China City Infrastructure Group Limited — Proxy Solicitation & Information Statement 2004

Jun 11, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares (the “ Shares ”) of HK$0.01 each in the capital of Wah Yuen Holdings Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the 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.

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Wah Yuen Holdings Limited 華園控股有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2349)

DISCLOSEABLE AND CONNECTED TRANSACTION

11 June 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Implications on the financial accounts of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Appendix – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Responsibility statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Directors’ interests in Shares and underlying Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Directors’ service contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Material adverse change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Document available for inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9

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DEFINITIONS

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

“Acquisition”

means the acquisition by the Group of 35.19% of the registered capital of Rocco from Huadu

• “Acquisition Agreement”

means the acquisition agreement entered into by the Purchaser as purchaser and Huadu as vendor on 19 May 2004 in relation to the Acquisition

means Wah Yuen Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the main board of the Stock Exchange

• “Company” means Wah Yuen Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the main board of the Stock Exchange

• “Consideration” means RMB4,670,000 “Directors” means the directors of the Company “Group” means the Company and its subsidiaries “Hong Kong” means the Hong Kong Special Administrative Region of the PRC “Huadu” means 花都市天誠實業有限公司 (Huadu City Tian Cheng Industry Limited)

• “Huadu COFTEC” means 廣州市花都區對外貿易經濟合作局 (the Commission of Foreign Trade and Economic Co-operation of Huadu District, Guangzhou)

“Latest Practicable Date”	means 9 June 2004, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information contained in this circular
“Listing Rules”	means the Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	means the People’s Republic of China (which for the purpose of
	this circular, excludes Hong Kong, Taiwan and the Macau Special
	Administrative Region of the People’s Republic of China)
“Prospectus”	means the prospectus of the Company dated 12 June 2003
“Purchaser”	means Wah Yuen Foods Company Limited, a company incorporated
	in Hong Kong and a wholly-owned subsidiary of the Company

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DEFINITIONS

“Rocco”	means廣州樂高食品企業有限公司(Rocco Foods Enterprise
	Company (Guangzhou) Limited)
“Shareholders”	means holders of shares of HK$0.01 in the issued share capital of
	the Company
“Stock Exchange”	means The Stock Exchange of Hong Kong Limited
“HK$”	means Hong Kong dollars, the lawful currency of Hong Kong
“US$”	means United States of America dollars, the lawful currency of
	the United States of America
“RMB”	means Renminbi, the lawful currency of the PRC
“%”	means per cent.

For the purpose of this circular, conversion of RMB into HK$ or vice versa has been calculated using the exchange rate of RMB1.06 = HK$1.00 as illustration.

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LETTER FROM THE BOARD

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Wah Yuen Holdings Limited 華園控股有限公司

(incorporated in the Cayman Islands with limited liability) (Stock Code: 2349)

Executive Directors: Mr. But Ching Pui (Honorary Chairman) Mr. But Ka Wai (Chairman) Mr. But Chai Tong Mr. Lai Wing Kuen Mr. Chu Kin Wah

Non-executive Directors:

Ms. Leung Wai Ling Mr. Ngai Chun Kong, Stephen

Independent non-executive Directors: Mr. Cheung Yu Yan, Tommy Mr. Ip Shing Tong, Francis Mr. Ku Siu Fung, Stephen

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Head office and principal place of business in Hong Kong: 2nd Floor On Shing Industrial Building Nos. 2-16 Wo Liu Hang Road Fo Tan, Shatin New Territories Hong Kong

11 June 2004

To the Shareholders

Dear Sir or Madam

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

Background information on the Acquisition Agreement

The Group currently holds 64.81% of the registered capital of Rocco and Huadu holds the remaining 35.19% of the registered capital of Rocco. ‘Rocco’, along with ‘Wah Yuen’ and ‘采楓 ’, are the major brand names under which the products of the Group are marketed in the PRC.

