Dongyue Group Limited — Proxy Solicitation & Information Statement 2006

Jul 26, 2006

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 registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Herald Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly 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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HERALD HOLDINGS LIMITED

*

(incorporated in Bermuda with limited liability)

(Stock Code : 00114)

PROPOSALS FOR GENERAL MANDATES TO REPURCHASE SHARES AND TO ISSUE SHARES,

AMENDMENTS TO THE BYE-LAWS, RE-ELECTION OF DIRECTORS

AND

NOTICE OF ANNUAL GENERAL MEETING

A notice convening the Annual General Meeting of Herald Holdings Limited (the “Company”) to be held on Friday, 15 September, 2006 at the Chater Room I, Function Room Level (B1), The Ritz-Carlton Hotel Hong Kong, 3 Connaught Road Central, Hong Kong at 3:45 p.m. is set out on pages 14 to 18 of this circular.

If you do not intend to attend the meeting, you are requested to complete and return to the principal place of business of the Company in Hong Kong at 3110, 31st Floor, Tower Two, Lippo Centre, 89 Queensway, Hong Kong the enclosed proxy form in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time of the meeting or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

* for identification purpose only

26 July, 2006

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
General Mandates to Repurchase Shares and to Issue Shares . . . . . . . . . . . . . . .	4
Amendments to the Bye-laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Re-election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Procedures by which a poll may be demanded. . . . . . . . . . . . . . . . . . . . . . . . . .	5
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
APPENDIX I
Explanatory Statement of the Repurchase Mandate . . . . . . . . . . . . . . . . . . . . . .	7
APPENDIX II
Particulars of Directors proposed to be re-elected . . . . . . . . . . . . . . . . . . . . . . .	11
NOTICE OF AGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14

−i −

DEFINITIONS

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

“AGM”	the annual general meeting of the Company to be held on
	15 September, 2006 at the Chater Room I, Function
	Room Level (B1), The Ritz-Carlton Hotel Hong Kong, 3
	Connaught Road Central, Hong Kong at 3:45 p.m. or any
	adjournment thereof
“Associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Bye-laws”	the bye-laws of the Company
“Companies Act”	the Companies Act 1981 of Bermuda, as amended
“Companies Ordinance”	the Companies Ordinance, Chapter 32, Laws of Hong
	Kong, as amended
“Company”	Herald Holdings Limited, a company incorporated in
	Bermuda with limited liability and the issued Shares of
	which are listed on the Stock Exchange
“Directors”	the director(s) of the Company
“Group”	the Company and its Subsidiaries from time to time
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Issue Mandate”	the general and unconditional mandate proposed under
	resolution numbered 5(2) in the Notice of AGM set out
	on pages 14 to 18 of this circular to be granted to the
	Directors to allot and issue securities of the Company up
	to an aggregate nominal amount not exceeding 20% of
	the aggregate nominal value of the issued share capital of
	the Company on the date of the passing of the said
	ordinary resolution

−1 −

DEFINITIONS

“Latest Practicable Date”	21 July, 2006 being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining
	certain information for inclusion in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Notice of AGM”	the notice convening the AGM as set out on pages 14 to
	18 of this circular
“Repurchase Mandate”	the general and unconditional mandate proposed under
	resolution numbered 5(1) in the Notice of AGM set out
	on pages 14 to 18 of this circular to be granted to the
	Directors to repurchase the Company’s securities up to an
	aggregate nominal amount not exceeding 10% of the
	aggregate nominal value of the issued share capital of the
	Company immediately after the passing of the said
	ordinary resolution
“SFO”	the Securities and Futures Ordinance, Chapter 571 of the
	Laws of Hong Kong
“Share(s)”	share(s) of US$0.01 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary”	a company which is for the time being and from time to
	time a subsidiary (within the meaning of Section 2 of the
	Companies Ordinance or Section 86 of the Companies
	Act) of the Company
“Takeovers Code”	Hong Kong Code on Takeovers and Mergers
“US$”	United States Dollars
“%”	per cent.

