THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Hybrid Kinetic Group Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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

This circular is for information purposes only and does not constitute an invitation to offer to acquire, purchase or subscribe for securities of Hybrid Kinetic Group Limited and it must not be used for purpose of offering or inviting offers for any securities.

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON

SUBSCRIPTION OF NEW SHARES BY INDEPENDENT THIRD PARTIES PROPOSED GRANT OF SPECIFIC MANDATE AND NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

regarding the connected transaction

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A letter of advice from the Independent Board Committee containing its recommendation to the Independent Shareholders relating to the connected transaction constituted by the Sun East Subscription contemplated under the Sun East Subscription Agreement is set out on pages 27 to 28 of this circular. A letter of advice from the Independent Financial Adviser, Donvex Capital Limited, containing its opinion and advice to the Independent Board Committee and the Independent Shareholders relating to the connected transaction is set out on pages 29 to 48 of this circular.

A notice convening the Special General Meeting to be held on Monday, 28 January 2013 at 11:00 a.m. at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong is set out on pages N – 1 to N – 6 of this circular.

Whether or not you are able to attend the Special General Meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the Special General Meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjourned meeting thereof should you so wish.

11 January 2013

		Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board
–	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
–	Subscription Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
–	Reasons for the Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
–	Use of net proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
–	Effect on shareholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
–	Application for listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
–	Fund raising activities in the past 12 months . . . . . . . . . . . . . . . . . . . . . . . . . .	24
–	Approval of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
–	Implication of the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
–	Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
–	Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
–	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
–	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		27
Letter from Donvex Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		29
Appendix	– General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49
Notice of	Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N – 1

– i –

DEFINITIONS

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

“Announcement”	the announcement dated 25 November 2012 of the
	Company regarding (i) the connected transaction
	constituted by the Sun East Subscription; (ii) the
	transactions involving the Subscriptions with Independent
	Third Parties (namely, Run Hai, Good Shine, Fortune Ever
	and XMM); and (iii) the proposed grant of the Specific
	Mandate
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Business Day”	any day (excluding a Saturday) on which banks in Hong
	Kong are generally open for business
“BVI”	the British Virgin Islands
“Bye-laws”	the bye-laws of the Company, as amended from time to
	time
“Company”	Hybrid Kinetic Group Limited（正道集團有限公司）, an
	exempted company incorporated in Bermuda with limited
	liability, the issued Shares of which are listed on the main
	board of the Stock Exchange
“Conditions”	as regards each Subscription Agreement, the conditions
	precedent to the Subscription Completion and summarized
	in the paragraph headed “Conditions precedent to the
	Subscription Completion” in this circular
“connected person(s)”	has the meaning ascribed to it under the Listing Rules

– 1 –

DEFINITIONS

“Cooperative Agreement”	the conditional cooperative agreement dated 23
	November 2012 entered into among the Company,
	Jiangsu NewHeadLine, LianYunGang TianYang and
	LETDZ in relation to the proposed establishment of the
	Project Company as announced by the Company in its
	announcement dated 27 November 2012
“Director(s)”	the director(s) of the Company
“Fortune Ever Subscription”	the subscription of new Shares by Fortune Ever (not
	exceeding 624,000,000 new Shares) subject to and upon
	the terms and conditions contained in the Fortune Ever
	Subscription Agreement
“Fortune Ever Subscription	the conditional subscription agreement dated 23 November
Agreement”	2012 entered into between the Company and Fortune Ever
	relating to the Fortune Ever Subscription
“Good Shine Subscription”	the subscription of new Shares by Good Shine (not
	exceeding 780,000,000 new Shares) subject to and upon
	the terms and conditions contained in the Good Shine
	Subscription Agreement
“Good Shine Subscription	the conditional subscription agreement dated 23 November
Agreement”	2012 entered into between the Company and Good Shine
	relating to the Good Shine Subscription
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board	an independent committee of the Board (comprising Mr
Committee”	Wong Lee Hing, Dr Song Jian and Mr Cheng Tat Wa, all
	are independent non-executive Directors) established for
	making recommendation (i) as to whether the terms and
	conditions of the Sun East Subscription contemplated under
	the Sun East Subscription Agreement are, or are not, fair
	and reasonable and (ii) as to voting

– 2 –

DEFINITIONS

“Independent Financial Adviser”	Donvex Capital Limited, a corporation licensed to carry on
or “Donvex Capital”	Type 6 (advising on corporate finance) regulated activity
	under the SFO, and the independent financial adviser to
	the Independent Board Committee and the Independent
	Shareholders for giving advice (i) as to whether the terms
	and conditions of the Sun East Subscription contemplated
	under the Sun East Subscription Agreement are, or are not,
	fair and reasonable and (ii) as to voting
“Independent Shareholders”	Shareholders, other than Sun East LLC and its associates
	and those parties who are involved or interested in the
	Sun East Subscription contemplated under the Sun East
	Subscription Agreement and/or (only if applicable)
	the other Subscriptions contemplated under the other
	Subscription Agreements and the grant of the Specific
	Mandate
“Independent Third	a party(ies) who is/are independent of, and is/are not
Party(ies)”	connected with, the Company, its subsidiaries and their
	respective connected persons
“Jiangsu NewHeadLine”	Jiangsu NewHeadLine Development Group Co., Ltd*（江
	蘇新海連發展集團有限公司）, a state-owned limited
	liability company incorporated in the PRC
“Last Trading Day”	22 November 2012, being the last trading day immediately
	prior to the date of the Subscription Agreements
“Latest Practicable Date”	9 January 2013, being the latest practicable date for
	ascertaining certain information contained in this circular
“LETDZ”	Lianyungang Economic and Technological Development
	Zone*（連雲港經濟技術開發區）, a national level
	development zone located in Lianyungang, the Jiangsu
	Province, the PRC
“LianYunGang TianYang”	LianYunGang TianYang Automobile Co., Ltd.*（連雲
	港天洋汽車有限公司）, a limited liability company
	incorporated in the PRC

