Design Capital Limited — Proxy Solicitation & Information Statement 2008

Oct 6, 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 a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or otherwise transferred all your shares in Yun Sky Chemical (International) Holdings Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or another agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

==> picture [81 x 44] intentionally omitted <==

Yun Sky Chemical (International) Holdings Limited

(incorporated in Hong Kong with limited liability)

(Stock code: 00663)

MAJOR AND CONNECTED TRANSACTION TERMINATION OF THE PVC LEASING AGREEMENT

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

China Everbright Capital Limited

A letter from the board of directors of Yun Sky Chemical (International) Holdings Limited is set out on pages 4 to 10 of this circular. A letter from the Independent Board Committee (as defined herein) is set out on page 11 of this circular. A letter from China Everbright Capital Limited containing its advice to the Independent Board Committee and the Independent Shareholders (as defined herein) is set out on pages 12 to 16 of this circular.

A notice convening the EGM to be held at Suite 1102, 11th Floor, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong, Hong Kong on Friday, 31 October 2008 at 3:00 p.m. is set out on page 25 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the share registrar of the Company, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so wish.

8 October 2008

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**LETTER FROM **	THE BOARD
Introduction	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The PVC Leasing Termination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Background	of the PVC Leasing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Information	on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information	on Yunphos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Listing Rules implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9
Procedures for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9
EGM . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
**LETTER FROM **	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . .	11
**LETTER FROM **	CHINA EVERBRIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
APPENDIX I –	FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
APPENDIX II –	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		25

– i –

DEFINITIONS

In this circular, the following expressions shall have the meanings respectively set opposite them unless the context otherwise requires:

• “associate(s)”

• has the meaning ascribed to it under the Listing Rules

• “Board” the board of Directors

• “China Everbright”

China Everbright Capital Limited, a corporation licensed to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the PVC Leasing Termination Agreement

• “Company”

Yun Sky Chemical (International) Holdings Limited, a company incorporated in Hong Kong with limited liability, whose shares are listed on the Main Board of the Stock Exchange

• “Director(s)” the director(s) of the Company

• “EGM”

• the extraordinary general meeting of the Company to be held to approve the PVC Leasing Termination Agreement

• “Group”

the Company and its subsidiaries

• “Huahai”

(Fangcheng Huahai Chemicals Co., Ltd.*), an indirect wholly-owned subsidiary of the Company incorporated in the PRC

• “Hua Dian”

(Kunming Hua Dian Chemicals Co., Ltd.*), an indirect wholly-owned subsidiary of the Company incorporated in the PRC, and a fellow subsidiary of Huahai

• “Independent Board Committee”

the independent committee of the Board, which consists of all three independent non-executive Directors, being Mr. Ng Wai Hung, Mr. Jacobsen William Keith and Mr. Wu Wang Li, which has been established to advise the Independent Shareholders on the terms of the PVC Leasing Termination Agreement

* for identification purpose only

– 1 –

DEFINITIONS

• “Independent Shareholders”

• the Shareholders other than China Time Investment Holdings Limited, Mr. Wang An Kang and their respective associates

• “Latest Practicable Date” 6 October 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular

• “Leased Premises” the production factories together with the ancillary structures and the machinery and equipment at the leased production factories located in Jin Suo Industrial Small District, Xundian Hui Zu Yi Zu Autonomous County, Kunming City, Yunnan Province, the PRC for the production of PVC and PVC related products

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

• “PRC” the People’s Republic of China

• “PVC” polyvinyl chloride which is a form of plastic

• “PVC Distribution Agreement”

• the PVC distribution agreement entered into between Huahai and Yunphos on 9 July 2007, details of which were set out in the circular of the Company dated 8 August 2007

• “PVC Leasing Agreement”

• the PVC leasing agreement entered into between Huahai and Yunphos on 9 July 2007, pursuant to which Huahai agreed to lease the Leased Premises, details of the agreement were set out in the circular of the Company dated 8 August 2007

• “PVC Leasing Termination Agreement”

• the PVC leasing termination agreement entered into between Huahai and Yunphos on 11 September 2008, pursuant to which parties have agreed to terminate the PVC Leasing Agreement with effect from the Termination Date

• “RMB”

• Renminbi, the lawful currency of the PRC

• “SFO”

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

• “Share(s)”

the ordinary share(s) of HK$0.01 each in the issued share capital of the Company

• “Shareholders”

holders of the Shares

– 2 –

DEFINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Termination Date” the date on which the PVC Leasing Termination Agreement becoming effective, being the day on which the conditions precedent as set out in the PVC Leasing Termination Agreement are fulfilled, and which is expected to be on or before 31 December 2008, or such other date as Huahai and Yunphos shall agree in writing “Yunphos” (Yunnan Phosphorus Group Co., Ltd.*), a company incorporated in the PRC with limited liability and owned as to approximately 99.56% by Mr. Wang An Kang and his associates “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent

In this circular, unless otherwise stated, certain amounts denominated in RMB have been converted (for information only) into HK$ using an exchange rate of RMB1.00:HK$1.14. Such conversion shall not be construed as a representation that amounts in RMB were or may have been converted into HK$ (as the case may be) using such exchange rate or any other exchange rate or at all.