As part of the Group’s plan to consolidate its business in the PRC, the Directors are pleased to announce that on 19 May 2004, the Group has agreed to purchase and Huadu has agreed to sell, on certain terms and conditions, Huadu’s remaining 35.19% interest in Rocco, thereby upon the completion of which, Rocco will become a wholly owned foreign enterprise of the Group.

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LETTER FROM THE BOARD

Background information on Rocco

Rocco was initially established on 24 March 1989 as a Chinese-foreign equity joint venture with the Group holding 51% of the registered capital and Huadu the remaining 49% of the registered capital, which totalled US$2,810,000. Pursuant to a supplemental agreement dated 8 December 1993, the capital contribution ratio was adjusted to 64.81% by the Group and 35.19% by Huadu. On 7 October 1999, Rocco was converted to a Chinese-foreign co-operative joint venture pursuant to another supplemental agreement dated 26 June 1999 signed between the parties and approved by Huadu COFTEC. The manner as regards profit sharing was later varied following approval from Huadu COFTEC on 21 February 2003. Further details in relation to the re-composition and history of capital contribution of Rocco are set out in the Prospectus.

Rocco is principally engaged in the manufacture and processing of ice-cream, marine and livestocks meat products, candies, nuts, peas, dried fruit, flour in the PRC and is a valuable operating arm of the Group. As at 31 December 2003, Rocco had an audited net asset value of approximately HK$27,311,316. The audited net asset value attributable to the subject matter of the Acquisition was approximately HK$9,610,852.

For the years 2002 and 2003, the audited aggregate net profits (before taxation and extraordinary items) of Rocco were approximately HK$5,788,897 and approximately HK$6,955,660 respectively whereas the audited aggregate net profits (after taxation and extraordinary items) of Rocco for the same periods were approximately HK$4,225,895 and approximately HK$5,077,658 respectively.

Accordingly, for the years 2002 and 2003, the audited net profits (before taxation and extraordinary items) of Rocco attributable to the subject matter of the Acquisition were approximately HK$2,037,113 and approximately HK$2,447,697 respectively whereas the audited net profits (after taxation and extraordinary items) of Rocco attributable to the subject matter of the Acquisition for the same periods were approximately HK$1,487,092 and approximately HK$1,786,828 respectively.

As disclosed in the Prospectus, the Purchaser had, on 20 November 2002, entered into certain profit sharing arrangements with Huadu which is to continue until the expiry of the term of the cooperative joint venture of Rocco, namely 24 March 2019, unless otherwise agreed by the parties. Further details of the profit sharing arrangements are set out in the Prospectus. Following the completion of the Acquisition, the profit sharing arrangements will automatically lapse and the parties’ rights and obligations thereunder shall cease and determine.

Further, as disclosed in the Prospectus, Wah Yuen (Guangzhou) Foods Company Limited, a whollyowned subsidiary of the Company, has provided guarantees and pledged its property interests in favour of a bank in respect of bank loans granted to Rocco. During the 2003 financial year, such loans amounted to approximately HK$7,400,000. Huadu has provided a pro-rata counter indemnity in proportion to its interests in the registered capital Rocco, i.e. 35.19%. The above financial assistance provided by the Group to Rocco constituted an ongoing connected transaction which would normally be subject to disclosure and Shareholders’ approval requirements under the Listing Rules. However, the Group has obtained a waiver from strict compliance with the Listing Rules from the Stock Exchange in that regard. As a result of and following the Acquisition, Rocco will become a wholly owned subsidiary of the Company, the counter indemnity provided by Huadu will lapse and the above financial assistance will no longer constitute a connection transaction under the Listing Rules.

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LETTER FROM THE BOARD

The Consideration

The Consideration of RMB4,670,000 (which is equivalent to approximately HK$4,405,660) was determined on an arm’s length basis following negotiations in good faith with Huadu and will be satisfied by internal resources of the Group. Based on the audited accounts of Rocco for the year ended 31 December 2003, the price earnings ratio of the Consideration to the earnings of Rocco attributable to the subject matter of the Acquisition is approximately 2.47 whereas the price per book value attributable to the subject matter of the Acquisition is approximately 0.458. The Consideration was determined by reference to the registered capital of Rocco and the price earnings ratio of Rocco attributable to the subject matter of the Acquisition.

