G-Resources Group Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular, you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Paladin Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

PALADIN LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 495)

PROPOSED OPEN OFFER OF CONVERTIBLE REDEEMABLE PREFERENCE SHARES OF HK$0.01 EACH IN THE PROPORTION OF ONE CONVERTIBLE REDEEMABLE PREFERENCE SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.25 PER CONVERTIBLE REDEEMABLE PREFERENCE SHARE, PROPOSED AMENDMENTS TO THE BYE-LAWS,

CAPITAL REORGANISATION AND INCREASE IN AUTHORISED SHARE CAPITAL

A notice convening the special general meeting of Paladin to be held at 11:00 a.m. on 21 August, 2006 at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong is set out on pages 65 to 88 of this circular. A form of proxy for use at the special general meeting is enclosed with this circular. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy and return it in accordance with the instructions printed thereon as soon as possible to Computershare Hong Kong Investor Services Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, and in any event not less than 48 hours before the time appointed for the holding of the special general meeting. Completion and return of a form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjourned meeting should you so wish.

20 July, 2006

	Page
Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iv
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Capital reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Listing and dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Warning of the risks of dealing in the shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Underwriting arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Conditions of the open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Reasons for the open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Use of proceeds from the open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Business outlook of Paladin Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Effects of the open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Proposed amendments to the bye-laws of Paladin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Special general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I – Financial information on Paladin group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix II – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65

CORPORATE INFORMATION

Principal banker

Wing Lung Bank Limited 45 Des Voeux Road Central Hong Kong

Company secretary and qualified accountant

Mr. Chan Chi Ho (FCCA, CPA)

Legal Adviser as to Hong Kong law

P. C. Woo & Co. 12th Floor, Prince’s Building 10 Chater Road, Central, Hong Kong

Legal Adviser as to Bermuda law

Appleby, Spurling & Kempe Canons Court 22 Victoria Street Hamilton HM 12 Bermuda

Auditors

Deloitte Touche Tohmatsu Certified Public Accountants 35th Floor, One Pacific Place 88 Queensway Hong Kong

Principal registrar

Reid Management Limited Argyle House 41A Cedar Avenue Hamilton HM12 Bermuda

Branch registrar and transfer agent in Hong Kong

Computershare Hong Kong Investor Services Limited 46th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong

CORPORATE INFORMATION

Principal office

45th Floor, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Registered office

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

iii

EXPECTED TIMETABLE

Last day of dealings in the shares on a cum entitlement basis . . . . . . . . . . . . . . . . . . . . . . . 11 August, 2006 First day of dealings in the shares on an ex entitlement basis . . . . . . . . . . . . . . . . . . . . . . . 14 August, 2006 Latest time for lodging transfers of the shares in order to qualify for the open offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 15 August, 2006 Register of members closes, both days inclusive . . . . . . . . . . . . . . . 16 August, 2006 and 21 August, 2006 Record date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 August, 2006 Special general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 August, 2006 Effective date of capital reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 August, 2006 Publication of results of special general meeting in newspapers . . . . . . . . . . . . . . . . . . . . . 22 August, 2006 Despatch of open offer prospectus, form of acceptance and excess application form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 August, 2006 Latest time for acceptance of, and payment for, the convertible redeemable preference shares and application for excess convertible redeemable preference shares . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 5 September, 2006 Latest time for the underwriting agreement to become unconditional . 4:00 p.m. on 11 September, 2006 Announcement of results of the open offer to be published in newspapers . . . . . . . . 12 September, 2006 Certificates for the convertible redeemable preference shares expected to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 September, 2006 Refund cheques in respect of wholly or partially unsuccessful applications for excess convertible redeemable preference shares expected to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 September, 2006 Dealings in convertible redeemable preference shares on The Stock Exchange of Hong Kong Limited expected to commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 September, 2006

Dates or deadlines specified in this circular for events in the timetable for (or otherwise in relation to) the capital reorganisation and the open offer are indicative only. Any changes to the expected timetable will be published by way of public announcement.

DEFINITIONS

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

“capital reduction”

the proposed reduction in the nominal value of the issued shares in Paladin being reduced form HK$0.50 each to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share in Paladin and by reducing the nominal value of all issued and unissued shares from HK$0.50 to HK$0.01 such that the then issued share capital of Paladin will become HK$5.28 million;

“capital reorganisation”
the capital reorganisation of Paladin involving, amongst other things, the capital reduction and subdivision of each authorised and unissued share in Paladin of HK$0.50 each into 50 shares of nominal value of HK$0.01 each;
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC;
“Companies Act” the Companies Act 1981 of Bermuda;
“HKSCC” Hong Kong Securities Clearing Company Limited;
“HK$”

Hong Kong dollars;

“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;
“independent third party(ies)” independent third party(ies) not connected with the directors of Paladin, chief executive or substantial shareholders of Paladin or any of its subsidiaries or their respective associates as defined in the Listing Rules;
“latest practicable date”
18 July, 2006, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular;
“Listing Rules”
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
“New Share(s)”
share(s) of HK$0.01 each in the share capital of Paladin upon the capital reorganisation becoming effective;

DEFINITIONS

“open offer”
“Oung family”
“overseas shareholder(s)”
“Paladin”
“Paladin group”
“qualifying shareholder(s)”
“record date”
“SFO”
“SGM”
“share(s)” or “share(s) in Paladin”
“underwriting agreement”

the issue of convertible redeemable preference shares in Paladin on the basis of one convertible redeemable preference share for every two existing shares in Paladin held by the qualifying shareholders on the record date;

consists of Ms. Lilian Oung, Madam Oung Chin Liang Fung (mother of Ms. Lilian Oung), Mr. Chen Te Kuang, Mike (son of Ms. Lilian Oung), Mr. Oung Shih Hua, James (nephew of Ms. Lilian Oung) and Mr. Oung I Ming (brother of Ms. Lilian Oung and who is deceased);
shareholder(s) of Paladin whose name(s) appear(s) on the register of members of Paladin on the record date and whose registered address(es) on that date is, or are in (a) place(s) outside Hong Kong;
Paladin Limited, an exempted company incorporated in Bermuda with limited liability, whose shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited;
Paladin and its subsidiaries;
shareholder(s) of Paladin other than those overseas shareholder(s) whom the directors of Paladin, after making relevant enquiries as required under Rule 13.36(2)(a) of the Listing Rules, consider their exclusion from the open offer to be necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place;
21 August, 2006, being the date by reference to which entitlements under the open offer will be determined;
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
the special general meeting of Paladin to be convened and held to approve, amongst other things, the open offer, the capital reorganisation, the amendments to the bye-laws of Paladin and increase in authorised share capital;
existing share(s) of HK$0.50 each in the share capital of Paladin; and
the agreement dated 6 June, 2006 entered into between Paladin and Goldenfield Equities Ltd. relating to the underwriting and other arrangements in respect of the open offer.

LETTER FROM THE BOARD

PALADIN LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 495)

Directors:

Mr. Law Fong (Chairman) Mr. Chen Te Kuang Mike

Mr. Oung Shih Hua, James[#]

Mr. Zhu Pei Qing Ms. Lu Ti Fen

Mr. Kwok Wai Chi*
# Non-Executive Director
Independent non-Executive Director

Registered office:

Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business: 45th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

20 July, 2006

To Shareholders

Dear Sir or Madam,

PROPOSED OPEN OFFER OF CONVERTIBLE REDEEMABLE PREFERENCE SHARES OF HK$0.01 EACH IN THE PROPORTION OF

ONE CONVERTIBLE REDEEMABLE PREFERENCE SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.25 PER CONVERTIBLE REDEEMABLE PREFERENCE SHARE, PROPOSED AMENDMENTS TO THE BYE-LAWS, CAPITAL REORGANISATION AND INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

On 8 June, 2006, the board of directors of Paladin announced that Paladin proposed to raise approximately HK$66.0 million, before expenses, by way of an open offer of 264,135,807 convertible redeemable preference shares at the subscription price of HK$0.25 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing shares in Paladin held on the record date.

LETTER FROM THE BOARD

The board of directors of Paladin proposes a special resolution to effect, prior to the closing of the open offer, the capital reorganisation which will involve (i) a reduction in the nominal value of the issued shares of HK$0.50 each by HK$0.49 to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share and by reducing the nominal value of all issued and unissued shares from HK$0.50 to HK$0.01; (ii) the cancellation of the entire amount standing to the credit of the share premium and the contributed surplus accounts; (iii) the use of all of the credit arising from the reduction of capital and from the cancellation of the entire amount standing to the credit of the share premium and the contributed surplus accounts to write off the accumulated losses of Paladin; and (iv) a subdivision of each authorised but unissued share in Paladin of HK$0.50 each into 50 shares of HK$0.01 each.

A special resolution will be proposed to amend the bye-laws to reflect the terms, rights and conditions of the issue of the convertible redeemable preference shares. An ordinary resolution will be proposed to increase the authorised share capital of Paladin from HK$500,000,000 to HK$502,700,000 divided into 50,000,000,000 New Shares and 270,000,000 convertible redeemable preference shares of HK$0.01 each.

THE OPEN OFFER

Paladin proposes to raise approximately HK$66.0 million, before expenses, by way of an open offer of 264,135,807 convertible redeemable preference shares at the subscription price of HK$0.25 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing shares in Paladin held on the record date.

Issue Statistics

– Basis of the open offer One convertible redeemable preference share in Paladin for every two existing shares in Paladin held on the record date – Existing issued share capital 528,271,615 shares of par value HK$0.50 each as at of Paladin the latest practicable date Number of convertible – 264,135,807 convertible redeemable preference shares redeemable preference of par value HK$0.01 each shares in Paladin – Subscription price for the HK$0.25 payable in cash per convertible redeemable convertible redeemable preference share preference shares

Terms of the convertible redeemable preference shares

Subscription price per convertible : HK$0.25, being at par plus a premium of HK$0.24 redeemable preference share

The subscription price is determined with reference to the prevailing market prices of the shares in Paladin prior to the announcement of Paladin dated 8 June, 2006.

LETTER FROM THE BOARD

Cumulative dividend : HK$0.02 payable annually. The first dividend payment date is 31 December, 2006 and this first dividend will be prorated from the date of issue of the convertible redeemable preference shares to the first dividend payment date. It is expected that this first dividend will be paid from the profits of Paladin group for the financial year ended 30 June, 2006. Any dividends payable but unpaid will be accumulated.
Dividend yield on : 8% subscription price
Life of the convertible : Approximately ten years preference shares
Redemption date : 31 December, 2016 Early redemption at the option : Paladin will have the option, but not the obligation, to of Paladin redeem all but not a portion of the convertible redeemable preference shares at face value if, either: – the ordinary shares in Paladin close on thirty consecutive trading days at or above a price that is 100% higher than the conversion price of the convertible redeemable preference shares; or
– there are less than 80 million convertible redeemable preference shares in issue
Conversion rights : Holders of the convertible redeemable preference shares will be entitled to convert all or any of their convertible redeemable preference shares into ordinary shares in Paladin at a conversion price of HK$0.25 per share, subject to adjustment provisions which are standard terms for convertible securities of similar type. The adjustment events will arise as a result of certain change in the share capital of Paladin including consolidation or sub-division of shares, capitalisation of profits or reserves, capital distributions in cash or specie or subsequent issue of securities in Paladin.

The subscription price represents (i) a discount of approximately 12.3% to the closing price of HK$0.285 per share in Paladin as quoted on The Stock Exchange of Hong Kong Limited on 8 June, 2006, being the date of the announcement of the open offer; and a discount of approximately 12.6% to the average closing prices per share in Paladin as quoted on The Stock Exchange of Hong Kong Limited for the last ten trading days ended on 8 June, 2006 of approximately HK$0.286. Each convertible redeemable preference share has a par value of HK$0.01.

LETTER FROM THE BOARD

Holders of the convertible redeemable preference shares will not be required to pay any extra amount should they convert their convertible redeemable preference shares into ordinary shares in Paladin.

The conversion price is determined with reference to the prevailing market price of the shares in Paladin prior to the announcement of the open offer dated 8 June, 2006.

Priority

: The convertible redeemable preference shares rank in priority to the ordinary shares in Paladin as to dividends and a return of the capital paid up on the convertible redeemable preference shares. Once the capital paid up has been returned and all accumulated dividends paid, the convertible redeemable preference shares are not entitled to any further payments from or distributions by Paladin.

Voting Further issues

: The convertible redeemable preference shares do not entitle the holders to attend or vote at meetings of Paladin except on resolutions which directly affect their rights or on a winding-up of Paladin or a return or repayment of capital.
: The terms of the convertible redeemable preference shares do not prohibit further issues of shares ranking pari passu or in priority to the convertible redeemable preference shares.
Listing : The convertible redeemable preference shares will be listed on The Stock Exchange of Hong Kong Limited. No application will be made for a listing on any other stock exchange.

Public float of the convertible redeemable preference shares

As at the latest practicable date, Paladin had a diverse shareholder base and has complied with Rule 8.08(2) of the Listing Rules. Assuming that all the shareholders of Paladin take up their respective entitlements under the open offer, it is expected that Rule 8.08(2) and (3) will be complied with.

Assuming that all the convertible redeemable preference shares are taken up by Goldenfield Equities Ltd. in its capacity as the underwriter, Goldenfield Equities Ltd. has undertaken to The Stock Exchange of Hong Kong Limited to take all necessary steps to maintain at all times the public float of the convertible redeemable preference shares in Paladin to not less than 25% of the convertible redeemable preference shares in Paladin in issue and ensure that other relevant requirements under Rule 8.08 of the Listing Rules are complied with. Goldenfield Equities Ltd. is owned as to 40% by Ms. Lilian Oung, 40% by Mr. Chen Te Kuang, Mike and 20% by Mr. Oung Shih Hua, James who are all members of the Oung family.

LETTER FROM THE BOARD

Qualifying shareholders

Paladin will send the open offer prospectus, forms of acceptance and excess application forms to the qualifying shareholders of Paladin only. To qualify for the open offer, a shareholder must be registered on the register of members of Paladin at the close of business on the record date and not being excluded as mentioned below.

In order to be registered as a shareholder of Paladin on the record date, shareholders to be registered on the Hong Kong registrar must lodge any transfer of shares in Paladin, together with the relevant share certificates, with Computershare Hong Kong Investor Services Limited at Shops 17121716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong by not later than 4:00 p.m. on 15 August, 2006 (Hong Kong time). Likewise, shareholders to be registered on the Bermuda share registrar must lodge any transfer of shares in Paladin, together with the relevant share certificates, with Reid Management Limited at Argyle House, 41A Cedar Avenue, Hamilton HM12, Bermuda by not later than 4:00 p.m. on 15 August, 2006 (Hong Kong time).

The register of members will be closed from 16 August, 2006 to 21 August, 2006, both days inclusive, to determine the eligibility of the open offer. No transfer of shares in Paladin will be registered during this period. Shareholders who wish to remove their shares in Paladin from register with the Bermuda registrar and the Hong Kong registrar or vice versa should contact the principal share registrar of Paladin in Bermuda or the branch share registrar of Paladin in Hong Kong, as appropriate, as soon as possible and ensure that the removal and registration can be completed before the closure of the registers of members in order to qualify for the open offer.

Having reviewed the register of members as at the latest practicable date, Paladin noted that 4,915 shareholders have maintained addresses located in Australia, Canada, the Cook Islands, the Czech Republic, Fiji, the United Kingdom, India, Ireland, Macau, Malaysia, the Netherlands, New Zealand, Papua New Guinea, Thailand, Singapore, the United States of America, the British Virgin Islands and Vietnam. Paladin has made enquiries with its legal advisers regarding the feasibility of extending the open offer to overseas shareholders. Based on the legal opinions obtained, the directors have determined that (i) it is inexpedient for the open offer to be offered to the overseas shareholders whose addresses are located in Australia, Canada, India, the Netherlands, Papua New Guinea and the United States of America, and (ii) that it is expedient for the open offer to be offered to the overseas shareholders in the Cook Islands, the Czech Republic, Fiji, the United Kingdom, Ireland, Macau, Malaysia, New Zealand, Thailand, Singapore, the British Virgin Islands and Vietnam. Accordingly, the open offer will not be extended to the overseas shareholders with registered addresses in Australia, Canada, India, the Netherlands, Papua New Guinea and the United States of America. Paladin will send the open offer prospectus to them for their information only but will not send forms of acceptance and excess application forms to them. On the other hand, the open offer will be extended to the overseas shareholders with registered addresses in the Cook Islands, the Czech Republic, Fiji, the United Kingdom, Ireland, Macau, Malaysia, New Zealand, Thailand, Singapore, the British Virgin Islands and Vietnam.

The open offer prospectus, the form of acceptance and the excess application form will not be registered or filed under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda.

LETTER FROM THE BOARD

Payment

The subscription price of HK$0.25 per convertible redeemable preference share is payable in cash when a qualifying shareholder accepts his entitlement to convertible redeemable preference shares or applies for excess convertible redeemable preference shares.

Share certificates for the convertible redeemable preference shares

Share certificates for fully paid convertible redeemable preference shares are expected to be posted on or before 14 September, 2006 to subscribers who have been allotted the relevant convertible redeemable preference shares.

Fractions of convertible redeemable preference shares

Paladin will not issue fractions of convertible redeemable preference shares. All fractions of convertible redeemable preference shares will be aggregated and any convertible redeemable preference shares resulting from the aggregation of fractions will be available for excess application.

Application for excess convertible redeemable preference shares

Qualifying shareholders may apply for any unsold entitlements of overseas shareholders of Paladin, any convertible redeemable preference shares created by adding together fractions of convertible redeemable preference shares, and any convertible redeemable preference shares not validly accepted by qualifying shareholders. Applications can be made by completing the excess application forms and lodging the same with remittance for the excess convertible redeemable preference shares. Paladin will allocate the excess convertible redeemable preference shares at its discretion and on a fair and equitable basis by reference to the number of excess convertible redeemable preference shares applied for by each qualifying shareholder.

Permission of the Bermuda Monetary Authority

Permission under the Exchange Control Act 1972 of Bermuda (and regulations made thereunder) has been received from the Bermuda Monetary Authority in respect of the issue of the convertible redeemable preference shares to persons regarded as non-residents of Bermuda for exchange control purposes subject to the requirement that the convertible redeemable preference shares are listed on The Stock Exchange of Hong Kong Limited. In granting such permission and in accepting the prospectus relating to the open offer, the form of acceptance and the excess application form for filing, neither the Bermuda Monetary Authority nor the Registrar Companies of Bermuda accepts any responsibility for the financial soundness of the Paladin group or for the correctness of any statements made or opinions expressed in the prospectus, the form of acceptance and the excess application form.