* for identification purpose only

– 3 –

LETTER FROM THE BOARD

==> picture [81 x 45] intentionally omitted <==

Yun Sky Chemical (International) Holdings Limited

(incorporated in Hong Kong with limited liability)

(Stock code: 00663)

Executive Directors: Ms. Liu Yee Nee Mr. Li Wei Ms. Louie Mei Po Ms. Zhou Jing

Principal Place of Business in Hong Kong and Registered Office Suite 1102, 11th Floor, ICBC Tower, Citibank Plaza 3 Garden Road, Central Hong Kong

Independent Non-executive Directors:

Mr. Ng Wai Hung Mr. Jacobsen William Keith Mr. Wu Wang Li

8 October 2008

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION TERMINATION OF THE PVC LEASING AGREEMENT

INTRODUCTION

On 17 September 2008, the Board announced that on 11 September 2008, Huahai, a subsidiary of the Company entered into the PVC Leasing Termination Agreement with Yunphos to terminate the PVC Leasing Agreement (details of the PVC Leasing Agreement were set out in the circular of the Company dated 8 August 2007).

The purpose of this circular is to give you, among other things, (i) further details of the PVC Leasing Termination Agreement; (ii) the recommendation of the Independent Board Committee in relation to the PVC Leasing Termination Agreement; (iii) the advice of China Everbright to the Independent Board Committee and the Independent Shareholders in relation to the PVC Leasing Termination Agreement; and (iv) the notice of the EGM.

– 4 –

LETTER FROM THE BOARD

THE PVC LEASING TERMINATION AGREEMENT

Date: 11 September 2008 Parties: Huahai Yunphos, an associate of Mr. Wang An Kang, a former Director Effective date: Termination Date

Pursuant to the PVC Leasing Termination Agreement, Huahai, as the lessee and Yunphos, as the lessor mutually agreed to terminate the PVC Leasing Agreement with effect from the Termination Date and the Group is not subject to any penalties or charges, and neither party is liable to make any compensation to the other party upon the termination of the PVC Leasing Agreement.

Conditions precedent

The termination of the PVC Leasing Agreement is conditional upon the following events being fulfilled:

• (a) the Company obtaining the approval of the PVC Leasing Termination Agreement by the Independent Shareholders at the EGM; and

• (b) each of Huahai and Yunphos having provided the necessary resolutions in writing passed by their respective board of directors and shareholders approving the termination of the PVC Leasing Agreement.

The PVC Leasing Termination Agreement will become effective on the Termination Date, being the day on which all of the above conditions are fulfilled. In the event that any of the conditions is not fulfilled by 31 December 2008, or such other date as Huahai and Yunphos shall agree in writing, the PVC Leasing Termination Agreement shall lapse and the parties to the PVC Leasing Termination Agreement shall be released from all obligations and liabilities thereunder.

Reasons for and benefits of the termination

The Company is an investment holding company and its principal subsidiaries are engaged in the manufacturing and sale of chemical products, including phosphoric products, PVC and PVC related products for industrial use. The recent operating environment of the Group’s PVC business has been deteriorating significantly due to increasing costs of raw materials and energy and shortage of supplies of raw materials. In addition, the Group faced unfavorable market conditions that limited its ability to increase selling price of PVC and PVC related products to cover the increase in costs. As stated in the interim report of the Company dated 27 August 2008, the Group’s PVC business experienced a substantial decline in profitability and the Group recorded an unaudited operating loss of approximately HK$4,879,000 attributable to the PVC business for the six months ended 30 June 2008.

– 5 –

LETTER FROM THE BOARD

Under such circumstances, the Directors have reviewed the current operating conditions and market development and anticipated that the PVC business will continue to suffer in the foreseeable future. As such, the Directors consider that it is in the best interests of the Company and the Shareholders to terminate the PVC Leasing Agreement. After the termination of the PVC Leasing Agreement, the Group would cease its production of PVC and PVC related products. As such, no revenue will be generated from the sale of PVC and PVC related products, save for those produced prior to the termination of the PVC Leasing Agreement becoming effective. Although the PVC business accounted for approximately 20.2% and 44.3% of the Group’s turnover generated from continuing business for the year ended 31 December 2007 and the six months ended 30 June 2008 respectively, its contribution to the profit of the Group declined significantly from approximately 17.3% for the year ended 31 December 2007 to nil for the six months ended 30 June 2008. For the year ended 31 December 2007 and the six months ended 30 June 2008, the revenue and operating profit generated from the Group’s phosphorus business amounted to approximately HK$374,347,000 and HK$93,306,000 and HK$321,431,000 and HK$23,296,000 respectively. As such, the Directors are of the view that the termination of the PVC Leasing Agreement would not have any material adverse impact on the performance of the Group and the Group continues to have sufficient operations from its phosphorus business. Going forward, the Group will closely monitor the development of its existing business and actively pursue business opportunities which will broaden the Group’s revenue base and enhance the return to the Shareholders.