−2 −

LETTER FROM THE BOARD

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HERALD HOLDINGS LIMITED

*

(incorporated in Bermuda with limited liability)

(Stock Code : 00114)

Executive directors: George Bloch (Chairman) Cheung Tsang-Kay, Stan PhD, Hon LLD, Hon DBA, JP (Managing Director) Chang Dong-Song Robert Dorfman Thong Yeung-Sum, Michael FCCA, CPA Independent non-executive directors: Tang King-Hung ACA, FCCA, ACIS, CPA David Tai-Chong Lie-A-Cheong JP Yeh Man-Chun, Kent

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal place of business in Hong Kong: 3110, 31st Floor Tower Two, Lippo Centre 89 Queensway Hong Kong

26 July, 2006

To the shareholders

PROPOSALS FOR GENERAL MANDATES TO REPURCHASE SHARES AND TO ISSUE SHARES, AMENDMENTS TO THE BYE-LAWS

AND RE-ELECTION OF DIRECTORS

INTRODUCTION

The purpose of this circular is to give you Notice of AGM and the information relating to the proposals for (i) the grant of the Repurchase Mandate; (ii) the grant of the Issue Mandate; (iii) the amendments to the Bye-laws; and (iv) the re-election of Directors.

* for identification purpose only

−3 −

LETTER FROM THE BOARD

GENERAL MANDATES TO REPURCHASE SHARES AND TO ISSUE SHARES

At the AGM, ordinary resolutions will be proposed that the Directors be given general and unconditional mandates to exercise all the powers of the Company to (i) repurchase issued shares of US$0.01 each in the capital of the Company (“Issued Shares”), the aggregate nominal amount of which does not exceed 10% of the aggregate nominal amount of the issued share capital of the Company in issue on the date of passing of the resolution, i.e. up to a maximum of 61,392,576 Shares on the basis that the issued share capital of the Company comprised 613,925,763 Shares as at the date of the AGM; and (ii) allot, issue and otherwise deal with Shares not exceeding the sum of 20% of the aggregate nominal amount of the share capital of the Company in issue on the date of passing of the resolution, i.e. up to a maximum of 122,785,152 Shares on the basis that the issued share capital of the Company comprised 613,925,763 Shares as at the date of the AGM.

The Directors have no immediate plans to repurchase any Issued Shares or to issue any new Shares pursuant to the above mandates.

An explanatory statement required by the Listing Rules to be sent to Shareholders in connection with the proposed Repurchase Mandate is set out in the Appendix I to this document and contains all information reasonably necessary to enable Shareholders to make an informed decision on whether to vote for or against the resolutions.

AMENDMENTS TO THE BYE-LAWS

The Listing Rules have recently been amended by the Stock Exchange by, inter alia, replacing the Code of Best Practice in Appendix 14 with a new Code on Corporate Governance Practices (the “CG Code”). Subject to certain transitional arrangements, the amendments took effect on 1 January, 2005.

To align the Bye-laws with certain provisions of the CG Code and the minor and housekeeping amendments to the Listing Rules that came into effect on 1 March, 2006, a special resolution will be proposed at the AGM to amend the current Bye-laws. A summary of the proposed amendments are set out below:

• (1) to add in Bye-law 66 the circumstances required by the Designated Stock Exchange that a poll is demanded;

• (2) to amend Bye-law 68 specifying that the Company is required to disclose the voting figures on a poll if such disclosure is required by the Designated Stock Exchange;

• (3) to amend Bye-law 86(2) requiring any Director appointed to fill a casual vacancy should be subject to re-election at the next following general meeting of the Company;

• (4) to amend Bye-law 86(4) allowing the removal of a Director in a general meeting by an ordinary resolution instead of a special resolution; and

−4 −

LETTER FROM THE BOARD

• (5) to amend Bye-law 87(1) requiring every Director should be subject to retirement by rotation no later than the third annual general meeting of the Company after he was last elected or re-elected.

