Genesis Scale Holdings Limited — Proxy Solicitation & Information Statement 2006

Feb 27, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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CLIMAX INTERNATIONAL COMPANY LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 439)

DISCLOSEABLE TRANSACTION

ACQUISITION OF 19% OF THE EQUITY INTERESTS IN VEVION HONG KONG LIMITED

Financial adviser to Climax International Company Limited

SinoPac Securities (Asia) Limited

24 February 2006

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Information on Vevion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reason for and benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	9

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DEFINITIONS

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

“Acquisition”	the acquisition of the Sale Shares by the Company from	the acquisition of the Sale Shares by the Company from
	Mr. Chan pursuant to the Acquisition Agreement
“Acquisition Agreement”	the conditional sale and purchase agreement	dated 23
	January 2006 entered into between the Company and Mr.
	Chan in relation to the Acquisition
“Announcement”	the announcement made by the Company	dated 3
	February 2006 in respect of, among other things, the
	Acquisition
“Board”	the board of Directors
“Company”	Climax International Company Limited, a	company
	incorporated in Bermuda with limited liability,	the shares
	of which are listed on the Stock Exchange
“Completion”	the completion of the sale and purchase of	the Sale
	Shares
“Completion Date”	the 90th day from the date of the Acquisition Agreement
	or such other date as the Company and Mr. Chan may
	mutually agree in writing prior to Completion
“Director(s)”	director(s) of the Company
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Latest Practicable Date”	22 February 2006, being the latest practicable	date prior
	to the printing of this circular for ascertaining certain
	information referred to in this circular
“Listing Rules”	Rules Governing the Listing of Securities on	the Stock
	Exchange
“Mr. Chan”	Mr. Chan Hoi Lam, a shareholder and director of the
	Company

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DEFINITIONS

“PRC”	the People’s Republic of China
“Rights Issue”	the proposed rights issue of 1,976,995,036 Shares on the
	basis of one rights share for every two existing shares,
	details of which were stated in the Announcement
“Sale Shares”	1,900,000 ordinary shares of par value HK$1.00 each in
	the issued share capital of Vevion, representing 19% of
	the entire issued share capital of Vevion as at the date of
	the Acquisition Agreement
“SFO”	The Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendor”	Mr. Chan
“Vevion”	Vevion Hong Kong Limited, a company wholly owned by
	Mr. Chan and which is incorporated in Hong Kong with
	limited liability
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

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LETTER FROM THE BOARD

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CLIMAX INTERNATIONAL COMPANY LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 439)

Executive Directors: Mr. KAN Shiu Cheong, Frederick (Chairman) Mr. CHAN Hoi Lam Mr. YAU Kang Lam Mr. JIANG Hai Qing

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent non-executive Directors:

Mr. NG Sui Keung Professor LAI Kin Keung Mr. YUEH Yung Hsin

Head office and principal place of business: 26th Floor, Metropole Square 2 On Yiu Street Siu Lek Yuen, Shatin New Territories Hong Kong

24 February 2006

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

ACQUISITION OF 19% OF THE EQUITY INTERESTS IN VEVION HONG KONG LIMITED

INTRODUCTION

On 6 February 2006, the Board announced that the Company has, on 23 January 2006, conditionally agreed to acquire 19% of the issued share capital of Vevion from Mr. Chan.

The Acquisition also constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. The purpose of this circular is to provide Shareholders with further details of the Acquisition in compliance with the requirements of Chapter 14 of the Listing Rules.

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LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date : 23 January 2006 Parties Purchaser : The Company Vendor : Mr. Chan Assets to be acquired Sale Shares : 1,900,000 ordinary shares of Vevion of HK$1.00 each, representing 19% of the entire issued share capital of Vevion as at the date of the Acquisition Agreement