The terms of the PVC Leasing Termination Agreement were agreed between the parties based on arm’s length negotiations and on normal commercial terms. As the Group is not subject to any penalties or charges, and neither party is required to make any compensation to the other party under the PVC Leasing Termination Agreement, the Directors consider that the terms of the PVC Leasing Termination Agreement are fair and reasonable and the termination of the PVC Leasing Agreement is in the interests of the Company and the Shareholders as a whole.

BACKGROUND OF THE PVC LEASING AGREEMENT

On 9 July 2007, Huahai, as the lessee and Yunphos, as the lessor entered into the PVC Leasing Agreement, pursuant to which Huahai agreed to lease the Leased Premises for a term commencing from 1 November 2007 (being the effective date of the PVC Leasing Agreement) up to 31 December 2009 and the annual rental is RMB75 million payable quarterly in four equal amounts each year subject to rental reduction and waiver mechanism. The actual lease rental payment amounted to RMB3,000,000 (or approximately HK$3,420,000) and RMB47,000,000 (or approximately HK$53,580,000) for the year ended 31 December 2007 and the six months ended 30 June 2008 respectively. The Leased Premises were utilised by Hua Dian, a fellow subsidiary of Huahai as the production base of PVC and PVC related products for industrial use.

– 6 –

LETTER FROM THE BOARD

Set out below is the summary of the key financial information of the PVC business segment and the operations of the Group:

		For the six months ended 30	For the six months ended 30		**For the year **	ended 31
		**June **	2008		December 2007
		The Group’s			The Group’s
		PVC segment1	The Group’s operations		PVC segment1	The Group’s operations2
		HK$	HK$	Approximate	HK$	HK$	Approximate
				%			%
		(unaudited)	(unaudited)		(audited)	(audited)
Revenue		255,178,000	576,609,000	44.3	94,733,000	469,668,0003	20.2
Operating	(loss)/profit	(4,879,000)	17,842,0003	N/A	19,561,000	112,867,000	17.3

Notes:

• (1) As the PVC Leasing Agreement was only effective since 1 November 2007, the Group’s PVC business segment operated for only 2 months for the year ended 31 December 2007.

• (2) For the year ended 31 December 2007, the Group’s operations refer to the PVC and phosphorus businesses.

• (3) For the year ended 31 December 2007, the revenue generated from the Group’s operations included, in addition to revenue generated from the PVC and phosphorus businesses, unallocated other revenue of approximately HK$588,000. For the six months ended 30 June 2008, the Group’s operating profit included, in addition to operating loss/profit from the PVC and phosphorus businesses, unallocated loss of approximately HK$575,000.

For the six months ended 30 June 2008, the Group’s operations were adversely affected by the substantial increase in raw material prices and energy costs, shortage in supplies of raw materials, and two major natural disasters in the PRC taken place in January and May 2008. As a result of these factors, the overall gross profit margin of the Group’s phosphorus and PVC operations dropped from approximately 28.7% for the year ended 31 December 2007 to approximately 8.1% for the six months ended 30 June 2008. As such, the profits from operations of the Group’s phosphorus and PVC operations decreased substantially and amounted to HK$17,842,000 for the six months ended 30 June 2008. Taking into account that the PVC business segment is loss making for the six months ended 30 June 2008 and after the termination of the PVC Leasing Agreement becoming effective, the Group will be discharged from the obligation to pay the lease rental, the Directors consider that the termination of the PVC Leasing Agreement will have a positive impact on the earnings of the Group.

– 7 –

LETTER FROM THE BOARD

The table below sets out the unaudited amount of certain balance sheet items (as extracted from the management accounts of Hua Dian) of the Group’s PVC business as at 31 August 2008:

	HK$’000
Raw materials inventory	12,644
Finished goods inventory	1,160
Trade debtors	48,229
Trade creditors	20,668
Other receivables	23,039
Other payables	15,645

Upon the PVC Leasing Termination Agreement becoming effective, the Group will cease its production of PVC and PVC related products. However, sale of PVC and PVC related products will continue for the products produced prior to the PVC Leasing Termination Agreement becoming effective. The PVC Distribution Agreement will continue to be effective and the Group may continue to distribute sodium tripolyphosphate (which is one of the PVC related products produced at the Leased Premises prior to the PVC Leasing Termination Agreement becoming effective) to Yunphos. In respect of raw materials, the Directors expect that these inventories will be utilised as much as practicable in the Group’s production of PVC and PVC related products prior to the PVC Leasing Termination Agreement becoming effective. The Group does not expect to write off any inventories relating to the PVC business segment and will continue to sell the inventories to its customers in its ordinary course of business, as such, the Directors do not expect any material gain or loss to be incurred. As at 31 August 2008, the Group did not have any fixed assets related to the PVC business segment; therefore, the Directors expect that there will not be any disposal of fixed assets which are used in the PVC business segment and thus there will not be any disposal loss thereof. The trade and other payables will be settled in the usual course of business of the Group. The Directors consider that the termination of the PVC Leasing Agreement would not have any material impact on the Group’s liabilities.

INFORMATION ON THE GROUP

Principal Activities of the Group

The Company is an investment holding company and its principal subsidiaries are engaged in the manufacturing and sales of chemical products, including phosphoric products, PVC and PVC related products for industrial use. Huahai is principally engaged in the manufacturing and sale of phosphoric acids. Hua Dian is principally engaged in the manufacturing and sale of chemical products, including yellow phosphorus, PVC and PVC related products.