The full text of the special resolution containing details of the proposed amendments to the Bye-laws is set out in the Notice of AGM on pages 14 to 18 of this circular.

RE-ELECTION OF DIRECTORS

In accordance with Bye-law 87 of the Bye-laws, Messrs. Chang Dong-Song and Robert Dorfman, will retire from the Board by rotation at the AGM and, being eligible, will offer themselves for re-election.

In addition, according to Bye-law 86(2) of the Bye-laws, Mr. Yeh Man-Chun, Kent, who was appointed as Director to fill a casual vacancy on the Board on 5 October, 2005 by Directors, will hold office until the AGM and, being eligible, will offer himself for re-election.

Particulars of the Directors proposed to be re-elected at the AGM as required to be disclosed by the Listing Rules is set out in the Appendix II to this circular.

AGM

The notice convening the AGM is set out on pages 14 to 18 of this circular. At the AGM, ordinary resolutions will be proposed to approve, inter alia, the granting of the Repurchase Mandate and the Issue Mandate and the re-election of Directors, and a special resolution will be proposed to approve the amendments to the Bye-laws.

A proxy form for use at the AGM is enclosed with this circular. If you do not intend to attend the AGM, you are requested to complete and return to the principal place of business of the Company in Hong Kong at 3110, 31st Floor, Tower Two, Lippo Centre, 89 Queensway, Hong Kong the proxy form in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time of the meeting or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

According to Bye-law 66 of the Bye-laws, a resolution put to the vote of a general 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:

• (a) by the chairman of the meeting; or

−5 −

LETTER FROM THE BOARD

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

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

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

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

RECOMMENDATION

The Directors believe that the Issue Mandate, the Repurchase Mandate, the amendments to the Bye-laws and the re-election of Directors are all in the interests of the Company and the Shareholders. Accordingly, the Directors recommend that you vote in favour of all the resolutions to be proposed at the AGM.

Yours faithfully, By Order of the Board Herald Holdings Limited George Bloch Chairman

−6 −

EXPLANATORY STATEMENT OF THE REPURCHASE MANDATE

APPENDIX I

The following is an explanatory statement as required by the Stock Exchange concerning the Repurchase Mandate to be granted to the Directors as set out in resolution numbered 5(1) of the Notice of AGM:

1. NUMBER OF SHARES FOR REPURCHASES

Based on 613,925,763 Issued Shares in issue as at the Latest Practicable Date, a total of 61,392,576 shares could be repurchased by the Company under this general mandate.

2. REASONS FOR REPURCHASES

The Directors believe that it is in the best interests of the Company and its Shareholders to have a general authority from Shareholders to enable them to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net assets and/or its earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and its Shareholders.

3. SOURCE OF FUNDS

Repurchases must be financed out of the funds legally available for the purpose in accordance with the provisions of the Bye-laws and the laws of Bermuda. Under Bermuda law, the amount of capital repaid in connection with a share repurchase may only be paid out of the capital paid up on the relevant purchased Shares, or out of the funds of the Company otherwise available for dividend or distribution or the proceeds of a fresh issue of Shares made for the purpose. The amount of premium payable on repurchase may only be paid out of funds of the Company otherwise available for dividend or distribution or out of the share premium account of the Company.

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited accounts contained in the annual report of the Company for the year ended 31 March, 2006) in the event that the proposed repurchases were to be carried out in full as permitted by the general mandate to repurchase shares at any time during the proposed repurchase period. However, the Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital or the gearing level of the Company which in the opinion of the Directors are from time to time appropriate for the Company.

4. DIRECTORS’ DEALINGS

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their respective Associates have a present intention to sell Shares to the Company, in the event that the Repurchase Mandate is approved.