– 3 –

DEFINITIONS

“Listing Committee” the listing sub-committee of the board of directors of the Stock Exchange “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Longstop Date” as regards each Subscription Agreement, being 31 January 2013, or such other date as the parties to the Subscription Agreement may agree in writing “New Energy Project” the development project intended to be undertaken, launched and developed by the Project Company in the LETDZ which involves the construction of key new energy automobile component production facilities as disclosed in the Company’s announcement dated 27 November 2012 “PRC” The People’s Republic of China, excluding for the purpose of this circular, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan “Project Company” the project company (proposed to be named “連雲港正道新材料與新能源有限公司”) (LianYunGang Hybrid Kinetic New Components and New Energy Co., Ltd.)* intended to be set up by (i) the Company (or its whollyowned subsidiary), (ii) Jiangsu NewHeadLine and (iii) Lian YunGang Tian Yang in the LETDZ to undertake the promotion and development of the New Energy Project as agreed conditionally by the parties under the Cooperative Agreement “Run Hai Subscription” the subscription of new Shares by Run Hai (not exceeding 1,716,000,000 new Shares) subject to and upon the terms and conditions contained in the Run Hai Subscription Agreement “Run Hai Subscription the conditional subscription agreement dated 23 November Agreement” 2012 entered into between the Company and Run Hai relating to the Run Hai Subscription

– 4 –

DEFINITIONS

“SFO” “SGM Matters”

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

the matters to be put forward to the Independent Shareholders or (as the case may be) the Shareholders for consideration and, if thought fit, approval at the Special General Meeting which include the connected transaction constituted by the Sun East Subscription contemplated under the Sun East Subscription Agreement; the Run Hai Subscription contemplated under the Run Hai Subscription Agreement, the Good Shine Subscription contemplated under the Good Shine Subscription Agreement, the Fortune Ever Subscription contemplated under the Fortune Ever Subscription Agreement and the XMM Subscription contemplated under the XMM Subscription Agreement and the grant of the Specific Mandate

“Special General Meeting” or the special general meeting of the Company to be convened “SGM” and held for the purpose of considering and (if thought fit) approving, among other things, the SGM Matters “Share(s)” ordinary share(s) of HK$0.10 each in the capital of the Company “Shareholder(s)” holder(s) of Share(s) “Specific Mandate” a specific mandate to allot, issue or otherwise deal in additional Shares to be sought from the Shareholders or Independent Shareholders to satisfy the allotment and issue of the Subscription Shares to the relevant Subscribers upon completion of the respective Subscription Agreements “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscribers” Run Hai, Good Shine, Fortune Ever, XMM and Sun East LLC collectively (and each of them individually a “ Subscriber ”)

– 5 –

DEFINITIONS

“Subscription(s)”	the Run Hai Subscription, the Good Shine Subscription,
	the Fortune Ever Subscription, the XMM Subscription and
	the Sun East Subscription collectively (and each of them
	individually, a “Subscription”)
“Subscription Agreement(s)”	the five several conditional subscription agreements all
	dated 23 November 2012 made by the Company with each
	of the Subscribers in respect of the subscription of the
	Subscription Shares
“Subscription Completion”	as regards each Subscription Agreement, the completion of
	the Subscription Agreement
“Subscription Completion	as regards each Subscription Agreement, the fifth Business
Date”	Day next following the last unfulfilled Condition under the
	Subscription Agreement is satisfied or (as the case may
	be) waived (or such other date as may be agreed by the
	Company and the Subscriber)
“Subscription Price”	HK$0.10 per Share
“Subscription Share(s)”	a maximum of 4,914,000,000 new Shares
“Sun East Subscription”	the subscription of new Shares by Sun East LLC (not
	exceeding 1,239,802,200 new Shares) subject to and
	upon the terms and conditions contained in the Sun East
	Subscription Agreement
“Sun East Subscription	the conditional subscription agreement dated 23 November
Agreement”	2012 entered into between the Company and Sun East LLC
	relating to the Sun East Subscription which constitutes
	connected transaction for the Company under Chapter 14A
	of the Listing Rules
“Takeovers Code”	The Hong Kong Code on Takeovers and Mergers
“US”	the United States of America

– 6 –

DEFINITIONS

“XMM Subscription” the subscription of new Shares by XMM (not exceeding 554,197,800 new Shares) subject to and upon the terms and conditions contained in the XMM Subscription Agreement “XMM Subscription the conditional subscription agreement dated 23 November Agreement” 2012 entered into between the Company and Mr Xu Maomao relating to the XMM Subscription “HK$” Hong Kong dollars, the lawful currency of Hong Kong “US$” United States dollars, the unlawful currency of Hong Kong “%” per cent.

For the purpose of illustration only, amounts denominated in US$ have been translated into HK$ at the approximate exchange rate of US$1.00 to HK$7.8. Such translation should not be construed as a representation that the relevant amounts have been, could have been, or could be converted at that or any other rate or at all.

For identification purpose only

– 7 –

LETTER FROM THE BOARD

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HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

Executive Directors: Dr Yeung Yung (Chairman) Dr Huang Chunhua (Deputy Chairman) Dr Jang Bor Zeng Bohr (Deputy Chairman) Dr Wang Chuantao (Chief Executive Officer) Mr Liu Stephen Quan Mr Hui Wing Sang, Wilson Dr Zhamu Aruna Dr Zhu Shengliang Dr Zhang Zhenwei Mr Xu Jianguo Mr Li Zhengshan

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business in Hong Kong: Suites 1407-8, 14th Floor Great Eagle Centre 23 Harbour Road Wanchai, Hong Kong

Non-executive Director: Dr Xia Tingkang, Tim

Independent non-executive Directors: Mr Wong Lee Hing Dr Song Jian Dr Zhu Guobin Mr Cheng Tat Wa Dr Li Jianyong Mr Chan Sin Hang

11 January 2013

To the Shareholders

Dear Sir or Madam

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON SUBSCRIPTION OF NEW SHARES BY INDEPENDENT THIRD PARTIES PROPOSED GRANT OF SPECIFIC MANDATE AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement.