LETTER FROM THE BOARD

CAPITAL REORGANISATION

The board of directors of Paladin proposes a special resolution to effect, prior to the closing of the open offer, the capital reorganisation which will involve, amongst other things:

a reduction in the nominal value of issued shares in Paladin from HK$0.50 each to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share and by reducing the nominal value of all issued and unissued shares from HK$0.50 to HK$0.01 such that the then issued share capital of Paladin will become HK$5.28 million;
the cancellation of the amount of approximately HK$279.62 million standing to the credit of share premium account and the cancellation of the amount of approximately HK$132.18 million standing to the credit of the contributed surplus account;
the use of all or substantially all of the credit of HK$670.65 million arising from the reduction of capital and the cancellation of the entire amount standing to the credit of the share premium account and the contributed surplus accounts to write off the accumulated losses, which as at 31 December, 2005, amounted to HK$651.7 million; and
the authorised share capital of Paladin will be restored to HK$500,000,000 and each authorised but unissued share of HK$0.50 each will be subdivided into 50 shares of nominal value HK$0.01 each.

Conditions of the capital reorganisation

The capital reorganisation is conditional upon the fulfilment of the following conditions:

the publication of a notice for the special general meeting in an appointed newspaper in Bermuda at a date not more than thirty days and not less than fifteen days before the effective date of the capital reorganisation;
the passing of a special resolution by a majority of not less than three-fourths of the votes cast by shareholders of Paladin in person, by a duly authorised corporate representative, or by proxy in a general meeting, at a special general meeting to approve the capital reorganisation;
the passing of a resolution of the board of directors of Paladin as at the date the capital reduction is to be effected, to the effect that Paladin is, and after the capital reduction, would be able to pay its liabilities as they become due; and
the filing of a memorandum of reduction of share capital, together with the notice of special general meeting and a certified true copy of the shareholders’ resolution approving the capital reduction with the Registrar of Companies in Bermuda within 30 days from the date on which the capital reorganisation becomes effective.

LETTER FROM THE BOARD

LISTING AND DEALINGS

Paladin will apply to the Listing Committee of The Stock Exchange of Hong Kong Limited for the listing of, and permission to deal in, the convertible redeemable preference shares in Paladin and the shares falling to be issued upon conversion of the convertible redeemable preference shares. The listing approval may or may not be granted by The Stock Exchange of Hong Kong Limited.

Dealings in the convertible redeemable preference shares are expected to commence on 18 September, 2006. The convertible redeemable preference shares will be traded in board lots of 10,000 convertible redeemable preference shares. Dealings in the convertible redeemable preference shares on The Stock Exchange of Hong Kong Limited will be subject to the payment of stamp duty in Hong Kong, trading fee payable to The Stock Exchange of Hong Kong Limited, transaction levy payable to the Securities and Futures Commission and an investor compensation levy in Hong Kong.

Subject to the granting of a listing of, and permission to deal in, the convertible redeemable preference shares, all necessary arrangements have been made enabling these shares to be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in these shares on The Stock Exchange of Hong Kong Limited or such other date as determined by HKSCC. Settlement of transactions between participants of The Stock Exchange of Hong Kong Limited on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Paladin does not have any equity or debt securities, other than its existing shares which are listed on The Stock Exchange of Hong Kong Limited and its convertible redeemable preference shares, the listing of which is proposed to be sought, that are listed on any other stock exchange.

WARNING OF THE RISKS OF DEALINGS IN THE SHARES

The shares in Paladin will be dealt with on an ex-entitlement basis from 14 August, 2006. If Goldenfield Equities Ltd., in its capacity as the underwriter of the open offer, terminates the underwriting agreement, or the conditions of the open offer are not fulfilled, the open offer will not proceed. Any dealings in the shares in Paladin from now up to the date on which all conditions of the open offer are fulfilled will accordingly bear the risk that the open offer may not become unconditional. Shareholders of Paladin and the public are advised to exercise caution when dealing in the shares in Paladin, and if shareholders are in any doubt about their position, they should consult their professional advisers. Paladin will make an appropriate announcement in the event that the open offer does not proceed.

LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENTS

Underwriting agreement

Date : 6 June, 2006

Underwriter : Goldenfield Equities Ltd. Number of convertible : 114,710,798 convertible redeemable preference shares, redeemable preference being the total number of convertible redeemable preference shares underwritten shares under the open offer, excluding 149,425,008 convertible redeemable preference shares to be subscribed by members of the Oung family pursuant to their irrevocable undertakings.
Commission : A commission of 2.0% of the amount underwritten will be charged by Goldenfield Equities Ltd. The underwriting commission is determined with reference to market practice. The directors of Paladin (including the independent nonexecutive directors) consider the underwriting commission to be in line with the market rate. All the legal costs incurred in the preparation of the underwriting agreement will be borne by Paladin.

The ordinary course of business of Goldenfield Equities Ltd. does not include underwriting.

Irrevocable undertakings by the Oung family

As at the latest practicable date, the Oung family through its interest in Five Star Investments Limited, Goldenfield Equities Ltd. and Sward Finance Limited and through the direct shareholdings held by Mr. Chen Te Kuang, Mike, Mr. Oung Shih Hua, James and Mr. Oung I Ming was beneficially interested in an aggregate of 300,250,017 shares in Paladin, representing approximately 56.8% of the existing issued share capital of Paladin. The Oung family, other than Sward Finance Limited which holds 200,000 shares (representing less than 0.04% of the issued share capital of Paladin and accordingly, its shareholding is regarded as immaterial) and Mr. Oung I Ming, a deceased shareholder holding 1,200,000 shares (representing approximately 0.23% of the issued share capital of Paladin), has irrevocably undertaken to Paladin that it will subscribe for its entitlement under the open offer in full and that it will not sell any shares in Paladin during the period until the open offer has either closed or been terminated. The subscription moneys payable by the Oung family to Paladin pursuant to the irrevocable undertakings will be set off against the indebtedness owed by Paladin to Goldenfield Equities Ltd. Goldenfield Equities Ltd. and the members of Oung family have agreed to the set-off arrangements.

LETTER FROM THE BOARD

In addition, the Oung family has undertaken to The Stock Exchange of Hong Kong Limited to place out its shareholding interest in Paladin or to do or to procure Paladin to do any other acts (subject to compliance with the Listing Rules) which are considered appropriate to maintain at all times the public float of the convertible redeemable preference shares in Paladin of not less than 25% of the convertible redeemable preference shares of Paladin in issue from time to time. The Oung family has also given an undertaking not to exercise the conversion rights of their convertible redeemable preference shares if there is a shortfall in the public float of 25% or to the extent such conversion will lead to the public float of Paladin falling below 25% unless arrangements have been made for the restoration of the public float of Paladin immediately after such conversion.

Conditions of the underwriting agreement

The underwriting agreement is conditional upon, amongst other things, fulfilment of the following:

the shareholders of Paladin passing resolutions at the SGM to approve the open offer;
the capital reduction and cancellation of the share premium and contributed surplus accounts, as described above, having been completed on or before the posting date of the prospectus relating to the open offer;
resolutions being passed to amend the bye-laws of Paladin to reflect the terms, rights and conditions of the issue of the convertible redeemable preference shares and the creation of the convertible redeemable preference shares;
the delivery of one copy of the prospectus, the form of acceptance and the excess application form relating to the open offer to The Stock Exchange of Hong Kong Limited on or prior to the posting date of the prospectus relating to the open offer;
the registration of the prospectus, the form of acceptance and the excess application form, together with all other consents and documents required to be endorsed on or attached to the prospectus, the form of acceptance and the excess application form on or before the posting date of the prospectus relating to the open offer with the Registrar of Companies in Bermuda and the Registrar of Companies in Hong Kong (as required);
permission of the Bermuda Monetary Authority for the issue of the convertible preferences shares, if necessary, being obtained on or before the posting date;
the posting of the prospectus relating to the open offer, forms of acceptance and the excess application forms to the qualifying shareholders relating to the open offer; and
the Listing Committee of The Stock Exchange of Hong Kong Limited granting, and not having revoked or withdrawn, the listing of, and permission to deal in, the convertible redeemable preference shares and the shares falling to be issued upon conversion of the convertible redeemable preference shares, on or before the posting date of the prospectus relating to the open offer and not having withdrawn or revoked such listing and permission.

LETTER FROM THE BOARD

Termination of the underwriting agreement

Goldenfield Equities Ltd. may terminate the arrangements set out in the underwriting agreement, the right of which is exercisable by Goldenfield Equities Ltd. by notice in writing to Paladin at any time prior to 4:00 p.m. on the fourth business day (extended from the second business day as agreed by Paladin and Goldenfield Equities Ltd.) following the latest day for acceptance of the convertible redeemable preference shares if there occurs, amongst other things:

any material change in existing law or regulation or other occurrence of any nature of any local, national or international event or any change of a political, military, financial, economic, currency or other nature affecting local securities market or the occurrence of any combination of circumstances which may, in the opinion of the underwriter, adversely affect the business or the financial or trading position or prospects of the Paladin group or adversely prejudice the success of the open offer or the taking up of the convertible redeemable preference shares, making it inexpedient or inadvisable for Paladin or the underwriter to proceed with the open offer; or
any change in market conditions in Hong Kong (including without limitation suspension or material restriction or trading in securities) which affect the success of the open offer or otherwise in the opinion of the underwriter makes it inexpedient or inadvisable or inappropriate for Paladin or the underwriter to proceed with the open offer; or
any change in the circumstances of Paladin or any members of the Paladin group which may, in the opinion of the underwriter, adversely affect the prospects of Paladin.

Upon giving the notice of termination, all obligations of Goldenfield Equities Ltd. under the underwriting agreement shall cease and terminate and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with the underwriting agreement except for, inter alia, the payment by Paladin of any fees incidental to the open offer.

CONDITIONS OF THE OPEN OFFER

The open offer is conditional upon, amongst other things, the obligations of Goldenfield Equities Ltd. under the underwriting agreement becoming unconditional and the underwriting agreement not being terminated by either Paladin or Goldenfield Equities Ltd. in accordance with its terms and conditions as referred to under the sub-section headed “Termination of the underwriting agreement” above.

If the underwriting agreement does not become unconditional or is terminated, the open offer will not proceed.

REASONS FOR THE OPEN OFFER

Paladin is highly borrowed and has relied to a material extent from non-bank loans on a concessionary basis, although they remain repayable on demand. As at 31 December, 2005, Paladin had secured bank loans of some HK$586.5 million, unsecured and non-interest bearing loans from related companies of some HK$250.9 million, unsecured and non-interest bearing loans from unrelated companies of some HK$39.5 million and secured and interest bearing loans from unrelated companies of some HK$75.5 million. Paladin does not have any loans that are interest bearing and repayable on demand.

LETTER FROM THE BOARD

Most of the loans from related companies of HK$250.9 million, including the shareholders’ loan from Goldenfield Equities Ltd. of some HK$220.63 million, are repayable on demand and Paladin will be put in financial difficulties should the creditors demand Paladin to repay their debts. In particular, Paladin has benefited substantially from the concessionary terms of the shareholders’ loan from Goldenfield Equities Ltd. but there can be no assurance that these concessionary terms will continue in the future. As at the latest practicable date, Paladin had not received demands from Goldenfield Equities Ltd. to repay the loan owed to it, but it has at law a right to demand repayment at any time. In these circumstances, unsecured bank borrowings are unlikely and third party non-bank borrowings which are unsecured, if obtainable at all, are likely to be very expensive and certain onerous terms as to repayment and the service of repayment are likely to be imposed. The directors of Paladin have not considered repayment of its other unsecured loans of HK$39.5 million, which are also repayable on demand, in view of the substantial amount owed to Goldenfield Equities Ltd. which is much larger in amounts than other unsecured loans of Paladin. The directors therefore believe that the repayment of the loan due to Goldenfield Equities Ltd. is in the long term interest of Paladin and its shareholders as a whole. The proposed open offer is therefore designed in such a way to reduce the liabilities of Paladin significantly with a view to improving its gearing and working capital position.

Goldenfield Equities Ltd. has advanced to the Paladin group approximately HK$220.63 million, substantially all of which has been used to finance a portion of the costs for the redevelopment of Bowen Hill Apartments, the Paladin group’s luxury residential property. The advances from Goldenfield Equities Ltd. to Paladin are unsecured, non-interest bearing and repayable on demand. Financing for the balance of the redevelopment has been obtained from the Paladin group’s bankers and other lenders including members of the Oung family. Redevelopment of the Bowen Hill Apartment has been completed. The decision has been made to raise funds through an open offer to shareholders to enable the Paladin group to repay a portion of the advances from Goldenfield Equities Ltd. and for general working capital purposes. The balance of these advances is expected to be repaid out of the proceeds of sales of units in Bowen Hill Apartments or through the refinancing of these advances.

In view of the financial and debt structure of Paladin as described above, the directors of Paladin believe that the only sensible fund raising method is by way of issuance of shares. The directors of Paladin have decided to issue the convertible redeemable preference shares so that their terms could be designed to be more attractive than that of the ordinary shares so as to encourage shareholders to participate in the ownership of Paladin on a continuous basis by taking up their entitlements under the open offer. The subscription price of HK$0.25 per convertible redeemable preference share represents a discount of 12.3% to the closing price of HK$0.285 per share in Paladin on 8 June, 2006 (being the date of the announcement of the open offer) and the directors of Paladin consider the subscription price to be attractive to the shareholders.

In issuing additional securities, the directors of Paladin have considered both a rights issue and an open offer of convertible convertible redeemable preference shares. The latter is preferred as it is less costly in effect.

LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE OPEN OFFER

The net proceeds of the open offer will be approximately HK$66.0 million. The estimated amount of expenses relating to the open offer of approximately HK$4.5 million will be borne by Paladin. To the extent that Goldenfield Equities Ltd. subscribes for the convertible redeemable preference shares in Paladin either as an existing shareholder of Paladin or in fulfilment of its obligation as an underwriter, any subscription moneys payable by Goldenfield Equities Ltd. (which is owed as to 40% by Ms. Lilian Oung, 40% by Mr. Chen Te Kuang, Mike and 20% by Mr. Oung Shih Hua, James, who are all members of the Oung family) will be set off against the indebtedness owed by Paladin to Goldenfield Equities Ltd. In addition, the subscription moneys payable by the Oung family to Paladin pursuant to the irrevocable undertakings will be set off against the indebtedness owed by Paladin to Goldenfield Equities Ltd. Paladin is under a legally binding contractual obligation to repay the shareholders’ loans owed to Goldenfield Equities Ltd. and the Oung family which are repayable on demand. The net proceeds from the subscription of the convertible redeemable preference shares by shareholders of Paladin, other than Goldenfield Equities Ltd. and the Oung family, will be used by Paladin for general working capital purposes. Assuming all shareholders of Paladin take up their entitlements under the open offer, the gross proceeds from the subscription of the convertible redeemable preference shares by shareholders of Paladin, other than Goldenfield Equities Ltd. and the Oung family, will amount to some HK$28.5 million. Assuming that no public shareholders of Paladin take up their entitlements under the open offer, all the subscription moneys payable for the subscription of the convertible redeemable preference shares under the open offer will be set off against the indebtedness owed by Paladin to Goldfield Equities Ltd., and no cash will be received by Paladin under the open offer.

BUSINESS OUTLOOK OF PALADIN GROUP

The principal activities of Paladin are re-development of a property project at Nos. 8, 10 and 12 Peak Road (the “Peak Road Project”) and trading of textiles. The Peak Road Project consists of 34 apartment units and a 3-storey private house and the gross floor area is approximately 119,000 square metres. Paladin group commenced the pre-sale of the Peak Road Project in November 2004 and sold 10 apartment units for the year ended 30 June, 2005. Paladin did not sell any apartment units since then. As mentioned in Paladin’s annual report for the year ended 30 June, 2005 and the interim report for the six months ended 31 December, 2005, the management of Paladin adopted a strategy to focus on the completion of the Peak Road Project. Paladin expects that the returns from the Peak Road Project will significantly improve Paladin group’s financial position and generate stable income for the group.

LETTER FROM THE BOARD

EFFECTS OF THE OPEN OFFER

The table below shows the effects of the open offer on the shareholding structure of Paladin:

Five Star Investments Limited (Note 1) Goldenfield Equities Ltd.(Note 2) Chen Te Kuang, Mike_(Note 3) Oung Shik Hua, James(Note 3) Oung I Ming(Note 3) Sward Finance Limited(Note 3)_ Public shareholders Oung family’s interest	Existing structure No. of shares % 267,815,017 50.69% 21,035,000 3.98% 5,000,000 0.95% 5,000,000 0.95% 1,200,000 0.23% 200,000 0.04% 228,021,598 43.16% 528,271,615 100.00% 300,250,017 56.84%	Assuming only Goldenfield Equities Ltd. and those Oung family members who have Assuming every given an irrevocable shareholder takes up undertaking to accept the open offer shares the open offer take up and immediately the open offer shares converts them and immediately convert into ordinary shares them into ordinary in Paladin shares in Paladin No. of shares % No. of shares % 401,722,525 50.69% 401,722,525 50.69% 31,552,500 3.98% 146,263,299 18.46% 7,500,000 0.95% 7,500,000 0.95% 7,500,000 0.95% 7,500,000 0.95% 1,800,000 0.23% 1,200,000 0.15% 300,000 0.04% 200,000 0.03% 342,032,397 43.16% 228,021,598 28.77% 792,407,422 100.00% 792,407,422 100.00% 450,375,025 56.84% 564,385,824 71.23%	Assuming only Goldenfield Equities Ltd. and those Oung family members who have Assuming every given an irrevocable shareholder takes up undertaking to accept the open offer shares the open offer take up and immediately the open offer shares converts them and immediately convert into ordinary shares them into ordinary in Paladin shares in Paladin No. of shares % No. of shares % 401,722,525 50.69% 401,722,525 50.69% 31,552,500 3.98% 146,263,299 18.46% 7,500,000 0.95% 7,500,000 0.95% 7,500,000 0.95% 7,500,000 0.95% 1,800,000 0.23% 1,200,000 0.15% 300,000 0.04% 200,000 0.03% 342,032,397 43.16% 228,021,598 28.77% 792,407,422 100.00% 792,407,422 100.00% 450,375,025 56.84% 564,385,824 71.23%
			100.00%

			71.23%

Notes:

Five Star Investments Limited is owed as to 67% by Madam Oung Chin Liang Fung and 33% by Ms. Lilian Oung, who are both members of the Oung family.
Goldenfield Equities Ltd. is owned as to 40% by Ms. Lilian Oung, 40% by Mr. Chen Te Kuang, Mike and 20% by Mr. Oung Shih Hua, James who are all members of the Oung family.
These shareholders are members of, or related to, the Oung family.