−7 −

EXPLANATORY STATEMENT OF THE REPURCHASE MANDATE

APPENDIX I

5. EFFECT OF THE TAKEOVERS CODE

If as a result of share repurchases by the Company, a Shareholder’s proportionate interest in the voting rights of the Company increase, such increase will be treated as an acquisition for the purposes of Rule 32 of the Takeovers Code. Accordingly, a Shareholder, or group of Shareholders acting in concert, could obtain or consolidate control of the Company or become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. However, the Directors have no present intention of exercising the Repurchase Mandate to such an extent as to trigger the mandatory offer requirement under the Takeovers Code.

At the Latest Practicable Date, the following parties were directly or indirectly interested in 5% or more of the issued share capital of the Company:

Long Positions in Shares of the Company

(Shares of US$0.01 each of the Company)

				Percentage of
		Number of		total issued
Shareholders	Capacity	shares held	Notes	shares
Cheung Tsang-Kay, Stan	Beneficial owner,	113,191,164	(a)	18.44%
	interest of spouse and
	beneficiary of a trust
Ng Yiu-Chi, Eleanor	Beneficial owner and	113,191,164	(b)	18.44%
	interest of spouse
Chang Dong-Song	Beneficial owner,	107,193,235	(a)	17.46%
	interest of spouse and
	beneficiary of a trust
Chan Him-Wee	Beneficial owner,	107,193,235	(a)(b)	17.46%
	interest of spouse and
	beneficiary of a trust
HSBC International	Trustee	75,698,356	(d)	12.33%
Trustee Ltd (“HIT”)
Goldfinch Investments Ltd	Beneficial owner	69,728,356	(c)	11.36%
(“GIL”)
Robert Dorfman	Beneficial owner	46,470,000		7.57%
Sheri Tillman Dorfman	Interest of spouse	46,470,000	(b)	7.57%
Gershon Dorfman	Beneficial owner	37,605,799		6.13%
Lydia Dorfman	Interest of spouse	37,605,799	(b)	6.13%

−8 −

EXPLANATORY STATEMENT OF THE REPURCHASE MANDATE

APPENDIX I

Notes:

• (a) Dr. Cheung Tsang-Kay, Stan, Mr. Chang Dong-Song and Ms. Chan Him-Wee are the beneficiaries of a family trust which owned 75,498,356 Shares in the Company at 31 March, 2006.

• (b) Ms. Chan Him-Wee is the spouse of Mr. Chang Dong-Song, Ms. Ng Yiu-Chi, Eleanor is the spouse of Dr. Cheung Tsang-Kay, Stan, Mrs. Sheri Tillman Dorfman is the spouse of Mr. Robert Dorfman and Mrs. Lydia Dorfman is the spouse of Mr. Gershon Dorfman. Their interests disclosed are the same as those of their spouses disclosed.

• (c) GIL is a company owned by a family trust which owned 75,498,356 Shares in the Company at 31 March, 2006 as mentioned in note (a), comprising 69,728,356 Shares held by GIL and 5,770,000 Shares held by the trust itself.

• (d) HIT, the trustee of the trust, was deemed to be interested in 75,498,356 Shares held by the trust. In addition, HIT had a further interest of 200,000 Shares in the Company at 31 March, 2006.

In the event that the Directors exercise in full the power to repurchase shares under the Repurchase Mandate, the attributable shareholdings in the Company of Dr. Cheung Tsang-Kay, Stan and his spouse, Ms. Ng Yiu-Chi, Eleanor, Mr. Chang Dong-Song and his spouse, Ms. Chan Him-Wee, HIT, GIL, Mr. Robert Dorfman and his spouse, Mrs. Sheri Tillman Dorfman, and Mr. Gershon Dorfman and his spouse, Mrs. Lydia Dorfman, being not persons acting in concert under the Takeovers Code, would be increased to approximately 20.49%, 19.40%, 13.70%, 12.62%, 8.41% and 6.81% respectively of the issued share capital of the Company. Such increases would not give rise to an obligation to make a mandatory offer under Rule 26 of the Takeovers Code. The Directors have no present intention to exercise the power to repurchase Shares to the extent that the aggregate amount of the share capital of the Company in public hands would be reduced to less than 25%.