– 8 –

LETTER FROM THE BOARD

The primary purpose of this circular is to:

(a) provide you with further information relating to the connected transaction constituted by the Sun East Subscription contemplated under the Sun East Subscription Agreement, the Run Hai Subscription contemplated under the Run Hai Subscription Agreement, the Good Shine Subscription contemplated under the Good Shine Subscription Agreement, the Fortune Ever Subscription contemplated under the Fortune Ever Subscription Agreement and the XMM Subscription contemplated under the XMM Subscription Agreement and the grant of the Specific Mandate;
(b) set out the recommendation of the Independent Board Committee on the Sun East Subscription after having considered the advice of the Independent Financial Adviser in connection with the Sun East Subscription;
(c) set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee (comprising Mr Wong Lee Hing, Dr Song Jian and Mr Cheng Tat Wa, all are independent non-executive Directors) and the Independent Shareholders in connection with the Sun East Subscription;
(d) set out the views and recommendation of the Board generally in connection with the Subscriptions contemplated under the Subscription Agreements and the grant of the Specific Mandate; and
(e) give you notice of the Special General Meeting.

SUBSCRIPTION AGREEMENTS

The principal terms of the Subscription Agreements are broadly identical and are summarized below:

Date:

All dated 23 November 2012

Parties involved:

Issuer : the Company

Subscribers and : (1) Run Hai International Limited（潤海國際有限公 the amount of 司）(“ Run Hai ”) will subscribe for the amount of investment involved US$22,000,000.

– 9 –

LETTER FROM THE BOARD

Run Hai is an investment holding company incorporated in the BVI and is solely and beneficially owned by Ms Chen Hong（陳宏）.

(2) Good Shine International Limited (“ Good Shine ”) will subscribe for the amount of US$10,000,000. Good Shine is an investment holding company incorporated in the BVI and is solely and beneficially owned by Mr Wang Gang（王剛）. (3) Fo r t u n e E ve r L i m i t e d（富永有限公司） (“ Fortune Ever ”) will subscribe for the amount of US$8,000,000.

Fortune Ever is an investment holding company incorporated in the Cayman Islands and is beneficially owned as to 50% by Mr Zhao Qingchun（趙慶春）and 50% by Ms Feng Yujie （馮欲杰）.

(4) M r X u M a o m a o（徐毛毛）( “ X M M ” ) , a businessman, will subscribe for US$7,105,100. XMM is a passive investor. (5) Sun East LLC will subscribe for US$15,894,900.

Sun East LLC is a limited liability company incorporated in California, the US.

Sun East LLC is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002.

– 10 –

LETTER FROM THE BOARD

Dr Yeung Yung is the chairman of the Company and an executive Director. Sun East LLC is a substantial shareholder of the Company and a connected person of the Company. Hence, the Sun East Subscription constitutes a connected transaction for the Company.

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries:

(a) except for Sun East LLC, each of the Subscribers and (if applicable) its existing ultimate beneficial owner(s) are Independent Third Parties, who were introduced to the Company through friends and come into contact with Mr Chen Xiao (who is a general manager of a subsidiary of the Company and responsible for assisting the Group in identifying suitable potential investors to invest in the Group) in or about October 2012;
(b) except for Sun East LLC, each of the Subscribers did not hold any interests in Shares or other securities of the Company prior to the entering into of the relevant Subscription Agreement;
(c) each of the Subscribers and (if applicable) its existing ultimate beneficial owner(s) does not have any relationship with each of the other Subscribers and (if applicable) their respective ultimate beneficial owners and associates of any of them;
(d) each of the Subscribers and (if applicable) their respective ultimate beneficial owners is third party independent of each of the other Subscribers and (if applicable) their respective ultimate beneficial owners and associates of any of them; and
(e) except for Sun East LLC, each of the Subscribers and (if applicable) their respective ultimate beneficial owners do not have any family or other business relationship or affiliation with the directors and substantial shareholders of the Company.

– 11 –

LETTER FROM THE BOARD

Generally, the Company has no particular preference as to whether funds to be raised by way of equity financing is from Independent Third Parties or from a connected person so long as (i) the terms are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) it is legally permissible. The Board is well aware that Sun East LLC, being the substantial Shareholder (as defined in the Listing Rules), has all along expressed its intention (through Dr Yeung Yung) to support the Group in whatever way within its ability (including its willingness to consider investing further in the Group when required) to signify its confidence in the existing and future development of the Group, subject to compliance with the applicable laws, rules and regulations. Sun East LLC was invited by the Group to participate in the Sun East Subscription and the terms of which were dictated by the Company by reference to the terms negotiated with the other Subscribers.

Subscription Price

The Subscription Price of each Subscription Share is HK$0.10, which was negotiated on an arm’s length basis by the Company with each of the Subscribers and is a commercial decision reached by the Company with each of the Subscribers with reference to, among others, the recent trading price of the Shares, the performance of the Group and the future prospects of the business of the Group and the highest price willing to be offered by each of the Subscribers under the current market sentiment.