LETTER FROM THE BOARD

PROPOSED AMENDMENTS TO THE BYE-LAWS OF PALADIN

A special resolution will be proposed at the special general meeting to be held on 21 August, 2006 to amend the bye-laws of Paladin to reflect the terms, rights and conditions of the issue of convertible redeemable preference shares. An ordinary resolution will be proposed to increase from HK$500,000,000 to HK$502,700,000 divided into 50,000,000,000 New Shares and 270,000,000 convertible redeemable preference shares of HK$0.01 each.

SPECIAL GENERAL MEETING

Set out in this circular is a notice convening the SGM which will be held at 11:00 a.m. on Monday, 21 August, 2006 at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong at which resolutions will be proposed to approve, amongst other things, the open offer, the capital reorganisation, the amendments to the bye-laws of Paladin and the increase in the authorised share capital of Paladin. All shareholders of Paladin are entitled to attend and vote at the SGM.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy and return it in accordance with the instructions printed on it as soon as possible to Computershare Hong Kong Investor Services Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, and in any event not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of a form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

RECOMMENDATIONS

The directors of Paladin, including the independent non-executive directors of Paladin, believe that the open offer, the capital reorganisation and the amendments to the bye-laws of Paladin are in the interests of the shareholders of Paladin as a whole. Accordingly, the directors of Paladin recommend the shareholders of Paladin to vote in favour of the resolutions to be proposed at the SGM.

GENERAL

The principal activities of Paladin group are redevelopment of a property project at 8, 10 and 12, Peak Road, the Peak, Hong Kong and trading of textiles. Paladin plans to focus on the marketing of its property project while it will continue its textile trading business. The trading business is however expected to contribute less to Paladin group relative to the property business.

LETTER FROM THE BOARD

As at the latest practicable date, Paladin did not have any existing securities which can be converted into shares in Paladin.

Paladin had not conducted any fund raising exercise during the last 12 months save for loans borrowed from third parties and, or related parties.

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

Yours faithfully, For and on behalf of the board of directors of Paladin Limited Law Fong Chairman

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of Paladin as at the latest practicable date were as follows:

HK$

	HK$
Authorised: 1,000,000,000 Shares Issued and fully paid: 528,271,615 Shares	500,000,000

	264,136,000

The authorised and issued share capital of Paladin following completion of the capital reorganisation, the open offer and increase in authorised share capital, assuming none of the convertible redeemable preference shares in Paladin are converted into ordinary shares in Paladin, will be as follows:

Authorised: 50,000,000,000 New Shares 270,000,000 Convertible redeemable preference shares 50,270,000,000 Shares Issued and fully paid: (i) New Shares 528,271,615 Issued New Shares arising from the capital reorganisation (ii) Convertible redeemable preference shares 264,135,807 Convertible redeemable preference shares		HK$ 500,000,000 2,700,000
		502,700,000

		5,282,716.15

		2,641,358

All the New Shares rank pari passu in all respects including all rights as to dividends, voting and capital. All the New Shares to be in issue following completion of the open offer will rank pari passu in all respects with each other including as regards to dividends, voting and return of capital.

Under Paladin's share option scheme adopted at the SGM held on 23 September, 1996, the Directors may grant options as incentives to directors or employees of Paladin or its subsidiaries to subscribe for shares within a period of ten years commencing from 23 September, 1996. The subscription price of the Shares is set to be the higher of the nominal value of the shares or an amount which is 80% of the average closing price of the shares on The Stock Exchange of Hong Kong Limited on the five trading days immediately preceding the date of grant of the share options.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

The period during which an option may be exercised will be determined by the directors of Paladin in their absolute discretion, save that no option may be exercised more than ten years after it has been granted. No option may be granted more than ten years after the date of approval of the share option scheme of Paladin.

The maximum number of shares in Paladin in respect of which share options may be granted cannot exceed 10% of the issued share capital of Paladin from time to time and the maximum number of shares in respect of which share options may be granted to any one employee cannot exceed 25% of the maximum number of Shares in respect of which share options may be granted under the share option scheme of Paladin. Consideration of HK$1 is payable on each grant of share options.

In accordance with the Listing Rules, certain terms of the share option scheme of Paladin need to be amended, or alternatively, a new share option scheme needs to be implemented in order to comply with the requirements of the Listing Rules. According to the Listing Rules as amended, no more Shares are available for issue under the share option scheme of Paladin.

No share options in Paladin have been granted under the share option scheme of Paladin since its adoption.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

2. SUMMARY OF FINANCIAL INFORMATION

A summary of the published results and assets and liabilities of Paladin group for the three years ended 30 June, 2005 as extracted from the relevant annual reports of Paladin is set out below:

RESULTS

Turnover (Loss) profit from operations Finance costs Net (loss) profit for the year (Loss) earnings per share – Basic ASSETS AND LIABILITIES Total assets Total liabilities (Deficiency) balance of shareholders’ equity	Year ended 30 June, 2003 2004 2005 HK$’000 HK$’000 HK$’000 10,338 10,808 497,043 (51,344) 16,692 288,626 (12,841) (5,780) (64,083) (64,185) 10,912 224,543 (12.1 cents) 2.1 cents 42.5 cents As at 30 June, 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,041,692 1,267,018 1,647,694 (1,103,484) (1,317,898) (1,574,834) (61,792) (50,880) 72,860

Paladin did not declare any dividend in respect of the three years ended 30 June, 2005.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is the reproduction of the audited financial statements of Paladin group for the year ended 30 June, 2005 as extracted from Paladin annual report 2005:

Consolidated Income Statement

For the year ended 30 June, 2005

Notes Turnover 5 Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Release of investment property revaluation reserve upon sales of properties held for sale Reversal of impairment loss previously recognised in respect of leasehold land and buildings Reversal of impairment loss previously recognised in respect of club debenture Gain on disposal of leasehold land and buildings Impairment loss recognised in respect of investment securities Profit from operations 7 Finance costs 8 Net profit for the year Earnings per share – basic 11	2005 HK$’000 497,043 (342,143) 154,900 164 (5,947) (13,266) 100,803 52,450 2,500 – (2,978) 288,626 (64,083) 224,543 42.5 cents	2004 HK$’000 10,808 (10,771) 37 181 – (28,108) – 40,991 – 8,891 (5,300) 16,692 (5,780) 10,912 2.1 cents

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Consolidated Balance Sheet

At 30 June 2005

Notes Non-current assets Property, plant and equipment 12 Investment securities 14 Club debenture 15 Current assets Properties under development 16 Properties held for sale 17 Property sale receivables 18 Receivable from stakeholder’s account Other receivables, deposits and prepayments Pledged bank deposits Bank balances and cash Current liabilities Other payables Accrued interest and other borrowings costs on bank loans Amounts due to directors of subsidiaries 19 Taxation payable Secured bank loans - amounts due within one year 20 Other loans - amounts due within one year 21 Net current liabilities Capital and reserves Share capital 22 Reserves Non-current liabilities Other loans – amounts due after one year 21	2005 HK$’000 174,604 – 7,500 182,104 – 1,055,869 383,201 21,923 1,180 3,183 234 1,465,590 403,799 – 36,980 345 591,000 469,451 1,501,575 (35,985) 146,119 264,136 (191,276) 72,860 73,259 146,119	2004 HK$’000 125,112 2,978 5,000 133,090 1,121,099 – – – 1,198 10,631 1,000 1,133,928 139,682 7,567 25,852 345 701,351 443,101 1,317,898 (183,970) (50,880) 264,136 (315,016) (50,880) – (50,880)

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Balance Sheet

At 30 June 2005

Notes Non-current assets Interests in subsidiaries 13 Current assets Prepayments Current liabilities Accrued charges Amount due to a director of subsidiary 19 Amounts due to subsidiaries 13 Other loans – amounts due within one year 21 Net current liabilities Capital and reserves Share capital 22 Reserves 24	2005 HK$’000 647,626 86 290 302 709,116 767 710,475 (710,389) (62,763) 264,136 (326,899) (62,763)	2004 HK$’000 645,370 86 129 – 704,873 756 705,758 (705,672) (60,302) 264,136 (324,438) (60,302)

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 30 June 2005

Share capital HK$’000 At 1 July 2003 264,136 Realised on disposal of leasehold land and buildings – Net profit for the year – At 30 June 2004 264,136 Realised on sales of properties held for sale – Net profit for the year – At 30 June 2005 264,136	Share premium HK$’000 279,617 – – 279,617 – – 279,617	Contributed surplus HK$’000 (note 24) 132,176 – – 132,176 – – 132,176	Investment property revaluation reserve HK$’000 (note 24) 422,318 (2,859) – 419,459 (100,803) – 318,656	Translation Accumulated reserve losses HK$’000 HK$’000 (3,088) (1,156,951) – 2,859 – 10,912 (3,088) (1,143,180) – – – 224,543 (3,088) (918,637)	Total HK$’000 (61,792) – 10,912 (50,880) (100,803) 224,543 72,860

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 30 June 2005

CASH FLOWS FROM OPERATING ACTIVITIES Net profit for the year Adjustments for: Release of investment property revaluation reserve upon sales of properties held for sale Reversal of impairment loss previously recognised in respect of leasehold land and buildings Reversal of impairment loss previously recognised in respect of club debenture Impairment loss recognised in respect of investment securities Gain on disposal of leasehold land and buildings Finance costs Interest income Depreciation Operating cash flows before movements in working capital Decrease (increase) in properties under development Increase in property sale receivables Increase in receivable from stakeholder’s account Decrease in other receivables, deposits and prepayments Increase in other payables NET CASH FROM (USED IN) OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in pledged bank deposits NET CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Other loans raised Bank loans raised Repayment of bank loans Advances from directors of subsidiaries NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	2005 HK$’000 224,543 (100,803) (52,450) (2,500) 2,978 – 64,083 (47) 2,993 138,797 83,383 (383,201) (21,923) 18 207,928 25,002 47 (35) – 7,448 7,460 (33,614) 99,609 21,267 (131,618) 11,128 (33,228) (766) 1,000 234 234	2004 HK$’000 10,912 – (40,991) – 5,300 (8,891) 5,780 – 2,579 (25,311) (180,108) – – 4,214 94,519 (106,686) – (1) 38,000 (10,631) 27,368 (137,015) 209,801 623,351 (631,593) 15,352 79,896 578 422 1,000 1,000

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 30 June 2005

1. GENERAL

The Company is incorporated in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company is an investment holding company. Its principal subsidiaries are engaged in investment holding, property development and general trading.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

In preparing the financial statements, the directors have given careful consideration to the future liquidity of the Group in light of its net current liabilities of HK$35,985,000 as at 30 June 2005. The Group is dependent upon the financial support of its bankers and other lenders. As explained in note 20, in July 2005, the Group entered into a loan agreement with certain banks and obtained a term loan of HK$994 million to refinance the Hong Kong dollar term loan of HK$591 million and other loan of HK$155 million (both together with the accrued interest and other related charges). The term loan of HK$994 million shall be repayable by two installments with the first repayment to reduce the outstanding term loan to HK$442 million on the date falling six months after the date of the first advance of the loan (i.e. 22 January 2006) and the balance of the outstanding loan amount shall be repayable on the date falling twelve months after the date of signing the loan agreement (i.e. 21 July 2006). Taking into account the estimated proceeds from sale of developed properties, the directors consider that, with the continuous financial support of the Group’s bankers and other lenders, the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

3. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

In 2004, the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards (“HKFRS(s)”) (hereinafter collectively referred to as “new HKFRSs”) which are effective for accounting period beginning on or after 1 January 2005 except for HKFRS 3 “Business Combinations”. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 30 June 2005.

HKFRS 3 is applicable to business combinations for which the agreement is on or after 1 January 2005. The Group has not entered into any business combination for which the agreement date is on or after 1 January 2005. Therefore, HKFRS 3 did not have any impact on the Group for the year ended 30 June 2005.

The Group has commenced considering the potential impact of these new HKFRSs but is not yet in a position to determine whether these new HKFRSs would have a significant impact on how its results of operations and financial position are prepared and presented. These new HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 30 June each year.

The results of the subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Income from sale of developed properties is recognised on the execution of a binding sale agreement or when the relevant occupation permit is issued by the respective building authority, whichever is later. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and presented as current liabilities.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the depreciable amount of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land and buildings Over the estimated useful lives of 50 years or the period of the lease, if shorter Leasehold improvements Over the estimated useful lives of 10 years or the period of the lease, if shorter Office equipment, furniture and fixtures 15% – 25%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

Investment securities, which are securities held for an identified long term strategic purpose, are measured at subsequent reporting dates at cost less any identified impairment loss.

Club debentures

Club debentures, which are held for long term investment purposes, are stated at cost less any identified impairment loss.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Properties held for sale

Properties held for sale are stated at the lower of cost, being the carrying amount of the properties when they were transferred from the properties under development, and net realisable value.

Properties under development

Properties under development are stated at the lower of cost and net realisable value.

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs is suspended during extended periods in which active development is interrupted. Capitalisation ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on interests in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

On consolidation, the assets and liabilities of the Group’s overseas operations are translated at the exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or expenses in the period in which the operation is disposed of.

Retirement benefits scheme

Payments to retirement benefit schemes are charged as expenses as they fall due.

5. TURNOVER

Turnover represents the aggregate of the amounts received and receivable for goods and properties sold, net of returns, during the year. An analysis of the Group’s turnover is as follows:

Sales of properties held for sale Sales of goods	2005 HK$’000 489,833 7,210 497,043	2004 HK$’000 – 10,808
		10,808

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into two main operating divisions – general trading and property development. These divisions are the bases on which the Group reports its primary segment information.

Segment information about these businesses is presented below:

Year 2005

(i) Income statement

TURNOVER External sales RESULT Segment result Release of investment property revaluation reserve upon sales of properties held for sale Reversal of impairment loss previously recognised in respect of leasehold land and buildings Reversal of impairment loss recognised in respect of club debenture Impairment loss recognised in respect of investment securities Profit from operations Finance costs Net profit for the year	General Property trading development Consolidated HK$’000 HK$’000 HK$’000 7,210 489,833 497,043 (12,757) 148,608 135,851 – 100,803 100,803 52,450 – 52,450 – – 2,500 – (2,978) (2,978 288,626 (64,083 224,543	General Property trading development Consolidated HK$’000 HK$’000 HK$’000 7,210 489,833 497,043 (12,757) 148,608 135,851 – 100,803 100,803 52,450 – 52,450 – – 2,500 – (2,978) (2,978 288,626 (64,083 224,543

		135,851 100,803 52,450 2,500 (2,978
		288,626 (64,083
		224,543

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(ii) Balance sheet

ASSETS
Segment assets
Unallocated corporate assets
Consolidated total assets
LIABILITIES
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
(iii)
Other information
Capital additions
Depreciation
Impairment loss recognised in respect
of investment securities
Year 2004
(i)
Income statement
TURNOVER
External sales
RESULT
Segment result
Reversal of impairment loss previously
recognised in respect of leasehold land
and buildings
Gain on disposal of leasehold land and buildings
Impairment loss recognised in respect
of investment securities
Profit from operations
Finance costs
Net profit for the year

General
Property
trading
development
Consolidated
HK$’000
HK$’000
HK$’000
175,477
1,461,328
1,636,805
10,889
1,647,694
5,204
398,895
404,099
1,170,735
1,574,834
General
Property
trading
development
Consolidated
HK$’000
HK$’000
HK$’000
35
–
35
2,993
–
2,993
–
2,978
2,978
General
Property
trading
development
Consolidated
HK$’000
HK$’000
HK$’000
10,808
–
10,808
(10,169)
(17,721)
(27,890)
40,991
–
40,991
8,891
–
8,891
–
(5,300)
(5,300)
16,692
(5,780)
10,912

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(ii) Balance sheet

		General	Property
		trading	development	Consolidated
		HK$’000	HK$’000	HK$’000
	ASSETS
	Segment assets	126,613	1,121,434	1,248,047
	Unallocated corporate assets			18,971
	Consolidated total assets			1,267,018
	LIABILITIES
	Segment liabilities	3,639	135,995	139,634
	Unallocated corporate liabilities			1,178,264
	Consolidated total liabilities			1,317,898
(iii)	Other information
		General	Property
		trading	development	Consolidated
		HK$’000	HK$’000	HK$’000
	Capital additions	1	–	1
	Depreciation	2,579	–	2,579
	Impairment loss recognised in respect
	of investment securities	–	5,300	5,300

Geographical segments

More than 90% of the Group’s turnover for the years ended 30 June 2005 and 2004 were attributable to operations carried out in Hong Kong. Also, almost all of the Group’s assets are located in Hong Kong. Therefore, no geographical segment information are presented.

7. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging: Directors’ remuneration_(note 9)_ Other staff costs, including retirement benefit scheme contributions Total staff costs Auditors’ remuneration – current year – underprovision in prior year Depreciation and after crediting: Interest income	2005 HK$’000 374 1,867 2,241 430 10 2,993 47	2004 HK$’000 286 913
		1,199
		300 – 2,579 –

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

8. FINANCE COSTS

Interest on bank borrowings: – wholly repayable within five years – not wholly repayable within five years Other borrowing costs Overprovision in prior years Total borrowing costs Less: Amount capitalised in respect of properties under development	2005 HK$’000 22,692 – 100,513 (1,154) 122,051 (57,968) 64,083	2004 HK$’000 37,770 360 103,054 –
		141,184 (135,404)
		5,780

9. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Particulars of the emoluments of the directors and the five highest paid individuals are as follows:

(a) Directors’ emoluments

The emoluments paid or payable to each of the six (2004: seven) directors were as follows:

Chen Te Oung Kuang Shih Hua, Law Fong Mike James HK$’000 HK$’000 HK$’000 Directors’ fee – – – Other emoluments: Salaries and other benefits 230 – – Retirement benefit scheme contributions 6 – – 236 – – Total 236 – – Chen Te Oung Kuang Zhou Shih Hua, Law Fong Mike Shiji James HK$’000 HK$’000 HK$’000 HK$’000 Directors’ fees – – – – Other emoluments: Salaries and other benefits 230 – – – Retirement benefit scheme contributions 6 – – – 236 – – – Total 236 – – –	Chen Te Oung Kuang Shih Hua, Law Fong Mike James HK$’000 HK$’000 HK$’000 Directors’ fee – – – Other emoluments: Salaries and other benefits 230 – – Retirement benefit scheme contributions 6 – – 236 – – Total 236 – – Chen Te Oung Kuang Zhou Shih Hua, Law Fong Mike Shiji James HK$’000 HK$’000 HK$’000 HK$’000 Directors’ fees – – – – Other emoluments: Salaries and other benefits 230 – – – Retirement benefit scheme contributions 6 – – – 236 – – – Total 236 – – –	Zhu Pei Qing HK$’000 – – – – – Zhu Pei Qing HK$ ‘000 50 – – – 50	Lu Ti Fen HK$’000 30 – – – 30 Lu Ti Fen HK$’000 – – – – –	Kwok Wai Chi HK$’000 108 – – – 108 Cao Dacheng HK$’000 – – – – –	2005 Total HK$’000 138 230 6
					236
					374

					2004 Total HK$’000 50 230 6
	–				236
	–				286

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(b) Employees’ emoluments

The five highest paid individuals of the Group included one (2004: one) executive director, details of whose emoluments are set out in (a) above. The emoluments of the remaining four (2004: four) individuals are as follows:

Salaries and other benefits Retirement benefit scheme contributions	2005 HK$’000 1,125 44 1,169	2004 HK$’000 519 26
		545

The emoluments of each of these employees were less than HK$1,000,000.