THE ACQUISITION AGREEMENT

The principal terms of the Acquisition Agreement are as follows:

Date:	19 May 2004
Parties:	(1) The Purchaser
	(2) Huadu as vendor
Subject matter:	35.19% of the registered capital of Rocco
Consideration:	RMB4,670,000 (which is equivalent to approximately HK$4,405,660)
Payment terms:	In cash on completion
Conditions precedent:	Completion of the Acquisition Agreement is conditional upon the granting
	of the requisite approval(s) from the relevant PRC authorities.

The Company has obtained the relevant approval from the relevant PRC authorities and the Acquisition has been completed.

IMPLICATIONS ON THE FINANCIAL ACCOUNTS OF THE COMPANY

Prior to the Acquisition, as the Company already held 64.81% interests in the registered capital of Rocco, the entire financial results of Rocco (including earnings, assets and liabilities) had been consolidated into and reflected in the financial results of the Company. Following the Acquisition, the entire financial results of Rocco will continue to be consolidated into the financial results of the Company.

REASONS FOR THE ACQUISITION

The Acquisition falls in line with the Group’s plan to consolidate its business in the PRC. Further, the Directors consider the Acquisition as an attractive opportunity in light of the anticipated growth in the PRC market, especially the increasing demand for convenience foods as a result of the changing lifestyles of PRC residents and the increasing pace at which they carry on life.

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LETTER FROM THE BOARD

Immediately after the completion of the Acquisition, Rocco will have three directors, all of whom will be appointed by the Purchaser. The Directors believe that full control of the board of directors of Rocco after completion of the Acquisition Agreement is in the interests of the Group. The Acquisition, following which Rocco will become a wholly-owned subsidiary of the Company, will also improve administrative efficiency and overall management control of both Rocco and the Group.

IMPLICATIONS UNDER THE LISTING RULES

Huadu, being a substantial shareholder holding 35.19% of the registered capital of Rocco, a subsidiary of the Group, is a connected person (as defined under the Listing Rules) of the Company. Huadu is in turn owned as to 68.8% by Mr. Lai Jin Zhong, one of the directors of Rocco. The Acquisition therefore also constitutes a connected transaction on the part of the Company. However, as the Consideration is under HK$10,000,000.00 and as each of the relevant percentage ratios as referred to in Chapter 14A of the Listing Rules exceeds 2.5% but is less than 25%, the Acquisition is exempt from the independent Shareholders’ approval requirement under the Listing Rules.

The Directors consider that the terms of the Acquisition were negotiated in good faith and on an arm’s length basis. The Directors further believe that the terms and conditions of the Acquisition are fair and reasonable and are in the interests of the Shareholders. In particular, the independent non-executive Directors have also reviewed the terms and conditions of the Acquisition and are of the opinion that they are fair and reasonable and are in the interests of the Shareholders as a whole.

GENERAL INFORMATION

The Group is principally engaged in the manufacture, distribution and retail of snack food products in the Hong Kong and PRC market. The Group produces and offers over 200 types of top quality snack food products with a unique Asian flavour under three brands, namely ‘Wah Yuen’, ‘Rocco’ and ‘采楓 ’. The Group also produces convenience frozen food under the brand name ‘Wah Yuen’ and the OEM model.

Huadu is a limited liability company incorporated in the PRC and is principally engaged in the general trading (both wholesale and retailing) of various consumer goods, including the operation of variety shops at local PRC shopping centres.

Yours faithfully

For and on behalf of the board of Directors of

Wah Yuen Holdings Limited

But Ka Wai

Chairman

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GENERAL INFORMATION

APPENDIX

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 document 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.