Financial and trading prospect of the Group

Facing the current economic conditions, the Board expects that the performance of the Group will be challenging in future. The Group will continue to closely monitor the latest developments of the chemical sector and optimise its product mix. The Board has also initiated and commenced a review of the business activities and assets of the Group for the purpose of formulating new business plans and strategies for the future business development of the Group.

– 8 –

LETTER FROM THE BOARD

INFORMATION ON YUNPHOS

Yunphos is principally engaged in the development, manufacturing, import and export, and sale of phosphorus related products.

LISTING RULES IMPLICATIONS

The termination of the PVC Leasing Agreement constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. Further, Yunphos, being an associate of Mr. Wang An Kang, who was a Director within the preceding twelve months prior to the entering into of the PVC Leasing Termination Agreement, is a connected person of the Company within the meaning of the Listing Rules, as such the entering into of the PVC Leasing Termination Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios as defined in the Listing Rules exceed 25%, the transaction contemplated under the PVC Leasing Termination Agreement is subject to announcement, reporting and approval of the Independent Shareholders of the Company at the EGM. Given that China Time Investment Holdings Limited, which held 6.67% of the issued share capital of the Company as at the Latest Practicable Date, is wholly owned by Mr. Wang An Kang, China Time Investment Holdings Limited, Mr. Wang An Kang and their respective associates shall abstain from voting on the resolution to approve the PVC Leasing Termination Agreement. Save as disclosed above, to the best knowledge and belief of the Directors having made all reasonable enquiries, no other Shareholder had any interest in the termination of the PVC Leasing Agreement which was materially different from other Shareholders as at the Latest Practicable Date and is required to abstain from voting at the EGM.

PROCEDURES FOR DEMANDING A POLL

Pursuant to the articles of association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

• (1) the chairman of such meeting; or

• (2) at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (3) a Shareholder or Shareholders present in present (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

• (4) a Shareholder or Shareholders present in present (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right;

– 9 –

LETTER FROM THE BOARD

• (5) if required by the Listing Rules, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five percent (5%) or more of the total voting rights at such meeting.

EGM

Set out on page 25 of this circular is a notice convening the EGM to consider and, if thought fit, to approve the PVC Leasing Termination Agreement. A form of proxy for use at the EGM is enclosed herewith.

Whether or not you intend to attend and vote at such meeting, you are requested to complete and return the enclosed form of proxy to the registrar of the Company, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RECOMMENDATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 11 of this circular which contains its recommendation to the Independent Shareholders concerning the PVC Leasing Termination Agreement; and (ii) the letter from China Everbright set out on pages 12 to 16 of this circular which contains their advice to the Independent Board Committee and the Independent Shareholders on the PVC Leasing Termination Agreement and the principal factors and reasons considered by them in arriving at their advice.

Having considered the reasons and benefits, the Directors consider that the PVC Leasing Termination Agreement is to the benefit of the Company, fair and reasonable and in the interests of the Shareholders as a whole. Therefore, the Directors recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

FURTHER INFORMATION

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

By Order of the Board Yun Sky Chemical (International) Holdings Limited Li Wei

Executive Director

– 10 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for the purpose of incorporation in this circular, from the Independent Board Committee to the Independent Shareholders regarding the termination of the PVC Leasing Agreement:

==> picture [81 x 45] intentionally omitted <==

Yun Sky Chemical (International) Holdings Limited

(incorporated in Hong Kong with limited liability) (Stock code: 00663)

8 October 2008

To the Independent Shareholders

Dear Sirs or Madams,

MAJOR AND CONNECTED TRANSACTION TERMINATION OF THE PVC LEASING AGREEMENT

We refer to the circular of the Company dated 8 October 2008 (the “Circular”) of which this letter forms part. Unless the context specifies otherwise, capitalised terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders as to whether the terms of the PVC Leasing Termination Agreement are fair and reasonable insofar as the Independent Shareholders are concerned and whether the termination of the PVC Leasing Agreement are in the interests of the Company and the Shareholders as a whole. China Everbright has been appointed as the independent financial adviser to advise you and us in this respect.

RECOMMENDATION

We wish to draw your attention to the letter from the Board and the letter from China Everbright to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the termination of the PVC Leasing Agreement as set out in the Circular.

Having taken into account the principal reasons and factors considered by, and the advice of, China Everbright as set out in its letter of advice on pages 12 to 16 of the Circular, we are of the opinion that the terms of the PVC Leasing Termination Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve, inter alia, the PVC Leasing Termination Agreement and the transaction contemplated thereunder.

Yours faithfully, For and on behalf of The Independent Board Committee Jacobsen William Keith

Ng Wai Hung

Wu Wang Li

– 11 –

LETTER FROM CHINA EVERBRIGHT

The following is the text of the letter from China Everbright Capital Limited setting out its advice to the Independent Board Committee in respect of the termination of the PVC Leasing Agreement prepared for the purpose of incorporation in this document.