The Subscription Price of HK$0.10 per Subscription Share represents:

(i) a discount of about 9.9% to the closing price of HK$0.1110 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of about 9.9% to the average closing price of HK$0.1110 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;
(iii) a discount of about 12.4% over the average closing price of HK$0.1141 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day; and
(iv) a discount of about 18.0% over the closing price of HK$0.1220 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price for the Subscription Shares to be subscribed for by each Subscriber is to be satisfied in cash on the Subscription Completion Date.

– 12 –

LETTER FROM THE BOARD

The Board is of the view that the issue of each of the Subscription Shares at a discount is fair and reasonable to the Company and the Shareholders a whole having regard to the factors that (i) the Subscription Price is the highest price which could be obtained by the Company as at the Latest Practicable Date; (ii) the use of proceeds from the Subscriptions as disclosed below; (iii) the Company could still be able to grasp the opportunity to raise fund from the Subscription under the current upward trend of the equity market; and (iv) the relatively low liquidity in the trading of the Shares which may imply that the Subscribers have to take a relatively higher level of risk involved in the holding of, or investment or trading, in the Shares.

Subscription Shares

Given that the amount of investment agreed to be made by each Subscriber is denominated in US dollar (and the exchange rate may fluctuate) and the Subscription Shares and the Subscription Price are denominated in HK dollar, the number of Subscription Shares will be arrived at by dividing the amount of investment proposed to be made by each Subscriber as disclosed above by the Subscription Price, as nearly as practicable, ignoring fractions and rounding down to the nearest whole number of Subscription Shares and the remaining amount (if any) will be kept by the Company.

Assuming the conversion of US$ into HK$ was on or would not be lower than the exchange rate of US$1.00 to HK$7.80 and based on the total investment agreed to be made by the Subscribers pursuant to their respective Subscription Agreements in the amount of US$63,000,000 (equivalent to approximately HK$491,400,000), the maximum number of Subscription Shares to be allotted and issued upon completion of the Subscription Agreements is 4,914,000,000 Shares.

It is agreed by the Company with each of the Subscribers that the exchange rate will be determined by reference to the opening indicative counter buying telegraphic transfer rate for US$ quoted by The Hong Kong Association of Banks on the Business Day on which the last unfulfilled Condition under the Subscription Agreement is satisfied or (as the case may be) waived whereupon the number of Subscription Shares would be finalized.

As at the Latest Practicable Date, the total number of Shares in issue of the Company is 8,772,159,756 Shares.

The Subscription Shares represented (i) about 56.02% of the Company’s issued share capital as at the Latest Practicable Date and (ii) about 35.90% of the Company’s enlarged issued share capital of 13,686,159,756 Shares immediately following the allotment and issue of the Subscription Shares.

– 13 –

LETTER FROM THE BOARD

The aggregate nominal value of the Subscription Shares (with a par value of HK$0.10 each) is HK$491,400,000.

Ranking of the Subscription Shares

The Subscription Shares will rank equally in all respects among themselves and with all other Shares in issue on the date of allotment and issue of the Subscription Shares.

Disposal and lock-up restriction

The Subscription Shares are not subject to any lock-up or other disposal restriction under the terms of the Subscription Agreements.

No change in members or composition of the Board

No agreement has been reached between the Company and/or any of the Subscribers to change the members or composition of the Board as a result of the Subscriptions (or any of them).

Conditions precedent to the Subscription Completion

Completion of each of the Subscription Agreements is conditional upon, among others, the following Conditions being fulfilled (or waived by the parties to the Subscription Agreement as provided below) by the Longstop Date:

(a) the Listing Committee granting the listing of, and permission to deal in, the Subscription Shares;
(b) the passing of an ordinary resolution by the Shareholders and, in the case of the Sun East Subscription, by the Independent Shareholders, approving the allotment and issue of the Subscription Shares pursuant to the terms and conditions of the Subscription Agreement at the SGM;
(c) as at the date of fulfillment or waiver of the last in time to be fulfilled of the Conditions (other than this Condition), no legal proceedings shall have been brought by any person (other than any of the parties to the Subscription Agreement) in any court of competent jurisdiction against any of the parties to the Subscription Agreement challenging the legality or validity of the Subscription Agreement or restraining any of the parties to the Subscription Agreement from proceeding to Subscription Completion;

– 14 –

LETTER FROM THE BOARD

(d) no breach of any of the warranties given by the Company under the Subscription Agreement having occurred and the Company not being in breach of any other provisions of the Subscription Agreement; and
(e) no circumstances having arisen which would entitle the Subscriber to terminate such Subscriber’s obligations under the Subscription Agreement.

The Conditions (c), (d) and (e) may be waived by the Subscriber. None of the other Conditions may be waived by any party to the Subscription Agreement.

As regards each of the Subscription Agreements, if the Conditions have not been fulfilled or (as the case may be) waived by the Subscriber by the Longstop Date or if there are, in the sole and absolute discretion of the Subscriber, any circumstances having arisen by the Longstop Date which would entitle the Subscriber to terminate the Subscription pursuant to the terms of the Subscription Agreement, the Subscription Agreement will be terminated. All rights, obligations and liabilities of the parties under the Subscription Agreement in relation to the Subscription shall cease and terminate and none of the parties to the Subscription Agreement shall have any claim against any other in respect of the Subscription save for any antecedent breaches of the Subscription Agreement.

Subscription Completion

Subscription Completion is to take place on the Subscription Completion Date.

Completion of any Subscription is not inter-conditional upon each other.

Mandate for the issue of the Subscription Shares

The Subscription Shares will be allotted and issued under the Specific Mandate to be sought at the Special General Meeting.

Application for listing

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

– 15 –

LETTER FROM THE BOARD

REASONS FOR THE SUBSCRIPTIONS

The Directors consider that the Subscriptions represent a good opportunity for the Company to broaden its shareholders’ base, enhance its working capital, strengthen its capital base and financial position.