DIRECTORS’ INTERESTS IN SHARES AND UNDERLYING SHARES

As at the Latest Practicable Date, the interests of the Directors and their associates in the shares and underlying shares of the Company and its associated corporation as recorded in the register maintained by the Company pursuant to Section 352 of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) (the “ SFO ”), or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

Long positions

Ordinary shares of HK$0.01 each of the Company

			Percentage
		Number of	of the issued
		issued ordinary	share capital
Name of director	Capacity	shares held	of the Company
But Ching Pui	Beneficial owner	7,000,000	3.50%
But Ka Wai	Held by controlled	60,500,000	30.25%
	corporation_(Note 1)_
But Chai Tong	Held by controlled	57,000,000	28.50%
	corporation_(Note 2)_
Leung Wai Ling	Beneficial owner	7,000,000	3.50%
		131,500,000	65.75%

Notes:

1. These shares were held by Able Success Group Limited (“ASG Limited”) which is wholly-owned by Mr. But Ka Wai.

2. These shares were held by National Chain International Limited (“NCI Limited”) which is wholly-owned by Mr. But Chai Tong.

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GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to the Company, or was proposed to be acquired, or disposed of by, or leased to the Company, since 31 December 2003, the date to which the latest published audited combined financial statements of the Company was made up.

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following Shareholders are interested in more than 10 per cent. of the Shares then in issue:

Name	Number of Shares	Percentage holding
ASG Limited	60,500,000	30.25%
NCI Limited	57,000,000	28.50%
Mr. But Ka Wai_(Note 1)_	60,500,000	30.25%
Mr. But Chai Tong_(Note 2)_	57,000,000	28.50%
Ms. Chan Yuk Ha_(Note 3)_	60,500,000	30.25%
Ms. Chang Tei Wah, Teresa_(Note 4)_	57,000,000	28.50%

Notes:

1. The interest in the Shares will be held through ASG Limited, the entire issued share capital of which is beneficially owned by Mr. But Ka Wai.

2. The interest in the Shares will be held through NCI Limited, the entire issued share capital of which is beneficially owned by Mr. But Chai Tong.

3. Ms. Chan Yuk Ha is the wife of Mr. But Ka Wai and is deemed to be interested in the Shares in which Mr. But Ka Wai is interested under the provisions of Divisions 2 and 3 of Part XV of the SFO.

4. Ms. Chang Tei Wah, Teresa is the wife of Mr. But Chai Tong and is deemed to be interested in the Shares in which Mr. But Chai Tong is interested under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors has entered into a service agreement with the Company. Each of Mr. But Ching Pui, Mr. But Ka Wai and Mr. But Chai Tong has entered into a service agreement with the Company for an initial term of three years commencing 1 June 2003 and continuing thereafter until terminated by not less than three months’ written notice served by either party.

Each of Mr. Lai Wing Kuen and Mr. Chu Kin Wah has entered into a service agreement with the Company for an initial term of two years commencing 1 June 2003 and continuing thereafter until terminated by not less than three months’ written notice served by either party.

None of the Directors has a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

MATERIAL ADVERSE CHANGE

As far as the Directors are aware, as at the Latest Practicable Date, there has been no material adverse change in the financial or trading position of the Group since 31 December 2003 (being the date to which the latest audited consolidated accounts of the Group have been made up).

LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and, so far as the Directors are aware, no litigation or arbitration of material importance is pending or threatened against the Company or any of its subsidiaries.

GENERAL

• (a) The principal share registrar of the Company is Bank of Bermuda (Cayman) Limited at 36C Bermuda House, 3rd Floor, P.O. Box 513 GT, Dr. Roy’s Drive, George Town, Grand Cayman, Cayman Islands, British West Indies.

• (b) The Hong Kong branch share registrar of the Company is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (c) The secretary of the Company is Mr. Chu Kin Wah, an associate member of the Hong Kong Society of Accountants and a fellow member of the Association of Chartered Certified Accountants.

DOCUMENT AVAILABLE FOR INSPECTION

A copy of the Acquisition Agreement will be available for inspection during normal business hours at the principal place of business of the Company at 2nd Floor, On Shing Industrial Building, Nos. 2-16 Wo Liu Hang Road, Fo Tan, Shatin, New Territories, Hong Kong up to and including 25 June 2004.

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