China Everbright Capital Limited

40/F, Far East Finance Centre, 16, Harcourt Road, Hong Kong

8 October 2008

To the Independent Board Committee of Yun Sky Chemical (International) Holdings Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION TERMINATION OF THE PVC LEASING AGREEMENT

Introduction

We refer to our appointment as the independent financial adviser to advise the Independent Board committee on the terms of the termination of the PVC Leasing Agreement (the “Termination”). Details of the terms of the transaction are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 8 October 2008 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meaning as defined in the Circular unless the context requires otherwise.

The Board announced on 11 September 2008, Huahai, a subsidiary of the Company entered into the PVC Leasing Termination Agreement with Yunphos to terminate the PVC Leasing Agreement with effect from the Termination Date. Pursuant to the PVC Leasing Termination Agreement, the Group is not subject to any penalties or charges, and neither party is liable to make any compensation to the other party upon the termination of the PVC Leasing Agreement.

The termination of the PVC Leasing Agreement constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. Further, Yunphos, being an associate of Mr. Wang An Kang, who was a Director within the preceding twelve months prior to the entering into of the PVC Leasing Termination Agreement, is a connected person of the Company within the meaning of the Listing Rules, as such the entering into of the PVC Leasing Termination Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios as defined in the Listing Rules exceed 25%, the transaction contemplated under the PVC Leasing Termination Agreement is subject to announcement, reporting and approval of the Independent Shareholders of the Company at the EGM.

– 12 –

LETTER FROM CHINA EVERBRIGHT

An Independent Board Committee comprising Mr. Ng Wai Hung, Mr. Wu Wang Li and Mr. William Keith Jacobsen (all being independent non-executive Directors) has been formed to advise the Independent Shareholders on whether the terms of the PVC Leasing Termination Agreement are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided to us by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the date hereof. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us.

The Circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinion expressed in the Circular have been arrived at after due careful consideration and there are no other facts not contained in the Circular the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Yunphos or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the termination of the PVC Leasing Agreement. Nothing contained in this letter should be construed as a recommendation to hold, sell, or buy any Shares or any other securities of the Company.

– 13 –

LETTER FROM CHINA EVERBRIGHT

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Termination, we have taken into consideration the following principal factors and reasons:

(1) Background of and reasons for the Termination

Business overview of the Group

The Company is an investment holding company and its principal subsidiaries are engaged in the manufacturing and sales of chemical products, including phosphorus products, PVC and PVC related products for industrial use. Huahai is principally engaged in the manufacturing and sale of phosphoric acids. Hua Dian is principally engaged in the manufacturing and sale of chemical products, including yellow phosphorus, PVC and PVC related products.

Tabulated below are the summary of the key financial information of the Group’s PVC business segment and the Group’s operations:

	For the six months ended	For the six months ended	**For the six **	months ended
	**30 June **	2008	31 December 2007
	The Group’s	The Group’s	The Group’s	The Group’s
	PVC segment	operations	PVC segment(1)	operations
	HK$	HK$	HK$	HK$
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Turnover	25,178,000	576,609,000	94,733,000	469,668,000
Operating(loss)/profit	(4,879,000)	17,842,000	19,561,000	112,867,000

Note:

(1) As the PVC Leasing Agreement was only effective since 1 November 2007, the Group’s PVC business segment operated for only 2 months for the year ended 31 December 2007.

It is noted that during the six months period ended 30 June 2008, the Group’s production and profitability has been adversely affected by: (i) substantial increase in raw material prices and energy costs; (ii) shortage in supplies of raw materials; and (iii) two major natural disasters in the PRC taken place in January and May 2008. As a result of these factors, the gross profit margin of the Group (in continuing operations) has dropped from approximately 28.7% for the year ended 31 December 2007 to approximately 8.1% for the six months ended 30 June 2008. In particular, the operation of the PVC segment has deteriorated significantly from an operating profit of HK$19,561,000 for the six months ended 31 December 2007 to a loss of HK$4,879,000 for the six months ended 30 June 2008. Moreover, upon our further enquiry with the management review of the PVC operation and is also indicated in the interim result, the PVC segment is anticipated to continue to suffer for the rest of the terms of the PVC Leasing Agreement. For the above reasons, the Directors expect that the Group’s PVC segment will remain unstable in the near future and may continue to record loss with the development of the PVC segment.

– 14 –

LETTER FROM CHINA EVERBRIGHT

Although the PVC business has generated revenue of HK$255,178,000, which is attributable to approximately 44.3% of the Group’s turnover for the six months ended 30 June 2008, its contribution to the Group’s operating profit was nil and recorded an operating loss of HK$4,879,000 for the same period. While the phosphorus business has generated revenue of HK$321,431,000 which is attributable to approximately 55.7% of the Group’s turnover for the same period, it has generated all of the operating profit which amount to HK$23,296,000. In this connection, the Directors are of the view that other than the PVC business, the Group has sufficient operation in phosphorus business.

Reasons for the Termination

In accordance with the Board letter and as mentioned above, the operating environment of the Group’s PVC business has been deteriorating significantly due to the aforementioned factors. In addition, the Group faced unfavorable market conditions that limited its ability to increase selling price of PVC and PVC related products to cover the increase in costs. As a result, the Group’s PVC business experienced a substantial decline in profitability and the Group recorded an unaudited operating loss of approximately HK$4,879,000.