During both years, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss in office. In addition, during both years, no director waived any emoluments.

10. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries have no assessable profit for both years.

Taxation for the year can be reconciled to net profit for the year per the consolidated income statement as follows:

Net profit for the year Tax at Hong Kong Profits Tax rate of 17.5% (2004: 17.5%) Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Others Taxation for the year	2005 HK$’000 224,543 39,295 (27,265) 898 – (13,270) 342 –	2004 HK$’000 10,912

		1,910 (8,729 1,219 5,276 – 324
		–

11. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the net profit for the year of HK$224,543,000 (2004: HK$10,912,000) and on 528,271,615 (2004: 528,271,615) ordinary shares in issue during the year.

No diluted earnings per share is presented as the Company had no potential dilutive shares outstanding during both years.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

12. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST At 1 July 2004 Additions At 30 June 2005 DEPRECIATION AND IMPAIRMENT At 1 July 2004 Provided for the year Reversal of impairment loss previously recognised At 30 June 2005 NET BOOK VALUES At 30 June 2005 At 30 June 2004	Office Leasehold equipment, land and Leasehold furniture buildings improvements and fixtures HK$’000 HK$’000 HK$’000 211,500 14,555 8,014 – – 35 211,500 14,555 8,049 86,500 14,555 7,902 2,962 – 31 (52,450) – – 37,012 14,555 7,933 174,488 – 116 125,000 – 112	Total HK$’000 234,069 35 234,104 108,957 2,993 (52,450) 59,500 174,604 125,112

During the year, the Group reviewed the carrying amounts of leasehold land and buildings and identified that the estimated recoverable amounts of the leasehold land and buildings are greater than their carrying amounts. Accordingly, a reversal of impairment loss previously recognised amounting to HK$52,450,000 is credited to the consolidated income statement to increase the carrying amounts of the leasehold land and buildings to their recoverable amounts which represent their net selling price.

The leasehold land and buildings of the Group are situated in Hong Kong and are held under long leases. They were pledged to banks to secure the credit facilities granted to the Group.

13. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Less: Allowance for amounts due from subsidiaries	THE COMPANY 2005 2004 HK$’000 HK$’000 160,811 160,811 969,220 966,964 1,130,031 1,127,775 (482,405) (482,405) 647,626 645,370

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment. In the opinion of the directors of the Company, repayment will not be made by the subsidiaries within the twelve months from the balance sheet date. Accordingly, the amounts are shown as non-current.

The amounts due to subsidiaries are unsecured, non-interest bearing and repayable on demand.

Particulars of the Company’s principal subsidiaries as at 30 June 2005 are set out in note 33.

None of the subsidiaries had any debt securities outstanding as at 30 June 2005 or at any time during the year.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

14. INVESTMENT SECURITIES

Unlisted equity investments, at cost Less: Impairment loss recognised	THE GROUP 2005 2004 HK$’000 HK$’000 23,353 23,353 (23,353) (20,375) – 2,978	THE GROUP 2005 2004 HK$’000 HK$’000 23,353 23,353 (23,353) (20,375) – 2,978
		2,978

At 30 June 2005, the Group held 40% (2004: 40%) of the registered capital of Harbin Zheng Hua Real Estate Developing Company Limited (“Zheng Hua”), a company which is established in the People’s Republic of China and is engaged in property development. The investment in Zheng Hua is not classified as an associate as, in the opinion of the directors of the Company, the Group is not able to exercise significant influence over its financial and operating policy decisions.

During the year, the Group reviewed the carrying amount of investment securities and identified that the estimated recoverable amount of the investment securities is less than its carrying amount. Accordingly, an impairment loss was made to reduce the carrying amount of the investment securities to zero at 30 June 2005.

15. CLUB DEBENTURE

At cost Less: Impairment loss recognised	THE GROUP 2005 2004 HK$’000 HK$’000 8,000,000 8,000,000 (500,000) (3,000,000) 7,500,000 5,000,000	THE GROUP 2005 2004 HK$’000 HK$’000 8,000,000 8,000,000 (500,000) (3,000,000) 7,500,000 5,000,000
		5,000,000

During the year, the Group reviewed the carrying amount of club debenture and identified that the estimated recoverable amount of the club debenture is greater than its carrying amount. Accordingly, a reversal of impairment loss previously recognised amounting to HK$2,500,000 is credited to the consolidated income statement to increase the carrying amount of the club debenture to its recoverable amount which represents its net selling price at 30 June 2005.

16. PROPERTIES UNDER DEVELOPMENT

COST At beginning of the year Additions Reclassified to properties held for sale At end of the year	THE GROUP 2005 2004 HK$’000 HK$’000 1,121,099 906,772 268,781 214,327 (1,389,880) – – 1,121,099	THE GROUP 2005 2004 HK$’000 HK$’000 1,121,099 906,772 268,781 214,327 (1,389,880) – – 1,121,099
		1,121,099

The properties under development has been completed in 2005 and the amount is reclassified to properties held for sale.

At 30 June 2004, borrowing costs capitalised in respect of properties under development amounted to HK$209,390,000.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

17. PROPERTIES HELD FOR SALE

				THE GROUP
				HK$’000
Carrying amount at	30	June	2005	1,055,869

At 30 June 2005, the properties held for sale are stated at cost.

18. PROPERTY SALE RECEIVABLES

At 30 June 2005, the property sale receivables of the Group are aged within 90 to 120 days. Subsequent to the balance sheet date, the property sale receivables are fully settled.

19. AMOUNTS DUE TO DIRECTORS OF SUBSIDIARIES/A DIRECTOR OF SUBSIDIARY

THE GROUP AND THE COMPANY

The amounts are due to directors of subsidiaries/a director of a subsidiary including Lilian Oung, one of the shareholders of Five Star Investments Limited (“Five Star”), the controlling shareholder of the Company. The amounts are unsecured, non-interest bearing and repayable on demand.

20. SECURED BANK LOANS

The bank loans comprise: Hong Kong dollar term loan (“HK$ term loan”) United States dollar term loan (“US$ term loan”)	THE GROUP 2005 2004 HK$’000 HK$’000 591,000 623,351 – 78,000 591,000 701,351	THE GROUP 2005 2004 HK$’000 HK$’000 591,000 623,351 – 78,000 591,000 701,351
		701,351

All the bank loans are repayable within one year.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

At 30 June 2005, the HK$ term loan of HK$591 million is secured by a first legal charge over the Group’s properties held for sale (the “Property”) and a floating charge over all other assets of Holyrood Limited (“Holyrood”), a wholly-owned subsidiary of the Company. Deposits, rental proceeds and sales proceeds regarding the Property are also assigned to the bank. The original maturity date of the HK$ term loan was the earlier of (i) the date falling six months from the date of issuance of the occupation permit of the Property; and (ii) 30 September 2004. The HK$ term loan bears interest at the prevailing market rates.

In March 2004, the maturity date of the HK$ term loan was changed to the earlier of (i) the date falling one month from the date of issuance of the certificate of compliance of the Property; and (ii) 31 December 2004.

During the year ended 30 June 2005, the bank further extended the repayment date of the HK$ term loan to a date falling one and a half months from the date of the issuance of the certificate of compliance of the Property (i.e. 15 August 2005).

In July 2005, the Group entered into a loan agreement with certain banks and obtained a term loan in an aggregate principal amount of HK$994 million (the “New HK$ Term Loan”) comprising (i) HK$919 million for refinancing the HK$ term loan of HK$591 million and the other loan of HK$155 million from an unrelated company (both together with accrued interest and other related charges) (see note 21(c)); and (ii) HK$75 million for financing the construction cost of the Property. The New HK$ Term Loan shall be repayable by two installments with the first repayment to reduce the outstanding term loan to HK$442 million on the date falling six months after the date of the first advance of the loan (i.e. 22 January 2006) and the balance of the outstanding loan amount shall be repayable on the date falling twelve months after the date of signing the loan agreement (i.e. 21 July 2006).

The US$ term loan of HK$78 million at 30 June 2004 was secured by the Group’s leasehold land and buildings and borne interest at prevailing market rates. During the year ended 30 June 2005, the Group obtained an installment loan of HK$80 million from an independent third party, namely Fine Chiffon Corporation Limited (“Fine Chiffon”). The installment loan was obtained by Fine Chiffon from a bank and was granted to the Group with the same terms offered by the bank for refinancing the US$ term loan of HK$78 million (together with the accrued interest and other bank charges). The Company provides a corporate guarantee of HK$80 million to the bank and the Group’s leasehold land and buildings are also pledged to the bank as security. This installment loan bears interest at prevailing market rates and shall be repayable by 180 monthly equal installments.

Details of the loan from Fine Chiffon are set out, inter alia, in the circular of the Company dated 7 February 2005.

21. OTHER LOANS

Other loans from: – related companies_(note a) – unrelated companies(note b) – an unrelated company(note c) – an unrelated company(note d)_ Less: Amounts due within one year shown under current liabilities Amounts due after one year	THE GROUP 2005 2004 HK$’000 HK$’000 271,013 253,512 39,232 34,589 155,000 155,000 77,465 – 542,710 443,101 (469,451) (443,101) 73,259 –	THE COMPANY 2005 2004 HK$’000 HK$’000 767 756 – – – – – – 767 756 (767) (756) – –

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Notes:

(a) The loans are owed to companies in which Lilian Oung and/or Messrs. Oung Shih Hua, James and Chen Te Kuang Mike, directors of the Company, have controlling interests. The loans are unsecured, noninterest bearing and repayable on demand.
(b) The loans are unsecured, non-interest bearing and repayable on demand.

(c) The loan is secured, interest bearing at 2% per annum and repayable on the earlier of (i) the date falling the last date of six months period after the date of the issuance of the occupation permit of the Property; and (ii) 1 October 2004 (the “Maturity Date”). Repayment of this loan is subordinated to the HK$ term loan obtained from a bank (together with the accrued interest and other bank charges) referred to note 20 above being repaid in full.

In addition, the Group agreed to pay the lender an amount equivalent to 10% of the excess of the value of the Group’s properties under development as of 30 September 2004 performed by an independent professional valuer on an open value basis over HK$660,000,000 (the “Additional Amount”). The Additional Amount was due for payment on the expiration of 31 days after the Maturity Date (i.e. 1 November 2004). The directors of the Company estimated that the Additional Amount would be HK$134,000,000. At 30 June 2005, the Group has fully recognised the Additional Amount of HK$134,000,000 as finance costs. A portion of the Additional Amount was recognised on a time basis, amounting to HK$94,185,000, as finance costs for the year ended 30 June 2004 and the remaining balance of the Additional Amount of HK$39,815,000 was recognised as finance costs for the year ended 30 June 2005. The Additional Amount of HK$134,000,000 was included in other payables at 30 June 2005 (2004: HK$94,185,000).

In February 2005, the Group entered into a supplement deed with the lender in order to extend the repayment date of the loan and the Additional Amount of HK$134,000,000 to 30 June 2005. The Group agreed to further pay an amount equivalent to 10% of the net value of the Property which is the excess of the estimated aggregate amount of sales proceeds of the Property over HK$2,000,000,000 (the “Net Value Amount”). The directors of the Company estimated that the Net Value Amount would be HK$27,020,000 and this amount has been recognised as finance costs for the year ended 30 June 2005 and was included in other payables at 30 June 2005.

In addition, the Group also agreed to pay default interest of HK$21,577,000 and a lump sum compensation of HK$7,592,000 to the lender. These amounts have been recognised as finance costs for the year ended 30 June 2005 and were included in other payables at 30 June 2005.

The Net Value Amount, the default interest and the lump sum compensation shall also be repayable on 30 June 2005.

In July 2005, the Group obtained a term loan of HK$994 million from certain banks to refinance the loan together with accrued interest and other related charges (see notes 20 and 32, respectively).

(d) The loan is owed to Fine Chiffon. The loan is secured, interest bearing at the prevailing market rates and repayable by 180 monthly equal installments. Details of the loan from Fine Chiffon are set out in note 20.

22. SHARE CAPITAL

Ordinary shares of HK$0.50 each Authorised: At 1 July 2003, 30 June 2004 and 30 June 2005 Issued and fully paid: At 1 July 2003, 30 June 2004 and 30 June 2005	Number of ordinary shares 1,000,000,000 528,271,615	Amount HK$’000 500,000

		264,136

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

23. SHARE OPTION SCHEME

Pursuant to the share option scheme (the “Option Scheme”) adopted at a special general meeting of the Company held on 23 September 1996, the directors of the Company may grant options as incentives to directors or employees of the Company or its subsidiaries to subscribe for shares in the Company within a period of ten years commencing from 23 September 1996.

The subscription price of the shares is set to be the higher of the nominal value of the Company’s shares or an amount which is 80% of the average closing price of the Company’s shares on the Stock Exchange on the five trading days immediately preceding the date of grant of the options.

The period during which an option may be exercised will be determined by the directors of the Company in their absolute discretion, save that no option may be exercised more than ten years after it has been granted. No option may be granted more than ten years after the date of approval of the Option Scheme.

The maximum number of shares in respect of which options may be granted cannot exceed 10% of the issued share capital of the Company from time to time and the maximum number of shares in respect of which options may be granted to any one employee cannot exceed 25% of the maximum number of shares in respect of which options may be granted under the Option Scheme. Consideration of HK$1 is payable on each grant.

In accordance with The Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”), certain terms of the Option Scheme need to be amended, or alternatively, a new share option scheme needs to be implemented, in order to comply with the requirements of the Listing Rules. According to the Listing Rules as amended, no more share is available for issue under the Option Scheme.

No share options have been granted under the Option Scheme since its adoption.

24. RESERVES

THE COMPANY At 1 July 2003 Net loss for the year At 30 June 2004 Net loss for the year At 30 June 2005	Share Contributed premium surplus HK$’000 HK$’000 279,617 132,176 – – 279,617 132,176 – – 279,617 132,176	Capital Accumulated reserve losses HK$’000 HK$’000 16,410 (750,740) – (1,901) 16,410 (752,641) – (2,461) 16,410 (755,102)	Total HK$’000 (322,537) (1,901) (324,438) (2,461) (326,899)

The investment property revaluation reserve of the Group represents the balance of the surplus arising in previous years on revaluation of certain of the Group’s existing properties which were formerly held for investment purposes. During the year ended 30 June 2005, the amount of HK$100,803,000 has been credited to the consolidated income statement upon the sales of properties held for sale.

The contributed surplus of the Group and the Company represents the surplus arising on the acquisition of subsidiaries.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

The capital reserve of the Company represents the revaluation of an investment property of a subsidiary prior to the formation of the Group.

Under the Companies Act of Bermuda, the contributed surplus account of the Company is available for distribution to shareholders. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if there are reasonable grounds for believing that:

(a) the Company, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

In the opinion of the directors of the Company, the Company had no reserves available for distribution to shareholders as at 30 June 2005 and 30 June 2004.

25. DEFERRED TAXATION

The following are the major deferred tax liabilities and assets recognised and the movements thereon during the current and prior reporting periods:

THE GROUP Accelerated tax depreciation Tax losses HK$’000 HK$’000 At 1 July 2003 9,559 (9,559) Charge (credit) to consolidated income statement for the year 7,731 (7,731) At 30 June 2004 17,290 (17,290) Charge (credit) to consolidated income statement for the year 3,988 (3,988) At 30 June 2005 21,278 (21,278)	Total HK$’000 – –
	– –
	–

For the purposes of balance sheet presentation, the above deferred tax liabilities and assets have been offset in accordance with the conditions set out in the Statement of Standard Accounting Practice No. 12 (Revised) “Income taxes” issued by the HKICPA.

At 30 June 2005, the Group has unused tax losses of approximately HK$388,443,000 (2004: HK$464,272,000) available for offset against future profits. A deferred tax asset has been recognised in respect of approximately HK$121,589,000 (2004: HK$98,800,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$266,854,000 (2004: HK$365,472,000) due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

26. CAPITAL COMMITMENTS

	THE GROUP
	2005	2004
	HK$’000	HK$’000
Capital expenditure relating to properties under
development contracted for but not provided
in the financial statements	–	1,306

The Company did not have any significant capital commitments at the balance sheet date.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

27. CONTINGENT LIABILITIES

Guarantees given to banks and an unrelated company in respect of credit facilities granted to subsidiaries of the Company Guarantee given to a bank in respect of credit facility granted to Fine Chiffon	THE COMPANY 2005 2004 HK$’000 HK$’000 1,050,148 997,260 80,000 – 1,130,148 997,260	THE COMPANY 2005 2004 HK$’000 HK$’000 1,050,148 997,260 80,000 – 1,130,148 997,260
		997,260

28. PLEDGE OF ASSETS

At the balance sheet date, the following assets of the Group were pledged to secure credit facilities granted to the Group:

Properties held for sale Properties under development Leasehold land and buildings Property sale receivables Receivable from stakeholder’s account Bank deposits	THE GROUP 2005 2004 HK$’000 HK$’000 1,055,869 – – 1,121,099 174,488 125,000 383,201 – 21,923 – 3,183 10,631 1,638,664 1,256,730	THE GROUP 2005 2004 HK$’000 HK$’000 1,055,869 – – 1,121,099 174,488 125,000 383,201 – 21,923 – 3,183 10,631 1,638,664 1,256,730
		1,256,730

The issued ordinary shares of Holyrood were also pledged to a bank to secure credit facilities granted to the Group (also see note 20).

29. RETIREMENT BENEFIT SCHEME

With effect from 1 December 2000, the Group joined the mandatory provident fund scheme (the “MPF Scheme”) for all the eligible employees of the Group in Hong Kong.

Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries up to a maximum of HK$1,000 and they can choose to make additional contributions. The employer’s monthly contributions are calculated at 5% of the employee’s monthly salaries up to a maximum of HK$1,000 (the “mandatory contributions”). The employees are entitled to 100% of the employer’s mandatory contribution upon their retirement at the age of 65, death or total incapacity.

The aggregate employer’s contributions during the year ended 30 June 2005 dealt with in the income statement of the Group amounted to HK$49,000 (2004: HK$43,000).

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

30. MAJOR NON-CASH TRANSACTIONS

During the year, the Group entered into the following major non-cash transactions.