Consideration

The consideration for the Sale Shares is HK$9,500,000, which is arrived at after arm’s length negotiation with reference to the valuation of Vevion’s business and its business plan as at 30 September 2005 conducted by Vigers Appraisal & Consulting Limited, an independent valuer and the business prospects of Vevion. The appraisal has been carried out on a market value basis. The valuation was determined by the income approach with the use of the free cash flows to equity in the discounted cash flow method. Based on the valuation report prepared by Vigers Appraisal & Consulting Limited, an independent valuer, the valuation of Vevion’s business as at 30 September 2005 was approximately HK$41,000,000. For the purpose of determining the consideration amount, the Directors have also considered the business plan of Vevion, which consists of three major areas, namely (1) expansion of existing store operations by setting up three additional retail stores in 2006 focusing on photo equipment and development and photofinishing services; (2) expansion of provision of online photofinishing services via an online photo album platform developed by one of the world’s leading internet media company; and (3) development of potential online photofinishing business with a leading provider of internet and mobile & communications value-added services in the mainland China. In addition, market surveys and research indicated that the demand for photo equipment and photofinishing services had continued to grow. Given that the business model of Vevion which combines both real business at shop level equipped with its own photo-finishing machines and virtual business of sales and marketing through internet networks, the Directors consider that the direction of Vevion in online service matches with the popularity and attraction of internet business worldwide and there are good opportunities to do business in the photo equipment and photofinishing market and that it is fair and reasonable to give a premium on the Acquisition.

The consideration for the Sale Shares is payable in the following manner: (a) a deposit of HK$1,000,000 has been paid upon signing of the Acquisition Agreement; (b) a sum of HK$1,000,000 has been paid on 1 February 2006; and (c) the balance of HK$7,500,000 shall be payable upon Completion.

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LETTER FROM THE BOARD

The consideration for the Sale Shares, which will be payable in cash, has been partly financed by the internal resources of the Group for a sum of HK$2,000,000 and will be partly by the proceeds from the Rights Issue for a sum of HK$7,500,000. In the event that the Rights Issue cannot finally proceed, the Company will seek other fund sources, such as long term banking facilities, to finance the balance of the consideration for the Sale Shares. The Acquisition and the Rights Issue are not inter-conditional upon each other.

Conditions

Completion of the Acquisition Agreement shall be conditional upon the following conditions being fulfilled or waived:

• (a) the shareholders of the Company having approved the Acquisition Agreement and the transaction contemplated herein, if necessary under the Listing Rules;

• (b) all necessary reporting requirements and regulatory obligations of the Company under the Listing Rules in relation to the Acquisition Agreement and the transaction contemplated herein having been complied with;

• (c) completion by the Company of a due diligence review and a confirmation given by the Company to the Vendor confirming that it is reasonably satisfied with the due diligence review thereof; and

• (d) the Acquisition Agreement has not been rescinded by the Vendor by written notice at any time before Completion.

The Company may at any time before Completion waive the condition (c) by notice in writing.

As at the Latest Practicable Date, condition (a) is deemed to be fulfilled since no shareholders’ approval is necessary under the Listing Rules and condition (c) was fulfilled. As such, if any of the conditions (b) and (d) above are not fulfilled by 5:00 p.m. (Hong Kong time) on or before 27 February 2006 pursuant to a supplemental agreement dated 13 February 2006 (supplementary to the Acquisition Agreement) entered into between the Company and Mr. Chan, which extended the date from 14 February 2006 to 27 February 2006) (or such other date as may be agreed by the parties in writing), the Acquisition Agreement will lapse automatically and cease to be of any effect save for any antecedent breach and without prejudice to any accrued rights and remedies, and all moneys paid by the Company to the Vendor pursuant to the Acquisition Agreement shall be refunded in full to the Company without any deduction. Other than the extension of the deadline for fulfillment of the conditions, other terms of the Acquisition Agreement remained unchanged.

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LETTER FROM THE BOARD

Completion

Completion will take place during business hours on the Completion Date upon fulfillment of the above conditions or the waiver thereof (as applicable) or such other date as the Company and the Vendor may agree in writing.

INFORMATION ON VEVION

Vevion is principally engaged in the photo-finishing business and the trading and sale of photographical and audio-visual products. Currently, Vevion is operating ten shops providing photo-finishing business services in Hong Kong, among which four of them also sells photographical and audio-visual products. In addition, Vevion is also providing photofinishing services via an online photo-album platform developed by one of the world’s leading internet media company. Based on the unaudited management accounts of Vevion for the period commencing from its date of incorporation of 1 April 2004 and up to 31 March 2005, being its first financial year, Vevion recorded a turnover amount of HK$11,774,000 and a loss before tax of Vevion of approximately HK$2,611,000. Based on the unaudited management accounts of Vevion for the nine months ended 31 December 2005, Vevion recorded a turnover amount of approximately HK$25,840,000 and a loss before tax of approximately HK$3,126,000. No tax is expected to be levied as no assessable profits are recorded during the period from 1 April 2004 to 31 March 2005 and the period from 1 April 2005 to 31 December 2005 and there were no extraordinary items attributable to the profit and loss figures of Vevion during the same period. As at 31 December 2005, the unaudited net liability value of Vevion was HK$4,737,000. The Directors consider that the net loss incurred by Vevion was partly due to the initial set-up costs and operation costs since Vevion is still a relatively new company with a history of less than 2 years. Revenue from prospective projects including the online photofinishing services were either started or under discussion in the second half year of 2005 and the positive effect from these prospective projects has not yet been fully reflected.