Save as disclosed above, the Directors are not aware of any consequences which may arise under the Takeovers Code as a result of any repurchases made under the Repurchase Mandate.

6. GENERAL

The Directors have undertaken to the Stock Exchange that they will exercise the power of the Company to make repurchases pursuant to the Repurchase Mandate in accordance with the Listing Rules and the laws of the Bermuda so far as the same may be applicable.

No connected person of the Company (as defined in the Listing Rules) has notified the Company that he has a present intention to sell any Shares to the Company nor has he undertaken not to do so, in the event the Repurchase Mandate is approved.

−9 −

EXPLANATORY STATEMENT OF THE REPURCHASE MANDATE

APPENDIX I

7. SHARE REPURCHASES

No repurchases of Shares have been made by the Company (whether on the Stock Exchange or otherwise) in the six months prior to the Latest Practicable Date.

The highest and lowest prices at which Shares were traded on the Stock Exchange during each of the previous twelve months and the period from 1 July 2006 to 21 July 2006 (the Latest Practicable Date) are set out below:

Share Price

Month	Highest	Lowest
	HK$	HK$
2005
July	0.92	0.78
August	0.90	0.84
September	0.89	0.76
October	0.83	0.75
November	0.79	0.76
December	0.83	0.77
2006
January	0.81	0.74
February	0.80	0.73
March	0.76	0.72
April	0.81	0.72
May	0.77	0.72
June	0.77	0.71
1 July-21 July (the Latest Practicable Date)	0.84	0.70

−10 −

PARTICULARS OF DIRECTORS PROPOSED TO BE RE-ELECTED

APPENDIX II

The followings are the particulars of the Directors proposed to be re-elected at the AGM.

1. Robert DORFMAN, aged 51, Executive Director

Mr. Robert Dorfman joined the Group in 1983 and has been an Executive Director of the Company since 1992. Mr. Dorfman is a past Chairman of The Americas Area Committee of The Hong Kong General Chamber of Commerce and is Chairman of the Vision 2047 Foundation. Mr. Dorfman is a past Chairman of the Young Presidents’ Organisation’s Asia-Pacific Regional Board and served as a Director on its international Board. Mr. Dorfman is a director of some of the Group’s companies. He has not held any directorship in other listed public companies in the past three years.

Mr. Robert Dorfman is the step-son of Mr. George Bloch, Chairman of the Company and the brother of Mr. Gershon Dorfman, managing director of Herald Datanetics Limited, a wholly owned subsidiary of the Company. Save as disclosed above, Mr. Dorfman does not have any relationships with any Directors, senior management or substantial shareholders or controlling shareholders (as defined in the Listing Rules) of the Company. In accordance with the meaning of Part XV of the SFO, as at the Latest Practicable Date, Mr. Dorfman was interested in 46,470,000 Shares of the Company. Save as aforesaid, Mr. Dorfman has no other interests in the Shares within the meaning of Part XV of the SFO.

There is neither any service contract between the Company and Mr. Dorfman nor any specified length of service with the Company in respect of his appointment (except the retirement by rotation of Directors under the Bye-laws of the Company). Mr. Dorfman is entitled to receive basic emoluments of HK$2,837,900 per annum and any discretionary bonus which the Company may decide to pay. Such emoluments are determined with reference to the Company’s performance and profitability, as well as remuneration benchmark in the industry and the prevailing market conditions.

There is no information required to be disclosed pursuant to any of the requirements under Rules 13.51(2)(h) to (v) of the Listing Rules.