The Directors do not envisage that the implementation of the Subscriptions would be disadvantageous or have any negative impact on the business development, financial position or otherwise of the Group.

The Directors consider that the terms (including the Subscription Price) of the Subscriptions contemplated under the Subscription Agreements to be fair and reasonable and the Subscriptions, if consummated, are in the interests of the Company and the Shareholders as a whole.

The Directors have considered other means of financing such as rights issue, open offer or bank borrowings but are of the view that equity financing by way of the Subscriptions is comparatively an appropriate means of raising additional capital under the uncertain financial market conditions currently prevailing as it is less costly and take shorter time to arrange than (i) rights issue or open offer as this would involve the issue of a prospectus and other documentation; the offer would be required to remain open for a minimum period of time before it is closed and, if the offer is underwritten, the payment of underwriting commission or other fees by the Company would be required under the underwriting agreement and is likely to be more costly or (ii) bank borrowings as the approval process may take considerable period of time and the outcome is uncertain, and a relatively higher costs by way of interests payment would be incurred.

The Directors consider that a listed issuer should be well prepared, financially or otherwise, and plan ahead for the long-term development of the Group. The Company meets new opportunities (and challenges) from time to time. It would not be sensible from the business’s perspective and is neither efficient nor effective to raise funds for the Group only when (i) a suitable opportunity is identified because such an opportunity may not wait or (ii) a challenge arise because the circumstances may not be favourable enough for the Company to raise external funding or attract investors as they may slow along with the financial and/or other adverse conditions. Accordingly, time is always of the essence and an important factor under consideration when selecting the method of financing for the Company.

In addition, the Subscriptions are much more predictable, both in terms of results and the time required for implementation, than, for instance, rights issue or open offer. The process of identifying willing underwriter(s) (which could be without fruition), negotiation, preparation of documentation and compliance with all legal and regulatory requirements all take much longer time to implement.

– 16 –

LETTER FROM THE BOARD

USE OF NET PROCEEDS

Assuming the Subscriptions were successfully completed, the gross proceeds of the Subscriptions are US$63,000,000 (equivalent to approximately HK$491,400,000). The net proceeds of the Subscriptions, after deducting professional fees and other related expenses, are estimated to be approximately HK$490,400,000; and the net issue price per Subscription Share is approximately HK$0.099 (assuming that the exchange rate of US$ to HK$ is US$1 to HK$7.8).

The Company intends to use the net proceeds raised from the Subscriptions as below:

(i) approximately 70% (approximately US$44.0 million) of the net proceeds for pursuing suitable acquisition and/or investment opportunities that either supplement the existing businesses, or fit into the long term strategy, of the Group, of which approximately (a) US$21.0 million would be allocated for the investment in, through the Group’s agreed contribution towards the registered capital in the establishment of, the Project Company (subject to and pursuant to the terms of the Cooperative Agreement as disclosed in the sub-paragraph headed “Establishment of Project Company” below) and (b) US$23.0 million in the investment in and/or acquisition of battery and energy technologies as disclosed in the sub-paragraph headed “Battery and Energy Technologies” below.
(a) Establishment of Project Company

As at the Latest Practicable Date and as announced by the Company in its announcement dated 27 November 2012, the Group had entered into the Cooperative Agreement with Jiangsu NewHeadLine, Lian YunGang Tian Yang and LETDZ on 23 November 2012 in respect of the proposed establishment of the Project Company for the promotion and development of the New Energy Project to be based in LETDZ, the Jiangsu Province, the PRC.

The Group is dedicated to the development of new energy motors and related business, which is one of the focuses and core businesses of the Group. The New Energy Project involves the construction of key new energy automobile component production facilities, which will engage in the production of key new energy automobile components for new energy motors (comprising traction motor（電機）, power electronics（電控）and, in particular, motive battery（動力電池）). Through the above co-operation and if successfully implemented, the New Energy Project will not only bring tide of economic and social benefits to the LETDZ but is expected to establish an impressive, world-class production base (both in terms of scale and technology advancement) for the development of highly advanced new battery materials instrumental to new energy motors (including single layer grapheme（單層石墨烯）and ion electrolyte（離子電解液）) and related applications (including super batteries（超級電池）, traction motor（電機）and power electronics system （電控系統）).

– 17 –

LETTER FROM THE BOARD

The total investment amount of the New Energy Project will be RMB10,000,000,000. The construction of the production facilities is planned to commence in 2013 and trial or initial production is expected to commence in early 2015 with the target of ramping up the production capacity of the production facilities of single layer grapheme（單層石墨烯）to 20,000 tonnes, ion electrolyte（離子電解液）to 38,000 tonnes and key automobile components (comprising super batteries（超級電池）, traction motor（電機）and power electronics system（電控系統）) to 1,500,000 sets by 2019.

The capital commitment on the part of the Group towards the establishment of the Project Company is agreed to be US$21,000,000 (equivalent to approximately HK$163,800,000), representing 35% of the total registered capital of the Project Company and is intended to be financed out of the net proceeds to be raised from the Subscriptions (if consummated).

(b) Battery and Energy Technologies

Save for the above and although the Group has been undergoing negotiations with certain technology owners relating to possible co-operation, investment and/or acquisition concerning battery and energy technologies, the Group was yet to identify other suitable acquisition or investment opportunity(ies) which is/are discloseable under the applicable requirements under the Listing Rules or formalize any definitive plans for the use of the remaining US$23,000,000 allocated for the purpose as at the Latest Practicable Date.