The Directors have reviewed the current operating conditions and market development and anticipated that the PVC business will continue to suffer for the rest of the terms of the PVC Leasing Agreement. As such, the Directors consider that it is in the best interests of the Company and the Shareholders to terminate the PVC Leasing Agreement, and cease all production of PVC and PVC related products.

Based on the reasons above, we are of the view that the Termination, which abstains the Group from taking on the risk of recording further loss on the unstable PVC business, is in the interests of the Company and the Shareholders as a whole.

(2) Principal terms of the PVC Leasing Termination Agreement

As referred in the Board Letter, the terms of the PVC Leasing Termination Agreement were agreed between the parties based on arm’s length negotiations and on normal commercial terms. Pursuant to the which, Huahai, as the lessee and Yunphos, as the lessor mutually agreed to terminate the PVC Leasing Agreement with effect from the Termination Date and the Group is not subject to any penalties or charges, and neither party is liable to make any compensation to the other party upon the termination of the PVC Leasing Agreement.

In accessing the fairness and reasonableness of the terms in the PVC Leasing Termination Agreement, we have reviewed the financial result generated from the PVC business. The PVC segment recorded an operating loss of HK$4,879,000 for the six months ended 30 June 2008 which was mainly due to (i) substantial increase in raw material prices and energy costs; (ii) shortage in supplies of raw materials; and (iii) two major natural disasters in the PRC taken place in January and May 2008.

– 15 –

LETTER FROM CHINA EVERBRIGHT

We have also enquired with the Directors’ view on the current operating conditions, market development and anticipated future performance of the PVC business. The Directors are of the view that the PVC business will continue to suffer from the aforementioned factors for the rest of the terms of the PVC Leasing Agreement and may continue to record loss with the development of the PVC segment.

As indicated in the terms of the PVC Leasing Termination Agreement that the Group is not subject to any penalties or charges, and neither party is required to make any compensation to the other party under such agreement, such terms shall not create any material adverse effect to the Group’s earning position in the near term.

Having considered that (i) the financial result of the Group’s PVC segment for the six months ended 30 June 2008, which recorded an operating loss of HK$4,879,000; (ii) the Group’s PVC segment will remain unstable in the near future and may continue to record loss; and (iii) the terms would not create any material adverse effect to the Group’s earning position in the near term, we are of the opinion that the terms of the Termination is fair and reasonable so far as the Independent Shareholders are concerned.

(3) Financial effects of the Termination

In light of the fact that the continuation of the PVC segment may record further loss, the Directors anticipated that the Termination would have a positive impact to the earnings of the Group.

The Directors anticipated that there would be no meaningful effect on the net asset value, gearing, working capital and liquidity from the Termination.

RECOMMENDATION ON THE TERMINATION

Having considered the above factors and reasons, we are of the opinion that the terms of the termination of the PVC Leasing Termination Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and the transaction contemplated thereunder is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant ordinary resolution(s) to be proposed at the EGM.

Yours faithfully, For and on behalf of

China Everbright Capital Limited Richard Chu Director

– 16 –

FINANCIAL INFORMATION

APPENDIX I

1. INDEBTNESS

At the close of business on 31 August 2008, being the latest practice date for ascertaining certain information relating to this indebtedness statement, the Group had the following borrowings:

• (i) unsecured non-interest bearing borrowings from a related company, Rightlink Trading Limited, of HK$20,000,000.

Save as aforesaid, at the close of business on 31 August 2008, the Group had no material outstanding mortgages, charges, debentures, or other loan capital or bank overdrafts or loans or other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptance or acceptance credits, debt securities, guarantees or other materials contingent liabilities.

The Directors confirmed that save as the additional unsecured non-interest bearing borrowings in the amount of HK$20,000,000 granted by Rightlink Trading Limited in September 2008, there has been no material change in the indebtedness and contingent liabilities of the Group since 31 August 2008 up to the Latest Practicable Date.

2. MATERIAL CHANGE

The Directors confirm that, save as the PVC business turning to be loss making, as at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 31 December 2007, being the date to which the latest published audited financial statements of the Company were made up.

3. WORKING CAPITAL STATEMENT

The Directors are of the opinion that, after taking into account the financial resources available to the Group and its internal generated funds, the Group has sufficient working capital to satisfy its requirements for at least the next twelve months from the date of this circular.

– 17 –

GENERAL INFORMATION

APPENDIX II

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, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in this circular misleading.

2. CORPORATE INFORMATION OF THE COMPANY

The Company was incorporated in Hong Kong with limited liability under the law of Hong Kong. Its registered office and its principal place of business in Hong Kong are at Suite 1102, 11th Floor, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong.