Save as disclosed above, the Board is not aware of any other matters that need to be brought to the attention of the Shareholders in connection with the proposed re-election of the above Director.

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PARTICULARS OF DIRECTORS PROPOSED TO BE RE-ELECTED

APPENDIX II

2. CHANG Dong-Song, aged 85, Executive Director

Mr. Chang Dong-Song has been an Executive Director of the company since 1992. Mr. Chang is a co-founder of Herald Metal and Plastic Works Limited, a subsidiary of the Company and has played a principal role in the development of the Group’s manufacturing activities since 1969. He is now a director of some of the Group’s companies. He has served in the past as a member of the Toys Advisory Council of the Hong Kong Trade Development Council. Mr. Chang is now a member of The Chinese People’s Political Consultative Conference, Jiangsu Changshu Committee. He has not held any directorship in other listed public companies in the past three years.

Mr. Chang Dong-Song is the father of Dr. Cheung Tsang-Kay, Stan, Managing Director of the Company. Mr. Chang is a beneficiary of a family trust. Goldfinch Investments Ltd. and HSBC International Trustee Ltd., being a company owned by the trust and the trustee of the trust respectively, are both substantial shareholders of the Company. Ms. Chan Him-Wee, the spouse of Mr. Chang, and Ms. Ng Yiu-Chi, Eleanor, the daughter-in-law of Mr. Chang, are both deemed substantial shareholders of the Company. Save as disclosed above, Mr. Chang does not have any relationships with any Directors, senior management or substantial shareholders or controlling shareholders (as defined in the Listing Rules) of the Company. In accordance with the meaning of Part XV of the SFO, as at the Latest Practicable Date, Mr. Chang was interested in 107,193,235 Shares of the Company. Save as aforesaid, Mr. Chang has no other interests in the Shares within the meaning of Part XV of the SFO.

There is neither any service contract between the Company and Mr. Chang nor any specified length of service with the Company in respect of his appointment (except the retirement by rotation of Directors under the Bye-laws of the Company). Mr. Chang is entitled to receive a director’s fee of HK$180,000 per annum. Such emoluments are determined with reference to the Company’s performance and profitability, as well as remuneration benchmark in the industry and the prevailing market conditions. Save as director’s fee, he is not entitled to other emoluments.

There is no information required to be disclosed pursuant to any of the requirements under Rules 13.51(2)(h) to (v) of the Listing Rules.

Save as disclosed above, the Board is not aware of any other matters that need to be brought to the attention of the Shareholders in connection with the proposed re-election of the above Director.

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PARTICULARS OF DIRECTORS PROPOSED TO BE RE-ELECTED

APPENDIX II

3. YEH Man-Chun, Kent, aged 51, Independent Non-executive Director

Mr. Yeh Man-Chun, Kent was appointed as an Independent Non-executive Director of the Company on 5 October, 2005. Mr. Yeh is the Senior Vice President of Robina Wood Limited, a company involved in the marketing, distribution and manufacturing of wood flooring products. Prior to joining the Robin Group, Mr. Yeh was a partner and director of Prima (Shanghai) Co., Ltd, a Shanghai-based firm providing business advisory services. Mr. Yeh has been an independent non-executive director of Pacific Andes International Holdings Limited since 30 September, 2004, a company listed on the Stock Exchange. Mr. Yeh had also been the managing director of Tai Ping Carpets International Limited (“Tai Ping”), a company listed on the Stock Exchange up to August, 2003. He remained as a non-executive director of Tai Ping until 8 September, 2005. Save as disclosed above, he has not held any directorship in other listed public companies in the past three years. Mr. Yeh received a Bachelor of Science degree in Industrial Engineering from the University of California, Berkeley, U.S.A. and a Master of Business Administration degree from the Wharton School of the University of Pennsylvania, U.S.A.

Mr. Yeh does not have any relationships with any Directors, senior management or substantial shareholders or controlling shareholders (as defined in the Listing Rules) of the Company or any interests in the Shares within the meaning of Part XV of the SFO.