(a) The Group capitalised the Additional Amount of HK$39,815,000 (2004: HK$94,185,000), as explained in note 21(c), as the cost of the Group’s properties under development and the amount was included in other payables at 30 June 2005.
(b) Properties under development of HK$1,389,880,000 (2004: nil) was transferred to properties held for sale.

31. RELATED PARTY TRANSACTIONS/CONNECTED TRANSACTIONS

(a) Five Star pledged its interest in 50.7% of the issued share capital of the Company, representing 267,815,017 shares in the Company, to a bank to secure credit facilities to the extent of HK$700,000,000 (2004: HK$700,000,000) granted to the Group.
(b) Lilian Oung, one of the shareholders of Five Star and a director of the Company’s subsidiaries, has provided personal guarantees in respect of the following:

Credit facilities granted to the Group The Group’s payment obligation of amount owed to a former main contractor of the Group’s property development project	2005 HK$’000 780,000 15,919 795,919	2004 HK$’000 840,400 15,919
		856,319

(c) Details of the amounts due to directors of the Company’s subsidiaries/a director of the Company’s subsidiary including Lilian Oung are set out in note 19.
(d) Details of the other loans from related companies in which the directors of the Company and Lilian Oung have controlling interests are set out in note 21(a).

32. POST BALANCE SHEET EVENT

Subsequent to 30 June 2005, the Group entered into a loan agreement with certain banks and obtained a term loan in an aggregate principal amount of HK$994 million comprising (i) HK$919 million for refinancing the HK$ term loan of HK$591 million and the other loan of HK$155 million from an unrelated company (both together with accrued interest and other related charges) (see notes 20 and 21(c), respectively); and (ii) HK$75 million for refinancing the construction cost of the Property.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

33. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Particulars of the principal subsidiaries of the Company as at 30 June 2005 are as follows:

	Place of	Nominal value	Proportion of nominal	Proportion of nominal	Proportion of nominal
	incorporation/	of issued	value of issued
	registration	and paid up	share capital held
Name of subsidiary	and operation	share capital	by the Company			Principal activities
			Directly	Indirectly
Banhart Company	Hong Kong	Ordinary	–	100%		Property holding
Limited		HK$9,998
		Non-voting
		deferred* HK$2
Bowen Hill Limited	British Virgin	US$1	–	100%		Investment holding
	Islands#
Holyrood Limited	Hong Kong	Ordinary	99.9%	0.1%		Property development
		HK$999,998
		Non-voting
		deferred* HK$2
Homjade Trading Ltd.	British Virgin	US$1	100%		–	General trading
	Islands/
	Hong Kong
Paladin Trading Ltd.	British Virgin	US$1	100%		–	Investment holding
	Islands#
Six Gain Investments	Hong Kong	Ordinary	100%		–	Investment holding
Limited HK		$2

The non-voting deferred shares practically carry no rights to dividends or to receive notice of or to attend or to vote at any general meetings of the company or to participate in any distribution on winding up.
These are investment holding companies which have no specific principal place of operations.

All the above subsidiaries operate in Hong Kong.

The above lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results of the year or formed a substantial portion of the assets or liabilities of the Group. To give details of all the other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Financial Summary

RESULTS

Turnover Net (loss) profit for the year ASSETS AND LIABILITIES Total assets Total liabilities Balance (deficiency) of shareholders’ funds	2001 HK$’000 2,193 (128,994) 2001 HK$’000 924,146 (884,030) 40,116	Year ended 30 June 2002 2003 2004 HK$’000 HK$’000 HK$’000 18,576 10,338 10,808 (37,723) (64,185) 10,912 At 30 June 2002 2003 2004 HK$’000 HK$’000 HK$’000 993,603 1,041,692 1,267,018 (991,210) (1,103,484) (1,317,898) 2,393 (61,792) (50,880)	2005 HK$’000 497,043 224,543 2005 HK$’000 1,647,694 (1,574,834) 72,860

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Particulars of Properties

Particulars of the properties held by the Group as at 30 June 2005 are as follows:

(a) Properties held for sale

		Remaining		Attributable
		unsold	Approximate	interest
Address	Purpose	units	gross area	of the Group
			(Sq. ft.)
Block A1	Residential	17 units	54,511	100%
Nos. 8, 10 and 12
Peak Road
The Peak
Hong Kong
Block A2	Residential	7 units	27,024	100%
Nos. 8, 10 and 12
Peak Road
The Peak
Hong Kong
Block B	Residential	1 house	9,215	100%
Nos. 8, 10 and 12
Peak Road
The Peak
Hong Kong
Car parking spaces	Residential	39 units	–	100%
Nos. 8, 10 and 12
Peak Road
The Peak
Hong Kong
Motorcycle parking spaces	Residential	5 units	–	100%
Nos. 8, 10 and 12
Peak Road
The Peak
Hong Kong

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(b) Leasehold land and buildings

Approximate Address Purpose saleable area Long term (Sq. ft.) 45th Floor Commercial 14,070 Long Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong (21,061/4,000,000th shares of and in Inland Lot No. 8593)

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

The following is the reproduction of the unaudited financial statements of Paladin group for the six months ended 30 June, 2006 as extracted from Paladin’s interim report:

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2005

Turnover Cost of sales Gross (loss) profit Other operating income Administrative expenses Finance costs (Loss) profit for the period attributable to equity holders of the Company (Loss) earnings per share – basic	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,144 40,183 (2,185) (17,824) (41) 22,359 456 1,396 (33,874) (7,871) (18,303) (177) (51,762) 15,707 HK(9.80) cents HK2.97 cents

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2005

Non-current assets Property, plant and equipment Club debentures Current assets Properties held for sale Other receivables, depositsand prepayments Property sale receivables Receivable from stakeholder’s account Pledged bank deposits Bank balances and cash Current liabilities Other payables Amounts due to directors of subsidiaries Taxation payable Secured bank loans – amount due within one year Other loans – amount due within one year Net current liabilities Total assets less current liabilities Non-current liabilities Other loans – amount due after one year Capital and reserves Share capital Reserves Total equity	31.12.2005 HK$’000 (Unaudited) 172,434 7,920 180,354 1,055,869 1,113 – – – 1,325 1,058,307 221,557 43,254 345 586,473 294,199 1,145,828 (87,521) 92,833 71,735 21,098 264,136 (243,038) 21,098	30.6.2005 HK$’000 (Audited) 174,604 7,500 182,104 1,055,869 1,180 383,201 21,923 3,183 234 1,465,590 403,799 36,980 345 591,000 469,451 1,501,575 (35,985) 146,119 73,259 72,860 264,136 (191,276) 72,860

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2005

Attributable to equity holders of the Company

At 1 July 2004 Realised on sales of properties held for sale Profit for the year At 30 June 2005 At 1 July 2005 – as previously reported – effect of changes in accounting policies – as restated Loss for the period At 31 December 2005 At 1 July 2004 Realised on sales of properties held for sale Profit for the period At 31 December 2004	Share capital HK$’000 264,136 – – 264,136 264,136 – 264,136 – 264,136 264,136 – – 264,136	Investment property Share Contributed revaluation Translation Accumulated premium surplus reserve reserve losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 279,617 132,176 419,459 (3,088) (1,143,180) – – (100,803) – – – – – – 224,543 279,617 132,176 318,656 (3,088) (918,637) 279,617 132,176 318,656 (3,088) (918,637) – – (318,656) – 318,656 279,617 132,176 – (3,088) (599,981) – – – – (51,762) 279,617 132,176 – (3,088) (651,743) 279,617 132,176 419,459 (3,088) (1,143,180) – – (8,157) – – – – – – 15,707 279,617 132,176 411,302 (3,088) (1,127,473)	Total HK$’000 (50,880) (100,803) 224,543 72,860 72,860 – 72,860 (51,762) 21,098 (50,880) (8,157) 15,707 (43,330)

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2005

Net cash from (used in) operating activities Net cash from investing activities Net cash (used in) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of the balance of cash and cash equivalents: Bank balances and cash Bank overdrafts	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 191,780 (35,663) 2,643 518 (193,332) 33,514 1,091 (1,631) 234 1,000 1,325 (631) 1,325 95 – (726) 1,325 (631)

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

4. (I) UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following is the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group which has been prepared to illustrate the effect of the open offer of 264,135,807 convertible redeemable preference shares at the subscription price of HK$0.25 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing shares held (the “Open Offer”) on the net tangible assets of the Group as if the Open Offer had been completed on 31 December, 2005. As it is prepared for illustrate purposes only, and because of its nature, it may not give a true picture of the financial position of the Group upon completion of the Open Offer.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group is prepared based on the net tangible assets of the Group as at 31 December, 2005 as extracted from the published unaudited interim results of the Group as of 31 December, 2005 and is adjusted for the effect of the Open Offer.

				Unaudited
				pro forma
		Less:		adjusted
		Estimated	Unaudited	consolidated
		liability	pro forma	net tangible
Unaudited		portion	adjusted	assets
consolidated	Add:	of the	consolidated	per share
net tangible	Estimated	redeemable	net tangible	immediately
assets	net proceeds	convertible	assets	after
as at	from the	preference	of the Group	completion
31 December,	Open Offer	shares net	after the	of the
2005		of issue cost	Open Offer	Open Offer
HK$’000	HK$’000	HK$’000	HK$’000	HK$
(Note 1)	(Note 2)	(Note 3)		(Note 4)
21,098	61,500	45,268	37,330	0.071

Notes:

The unaudited consolidated net tangible assets of the Group as at 31 December, 2005 is extracted from the unaudited consolidated balance sheet of the Company as at 31 December, 2005 as extracted from the published unaudited interim report of the Group for the six months ended 31 December, 2005.
This reflects the estimated net proceeds of approximately HK$61,500,000 from the Open Offer amounting to approximately HK$66,000,000 after deducting estimated expenses of approximately HK$4,500,000 attributable to the Open Offer.
This reflects the estimated liability portion of the convertible redeemable preference shares amounting to approximately HK$48,580,000 net of issue cost of approximately HK$3,312,000.
The calculation is based on the assumption that 528,271,615 ordinary shares of the Company will be in issue upon completion of the capital reorganisation and the Open Offer, and assuming none of the convertible redeemable preference shares are converted into ordinary shares of the Company.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(II) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

==> picture [68 x 52] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

TO THE DIRECTORS OF PALADIN LIMITED

We report on the unaudited pro forma statement of adjusted consolidated net tangible assets of Paladin Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the open offer of 264,135,807 convertible redeemable preference shares at the subscription price of HK$0.25 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing shares held might have affected the consolidated net tangible assets of the Group presented, for inclusion in Section 4 (I) of Appendix I of the circular dated 20 July, 2006 (the “Circular”).The basis of preparation of the unaudited pro forma statement of adjusted consolidated net tangible assets is set out in Section 4 (I) of Appendix I of the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma statement of adjusted consolidated net tangible assets in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma statement of adjusted consolidated net tangible assets and to report our opinion to you.We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma statement of adjusted consolidated net tangible assets beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA.Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma statement of adjusted consolidated net tangible assets with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma statement of adjusted consolidated net tangible assets has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma statement of adjusted consolidated net tangible assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited pro forma statement of adjusted consolidated net tangible assets is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December, 2005 or any future date.

Opinion

In our opinion:

a) the unaudited pro forma statement of adjusted consolidated net tangible assets has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the unaudited pro forma statement of adjusted consolidated net tangible assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 20 July, 2006

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

5. STATEMENT OF INDEBTEDNESS

(a) Borrowings

At the close of business on 31 May 2006, being the latest practicable date for the purpose of ascertaining the indebtedness of Paladin group prior to the printing of this circular, Paladin group had in aggregate outstanding borrowings of approximately HK$1,033.4 million of which approximately HK$609.1 million were guaranteed by Paladin and secured by a property of Paladin group located at 45th Floor of Office Tower of Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong (the “Property”) and the properties held for sale of Paladin group at Nos. 8, 10 and 12 Peak Road, Hong Kong (the “Peak Road Project”) and the entire issued ordinary shares in Holyrood Limited, a wholly-owned subsidiary of Paladin which is engaged in the sale and development of the Peak Road Project, and the remaining balance was unguaranteed and unsecured.

The borrowings comprised (i) amount of approximately HK$50.9 million due to an individual who is one of beneficial owners of Paladin’s substantial shareholders and also a director of certain subsidiaries of Paladin; (ii) other loans of approximately HK$243.7 million due to companies in which a director of certain subsidiaries of Paladin and, or Messrs. Oung Shih Hua James and Chen Te Kuang Mike, directors of Paladin, have controlling interests; (iii) other loans of approximately HK$129.7 million due to independent third parties of which amount of approximately HK$74.0 million due to Fine Chiffon Corporation Limited (“Fine Chiffon”) in connection with an installment loan obtained by Fine Chiffon from a bank and then granted to Paladin group with the same terms offered by the bank; (iv) bank loans of approximately HK$607.8 million; and (v) interest payables in respect of the bank borrowings of approximately HK$1.3 million.

The bank loans above included a Hong Kong dollar term loan of approximately HK$528.5 million which shall be repayable on 31 July, 2006. On 7 June, 2006, Paladin group entered into a loan agreement with an other bank to obtain an installment loan up to HK$550 million which would be settled by 300 successive monthly installments, for refinancing the Hong Kong dollar term loans of approximately HK$528.5 million.

(b) Contingent Liabilities

As at 31 May, 2006, being the latest practicable date for the purpose of ascertaining indebtedness of Paladin group prior to the printing of this circular, Paladin group had the following outstanding litigations that the directors of the Paladin are of the opinion that the estimated contingent liabilities arising from the litigations cannot be reasonably ascertained.

a. In 2005, Osmar Far East Limited (of which the beneficial owners are independent third parties) and Holyrood Limited referred disputes on the construction work for the Peak Road Project to arbitration. Osmar Far East Limited has claimed against Holyrood Limited for approximately HK$6 million in relation to disputes on construction cost for the Peak Road Project and Holyrood Limited counterclaimed against Osmar Far East Limited for approximately HK$9 million in relation to the defective works performed by Osmar Far East Limited. The arbitration is still in proceeding.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

b. In 2005, P&T Architects Engineers Limited (of which the beneficial owners are independent third parties) and Holyrood Limited referred disputes in relation to architect fees for the Peak Road Project to arbitration. P&T Architects Engineers Limited has claimed against Holyrood Limited for approximately HK$1 million in relation to disputes on architect fees for the Peak Road Project and Holyrood Limited counterclaimed against P&T Architect Engineers Limited for approximately HK$20 million in relation to breach of professional duty of care. The arbitration is still in proceeding.
c. On 30 November, 2005, Holyrood Limited filed an indorsement against P&T Architects Engineers Limited in relation to P&T Architects Engineers Limited’s professional negligence as a structural engineer on a construction work for the Peak Road Project. The litigation is still ongoing.
d. On 26 July, 2005, Brightland Corporation Limited (of which the beneficial owners are all independent third parties) issued a writ against Banhart Company Limited, a wholly-owned subsidiary of Paladin, claiming various declarations, damages and other relief in relation to a sale and purchase of Paladin group’s property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong. The litigation is still ongoing.
e. On 27 February, 2006, Crowning Success Limited (of which the beneficial owners are all independent third parties), a sub-purchaser of Paladin group’s property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong, issued a summons against Banhart Company Limited for the purpose of joining Banhart Company Limited as the second defendant against Brightland Corporation Limited. On 13 April, 2006, the court ordered that Banhart Company Limited be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April, 2006. The litigation is still ongoing.
f. On 4 May, 2006, Savills (Hong Kong) Limited (of which the beneficial owners are independent third parties) commenced a proceeding against Holyrood Limited in relation to a claim of approximately HK$1.3 million for agency fee owned by Holyrood Limited to Savills (Hong Kong) Limited. A defense has been filed and the litigation is ongoing.
g. On 11 May, 2006, Savills (Hong Kong) Limited commenced a proceeding against Paladin in relation to a claim of approximately HK$55,000 being costs and disbursements paid for and on behalf of Paladin in connection with services provided by Savills (Hong Kong) Limited. A defense has been filed and the litigation is ongoing.
h. On 17 May, 2006, Chinese Regency Limited (of which the beneficial owners are independent third parties) commenced a proceeding against Holyrood Limited in relation to a sale and purchase in respect of an apartment and a car parking space of the Peak Road Project. The statement of claim was ordered to file on or before 26 June, 2006 and the litigation is ongoing.

FINANCIAL INFORMATION OF PALADIN GROUP

APPENDIX I

(c) Mortgages and Charges

As at 31 May, 2006, certain assets of Paladin group including the Property and the Peak Road Project and the entire issued ordinary shares in Holyrood Limited were pledged to certain banks to secure borrowing facilities granted to Paladin group.

(d) Debt Securities

As at 31 May, 2006, Paladin group had no outstanding debt securities.

Foreign currency amounts have been translated at the approximate exchange rates prevailing at the close of business on 31 May, 2006.

(e) Disclaimer

Save as aforesaid and apart from intra-group liabilities, Paladin group did not have at the close of business on 31 May, 2006 any loan capital issued and outstanding or agreed to be issued, all other borrowings or indebtedness in the nature of guaranteed, unguaranteed, secured and unsecured borrowings of Paladin group including bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance leases, hire purchase commitments, guarantees or other material contingent liabilities.

6. MATERIAL CHANGE

Save for the capital reorganisation and the open offer, the board of directors of Paladin are not aware of any material change in the financial or trading position or prospects of Paladin group since 30 June, 2005, the date to which the latest audited consolidated financial statements of Paladin group were made up.

7. WORKING CAPITAL

The directors of Paladin are of the opinion that taking into account the estimated net proceeds from the open offer, the estimated net proceeds from the sale of units in the Peak Road Project and the internal resources and existing credit facilities made available to Paladin group, Paladin group has sufficient working capital for its present requirements.

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 Paladin. The board of directors of Paladin collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS BY DIRECTORS

As at the latest practicable date, the interests or short positions of each Director and chief executive of Paladin in the shares or underlying shares in Paladin or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to Paladin and The Stock Exchange of Hong Kong Limited pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register maintained by Paladin referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to Paladin and The Stock Exchange of Hong Kong Limited, were as follows:

	Number of shares	in Paladin held
Name of Director	Personal interests	Corporate interests
Oung Shih Hua, James	5,000,000	–
Chen Te Kuang, Mike	5,000,000	21,035,000*

21,035,000 shares were held by Goldenfield Equities Limited in which Mr. Chen Te Kuang, Mike has beneficial interest.

Save as disclosed in this circular, as at the latest practicable date, none of the directors and chief executive of Paladin or their respective associates (within the meaning of the Listing Rules) had any interests and short positions in the shares or underlying shares of Paladin or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to Paladin and The Stock Exchange of Hong Kong Limited pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short positions which he or she was taken or deem to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the registered maintained by Paladin referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules to be notified to Paladin and The Stock Exchange of Hong Kong Limited.

