpose of this circular is to provide you with the relevant information regarding the Transaction and the Group.

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

Yours faithfully,

For and on behalf of the Board of AV CONCEPT HOLDINGS LIMITED So Yuk Kwan Chairman

17

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 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.

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 were taken or deemed to have under such provisions of the SFO), the Model Code or were required to be entered into the register required to be kept under section 352 of SFO were as follows:

• (i) Long position in the Shares

		Number of Shares and nature of interests	Number of Shares and nature of interests	Number of Shares and nature of interests
					Approximate
Name of		Personal	Corporate		percentage of
Director	Capacity	interests	interests	Total	shareholding
So Yuk Kwan	Interest of	–	245,432,189	245,432,189	56.87%
	controlled		(Note)
	corporations

Note: This refers to the total number of shares held by B.K.S. Company Limited (“BKS”) and Jade Concept Limited (“Jade Concept”). Mr. So Yuk Kwan is deemed to be interested in 245,432,189 Shares by virtue of his interests in BKS and Jade Concept, the particulars are more fully described in the section headed “Interest and short positions of substantial shareholders and other person required to be disclosed under the SFO” below.

18

APPENDIX

GENERAL INFORMATION

(ii) Interests in underlying Shares

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

		Number of share
		options outstanding
Name of		as at the Latest	Exercise period (both	Exercise price
Director	Date of grant	Practicable Date	dates inclusive)	per Share
				HK$
Lee Jeong Kwan	18/7/2007	2,000,000	19/7/2007 – 12/5/2012	0.5
So Chi On	18/7/2007	3,500,000	19/7/2007 – 12/5/2012	0.5

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 or which were required to be entered into the register required to be kept under section 352 of the SFO.

19

GENERAL INFORMATION

APPENDIX

(b) Interest and short positions of substantial shareholders and other person required to be disclosed under the SFO

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by the Directors and chief executive of the Company, the following persons or corporations (other than the Directors or chief executive of the Company whose interests are set out in the paragraph headed “2.(a) Directors’ interests and short positions in the securities of the Company and its associated corporations” above) has an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which was, 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:

Long position in the Shares

			Approximate
			percentage
Name	Capacity	Number of Shares held	of shareholding
BKS	Beneficial owner	164,792,300_(Note 1)_	38.18%
Credit Cash Limited	Interest in controlled	164,792,300_(Note 1)_	38.18%
(“Credit Cash”)	corporation
Jade Concept	Beneficial owner	80,639,889_(Note 2)_	18.68%
Madam Yeung Kit Ling	Interest in controlled	245,432,189_(Notes 1 & 3)_	56.87%
(“Madam Yeung”)	corporation and
	interest of spouse

Notes:

1. This refers to the same number of Shares held by BKS which is a wholly-owned subsidiary of Credit Cash. Credit Cash is held as to 50% by Mr. So Yuk Kwan (“Mr. So”), a Director, and as to 50% by Madam Yeung, the spouse of Mr. So. By virtue of the SFO, Mr. So and Madam Yeung are deemed to be interested in 164,792,300 Shares held by BKS.

2. Jade Concept is beneficially owned by Mr. So. By virtue of the SFO, Mr. So is deemed to be interested in 80,639,889 Shares held by Jade Concept.

3. As Madam Yeung is the spouse of Mr. So, by virtue of the SFO, she is deemed to be interested in all the Shares in which Mr. So is interested.

4. Mr. So is a director of each of BKS, Credit Cash and Jade Concept.

20

GENERAL INFORMATION

APPENDIX

Save as disclosed above, so far as is known to the Directors and chief executive of the Company, there is no other person or corporation (other than the Director(s) and chief executive of the Company whose interests is/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% 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.

3. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective associates was interested in any 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 nor proposed Directors had entered, or is proposing to enter, into any service contract with the Company 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 by or against the Company or any of its subsidiaries.

6. MISCELLANEOUS

• (a) The qualified accountant and the company secretary of the Company is Mr. Wong Hei Pui, Andy who is a member of the Hong Kong Institute of Certified Public Accountants.

• (b) The share registrar and transfer office of the Company in the Cayman Islands is HSBC Financial Services (Cayman) Limited, P.O. Box 1109, 90 North Church Street, Strathvale House, 2nd Floor, Grand Cayman KY1-1102, Cayman Islands. The branch share registrar of the Company in Hong Kong is Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (c) The English text of this circular shall prevail over the Chinese language text in the case of inconsistency.

21