There is neither any service contract between the Company and Mr. Yeh nor any specified length of service with the Company in respect of his appointment (except the retirement by rotation of Directors under the Bye-laws of the Company). Mr. Yeh is entitled to receive a director’s fee of HK$180,000 per annum. Such emoluments are determined with reference to the Company’s performance and profitability, as well as remuneration benchmark in the industry and the prevailing market conditions. Save as director’s fee, he is not entitled to other emoluments.

There is no information required to be disclosed pursuant to any of the requirements under Rules 13.51(2)(h) to (v) of the Listing Rules.

Save as disclosed above, the Board is not aware of any other matters that need to be brought to the attention of the Shareholders in connection with the proposed re-election of the above Director.

−13 −

NOTICE OF AGM

==> picture [70 x 44] intentionally omitted <==

HERALD HOLDINGS LIMITED

*

(incorporated in Bermuda with limited liability)

(Stock Code : 00114)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of HERALD HOLDINGS LIMITED (the “ Company ”) will be held at the Chater Room I, Function Room Level (B1), The Ritz-Carlton Hotel Hong Kong, 3 Connaught Road Central, Hong Kong on Friday, 15 September, 2006 at 3:45 p.m. for the following purposes:

1. To receive and consider the audited financial statements and the reports of the directors and auditors for the year ended 31 March, 2006.

2. To re-elect directors.

3. To re-appoint auditors and to authorise the board of directors to fix their remuneration.

4. To declare a final dividend.

5. As special business to consider and, if thought fit, pass with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

• (1) “ THAT

• (a) subject to paragraph (c) below, the exercise by the directors of the Company during the Relevant Period of all the powers of the Company to purchase shares of US$0.01 each in the capital of the Company, and to make or grant offers, agreements and options which might require the exercise of such power, subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time, be and the same is hereby generally and unconditionally approved;

* for identification purpose only

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NOTICE OF AGM

• (b) the approval in paragraph (a) of this resolution shall authorise the directors of the Company on behalf of the Company to purchase shares in the capital of the Company at such price and on such terms as the directors of the Company may in their absolute discretion determine;

• (c) the aggregate nominal amount of the share capital of the Company to be purchased or agreed conditionally or unconditionally to be purchased by the directors of the Company on The Stock Exchange of Hong Kong Limited or on any other stock exchange recognised for this purpose by the Securities and Futures Commission of Hong Kong and The Stock Exchange of Hong Kong Limited pursuant to the approval in paragraph (a) of this resolution shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of the passing of this resolution respectively, and such approval be limited accordingly; and

• (d) for the purpose of this resolution:

“Relevant Period” means the period from the passing of this resolution until whichever is the earlier of:

• (i) the conclusion of the next Annual General Meeting of the Company;

• (ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Bye-Laws of the Company or any applicable law to be held; and

• (iii) the revocation or variation of the authority given under this resolution by an ordinary resolution of the shareholders in general meeting.”

(2) “ THAT

• (a) subject to paragraph (b) below, the exercise by the directors of the Company during the Relevant Period of all the powers of the Company to allot and issue or otherwise deal with shares in the capital of the Company or securities convertible into such shares, or options, warrants or similar rights to subscribe for any shares or such convertible securities, and to make or grant offers, agreements and options which might require the exercise of such powers either during or after the Relevant Period be and the same is hereby generally and unconditionally approved;

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NOTICE OF AGM

• (b) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in paragraph (a) of this resolution, otherwise than pursuant to (i) a Rights Issue, (ii) the exercise of the subscription rights under the warrants to subscribe for shares of the Company or any share option scheme as may be adopted by the Company or (iii) any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on the shares of the Company in accordance with the Bye-laws of the Company from time to time, shall not exceed 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue at the date of passing this resolution, and such approval be limited accordingly; and

• (c) for the purpose of this resolution:

“Relevant Period” means the period from the passing of this resolution until whichever is the earlier of:

• (i) the conclusion of the next Annual General Meeting of the Company;

• (ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Bye-Laws of the Company or any applicable law to be held; and

• (iii) the revocation or variation of the authority given under this resolution by an ordinary resolution of the shareholders in general meeting.