3. DIRECTORS’ INTERESTS

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

None of the Directors or the chief executives of the Company had, as at the Latest Practicable Date, any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were deemed or taken to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

(b) Competing interest

After termination of the PVC Leasing Agreement becoming effective, the Group would be principally engaged in the production and sales of phosphric acid and yellow phosphorus through the continuing connected transactions as described in the Company’s announcement dated 11 May 2006. Pursuant to Rule 14A.59(11) of the Listing Rules, as at the Latest Practicable Date, interest of the Directors in businesses which are likely to compete, either directly or indirectly with the phosphorus business were as follows:

**Entity whose **	**Entity whose **	business(es) may	business(es) may			Nature of
**compete **	**or are **		likely to			interest of
**compete **	with the businesses of			Description of		the Director
**the Group (the **			“Entity”)	businesses of the Entity Principally engaged in the	Name of Director Ms. Zhou Jing	in the Entity Director
(Yunnan Xundian Italphos YP				production of yellow phosphorus
Co., Ltd.*)

* for identification purpose only

– 18 –

GENERAL INFORMATION

APPENDIX II

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and his associates had any interests which competes or was likely to compete, either directly or indirectly, with the Company’s business.

(c) Service contracts

As at the Latest Practicable Date, there were no service contracts with the Company or any of its subsidiaries or associated companies in force for the Directors which:

• (i) (including both continuous and fixed term contracts) had been entered into or amended within the Relevant Period; or

• (ii) were continuous contracts with a notice period of 12 months or more; or

• (iii) which were fixed term contracts with more than 12 months to run irrespective of the notice period.

(d) Directors’ interests in assets

None of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2007, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group.

(e) Directors’ interests in contracts

There was no contract of significance in relation to the Group’s business to which the Company, its subsidiaries, its fellow subsidiaries or its holding company was a party and in which a Director had a material interest, whether directly or indirectly, subsisting as at the Latest Practicable Date.

– 19 –

GENERAL INFORMATION

APPENDIX II

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the following persons (other than the Directors or chief executive of the Company) had an interest or short position in the Shares or/and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 5% 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 were as follows:

(a) Interests in the Shares

		Approximate
		percentage of
		issued share capital
	Number of	as at the Latest
Name	Shares held	Practicable Date
Mr. Chan Yuen Ming	1,831,418,288 (note 1)	58.61
Sinogreat Limited	1,675,464,158 (note 1)	53.61
China Time Investment	208,324,182 (note 2)	6.67
Holdings Limited
Mr. Wang An Kang	208,324,182 (note 2)	6.67
Ms. Mu Yucun	208,324,182 (note 3)	6.67
Choi Koon Shum, Jonathan	188,702,795 (note 4)	6.04
(“Mr. Choi”)
Kwan Wing Kum, Janice	188,702,795 (note 4)	6.04
(“Ms. Kwan”)
Lam William Ka Chung	188,702,795 (note 4)	6.04
(“Mr. Lam”)
Lam Wong Yuk Sin, Mary	188,702,795 (note 4)	6.04
(“Mrs. Lam”)
Kingsway International	188,702,795 (note 4)	6.04
Holdings Limited
(“Kingsway International”)
Innovation Assets Limited	188,702,795 (note 4)	6.04
(“Innovation”)
World Developments Limited	188,702,795 (note 4)	6.04
(“World Developments”)
SW Kingsway Capital	188,702,795 (note 4)	6.04
Holdings Limited (“SW
Kingsway”)
Festival Developments	188,702,795 (note 4)	6.04
Limited (“Festival
Developments”)

– 20 –

GENERAL INFORMATION

APPENDIX II

Save as disclosed above, as at the Latest Practicable Date, the Directors are not aware of any person who is, directly or indirectly, interested in 5% or more of the issued share capital of the Company, has short positions on the Shares or underlying Shares, or has any rights to subscribe for Shares in respect of such capital.

Notes:

1. Mr. Chan Yuen Ming is the sole shareholder of Sinogreat Limited which owns 1,675,215,498 Shares. Probest Holdings Inc., a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Tomorrow International Holdings Limited, shares of which are listed on the Main Board of the Stock Exchange and is controlled by Mr. Chan Yuen Ming, owns 156,202,790 Shares.

2. Mr. Wang An Kang is the sole shareholder of China Time Investment Holdings Limited.

3. Ms. Mu Yucun is Mr. Wang An Kang’s spouse and she is deemed to be interested in Mr. Wang An Kang’s interest in the Shares.

4. Mr. Choi and his spouse Ms. Kwan were deemed to be interested in 188,702,795 ordinary shares in the Company by virtue of their 46% shareholding in Kingsway International. Mr. Lam and his spouse Mrs. Lam were deemed to be interested in 188,702,795 ordinary shares in the Company by virtue of their 40% shareholding in Kingsway International. Kingsway International, in turn, held 100% shareholding in Innovation. Innovation, in turn, held 100% shareholding in World Developments. World Developments, in turn, held 74% shareholding in SW Kingsway. SW Kingsway, in turn, held 100% direct shareholdings in each of Festival Developments.

(b) Substantial Shareholders of other member of the Group

As at the Latest Practicable Date, save as disclosed above, so far as was known to the Directors, no other person (other than the Directors or chief executive of the Company) had, or was deemed or taken to have an interest or short position in the Shares or/and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group.