Having said that, it is the current intention of the Group that any such acquisition or investment opportunities, if identified, should be able to complement or offer synergy to the development of new energy motors and new energy automobile components (including single layer grapheme（單層石墨烯）and ion electrolyte（離子電解液）) and related applications (including super batteries（超級電池）, traction motor（電機）and power electronics system（電控系統）) and the tentative plan of the Group for the utilization of remaining US$23,000,000, if raised, would be allocated in the following three main areas so as to enhance the control of the dynamics of automotive machine and enable electric motors to better adapt to variations in the load, prolong the life of electric batteries and maintain them in a state in which they can better fulfil the functional requirements of the application for which they are specified:

US$10.0 million for the investment in and/or development of electric vehicle charging technology（車載發電投術）;
US$5.0 million for the investment in and/or development of battery management system （電池管理系統）; and
US$8.0 million for the investment in and/or development of advanced intelligent/smart battery charging technology（先進智能充電技術）.

– 18 –

LETTER FROM THE BOARD

The main reasons for and the benefits of the Group investing in new energy motors and new energy automobile components are that the global automobile industry is adjusting to the demands of a more environmentally conscious public. The Directors believe that the investment in energy-saving and environmental friendly new energy motors and new energy automobile components have high-growth potentials. The successful innovation, manufacturing and offering of high fuel efficiency, fewer toxic emissions, functional, practical and customer-oriented new motors which could fit realistic budgets would expect to increase the Group’s overall competitiveness in the industry and bring long-term benefits to the Group.

Given that the Company is actively exploring business and/or investment opportunities in the automobile industry (including the research, development and commercialization of energy saving and environmental friendly, multi-fuel hybrid engine) and the capital requirement for business of this nature is expected to be huge, the Board considers it in the interests of the Company and its shareholders to strengthen its financial capability and flexibility to facilitate and support the long-term development of the business of the Group.

The Group has identified PRC as an important area for investment and growth for the automobile business of the Group. The Group is in constant discussions with local PRC authorities, entitles and entrepreneurs with a view to exploring business prospects in the PRC and the form of participation or co-operation and means of financing that will best serve the interests of the Company and its shareholders as a whole.

(ii) approximately 30% (approximately US$19.0 million) of the net proceeds, and to the extent that the net proceeds as stated in (i) above are not applied for acquisition and/or investment purposes, they would be utilized to fund the general working capital of the Group. It is the current plan of the Company to allocate such amount of net proceeds as below (subject to such reallocation as the Board may consider appropriate from time to time):
US$6.5 million for research and development purpose;
US$6.5 million for staff and overheads costs. The existing staff and overheads costs are approximately US$4.5 million per annum. The Group expects to recruit additional senior management and employees in the research and development, and engineering divisions to cope with the future business development of the Group;
the remaining amount for general administration and other purposes.

– 19 –

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING

Scenario 1

Assuming the Subscription Shares were successfully subscribed for in full by the Subscribers and that there was no change in the shareholding structure of the Company as at the Latest Practicable Date to immediately before completion of the Subscriptions (or any of them), the effect on the shareholding structure of the Company as a result of the Subscriptions is as follows:

Shareholders Sun East LLC (Note 1) Yeung Yung (Note 1) Sub-total (A): Fortune Venture Holding Limited (Note 2) Liu Stephen Quan (Note 2) Sub-total (B): Other Directors Li Zhengshan Zhu Shengliang Hui Wing Sang, Wilson Sub-total (C): Subscribers (excluding Sun East LLC)(Note 3) Run Hai (Note 6)	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 2,213,268,989 25.23 10,000,000 0.11 2,223,268,989 25.34 241,760,000 2.76 40,000,000 0.46 281,760,000 3.22 8,700,000 0.10 5,333,883 0.06 2,904,000 0.03 16,937,883 0.19 – –	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 2,213,268,989 25.23 10,000,000 0.11 2,223,268,989 25.34 241,760,000 2.76 40,000,000 0.46 281,760,000 3.22 8,700,000 0.10 5,333,883 0.06 2,904,000 0.03 16,937,883 0.19 – –	Immediately after completion of the Subscriptions(Note 4) Number of Shares % 3,453,071,189 (Note 5) 25.23 10,000,000 0.07 3,463,071,189 25.30 241,760,000 1.77 40,000,000 0.29 281,760,000 2.06 8,700,000 0.06 5,333,883 0.04 2,904,000 0.02 16,937,883 0.12 1,716,000,000 12.54	Immediately after completion of the Subscriptions(Note 4) Number of Shares % 3,453,071,189 (Note 5) 25.23 10,000,000 0.07 3,463,071,189 25.30 241,760,000 1.77 40,000,000 0.29 281,760,000 2.06 8,700,000 0.06 5,333,883 0.04 2,904,000 0.02 16,937,883 0.12 1,716,000,000 12.54
Good Shine Fortune Ever Xu Maomao Public Shareholders Sub-total (D): public Shareholders before and immediately following completion of the Subscriptions (including Good Shine, Fortune Ever and Xu Maomao)	– – – 6,250,192,884 6,250,192,884	– – – 71.25 71.25	780,000,000 624,000,000 554,197,800 6,250,192,884 8,208,390,684	5.70 4.56 4.05 45.67 59.98
TOTAL (A) + (B) + (C) + Shares held by Run Hai (if any) + (D)	8,772,159,756	100	13,686,159,756	100

– 20 –

LETTER FROM THE BOARD

Notes:

(1) Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr. Yeung Yung (as well as his spouse) is deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) under Part XV of the SFO. Dr Yeung Yung is an executive Director.
(2) Fortune Venture Holding Limited is a company incorporated in the British Virgin Islands whose entire issued share capital is solely and beneficially owned by Ms Li Xiaoqin (the spouse of Mr Liu Stephen Quan). Mr Liu Stephen Quan is deemed to be interested in the Shares held by his spouse by virtue of Part XV of the SFO. Mr Liu Stephen Quan is an executive Director.
(3) Except for Sun East LLC (being one of the Subscribers), the Subscribers are Independent Third Parties.
(4) The Subscriptions, if successfully completed, would involve the allotment and issue of a maximum of 4,914,000,000 Shares (subject to adjustment depending on the conversion rate of US$ to HK$ upon the Subscription Completion).
(5) The Sun East Subscription contemplated under the Sun East Subscription Agreement, if consummated, would involve the allotment and issue of up to 1,239,802,200 new Shares.
(6) As shown in the above table, Run Hai (being one of the Subscribers) will become a substantial Shareholder (as defined in the Listing Rules) and hence, a connected person of the Company, immediately after completion of the Subscriptions. The Subscription Shares held by Run Hai will not be considered as being held in public hands under the Listing Rules.