“Rights Issue” means an offer of shares open for a period fixed by the directors of the Company to holders of shares or any class thereof on the register on a fixed record date in proportion to their then holdings of such shares or class thereof (subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange).”

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NOTICE OF AGM

1. As special business to consider and, if thought fit, pass with or without amendments, the following resolution as a special resolution of the Company:

SPECIAL RESOLUTION

“ THAT the existing Bye-laws of the Company be and are hereby amended in the following manner:

(a) Bye-law 66

By deleting the full stop at the end of Bye-law 66(d) and replacing it with a semi-colon and inserting the word “or” after the semi-colon.

Then by inserting the following new Bye-law 66(e) after Bye-law 66(d):

“(e) if required by the rules of the Designated Stock Exchange, by any Director or Directors who, individually or collectively or together with the chairman of such meeting, hold proxies in respect of shares representing five per cent. (5%) or more of the total voting rights at such meeting where, on a show of hands, a meeting votes in the opposite manner to that instructed in those proxies.”

(b) Bye-law 68

By deleting the second sentence of Bye-law 68 in its entirety and substituting therefor the following:

“The Company shall only be required to disclose the voting figures on a poll if such disclosure is required by the rules of the Designated Stock Exchange.”

(c) Bye-law 86(2)

By deleting the last sentence of Bye-law 86(2) and substituting therefor the following new sentence:

“Any Director so appointed by the Board shall hold office only until the next following general meeting of the Company (in the case of filling a casual vacancy) or until the next following annual general meeting of the Company (in the case of an addition to the Board), and shall then be eligible for re-election at that meeting.”

(d) Bye-law 86(4)

By deleting the words “special resolution” in Bye-law 86(4) and replacing the same with the words “ordinary resolution”

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NOTICE OF AGM

(e) Bye-law 87(1)

By substituting the existing Bye-law 87(1) with the following new Bye-law 87(1):

“(1) Every Director shall retire from office no later than the third annual general meeting after he was last elected or re-elected. At each annual general meeting, if the number of Directors retiring under this Bye-law 87(1) is less than one-third (or the number nearest to but not exceeding one-third if the total number of Directors is not three or a multiple of three) of the Directors for the time being, then additional Directors shall retire from office by rotation under this Bye-law 87(1) to make up the shortfall.”

By Order of the Board Herald Holdings Limited Michael Thong Company Secretary

Hong Kong, 26 July, 2006

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Notes:

1. A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. A form of proxy for use at the above meeting is enclosed herewith.

3. Where there are joint holders of any shares, any one of such holders may vote at the meeting, either personally or by proxy, in respect of such shares as if he were solely entitled thereto, provided that if more than one of such joint holders be present at the meeting personally or by proxy, the person whose name stands first on the register of members in respect of such shares shall alone be entitled to vote in respect thereof.

4. To be valid, a form of proxy must be lodged with the Company’s principal place of business in Hong Kong at 3110, 31st Floor, Tower Two, Lippo Centre, 89 Queensway, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney, not later than 48 hours before the time for holding the meeting or any adjournment thereof.

5. Members are recommended to read the circular of the Company containing information concerning the resolutions proposed in this notice.

As at the date hereof, the Board of Directors of the Company comprises Messrs. George Bloch, Cheung Tsang-Kay, Stan, Chang Dong-Song, Robert Dorfman and Thong Yeung-Sum, Michael as executive directors; and Messrs. Tang King-Hung, David Tai-Chong Lie-A-Cheong and Yeh Man-Chun, Kent as independent non-executive directors.

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