GENERAL INFORMATION

APPENDIX II

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or chief executive of Paladin, as at the latest practicable date, persons (other than a Director or chief executive of Paladin) who had an interest or a short position in the shares and underlying shares of Paladin which would fall to be disclosed to Paladin 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 member of Paladin were as follows:

Name of shareholder	Number of ordinary shares	%
Five Star Investments Limited	267,815,017	50.70

Save as disclosed, the directors and chief executive of Paladin are not aware of any other person who, as at the latest practicable date, had an interest or short position in the shares and underlying shares of Paladin which would fall to be disclosed to Paladin under the provisions of Divisions 2 and 3 of Part XV of the SFO, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of Paladin or had any options in respect of such shares.

4. COMPETING INTERESTS

As at the latest practicable date, none of the directors of Paladin and their respective associates (within the meaning of the Listing Rules) had any interest in a business which competes or may compete with the business of Paladin group.

5. DIRECTORS’ INTERESTS IN ASSETS

As at the latest practicable date, none of the directors of Paladin had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of Paladin group, or was proposed to be acquired, or disposed of by, or leased to any member of Paladin group since 30 June, 2005, the date to which the latest published audited financial statements of Paladin group were made up.

6. DIRECTORS’ INTERESTS IN CONTRACTS

As at the latest practicable date, none of the directors of Paladin was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of Paladin group subsisting at the latest practicable date which was significant in relation to the business of Paladin group.

7. DIRECTORS’ SERVICE CONTRACTS

As at the latest practicable date, none of the directors of Paladin had entered into, or was proposing to enter into any service contract with Paladin or any of its subsidiary which does not expire or is not determinable by the employing company within one year without payment of compensation other than statutory compensation.

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APPENDIX II

8. LITIGATION

Save as disclosed below, as at the latest practicable date, neither Paladin nor any of its subsidiaries was engaged in any litigation or arbitration or claim of material importance and, so far as the directors of Paladin were aware, no litigation or claims of material importance are pending or threatened by or against any member of Paladin group.

(a) On 26 July, 2005, Brightland Corporated Limited (of which the beneficial owners are all independent third parties) issued a writ against Banhart Company Limited, a wholly owned subsidiary of Paladin claiming various declarations, damages and other reliefs in relation to a sale and purchase of Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong. The litigation is still ongoing.
(b) On 27 February, 2006, Crowning Success Limited (of which the beneficial owners are all independent third parties), a sub-purchaser of the above property, issued a summons against Banhart Company Limited for the purpose of joining Banhart Company Limited as the second defendant in its action against Brightland Corporation Limited. On 13 April, 2006, the Court ordered that Banhart Company Limited be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April, 2006. The litigation is ongoing.
(c) Claim by Hip Hing Construction Limited (of which the beneficial owners are independent third parties) against Holyrood Limited, a wholly-owned subsidiary of Paladin for approximately HK$59 million in relation to disputes on construction work performed by Hip Hing Construction Limited in relation to a redevelopment project at no. 8-12 Peak Road, Hong Kong. The contracts between Hip Hing Construction Limited and Holyrood Limited have incorporated arbitration provisions and in 2006, both parties have agreed to refer the disputes to arbitration. In addition, Holyrood Limited is preparing a claim against Hip Hing Construction Limited for defective works, rectification costs and damages. The proceedings between the parties are presently at an early stage and an arbitrator has been appointed up to the latest practicable date.
(d) In 2005, Osmar Far East Limited (of which the beneficial owners are independent third parties) and Holyrood Limited referred disputes on the construction work for a redevlopment project at no. 8-12 Peak Road, Hong Kong to arbitration. Osmar Far East Limited has claimed against Holyrood Limited for approximately HK$6 million in relation to disputes on construction cost for the project and Holyrood Limited counterclaimed against Osmar Far East Limited for approximately HK$9 million in relation to the defective works performed by Osmar Far East Limited. The arbitration is still in proceeding up to the latest practicable date.

GENERAL INFORMATION

APPENDIX II

(e) In 2005, P&T Architects Engineers Limited and Holyrood Limited referred disputes in relation to architect fees for a redevlopment project at no. 8-12 Peak Road, Hong Kong to arbitration. P&T Architects Engineers Limited has claimed against Holyrood Limited for approximately HK$1 million in relation to disputes on architect fees for the project and Holyrood Limited counterclaimed against P&T Architects Engineers Limited for approximately HK$20 million in relation to breach of professional duty of care. The arbitration is still in proceeding up to the latest practicable date.
(f) On 30 November 2005, Holyrood Limited filed an indorsement against P&T Architects Engineers Limited (of which the beneficial owners are all independent third parties) in relation to P&T Architects Engineers Limited’s professional negligence as a structural engineer on a construction work for a redevelopment project at no. 8-12 Peak Road, Hong Kong. The litigation is ongoing.
(g) On 17 May 2006, Chinese Regency Limited commenced a proceeding against Holyrood Limited in relation to a sale and purchase in respect of Flat B, 5th Floor, Block 1 and Car Parking Space No. 5. 8-12, Peak Road, Hong Kong. The statement of claim was ordered to file on or before 26 June 2006 and the litigation is ongoing.
(h) On 4 May 2006, Savills (Hong Kong) Limited commenced a proceeding against Holyrood Limited in relation to a claim of approximately HK$1.3 million for agency fee owned by Holyrood Limited to Savills (Hong Kong) Limited. A defence has been filed and the litigation is ongoing.
(i) An action was commenced by Holyrood Limited on 23 November 2004 against Messrs Chui & Lau, Solicitors, asking for an order that the bill of costs and disbursements delivered to Messrs Chui & Lau, Solicitors by Holyrood Limited on 8 September 2004 be referred to the Taxing Master to be taxed. The originating summons has been served and the acknowledgement of service with the Court has been filed on 3 December 2005. The litigation is ongoing.
(j) An action was commenced by Holyrood Limited on 23 November 2004 against Messrs Deacons, Solicitors, asking for an order that the bill of costs and disbursements delivered to Messrs Deacons, Solicitors, by Holyrood Limited on 4 August 2004 be referred to the Taxing Master to be taxed. The originating summons has been served and the acknowledgement of service with the Court has been filed on 3 December 2005. The litigation is ongoing.
(k) An action was commenced by Banhart Company Limited against the Bank of China (Hong Kong) Limited in relation to various breaches of contract. The Bank of China (Hong Kong) Limited has issued a summons applying to Court to strike out the action and the application will be heard by the Court on 14 December 2006.
(l) On 23 November 2004, Holyrood Limited issued a writ against the Bank of China (Hong Kong) Limited in relation to various breaches of contract. The statement of claim was filed and served on 21 March 2006 and the Bank of China (Hong Kong) Limited has filed a defence. The litigation is still ongoing.

GENERAL INFORMATION

APPENDIX II

(m) On 11 May 2006, Savills (Hong Kong) Limited commenced a proceeding against Paladin in relation to a claim of approximately HK$55,000.00, being costs and disbursements paid for and on behalf of Paladin in connection with services provided by Savills (Hong Kong) Limited. A defence has been filed and the litigation is ongoing.

9. MATERIAL ADVERSE CHANGE

As at the latest practicable date, the directors of Paladin were not aware of any material adverse change in the financial or trading position of Paladin group since 30 June, 2005, being the latest published audited financial statements of Paladin.

10. MATERIAL CONTRACTS

Neither Paladin nor any other members of Paladin group has entered into any material contracts (not being entered into in the ordinary course of business carried out by Paladin group) within the two years preceding the latest practicable date.

11. EXPERTS AND CONSENTS

The following is the qualification of the expert who has been named in this circular or has given opinion or advice which are contained in this circular:

Name Qualification Deloitte Touche Tohmatsu Certified Public Accountants

Deloitte Touche Tohmatsu has given and has not withdrawn its written consents to the issue of this circular with the inclusion herein of its letters or references to its names in the form and context in which it appears.

Deloitte Touche Tohmatsu does not have any shareholding in any member of Paladin group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of Paladin group.

GENERAL INFORMATION

APPENDIX II

Deloitte Touche Tohmatsu does not have any direct or indirect interests in any assets which have been, since 30 June, 2005 (being the date to which the latest published audited accounts of Paladin group were made up), acquired or disposed of by or leased to any member of Paladin group, or which are proposed to be acquired or disposed of by or leased to any member of Paladin group.

12. INFORMATION ON THE MANAGEMENT

Executive directors

Mr. Law Fong, aged 80, joined Paladin group in 1994. He has over 21 years of experience in the textile industry and 8 years of experience in property development. He retired from his textile and property development businesses in 1985. He is currently a resident of Hong Kong.

Mr. Chen Te Kuang, Mike, aged 27, joined Paladin group in 2004. He has more than 4 years’ management and production experience in electronics industry. Mr. Chen is the cousin of Mr. Oung Shih Hua, James, the non-executive director of Paladin.

Non-executive director

Mr. Oung Shih Hua, James, aged 30, joined Paladin group in 1995. He holds a Bachelor’s degree in Science from New York University. He is engaging in textile trading and electronic business. He is currently a president of a private electronic company. Mr. Oung is the cousin of Mr. Chen Te Kuang, Mike, an executive director of Paladin.

Independent non-executive directors

Mr. Zhu Pei Qing, aged 68, joined Paladin group in 2000. He previously worked for the Ministry of Foreign Affairs of the People’s Republic of China, and was the ambassador of Lebanon for the People’s Republic of China before his retirement.

Ms. Lu Ti Fen, aged 44, joined Paladin group in 2003. She graduated from Mining Chuan University in Taiwan with a Bachelor’s degree in management and has over 17 years of experience in manufacturing, accounting and financial management.

Mr. Kwok Wai Chi, aged 28, joined Paladin group in 2004. He holds a Bachelor’s degree in Business Administration from the Hong Kong University of Science and Technology and is an associate member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. He is currently a principal of a wealth management and financial planning company.

13. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Bye-law 70 of the Company’s Bye-laws, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

GENERAL INFORMATION

APPENDIX II

(a) by the Chairman of the meeting; or
(b) by at least three shareholders present in person or by duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any shareholder or shareholders present in person or by duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or
(d) by any shareholder or shareholders present in person or by duly authorised corporate 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 the shares conferring that right.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of Paladin, at 45th Floor, Officer Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong during normal business hours on any business day up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of Paladin;
(b) the annual reports of Paladin group for each of the two financial years ended 30 June, 2005;
(c) the interim report of Paladin group for the six months ended 31 December, 2005;
(d) report on the statement of unaudited proforma consolidated net tangible assets of Paladin group referred to in appendix I to this circular;
(e) the written consent referred to under the section headed “Experts and Consents” in this appendix;
(f) a copy of the circular dated 8 May 2006 issued by Paladin; and
(g) this circular.

NOTICE OF SGM

PALADIN LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 495)

NOTICE IS HEREBY GIVEN that a special general meeting (the “Meeting”) of Paladin Limited (the “Company”) will be held at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong on Monday, 21st August, 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modification, the following resolutions numbered 1 and 4 as ordinary resolutions, and passing without modification the following resolutions numbered 2 and 3 as special resolutions of the Company:

ORDINARY RESOLUTION

“ THAT , conditional upon (i) the passing of the resolutions numbered 2, 3 and 4 set out in this notice; (ii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the listing of, and permission to deal in, the Offer Shares (as defined below) to be allotted and issued to the shareholders of the Company (the “Shareholders”) pursuant to the terms and conditions of the Open Offer (as defined below); (iii) the registration or filing of all relevant documents relating to the Open Offer required by law to be registered or filed with the Registrar of Companies in Hong Kong and the Registrar of Companies in Bermuda respectively; and (iv) the obligations of Goldenfield Equities Ltd. (the “Underwriter”) under the underwriting agreement dated 6th June, 2006 (the “Underwriting Agreement” including, if any, all supplemental agreements relating to it) made between the Company and the Underwriter becoming unconditional and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the fourth business day after the date on which the latest time for acceptance of the Offer Shares (as defined below) or such date as may be agreed between the Company and the Underwriter and the fulfilment of other conditions contained in the Underwriting Agreement:
(a) the issue, by way of an open offer, of 264,135,807 convertible redeemable preference shares of par value of HK$0.01 each (“Preference Shares”) in the issued share capital of the Company (the “Open Offer”), such new Preference Shares (the “Offer Shares”) to be issued at a price of HK$0.25 per Offer Share (the “Subscription Price”) to the Shareholders whose names appear on the register of members of the Company on the date by reference to which entitlements under the Open Offer will be determined (other than those Shareholders (the “Excluded Shareholders”) with registered addresses outside Hong Kong and whom the board of directors (the “Directors”) of the Company, after making relevant enquiry, considers their exclusion from the Open Offer to be necessary or expedient on account either or of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place) in the proportion of one Offer Share for every two existing shares of par value of HK$0.50 each in the issued share capital of the Company held as at a record date specified in the circular (the “Circular”) dated 20th July, 2006 despatched by the Company to the Shareholders (a copy of which had been produced to the

NOTICE OF SGM

meeting marked “A” and signed by the chairman of the Meeting for the purpose of identification) and otherwise pursuant to and in accordance with the terms and conditions set out in the Circular be and is hereby approved;

(b) the Directors be and are hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or Excluded Shareholders as they may, at their absolute discretion, deem necessary or expedient; and
(c) the Directors be and are hereby authorised to do all such acts and things as they consider necessary or expedient in connection with the Open Offer, the Underwriting Agreement, the exercise or enforcement of any of the Company’s rights under the Underwriting Agreement and to make and agree such variations of the terms of the Underwriting Agreement as the Directors may in their discretion consider to be appropriate and desirable.”

SPECIAL RESOLUTIONS

“ THAT , the capital reorganisation which involve (i) a reduction in the nominal value of the issued shares of HK$0.50 each by HK$0.49 to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share and by reducing the nominal value of all issued and unissued shares from HK$0.50 to HK$0.01, resulting in the reduction of the issued share capital of the Company from HK$264,135,807.50 to HK$5,282,716.15 (ii) the cancellation of the entire amount standing to the credit of the share premium and the contributed surplus accounts; (iii) the use of all of the credit arising from the reduction of capital and from the cancellation of the entire amount standing to the credit of the share premium and the contributed surplus accounts to write off the accumulated losses of the Company; and (iv) a subdivision of each authorised share in the Company of HK$0.50 each into 50 shares of HK$0.01 each be and is hereby approved.”
“ THAT the Bye-Laws of the Company be and are hereby amended as follows:–
(i) By deleting the definition of “share” in Bye-Law 1(A) in its entirety and substituting therefor with the following new definition:–

““share(s)” shall (a) in respect of Bye-Laws 5, 5A, 14 to 19 inclusive, Bye-Laws 36 to 48 inclusive and Bye-Law 175, mean share in the capital of the Company including Ordinary Shares and Preference Shares; and (b) in respect of the remaining ByeLaws, mean share in the capital of the Company excluding Preference Shares;”

NOTICE OF SGM

(ii) By deleting the definition of “shareholder” in Bye-Law 1(A) in its entirety and substituting therefor with the following new definition:–

““shareholder(s)” shall (a) in respect of Bye-Laws 5, 5A, 14 to 19 inclusive, ByeLaws 36 to 48 inclusive and Bye-Law 175, mean the duly registered holder from time to time of the shares in the capital of the Company (including registered holder of Ordinary Share and Preference Share), and (b) in respect of the remaining Bye-Laws, mean the duly registered holder from time to time of the shares in the capital of the Company (excluding registered holder of Preference Share);”

(iii) By deleting the existing Bye-Law 6(A) in its entirety and substituting therefor with the following new Bye-Law 6(A):–

“The authorised share capital of the Company shall comprise ordinary shares of par value HK$0.01 each (the “Ordinary Share(s)”) and convertible redeemable preference share (the “Preference Share(s)”) of par value HK$0.01 each (the terms, rights and restrictions of which are expressed and as defined in Bye-Law 5A).”

(iv) By adding the following new Bye-Law 5A immediately after the existing Bye-Law 5:–

“5A(A) Cumulative Dividend

(a) Each Preference Share shall confer on the holder thereof the right to receive out of the funds of the Company available for distribution and resolved to be distributed a cumulative preferential dividend at HK$0.02 per Preference Share (“Preferential Dividend”) at the rate of 8% per annum on the amount paid up or credited as paid up on such Preference Shares, in priority to any other class of shares in the capital of the Company from time to time in issue (including the Ordinary Shares).
(b) The Preferential Dividend shall be cumulative and payable annually in arrears on the 31st of December in each year. The first Preferential Dividend shall be payable on 31st December, 2006 and any Preferential Dividend that has accrued prior to the date of conversion but remains unpaid on the date of conversion shall be payable upon the date of conversion, provided that no

NOTICE OF SGM

Preferential Dividend shall be payable in respect of the period ending on 31st December, 2006 and provided further that, without prejudice to the rights of the holder of the Preference Shares (“Preference Shareholder”) hereunder and subject to compliance with the Companies Act, any unpaid Dividend shall accrue as a debt due by the Company to the Preference Shareholder and be repayable on demand.

(c) No Preferential Dividend shall be paid to the holders of the Ordinary Shares unless and until all outstanding Preferential Dividend have been paid in full.
(d) Notwithstanding the generality of the foregoing and subject to paragraphs (D) and (E) of this Bye-Law, in any conversion or redemption of Preference Shares the Preference Shareholders shall not be entitled to a pro rata portion of such Preferential Dividend that has accrued thereon up to the date immediately prior to the service of a notice in writing to convert Preference Shares or the payment date of the redemption amount (as the case may be).

(B) Return of Capital

On a return of capital on liquidation, winding-up or dissolution of the Company or otherwise (but not on conversion or redemption of Preference Shares or any repurchases by the Company of Preference Shares or Ordinary Shares), the assets and funds of the Company available for distribution among the shareholders of the Company shall, subject to applicable laws, be applied in following priority:

(a) First, to the Preference Shareholders, the initial subscription price of HK$0.25 (“Initial Subscription Price”) per Preference Share together with the amount of all outstanding Preferential Dividends accrued on the Preference Shares up to and including the date of the return of capital. If the assets and funds of the Company available for distribution shall be insufficient to provide for full payment to the holders of the Preference Shares in accordance with this sub-paragraph (a) of paragraph (B) of this Bye-Law, the Company shall make payment on the Preference Shares on a pro rata basis.
(b) Thereafter, the balance of such assets and funds of the Company available for distribution among the shareholders of the Company shall belong to and be distributed rateably among the holders of the Ordinary Shares and other classes of shares of the Company currently in issue or to be created in the future in the capital of the Company. The Preference Shareholders shall not have the right to participate in such surplus assets.