Based on the valuation report prepared by Vigers Appraisal & Consulting Limited, an independent valuer, the valuation of Vevion’s business plan as at 30 September 2005 was approximately HK$41,000,000.

In the circular dated 28 April 2005 issued by the Company, it stated that Vevion acquired the entire share capital of Easyfil (Hong Kong) Company Limited which carried on the business of manufacturing, marketing and distributing paper products, including stationery through the “Easyfil” brand name in Hong Kong. In order to delineate the business of Vevion and to exclude the business of Easyfil from the Acquisition, on 12 December 2005, Vevion has entered into an agreement to dispose of its entire interests in Easyfil (Hong Kong) Company Limited to Fullman Corporation Limited, a company wholly owned by Mr. Chan and the disposal was completed in December 2005. As a result of the disposal, Vevion recorded a gain of HK$164 for the nine months ended 31 December 2005 in its profit and loss accounts. Vevion neither holds any interests in Easyfil (Hong Kong) Company Limited nor operates any related business of Easyfil (Hong Kong) Limited as at the date of this circular. In addition, Vevion does not have any other subsidiary.

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LETTER FROM THE BOARD

REASON FOR AND BENEFITS OF THE ACQUISITION

The Company is an investment holding company and its principal subsidiaries are engaged in the business of manufacturing, marketing and distribution of paper products. The Group is also engaged in the original equipment manufacturing business, whereby the Group buys materials and manufactures paper products for wholesalers and retail chain stores worldwide.

It has always been the corporate strategy of the Group to explore new business opportunities from time to time so as to further broaden its income base. Given that direction, the Directors consider that the Acquisition represents a good investment opportunity for the Group and is within its business strategy in diversifying its businesses. The business and customer base of Vevion will further bring synergy to the Group and enable the Group to explore new market opportunities.

As mentioned in the 2005-2006 interim report of the Company, the Group will search for synergistic expansion which can bring along additional profit stream in the long run. While the Group plans to allocate more of its resources and focus on its original equipment manufacturing business of manufacturing, marketing and distributing paper products, the Directors consider that the Acquisition would be in the interests of the Group since the businesses carried out by the Group and Vevion are synergistic in nature. As the principal businesses of Vevion include photo-finishing business and trading and sale of photographical and audio-visual products, it provides a solid customer base for the products of the Group to explore market opportunities. The Group intends to design and produce photo-album which matches the tastes and needs of the customer base of Vevion and hence explores an additional income stream for the Group. In addition, in view of the business of Vevion with the world’s leading internet services provider, internet media company handset manufacturer and mobile service operator which enable Vevion to expand its business in the global market, the Directors believe that the Group is able to explore further business opportunities with these business companions. The Directors estimate that it takes some time for Vevion to implement its business plan and therefore consider that it is in the best interests to the Company and the Shareholders to acquire 19% of the equity interests in Vevion at the present stage. As at the Latest Practicable Date, the Directors did not have any plan or any intention to acquire further interest in Vevion.

In view of the above, the Board considers that the Acquisition represents a good investment opportunity for the Company and the Shareholders as a whole.

Following completion of the Acquisition, the Company will be interested in 19% of the equity interests in Vevion. Vevion will not become a subsidiary or an associated company of the Company at this level of shareholding and accordingly, its assets, liabilities and results will not be consolidated into that of the Group after completion of the Acquisition. The Directors also confirm that the Acquisition will not have any impact on the assets and liabilities of the Group as the consideration has been funded partly by the internal resources of the Group and partly by the proceeds from the Rights Issue. As such, there is no immediate impact on the

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LETTER FROM THE BOARD

earnings of the Group as a result of the Acquisition. The investment in Vevion will be accounted for under the cost method. Under this method, the investment in Vevion will be recorded at cost and the Company will recognise income only to the extent that it receives distributions from the accumulated net profits of Vevion arising subsequent to the date of acquisition by the Company.