– 21 –

LETTER FROM THE BOARD

Scenario 2

Given that each of the Subscription Agreements is not inter-conditional, the table below illustrates the effect on the shareholding structure of the Company assuming that only the Sun East Subscription was to proceed:

Shareholders Sun East LLC (Note 1) Yeung Yung (Note 1) Sub-total (A): Fortune Venture Holding Limited (Note 2) Liu Stephen Quan (Note 2) Sub-total (B): Other Directors Li Zhengshan Zhu Shengliang Hui Wing Sang, Wilson Sub-total (C): Public Shareholders (D): TOTAL: (A) + (B) + (C) + (D)	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 2,213,268,989 25.23 10,000,000 0.11 2,223,268,989 25.34 241,760,000 2.76 40,000,000 0.46 281,760,000 3.22 8,700,000 0.10 5,333,883 0.06 2,904,000 0.03 16,937,883 0.19 6,250,192,884 71.25 8,772,159,756 100	Immediately after completion of the Sun East Subscription(Note 3) Number of Shares % 3,453,071,189 (Note 3) 34.49 10,000,000 0.10 3,463,071,189 34.69 241,760,000 2.41 40,000,000 0.40 281,760,000 2.81 8,700,000 0.09 5,333,883 0.05 2,904,000 0.03 16,937,883 0.17 6,250,192,884 62.33 10,011,961,956 100	Immediately after completion of the Sun East Subscription(Note 3) Number of Shares % 3,453,071,189 (Note 3) 34.49 10,000,000 0.10 3,463,071,189 34.69 241,760,000 2.41 40,000,000 0.40 281,760,000 2.81 8,700,000 0.09 5,333,883 0.05 2,904,000 0.03 16,937,883 0.17 6,250,192,884 62.33 10,011,961,956 100
			34.69 2.41 0.40
			2.81 0.09 0.05 0.03
			0.17 62.33
			100

– 22 –

LETTER FROM THE BOARD

Notes:

(1) Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr. Yeung Yung (as well as his spouse) is deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) under Part XV of the SFO. Dr Yeung Yung is an executive Director.
(2) Fortune Venture Holding Limited is a company incorporated in the British Virgin Islands whose entire issued share capital is solely and beneficially owned by Ms Li Xiaoqin (the spouse of Mr Liu Stephen Quan). Mr Liu Stephen Quan is deemed to be interested in the Shares held by his spouse by virtue of Part XV of the SFO. Mr Liu Stephen Quan is an executive Director.
(3) The Sun East Subscription contemplated under the Sun East Subscription Agreement, if consummated, would involve the allotment and issue of up to 1,239,802,200 new Shares.

On the basis of 8,772,159,756 Shares in issue as at the Latest Practicable Date and assuming there is no further issue or repurchase of Shares during the period from the Latest Practicable Date up to and including the date of completion of the Sun East Subscription, the consummation of the Sun East Subscription would cause an increase in the shareholding in the Company of Sun East LLC and its associates from approximately 25.34% to approximately 34.69% of the issued share capital of the Company as enlarged by the Sun East Subscription. Such increase would not result in the aggregate amount of the issued share capital of the Company in the public hands being reduced to less than 25%, but would give rise to an obligation on the part of Sun East LLC and parties acting in concert (as defined in the Takeovers Code) with it to make a mandatory offer under Rule 26 of the Takeovers Code. Both the Company and Sun East LLC have no intention to proceed with the Sun East Subscription if completion of the Sun East Subscription would result in any obligation of Sun East LLC and parties acting in concert with it to make a mandatory offer under the Takeovers Code and in such event, both the Company and Sun East LLC would terminate the Sun East Subscription unconditionally.

APPLICATION FOR LISTING

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

– 23 –

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST 12 MONTHS

The Company had not undertaken any fund raising activities in the 12 months immediately prior to the Latest Practicable Date other than the Subscriptions and the following:

Amount utilized as at the
Date of Intended use of Latest Practicable Date and announcement Event Net proceeds raised proceeds actual use of net proceeds 27 January 2012 Subscription of Approximately (a) 75% as general working Approximately HK$125 1,460 million HK$145,706,000 capital for development million was utilized as new Shares of environmental general working capital for automobile and related development of environmental business of the Group; automobile and related and business of the Group and the balance of the net proceeds
(b) 25% for pursuing remained unused as at the suitable acquisition Latest Practicable Date (and and/or investment are expected to be used as opportunities or originally intended) otherwise as general working capital

APPROVAL OF THE BOARD

Except for Dr Yeung Yung who had abstained from voting in the resolutions of the Board for approving the Sun East Subscription, none of the Directors has interests in the Sun East Subscription and/or the other Subscriptions or was required to abstain from voting in the resolutions of the Board for approving the Subscriptions.

IMPLICATION OF THE LISTING RULES

Given that Sun East LLC is a substantial shareholder of the Company, it is a connected person of the Company. Accordingly, the Sun East Subscription constitutes a non-exempt connected transaction for the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

INFORMATION ON THE COMPANY

The Company is an investment holding company. The Group is principally engaged in environmental products business and natural resources business. In addition, the Group is actively exploring business opportunities in the automobile industry in the US, which include the research, development and commercialization of energy saving and environmentally friendly, multi-fuel hybrid engine.