NOTICE OF SGM

(C) Voting

(a) The Preference Shareholders are not entitled to attend or vote at general meetings of the Company except on resolutions which directly affect their rights or on a winding-up of the Company or a return or repayment of capital.
(b) Subject to sub-paragraph (a) of paragraph (C) of this Bye-Law and any rights or restrictions for the time being attached to any class or classes of shares, every Preference Shareholder present in person or by proxy or (in the case of corporation) by representative at a general meeting shall have:
(i) on a show of hands, one vote; and
(ii) on a poll, one vote for each Ordinary Share as if each Preference Share registered in its name in the register of shareholders of the Company had been converted at the time of such meeting.
(c) In the event of Preference Shareholders being entitled to attend and vote at a general meeting of the Company pursuant to these Bye-Laws,
(i) the definition of “share(s)” as they appear in Bye-Laws 60 to 87 inclusive and Bye-Laws 167 to 173 inclusive shall mean (only in respect of such general meeting) share in the capital of the Company including Ordinary Shares and Preference Shares; and
(ii) the definition of “shareholder(s)” as they appear in Bye-Laws 60 to 87 inclusive and Bye-Laws 167 to 173 inclusive shall mean (only in respect of such general meeting) the duly registered holder from time to time of the shares in the capital of the Company (including registered holder of Ordinary Share and Preference Share).

(D) Conversion

(a) Optional conversion . A Preference Shares shall be convertible at the option of the Preference Shareholder, at any time during the period between the date of allotment and issue of the relevant Preference Shares (“Issue Date”) and a day following on the tenth anniversary of the Issue Date (“Maturity Date”) and without the payment of any additional consideration therefor, into such number of fully-paid Ordinary Shares at a conversion price of HK$0.25 per Preference Share (“Conversion Price”), subject to adjustment in accordance with paragraph (F) of this Bye-Law. The Preference Shareholders are not required to pay any extra amount for conversion of their Preference Shares into Ordinary Shares. Notwithstanding the generality of the foregoing in respect of any

NOTICE OF SGM

conversion of Preference Shares, the Preference Shareholders shall not be entitled to a pro rata portion of such Preferential Dividend that has accrued thereon up to the date immediately prior to the service of a notice in writing on the Company to require the Company to convert such Preference Shares to Ordinary Shares.

(b) Number of Ordinary Shares upon conversion . The number of Ordinary Shares to which a Preference Shareholder shall be entitled upon conversion following a conversion of Preference Shares by a Preference Shareholder shall be the number obtained by multiplying the Conversion Price by the number of Preference Shares being converted.
(c) Mechanism of conversion.
(i) Any Preference Shareholder who wishes to convert its Preference Shares pursuant to sub-paragraph (a) of paragraph (D) of this Bye-Law shall deliver to the Company at its principal place of business in Hong Kong written notice that it elects to convert such number of Preference Shares as specified in the notice. The notice shall be deemed to have been sufficiently served within 5 days (a day means a day excluding Saturday and Sunday) on which licensed banks are generally open for business in Hong Kong (“Business Days”) of posting if sent by registered post.
(ii) The relevant Preference Shareholder shall deliver to the Company at its principal place of business in Hong Kong the certificate(s) evidencing the Preference Shares to be converted within 5 Business Days from the date of service of the notice of conversion given by such Preference Shareholder pursuant to sub-paragraph (c)(i) of paragraph (D) of this Bye-Law.
(iii) Upon delivery of the certificate(s) evidencing the Preference Shares to be converted by the holder thereof to the Company, the Company shall promptly and, in any event no later than 7 Business Days after the date of receipt of such certificate(s).
- (a) issue and deliver to such holder (a) certificate(s) for the number of Ordinary Shares into which the Preference Shares are converted in the name as shown on the certificate(s) evidencing the Preference Shares so surrendered to the Company; or
- (b) cause to be credited into the relevant Preference Shareholder’s brokers’ account such number of Ordinary Shares into which the Preference Shares are converted,

NOTICE OF SGM

in each case together with cash in lieu of any fraction of an Ordinary Share in accordance with sub-paragraph (d) of paragraph (D) of this Bye-Laws.

(d) Fractional Shares . No fraction of any Ordinary Share shall be issued upon conversion of the Preference Shares. Fractional entitlement shall be ignored by the holder of the Preference Shares and any sum paid in respect of such subscription shall be retained by the Company for its own benefit.
(e) Sufficient authorised share capital . The Company shall ensure that at all times there is a sufficient number of unissued Ordinary Shares in its authorised share capital to be issued in satisfaction of the conversion rights of Preference Shares pursuant to sub-paragraph (a) of paragraph (D) of this Bye-Law.
(f) Entry into register of shareholders . Upon the issue of the Ordinary Shares into which the Preference Shares are converted, the Company shall enter such shareholder of the Company in its register of shareholders in respect of the relevant number of Ordinary Shares arising from such conversion, and the Preference Shares which have been converted into Ordinary Shares shall be treated as cancelled.

(E) Redemption

(a) Mandatory redemption

A Preference Shareholder may by notice in writing to the Company require the Company to redeem all or any of the then outstanding Preference Shares, whereupon subject to the requirements of the Companies Act, the Company shall pay to the Preference Shareholder within 7 Business Days from receipt of such notice or the earliest date permitted under the Companies Act, whichever is later, a redemption amount equal to the aggregate Initial Subscription Price of such number of Preference Shares so redeemed together with the pro rata portion of Preferential Dividend that has accrued from day to day thereon up to the date immediately prior to the payment date of the redemption amount (“Redemption Date”) upon the occurrence of any of the following (whichever is the earliest):

(i) 31st December 2016;
(ii) any consolidation, amalgamation or merger of the Company with any other corporation which results in the Company ceasing to exist as an independent legal entity or any sale of all or substantially all of the assets of the Company or any reorganisation

NOTICE OF SGM

or any other transaction where there is or which will result in a change in control (as defined in the Hong Kong Code on Takeovers and Mergers (“Takeovers Code”)) of the control of the Company;

(iii) listing of the Ordinary Shares on Main Board of The Stock Exchange of Hong Kong Limited or on such other internationally recognised stock exchange (the “Recognised Stock Exchange”) on which the Ordinary Shares may be listed at the relevant time (as the case may be) are revoked or withdrawn (except in connection with the simultaneous listing of the Ordinary Shares on any Recognised Stock Exchange);
(iv) a Directors’ resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company or for the appointment of a liquidator, receiver, administrator, trustee or similar officer of the Company;
(v) the Ordinary Shares are not listed on the Main Board of the Hong Kong Stock Exchange or a Recognised Stock Exchange within 3 years from the Issue Date; or
(vi) an effective resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company or for the appointment of a liquidator, receiver, administrator, trustee or similar officer of the Company; a petition is presented or a proceeding is commend for the windingup, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company or for the appointment of a liquidator, receiver, administrator, trustee or similar officer of the Company is not discharged within 60 days; if the Company stops or suspends payments to its creditors generally or is unable or admits its inability to pay its debts as they fall due or seeks to enter into any composition or other arrangement with its creditors or is declared or becomes bankrupt or insolvent; or if a creditor takes possession of all or any part of the business or assets of the Company or any execution or other legal process is enforced against the business or any substantial asset of the Company and is not discharged within 60 days.

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(b) Mechanism for Redemption

On each Redemption Date, each Preference Shareholder shall deliver to the Company the certificate(s) for the Preference Shares to be redeemed and the Company shall cancel the same. If any certificate so delivered to the Company includes any Preference Shares not falling to be redeemed on the relevant Redemption Date, the Company shall without charge issue a certificate for the balance of any unredeemed Preference Shares to the holder or holders thereof.

(c) Redemption subject to laws

If on the Redemption Date, the number of Preference Shares that may be legally redeemed by the Company is less than the number of Preference Shares to be redeemed, then a redemption of the number of Preference Shares which can be legally redeemed shall be made amongst the relevant holders thereof pro rata as nearly as possible to their then holdings of Preference Shares. Any unredeemed Preference Shares shall be redeemed as soon after such Redemption Date as is permitted by law and such redemption shall be made amongst the relevant holders thereof pro rata as nearly as possible to their then holdings of Preference Shares.

(d) Early Redemption at the option of the Company

The Company may by notice in writing to the Preference Shareholders redeem all or any of the then outstanding Preference Shares but a portion of the Preference Shares, whereupon subject to the requirements of the Companies Act, the Company shall pay to the Preference Shareholder within 2 Business days from service of such notice or the earliest date permitted under the Companies Act, whichever is later, a redemption amount equal to the face value of such number of Preference Shares so redeemed together with the pro rata portion of Preferential Dividend that has accrued from day to day thereon up to the date immediately prior to the payment date of the redemption amount if:

(i) the Ordinary Shares close on thirty consecutive trading days at or above a price that is 100% higher than the conversion price of the Preference Shares; or
(ii) there are less than 80 million Preference Shares in issue.

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(F) Conversion adjustments

(a) The Conversion Price shall from time to time be adjusted in accordance with the following relevant provisions and so that if the event giving rise to any such adjustment shall be such as would be capable of falling within more than one of sub-paragraphs (a)(i) to (a)(vii) of paragraph (F) of this Bye-Law inclusive, it shall fall within the first of the applicable clauses to the exclusion of the remaining clauses:
(i) if and whenever the Ordinary Shares by reason of any consolidation or sub-division or reclassification become of a different nominal amount, the Conversion Price in force immediately prior thereto shall be adjusted by multiplying it by the revised nominal amount and dividing the result by the former nominal amount. Each such adjustment shall be effective from the close of business in Hong Kong on the day immediately preceding the date on which the consolidation or sub-division or reclassification becomes effective.
(ii) if and whenever the Company shall:
- (a) issue (other than in lieu of a cash dividend) any Ordinary Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account); or
- (b) issue Ordinary Shares paid out of distributable profits or reserves and share premium accounts issued in lieu of the whole or any part of a cash dividend, being a dividend which the holders of the Ordinary Shares concerned would or could otherwise have received but only to the extent that the market value of such Ordinary Shares exceeds 110% of the amount of dividend which holders of the Ordinary Shares could elect to or would otherwise receive in cash and which would not have constituted a capital distribution (as defined in sub-paragraph (b) of paragraph (F) of this Bye-Law (for which purpose the “market value” of an Ordinary Share shall mean the average of the closing prices published in the Hong Kong Stock Exchange’s Daily Quotation Sheet for one Ordinary Share for 5 trading days ending an the last trading day immediately preceding the last day on which holders of Ordinary Shares may elect to receive or (as the case may be) not to receive the relevant dividend in cash); then the Conversion Price in force immediately prior to such issue shall be adjusted by multiplying it by the aggregate nominal amount of the issued Ordinary Shares immediately before such issue and dividing

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the result by the sum of such aggregate nominal amount and the aggregate nominal amount of the Ordinary Shares issued in such capitalisation. Each such adjustment shall be effective (if appropriate, respectively) from the commencement of the day next following the record date for such issue;

(iii) if and whenever the Company shall make any capital distribution to holders (in their capacity as such) of Ordinary Shares (whether on a reduction of capital or otherwise) or shall grant to such holders rights to acquire for cash assets of the Company or any of its subsidiaries, the Conversion Price in force immediately prior to such distribution or grant shall be adjusted by multiplying by the following fraction:

==> picture [51 x 24] intentionally omitted <==

where:

A = the closing price published in the Hong Kong Stock Exchange in respect of one Ordinary Share on the trading day immediately preceding the date on which the capital distribution or, as the case may be, the grant is publicly announced or (failing any such announcement) immediately preceding the date of the capital distribution or, as the case may be, of the grant; and
B = the fair market value on the day of such announcement or failing any such announcement, the date of the capital distribution or the grant, as the case may be, as determined in good faith by the independent financial adviser to the independent shareholders to be appointed pursuant to the Takeovers Code, any other relevant rules and regulations (“Independent Financial Adviser”), of the portion of the capital distribution or of such rights which is/are attributable to one Ordinary Share,

Provided that:

(a) if, in the opinion of the relevant Independent Financial Adviser, the use of the fair market value as aforesaid produces a result which is significantly inequitable, it may instead determine (and in such event the above formula shall be construed as if B meant) the amount of the closing price published in the Hong Kong Stock Exchange’s daily

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quotation sheet of one Ordinary Share which should properly be attributed to the value of the capital distribution or rights; and

(b) sub-paragraph (a)(iii) of paragraph (F) of this Bye-Law shall not apply in relation to the issue of Ordinary Shares paid out of profits or reserves and issued in lieu of a cash dividend. Each such adjustment shall be effective (if appropriate, retrospectively) from the commencement of the day following the record date for the capital distribution or grant;
(iv) If and whenever the Company shall offer to all holders of Ordinary Shares new Ordinary Shares for subscription by way of rights, or shall grant to all holders of Ordinary Shares any options or warrants to subscribe for new Ordinary Shares, at a price per new Ordinary Share which is less than 90% of the market price at the date of the announcement of the terms of the offer or grant (whether or not such offer or grant is subject to the approval of the holders of Ordinary Shares or other persons), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately before the date of the announcement of such offer or grant by the following fraction:

==> picture [51 x 24] intentionally omitted <==

where:

G = the number of Ordinary Shares in issue immediately before the date of such announcement;
H = the number of Ordinary Shares which the aggregate of the two following amounts would purchase at such market price:
(i) the total amount (if any) payable to the rights, options or warrants being offered or granted; and
(ii) the total amount payable for all of the new Ordinary Shares being offered for subscription or comprised in the rights, options or warrants being granted; and
I = the aggregate number of Ordinary Shares being offered for subscription or comprised of the day next following the record date for the relevant offer or grant.

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Such adjustment shall become effective (if appropriate retroactively) from the commencement of the day next following the record date for the relevant offer or grant.

(v) (a) If and whenever the Company or any of its subsidiaries shall issue wholly for cash any securities which by their terms are convertible into or exchangeable for or carry rights of subscription for new Ordinary Shares, and the total Effective Consideration per new Ordinary Share initially receivable for such securities is less than 90% of the market price at the date of the announcement of the terms of issue of such securities whether or not such issue is subject to the approval of the holders of Shares of other persons), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to such issue by the following fraction:

==> picture [51 x 23] intentionally omitted <==

where:

J = the number of Ordinary Shares in issue immediately before the date of the issue of such securities;
K = the number of Ordinary Shares which the total Effective Consideration receivable for such securities would purchase at such market price; and
L = the maximum number of new Ordinary Shares to be issued upon full conversion or exchange of, or the exercise in full of the subscription rights conferred by, such securities at their relative initial conversion or exchange rate or subscription price.

Such adjustment shall become effective (if appropriate retroactively) from the close of business on the Business Day immediately preceding whichever to the earlier of the date on which the issue is announced and the date on which the issuer of the relevant securities determines the conversion or exchange rate or subscription price in respect of such securities.

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(b) If and whenever the rights of conversion or exchange or subscription attaching to any such securities as are mentioned sub-paragraph (a)(v)(a) of paragraph (F) of this Bye-Law are modified so that the total Effective Consideration per new Ordinary Share initially receivable for such securities shall be less than 90% of the market price at the date of announcement of the proposal to modify such rights of conversion or exchange or subscription, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to such modification by the following fraction:

M + N M + O

where:

M = the number of Ordinary Shares in issue immediately before the date of such modification;
N = the number of Ordinary Shares which the total Effective Consideration receivable for such securities at the modified conversion or exchange rate or subscription price would purchase at such market prices; and
O = the maximum number of new Ordinary Shares to be issued upon full conversion or exchange of, or the exercise in full of the subscription rights conferred by, such securities at their relative modified conversion or exchange rate or subscription price.

Such adjustment shall become effective as at the date upon which such modification shall take effect. A right of conversion or exchange or subscription shall not be treated as modified for the foregoing purposes where it is adjusted to take account of rights or capitalisation issues and other events normally giving rise to adjustments of conversion, exchange or subscription terms.

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(c) For the purposes of sub-paragraph (a)(v) of paragraph (F) of this Bye-Law:
- (aa) the “total Effective Consideration” receivable for the securities issued shall be deemed to be the aggregate consideration receivable by the issuer for such securities for the issue thereof plus the additional minimum consideration (if any) to be received by the issuer and or the Company (if not the issuer) upon (and assuming) the full conversion or exchange thereof or the exercise in full of the subscription rights attaching thereto; and
- (bb) the “total Effective Consideration per new Ordinary Share” initially receivable for such securities shall be such aggregate consideration divided by the maximum number of new Ordinary Shares to be issued upon (and assuming) the full conversion or exchange thereof at the initial conversion or exchange rate or the exercise in full of the subscription rights attaching thereto at the Initial Subscription Price, in each case, without any deduction of any commissions, discounts or expenses paid, allowed or incurred in connection with the issue thereof.
(vi) If and whenever the Company shall issue wholly for cash any Ordinary Shares at a price per Ordinary Share which is less than 90% of the market price at the date of the announcement of the terms of such issue, the Conversion Price shall he adjusted by multiplying the Conversion Price in force immediately prior to the date of such announcement by the following fraction:

==> picture [51 x 24] intentionally omitted <==

where:

P = the number of Ordinary Shares in issue immediately before the date of such announcement;
Q = the number of Ordinary Shares which the aggregate amount payable for such issue would purchase at such market price; and
R = the number of Ordinary Shares allotted pursuant to such issue. Such adjustment shall become effective on the date of the issue.