GENERAL

The Directors (including the independent non-executive directors of the Company) believe that the terms of the Acquisition are fair and reasonable and in the interests of the Shareholders as a whole.

Mr. Chan is an executive director of the Company and is, therefore, a connected person of the Company under the Listing Rules. Vevion is wholly owned by Mr. Chan, and is therefore an associate of Mr. Chan for the purposes of the Listing Rules and a connected person of the Company under the Listing Rules. As such, the Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As the Acquisition is a connected transaction on normal commercial terms where each of the percentage ratios (other than the profits ratio) is more than 2.5% but less than 25% and the total consideration for the Acquisition is less than HK$10,000,000, the Acquisition is therefore only subject to the reporting and announcement requirements set out in Rule 14A.32 of the Listing Rules and is exempt from the independent shareholders’ approval requirements of Chapter 14A of the Listing Rules.

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

Yours faithfully, For and on behalf of the Board of Climax International Company Limited Kan Shiu Cheong, Frederick Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executive in the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 & 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies or which were required to be entered into the register kept by the Company pursuant to section 352 of the SFO, were as follows:

• (i) Long position in issued shares of the Company

		No. of	Approximate
		shares held	percentage of
		Personal	the issued
Name	Capacity	interest	share capital
Kan Shiu Cheong,	Beneficial owner	85,774,321	2.17%
Frederick
Mr. Chan	Beneficial owner	85,888,321	2.17%
Yau Kang Nam	Beneficial owner	34,000,000	0.86%

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GENERAL INFORMATION

APPENDIX

• (ii) Long position in underlying shares of the Company

		Outstanding no. of
		shares issuable
		under the options
		granted pursuant
		to the share option
		scheme adopted on	Number of
Name	Capacity	29 August 2002	rights shares		Total
Kan Shiu Cheong,	Beneficial owner	39,500,000		–	39,500,000
Frederick
Mr. Chan	Beneficial owner	67,500,000	1,500,000,000		1,567,500,000
			(Note)
Jiang Hai Qing	Beneficial owner	10,000,000		–	10,000,000

Note: These Shares represent the maximum number of rights shares underwritten by Mr. Chan in connection with the Rights Issue

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 & 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under provisions of the SFO), the Model Code for Transactions by Directors of Listed Companies or which were required to be entered into the register kept by the Company pursuant to section 352 of the SFO.

(b) Interests of Shareholders discloseable pursuant to the SFO

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, the following person (other than a Director or chief executive of the Company) had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 & 3 of

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GENERAL INFORMATION

APPENDIX

Part XV of the SFO, or, who is 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 the Company:

Long position in issued shares of the Company

			Approximate
		Number of	percentage
		shares held	of the issued
Name	Capacity	Direct interest	share capital
First Century	Beneficial owner	2,058,869,889	52.07%
Holdings Limited

Note: Mr. Chan and Mr. Kan Shiu Cheong, Frederick, who are both directors of the Company, are also directors of First Century Holdings Limited. First Century Holdings Limited is beneficially owned as to 32.75% by Mr. Kan Shiu Cheong, Frederick, as to 8.25% by Mr. Chan and as to the remaining percentage by seven other independent shareholders.

Save as disclosed above, the Directors are not aware that there is any person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 & 3 of Part XV of the SFO, or, who is 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 the Company or any members of the Company.

3. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any service contact with the Company or any of its subsidiaries which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

4. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or claims of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates had any interest in any business which competes or may compete either directly or indirectly with the business of the Group.

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GENERAL INFORMATION

APPENDIX

6. MISCELLANEOUS

• (a) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

• (b) The head office and principal place of business of the Company in Hong Kong is at 26th Floor, Metropole Square, 2 On Yiu Street, Siu Lek Yuen, Shatin, New Territories, Hong Kong.

• (c) The company secretary of the Company is Ms. Tong Man Ching, Cherry, who is an associate member of the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries.

• (d) The qualified accountant of the Company is Mr. Leung Wai Man, Louis, who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.

• (e) The principal share registrar and transfer office of the Company is The Bank of Bermuda Limited, 6 Front Street, Hamilton HM11, Bermuda.

• (f) The branch share registrar and transfer office of the Company is Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

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

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