5. LITIGATION

As at the Latest Practicable Date, none of the members of the Group was engaged in any litigation, claim or arbitration of material importance and there was no litigation, claim or arbitration of material importance known to the Directors to be pending or threatened by or against any member of the Group.

– 21 –

GENERAL INFORMATION

APPENDIX II

6. MATERIAL CONTRACTS

The following contracts (being contracts not entered into in the ordinary course of business of the Group) have entered into by the members of the Group within two years immediately preceding the date of this circular , and are or may be material:

• (a) the Yunnan factories coal supply contract entered into between Yunphos and Huahai dated 9 July 2007 in respect of Huahai’s purchase of coal from Yunphos and, or its associates, from 1 November 2007, being the effective date of the contract, up to 31 December 2008;

• (b) the phosphorus ancillary materials procurement agreement entered into between Yunphos and Huahai dated 9 July 2007 in respect of Huahai’s purchase of ancillary materials for repairing and, or maintaining the production facilities for phosphorus products from Yunphos and, or its associates, from 1 November 2007, being the effective date of the agreement, up to 31 December 2008;

• (c) the PVC ancillary materials procurement agreement entered into between Yunphos and Huahai dated 9 July 2007 in respect of Huahai’s purchase of ancillary materials for repairing and, or maintaining the production facilities for PVC products from Yunphos and, or its associates, from 1 November 2007, being the effective date of the agreement, up to 31 December 2009;

• (d) the PVC distribution agreement entered into between Yunphos and Huahai dated 9 July 2007 in respect of Huahai’s appointment of Yunphos and, or its associates as its distributor to distribute sodium tripolyphosphate produced at the PVC Premises to customers outside the PRC from 1 November 2007, being the effective date of the agreement, up to 31 December 2008;

• (e) the PVC Leasing Agreement;

• (f) the sale and purchase agreement entered into between the Company and Asset Up Limited in relation to the Company’s disposal of a 70% equity interest in Profitown Investment Corporation at nominal consideration of HK$1 dated 2 November 2007; and

• (g) the PVC Leasing Termination Agreement.

– 22 –

GENERAL INFORMATION

APPENDIX II

7. CONSENTS AND QUALIFICATIONS

The followings are the name and the qualifications of the professional adviser who has given opinions or advice which are contained or referred to in this circular:

Name

Qualifications

China Everbright

China Everbright Capital Limited, a corporation licensed to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

China Everbright has given and has not withdrawn its written consents to the issue of this circular with the inclusion herein of its letter (if applicable) and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, China Everbright did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, and China Everbright did not have any direct or indirect interest in any assets which have been or proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2007, being the date to which the latest published audited accounts of the Company were made up.

8. GENERAL

The company secretary and the qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Mr. Tang Suk Ngao, Raymond, who is an associate member of the Institute of Chartered Accountants in England and Wales.

The share registrar and transfer office of the Company in Hong Kong is Tricor Secretaries Limited at level 25, Three Pacific Place, 1 Queen’s Road East, Hong Kong.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Suite 1102, 11th Floor, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong during normal business hours (i.e. from 9:30 a.m. to 6:00 p.m. on Monday to Friday except public holidays) up to and including at least 14 days from the date of this circular:

• (a) the PVC Leasing Termination Agreement;

• (b) the memorandum and articles of association of the Company;

• (c) the annual reports of the Company for the two years ended 31 December 2007;

– 23 –

GENERAL INFORMATION

APPENDIX II

• (d) the letter dated 8 October 2008 from China Everbright to the Independent Board Committee and Independent Shareholders, the text of which is set out in this circular;

• (e) the letter dated 8 October 2008 from the Independent Board Committee to the Independent Shareholders, the text of which is set out in this circular;

• (f) the letter of consent referred to in the paragraph headed “Consents and qualifications” in this Appendix;

• (g) the material contracts referred to under the paragraph headed “Material contracts” in this Appendix; and

• (h) the circular of the Company dated 8 August 2007 and this circular.

10. MISCELLANEOUS

The English version of this circular shall prevail over the Chinese text.

– 24 –

NOTICE OF EGM

==> picture [81 x 45] intentionally omitted <==

Yun Sky Chemical (International) Holdings Limited

(incorporated in Hong Kong with limited liability)

(Stock code: 00663)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Yun Sky Chemical (International) Holdings Limited (the “Company”) will be held at Suite 1102, 11th Floor, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong on Friday, 31 October 2008 at 3:00 p.m. for the purposes of considering and, if thought fit, passing the following resolution with or without amendments as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT :

• (a) the PVC leasing termination agreement dated 11 September 2008 (the “ PVC Leasing Termination Agreement ”) entered into between (Fangcheng Huahai Chemicals Co., Ltd.) and (Yunnan Phosphorus Group Co., Ltd.), a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purpose, pursuant to which the parties have agreed to terminate the PVC Leasing Agreement (as defined in the circular of the Company dated 8 October 2008) be and is hereby approved, ratified and confirmed; and

• (b) any one director of the Company be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the PVC Leasing Termination Agreement.”

By Order of the Board

Yun Sky Chemical (International) Holdings Limited

Li Wei

Executive Director

Hong Kong, 8 October 2008

* for identification purpose only

– 25 –