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(vii) If and whenever the Company makes an offer or invitation to holders of Ordinary Shares to tender for sale to the Company and Ordinary Shares or if the Company shall purchase any Ordinary Shares or securities convertible into Ordinary Shares or any rights to acquire Ordinary Shares (excluding any such purchase made on the Hong Kong Stock Exchange or any recognised stock exchange, being a stock exchange recognised for this purpose by the Securities and Futures Commission of Hong Kong (the “SFC”) or equivalent authority and the Hong Kong Stock Exchange) and the Board considers that it may be appropriate to make an adjustment to the Conversion Price, at that time the Board shall appoint the Independent Financial Adviser to consider whether, for any reason whatever as a result of such purchases, an adjustment should be made to the Conversion Price fairly and appropriately to reflect the relative interests of the persons affected by such purchases by the Company and, if the Independent Financial Adviser shall consider in its opinion that it is appropriate to make an adjustment to the Conversion Price, an adjustment to the Conversion Price shall be made in such manner as the Independent Financial Adviser shall certify to be, in its opinion, appropriate. Such adjustment shall become effective (if appropriate retroactively) from the close of business in Hong Kong on the Business Day next preceding the date on which such purchases by the Company are made.
(b) For the purposes of sub-paragraph (a) of paragraph (F) of this Bye-Law:

“announcement” shall include the release of an announcement to the press or the delivery or transmission by telephone, telex, facsimile transmission or otherwise of an announcement to the Hong Kong Stock Exchange, “date of announcement” shall mean the date on which the announcement is first so released, delivered or transmitted and “announce” shall be construed accordingly;

“capital distribution” shall (without prejudice to the generality of that phrase) include distributions in cash or specie, and any dividend or distribution charged or provided for in the accounts for any financial period shall (whenever paid and however described) be deemed to be a capital distribution, provided that any such divided shall not automatically be so deemed if:

(i) it is paid out of the net profits (less losses) attributable to the holders of Ordinary Shares for all financial periods after that ended 31st December as shown in the audited consolidated profit and loss account of the Company and its subsidiaries for each such financial period; or

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(ii) to the extent that (i) above does not apply, the rate of that dividend, together with all other dividends on the class of capital in question charged or provided for in the accounts for the financial period in questions, does not exceed the aggregate rate of dividend on such class of capital charged or provided for in the accounts for the last preceding financial period. In computing such rates, such adjustments may be made as are in the opinion of the Independent Financial Adviser appropriate to the circumstances and shall be made in the event that the lengths of such periods differ materially;

“issue” shall include allot;

“market price” means the average of the closing prices published in the Hong Kong Stock Exchange’s Daily Quotation Sheet for one Ordinary Share for the 5 trading days ending on the last trading day immediately preceding the day on or as of which such price is to be ascertained provided that if at any the during the said 5 trading days, the Share shall have been quoted ex-divided and during some other part of that period, the Ordinary Shares shall have been quoted cum-dividend, then:

(i) if the Ordinary Shares to be issued do not rank for the dividend in question, the quotations on the dates on which the Ordinary Shares shall have been quoted cum-dividend shall for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the amount of that dividend per Ordinary Share; and
(ii) if the Ordinary Shares to be issued rank for the dividend in question, the quotations on the dates on which the Ordinary Shares shall have been quoted ex-dividend shall for the purpose of this definition be deemed to be the amount thereof increased by an amount equal to the amount of that dividend per Ordinary Share; and provided further that if the Ordinary Shares on each of the said five trading days have been quoted cum-dividend in respect of a dividend which has been declared or announced but the Ordinary Shares to be issued or purchased do not rank for that dividend, the quotations on each of such dates shall for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the amount of that dividend per Ordinary Share;

“Shares” includes, for the purposes of Ordinary Shares comprised in any issue, distribution, offer or grant pursuant in sub-paragraphs (a)(ii), (a)(iii), (a)(iv), (a)(v) and (a)(vi) of paragraph (F) of this Bye-Law, any such shares of the Company as, when fully paid, shall be Ordinary Shares;

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“rights” includes rights in whatsoever form issued.
(c) if the Conversion Price is adjusted with effect (retroactively or otherwise) from a date on or before the date on which the names of the Preference Shareholders whose Preference Shares are converted into Ordinary Shares pursuant hereto or such other persons as they may direct are entered into the register of holders of Ordinary Shares of the Company and such Preference Shareholders’ entitlement were arrived at on the basis of unadjusted Conversion Price, the Company shall procure that such number of Ordinary Shares which would have been required to be issued on conversion of such Preference Shares if the relevant adjustment had been given effect to as at the date of conversion shall be allotted and issued to such Preference Shareholders or such other persons as they may direct.
(d) The provisions of sub-paragraph (a) of paragraph (F) of this Bye-Law shall not apply to:
(a) an issue of fully-paid Ordinary Shares upon the exercise of any conversion rights attached to securities convertible into Ordinary Shares that exist at the date of issue of the Preference Shares;
(b) an issue of Ordinary Shares or other securities of the Company or any subsidiary wholly or partly convertible into, of carrying rights to acquire Ordinary Shares to the directors or employees or the Company or any of its subsidiaries pursuant to an employee share option scheme adopted by the Company, and
(c) an issue by the Company of Ordinary Shares or by the Company or its subsidiary of securities wholly or partly convertible into or carrying rights to acquire Ordinary Shares, in any such case in consideration or part consideration for the acquisition of any other securities, assets or business.
(e) Notwithstanding the provisions of sub-paragraph (a) of paragraph (F) of this Bye-Law, in circumstances where the Directors shall consider that an adjustment to the Conversion Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Conversion Price should be made notwithstanding that no such adjustment is required under the said provisions or that an adjustment should take effect on a different date or at a different time from that provided for under the provisions, the Company may appoint the Independent Financial Adviser, to consider whether for any reason whatever the adjustment to be made (or the absence of adjustment) would or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if the

NOTICE OF SGM

Independent Financial Adviser shall consider this to be the case, the adjustment shall be modified or nullified or an adjustment made instead of no adjustment in such manner including without limitation, making an adjustment calculated on a different basis and/or the adjustment shall take effect from such other date or time as shall be certified by the Independent Financial Adviser to be in its opinion appropriate.

(f) Any adjustment to the Conversion Price shall be made to the nearest cent so that any amount under half a cent shall be rounded down and an amount of half a cent or more shall be rounded up and in no event shall any adjustment (otherwise than upon the consolidation of Ordinary Shares into shares of a larger nominal amount or upon a repurchase of Ordinary Shares) involve an increase in the Conversion Price.
(g) No adjustment shall be made to the Conversion Price in any case in which the amount by which the same would be reduced in accordance with the foregoing provisions would be less than one cent.
(h) Where the result of any act or transaction of the Company the result of which, having regard to the provisions of paragraph (F) of this ByeLaw, would be to reduce the Conversion Price to below the nominal amount of a Share, no adjustment to the Conversion Price shall be made pursuant to any of the relevant provisions of paragraph (F) of this ByeLaw shall be made unless (i) the Bye-Laws shall be in such form, or shall have been altered of added to in such manner, as may be necessary or appropriate to enable the following provisions of this sub-paragraph (h) and the provisions of paragraph (G) of this Bye-Law to be implemented, (ii) implementation of such provisions is not prohibited by and is in compliance with the provisions of the Companies Act, and (iii) the Company, shall have established and shall thereafter (subject as provided in paragraph (G) of this Bye-Law) maintain in accordance with the provisions of paragraph (G) of this Bye-Law the Conversion Right Reserve refereed to therein.
(i) Whenever the Conversation Price is adjusted, the Company shall give notice to the Preference Shareholders that the Conversation Price has been adjusted (setting forth the event giving right to the adjustment, the Conversation Price in effect prior to such adjustment, the adjusted Conversion Price and the effective date thereof).

NOTICE OF SGM

(G) Reduction of the Conversion Price to below the nominal value of a Share

(a) If, so long as any of the Conversion Rights shall remain exercisable, at any time after the Bye-Laws shall be in such form, or shall have been altered or added to, as provided in sub-paragraph (h) of paragraph (F) of this Bye-Law and the following provisions of paragraph (G) of this ByeLaw are not prohibited by and are implemented in compliance with the provisions of the Companies Act, the Company does any act or engages in any transaction to which the provisions of sub-paragraph (h) of paragraph (F) of this Bye-Law relate, then in compliance with the provisions of that Bye-Law, the following provisions shall apply:
(i) As from the date of such act or transaction, the Company shall establish and thereafter (subject as provided in this paragraph (G) of this Bye-Law maintain in accordance with the provisions of this sub-paragraph (a) of paragraph (G) of this Bye-Law a reserve (the “Conversion Right Reserve”) the amount of which shall at no time be less than the sum which for the time would be required to be capitalised and applied in paying up in full the nominal amount of the additional Ordinary Shares required to be allotted and issued credited as fully paid up pursuant to sub-paragraph (a)(iii) of paragraph (G) of this Bye-Law on the exercise in full of all the right of the Preference Shareholders to convert their Preference Shares into Ordinary Shares (“Conversion Rights”) outstanding (and any other) conversion or subscriptions rights outstanding in respect of Ordinary Shares under any other securities of the Company) and shall apply the Conversion Right Reserve in paying up in full such additional Ordinary Shares as and when the same are allotted.
(ii) The Conversion Right Reserve will not be used for any purpose other than that specified above unless all other reserves of the Company (other than share premium account) have been extinguished and will then only be used to make good losses of the Company if and so far as is required by law.
(iii) Upon the exercise of the Conversion Rights represented by any Preference Shares, the relevant Conversion Rights shall be exercisable in respect of a nominal amount of Ordinary Shares equal to the Initial Subscription Price of such Preference Shares (or, as the case may be, the portion thereof in respect of which the Conversion Rights are then exercised) and, in addition, there shall be allotted in respect of such Conversion Right to the exercising Preference Shareholder credited as fully paid such additional nominal amount of Ordinary Shares as is equal to the difference between:

NOTICE OF SGM

(aa) the Initial Subscription Price of such Ordinary Shares (or, as the case maybe, the portion thereof in respect of which the Conversion Rights are then exercised); and
(bb) the nominal amount of Ordinary Shares in respect of which such Conversion Rights would have been exercisable, having regard to the provisions of paragraph (F) of this Bye-Law, had it been possible for such Conversion Rights to represent the right to convert into Ordinary Shares at less then par, and immediately upon such exercise so much of the sum standing to the credit of the Conversion Right Reserve as is required to pay up in full such additional nominal amount of Ordinary Shares shall be capitalised and applied paying up in full such additional nominal amount of Ordinary Shares (other than a fraction of an Ordinary Share) and the relevant number of Ordinary Shares shall forthwith be allotted credited as fully paid to the exercising Preference Shareholder.
(iv) If upon the exercise of Conversion Rights represented by any Preference Share the amount standing to the credit of the Conversion Right Reserve is not sufficient to pay up in full such additional nominal amount of Ordinary Shares equal to such difference as aforesaid to which the exercising Preference Shareholder is entitled, the Directors shall apply any profits or reserves then, or thereafter becoming, available (including, to the extent permitted by law, the share premium account) for such purpose until such additional nominal amount of Ordinary Shares is paid up and the relevant number of Ordinary Shares are allotted as aforesaid and until then no dividend or other distribution shall be paid or made on the Ordinary Shares then in issue. Pending such payment out of the Conversion Right Reserve and the available profits and reserves of the Company and allotment the exercising Preference Shareholder shall be issued by the Company with a certificate evidencing his right to the allotment of such additional nominal amount of Ordinary Shares. The rights represented by any such certificate shall be in registered form and shall be transferable in whole or in part in units of one Ordinary Share in the like manner as the Ordinary Shares for the time being are transferable, and the Company shall make such arrangements in relation to the maintenance of a register therefore and other matters in relation thereto as the directors of the Company may think fit, and adequate particulars thereof shall be made known to each relevant exercising Preference Shareholder upon the issue of such certificate.

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(b) Ordinary Shares allotted pursuant to the provisions of this paragraph (G) of this Bye-Law shall rank pari passu in all respects with the other Ordinary Shares allotted on the relevant exercise of the Conversion Rights represented by the Preference Share concerned.
(c) Notwithstanding anything contained in sub-paragraph (a) of paragraph (G) of this Bye-Law, no fraction of any Ordinary Share shall be allotted on exercise of the Conversion Rights and the provisions of sub-paragraph (e) of paragraph (D) of this Bye-Law shall apply. For this purpose, if the provisions of sub-paragraph (a)(iii) of paragraph (G) of this ByeLaw apply on the occasions of the exercise of the Conversion Rights represented by any Preference Share, then for the purpose of determining whether any (and if so what) fraction of an Ordinary Share arises:
(i) if the amount standing to the credit of the Conversion Right Reserve is sufficient (when aggregated with the Initial Subscription Price of such Preference Share or, as the case may be, the portion thereof payable upon exercise in part of the Conversion Rights represented by such Preference Share) to enable the issue of the full nominal amount of Ordinary Shares in respect of which the Conversion Rights represented by such Preference Share are then being exercised, any fractions that would arise on the basis of (separately) the Initial Subscription Price (or, as the case may be, the portion thereof as aforesaid) relating to such Preference Share and the capitalisation of an amount standing to the credit of the Conversion Right Reserve shall be aggregated; and
(ii) if the contrary to (i) above is the case, the provisions of subparagraph (e) of paragraph (D) of this Bye-Law and the foregoing provisions of sub-paragraph (c) of paragraph (G) of this Bye-Law shall not be applied until the full nominal amount of the Ordinary Shares which fall to be issued on exercise in full of the Conversion Rights represented by such Preference Share is issued (and at that point the Initial Subscription Price relating to such Preference Share and the amount, or all the amounts, capitalised as provided in sub-paragraph (a) of paragraph (G) of this Bye-Law shall be aggregated and the fraction to which the provisions of subparagraph (e) of paragraph (D) of this Bye-Law and the foregoing provisions of sub-paragraph (c) of paragraph (G) of this Bye-Law shall be the amount of any fraction of a Share then resulting).

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(d) A certificate or report by the auditors of the Company from time to time as to whether or not the Conversion Right Reserve is required to be established and maintained and if so the amount thereof so required to be established and maintained, as to the purposes for which the Conversion Right Reserve has been used, as to the extent to which it has been used to make good losses of the Company, as to the number of Ordinary Shares required to be allotted to exercising Preference Shareholders credited as fully paid and as to any other matter concerning the Conversion Right Reserve shall (in the absence of manifest error) be conclusive and binding upon the Company and all the Preference Shareholders and shareholders and all persons claiming through or under them respectively.

(H) Ranking of the Preference Shares

The Preference Shares shall rank in preference to:

(a) any and all other classes of preference equity securities of the Company currently in issue or to be created in the future in the capital of the Company;
(b) any and all other classes of ordinary equity securities of the Company currently in issue or to be created in the future in the capital of the Company.

(I) Payments

(a) Payment of all amounts in respect of the Preference Shares under terms and conditions thereof shall be made on the due dates into such bank account in as the holder of the relevant Preference Shareholder may notify the Company by at least 7 day’s prior notice in writing from time to time. All payments made by the Company in respect of the Preference Shares pursuant to the terms and conditions of the Preference Shares shall be made in Hong Kong dollars in immediately available funds.
(b) If the due date for payment of any amount in respect of the Preference Shares is not a Business Day, the Preference Shareholder will be entitled to payment on the next following Business Day in the same manner together with interest accrued in respect of any such delay.”

(J) Further issues

The issue of the Preference Shares do not prohibit further issues of shares ranking pari passu or in priority to the Preference Shares.

(K) Listing

The Preference Shares are listed on the Hong Kong Stock Exchange. No application will be made for a listing on any other stock exchange.

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(L) In the case of any inconsistency in the provisions of this Bye-Law 5A with other provisions of the Bye-Laws, the provisions of this Bye-Law 5A shall prevail.”

ORDINARY RESOLUTION

THAT, conditional upon the passing of the resolution numbered 2 set out in this notice, the authorised share capital of the Company be and is hereby increased from HK$500,000,000 divided into 50,000,000,000 ordinary shares of HK$0.01 each to HK$502,700,000 divided into 50,000,000,000 shares of HK$0.01 each and 270,000,000 Preference Shares, with the respective rights and privileges and subject to the restrictions and terms set out in the Byelaws of the Company as amended by special resolution no.3 above.

By Order of the Board Paladin Limited Chan Chi Ho Company Secretary

Hong Kong, 20th July, 2006

Head Office and Principal Place of Business: 45th Floor, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Notes:

Any Member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.
The form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be either under its common seal or under the hand of any officer or attorney duly authorised in writing.
In the case of joint registered holders of any shares in the Company, any one of such persons may vote at the meeting either personally of by proxy in respect of such shares but if more than one of such joint holders is present at the meeting personally or by proxy the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes off the other joint holder(s), and for this purpose seniority will be determined by the order in which the names stand in the register of members in respect of the joint holding.
To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof must be deposited at the Company’s Hong Kong Share Registrars, Computershare Hong Kong Investor Services Limited, 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than fortyeight hours before the time appointed for holding the meeting or any adjournment thereof.
The proxy need not be a member of the Company but must attend the meeting in person to represent you.
Completion and return of a form of proxy will not preclude you from attending and voting in person at the Meeting or any adjourned meeting should you so wish.

As at the date of this notice, the executive directors of the Company are Mr. LAW Fong and Mr. CHEN Te Kuang Mike, the non-executive director is Mr. OUNG Shih Hua James and the independent non-executive directors are Mr. ZHU Pei Qing, Ms. LU Ti Fen and Mr. KWOK Wai Chi.

AI assistant

G-Resources Group Limited — Proxy Solicitation & Information Statement 2006

49648_rns_2006-07-20_fec67f5a-d567-409f-b905-defff1551829.pdf

PALADIN LIMITED

CONTENTS

Principal banker

Company secretary and qualified accountant

Legal Adviser as to Hong Kong law

Legal Adviser as to Bermuda law

Auditors

Principal registrar

Branch registrar and transfer agent in Hong Kong

Principal office

Registered office

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

PALADIN LIMITED

PROPOSED OPEN OFFER OF CONVERTIBLE REDEEMABLE PREFERENCE SHARES OF HK$0.01 EACH IN THE PROPORTION OF

ONE CONVERTIBLE REDEEMABLE PREFERENCE SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.25 PER CONVERTIBLE REDEEMABLE PREFERENCE SHARE, PROPOSED AMENDMENTS TO THE BYE-LAWS, CAPITAL REORGANISATION AND INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

LETTER FROM THE BOARD

THE OPEN OFFER

Issue Statistics

Terms of the convertible redeemable preference shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Public float of the convertible redeemable preference shares

Qualifying shareholders

Payment

Share certificates for the convertible redeemable preference shares

Fractions of convertible redeemable preference shares

Application for excess convertible redeemable preference shares

Permission of the Bermuda Monetary Authority

CAPITAL REORGANISATION

Conditions of the capital reorganisation

LISTING AND DEALINGS

WARNING OF THE RISKS OF DEALINGS IN THE SHARES

UNDERWRITING ARRANGEMENTS

Underwriting agreement

Irrevocable undertakings by the Oung family

LETTER FROM THE BOARD

Conditions of the underwriting agreement

Termination of the underwriting agreement

CONDITIONS OF THE OPEN OFFER

REASONS FOR THE OPEN OFFER

LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE OPEN OFFER

BUSINESS OUTLOOK OF PALADIN GROUP

LETTER FROM THE BOARD

EFFECTS OF THE OPEN OFFER

PROPOSED AMENDMENTS TO THE BYE-LAWS OF PALADIN

SPECIAL GENERAL MEETING

RECOMMENDATIONS

GENERAL

1. SHARE CAPITAL

2. SUMMARY OF FINANCIAL INFORMATION

RESULTS

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. GENERAL

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

3. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

4. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Revenue recognition

Property, plant and equipment

Investments in subsidiaries

Investments in securities

Club debentures

Properties held for sale

Properties under development

Capitalisation of borrowing costs

Impairment

Taxation

G-Resources Group Limited Proxy Solicitation & Information Statement 2006