– 24 –

LETTER FROM THE BOARD

SPECIAL GENERAL MEETING

Set out on pages N – 1 to N – 6 of this circular is a notice convening the Special General Meeting to be held at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Monday, 28 January 2013 at 11:00 a.m. at which ordinary resolutions will be proposed to:

(a) approve the connected transaction involving the Sun East Subscription contemplated under the Sun East Subscription Agreement (including the allotment and issue of the appropriate number of Subscription Shares upon completion of the Sun East Subscription);
(b) approve each of the Subscriptions contemplated under each of the Subscription Agreements with the Subscribers who/which is an Independent Third Party (including the allotment and issue of the appropriate number of Subscription Shares upon completion of each of those Subscriptions); and
(c) approve the grant of the Specific Mandate.

Sun East LLC (being one of the Subscribers), its associates and those parties who are involved or interested in the Sun East Subscription contemplated under the Sun East Subscription Agreement and/or (if applicable) the other Subscriptions contemplated under the other Subscription Agreements and/or the grant of the Specific Mandate (basically only Independent Shareholders can vote) will abstain from voting on all the resolutions to be proposed at the Special General Meeting. The remaining Subscribers will also abstain from voting on the Subscriptions to the extent of such Shares (if any) held by them as at the date of the Special General Meeting.

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, none of the Subscribers (other than Sun East LLC) or their respective associates held any Shares as at the Latest Practicable Date.

A form of proxy for use at the Special General Meeting is enclosed with this circular. Whether or not you are able to attend the Special General Meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the Special General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending the Special General Meeting or any adjournment thereof and voting in person should you so wish.

– 25 –

LETTER FROM THE BOARD

In accordance with Rule 13.39(4) of the Listing Rules, the chairman of the Special General Meeting will direct that the proposed resolutions set out in the notice convening the Special General Meeting be voted by poll.

RECOMMENDATION

In addition to the information set out in this Letter from the Board, your attention is also drawn to:

(1) the letter from the Independent Board Committee (comprising Mr Wong Lee Hing, Dr Song Jian and Mr Cheng Tat Wa, all are independent non-executive Directors) set out on pages 27 to 28 of this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Sun East Subscription contemplated under the Sun East Subscription Agreement; and
(2) the letter from the Independent Financial Adviser set out on pages 29 to 48 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Sun East Subscription contemplated under the Sun East Subscription Agreement.

The Directors are of the views that the connected transaction constituted by the Sun East Subscription contemplated under the Sun East Subscription Agreement, the Run Hai Subscription contemplated under the Run Hai Subscription Agreement, the Good Shine Subscription contemplated under the Good Shine Subscription Agreement, the Fortune Ever Subscription contemplated under the Fortune Ever Subscription Agreement and the XMM Subscription contemplated under the XMM Subscription Agreement and the grant of the Specific Mandate are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders or (as the case may be) the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the Special General Meeting to approve, ratify and/or confirm (as the case may be) the SGM Matters.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Hybrid Kinetic Group Limited Yeung Yung Chairman

– 26 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [54 x 55] intentionally omitted <==

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

11 January 2013

To the Independent Shareholders

Dear Sir or Madam

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON

We refer to the circular dated 11 January 2013 of the Company (the “ Circular ”) of which this letter forms part.

Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider the connected transaction involving the Sun East Subscription pursuant to the terms and conditions contained in the Sun East Subscription Agreement (including the allotment and issue of the appropriate number of Subscription Shares to Sun East LLC upon completion of the Sun East Subscription) (the “ Proposed Transaction ”) and to advise the Independent Shareholders as to whether, in our opinion, the Proposed Transaction is fair and reasonable so far as the Independent Shareholders are concerned.

Donvex Capital Limited has been appointed as the independent financial adviser for giving advice to the Independent Board Committee and the Independent Shareholders as to whether the Proposed Transaction is, or is not, fair and reasonable and as to voting.

– 27 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board set out on pages 8 to 26 of the Circular which contains, among others, information on the Proposed Transaction as well as the letter from the Independent Financial Adviser set out on pages 29 to 48 of the Circular which contains its advice in respect of the Proposed Transaction.

Having considered the principal factors and reasons and the advice of the Independent Financial Adviser as set out in the letter from the Independent Financial Adviser, we consider that the Proposed Transaction is fair and reasonable, entered into on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the Special General Meeting in respect of the Proposed Transaction.

Yours faithfully

Mr Wong Lee Hing

The Independent Board Committee Dr Song Jian Mr Cheng Tat Wa Independent Non-Executive Directors

– 28 –

LETTER FROM DONVEX CAPITAL

The following is the text of a letter of advice from Donvex Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders for the purpose of incorporation in this circular:

==> picture [103 x 62] intentionally omitted <==

Unit 1305, 13th Floor, Carpo Commercial Building 18-20 Lyndhurst Terrace Central Hong Kong

11 January 2013

To: The Independent Board Committee and the Independent Shareholders of Hybrid Kinetic Group Limited

Dear Sirs,

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of subscription of new Shares by Sun East, the substantial Shareholder of the Company. Details of which, amongst other things, are set out in the letter from the Board contained in the circular of the Company dated 11 January 2013, of which this letter forms part. Terms defined in this circular shall have the same meanings when used in this letter unless the context requires otherwise.

On 23 November 2012, the Company entered into five several Subscription Agreements with five Subscribers, pursuant to which the Subscribers conditionally agreed to subscribe for, and the Company conditionally agreed to allot and issue, the Subscription Shares at the Subscription Price for an aggregate amount of US$63,000,000 (equivalent to approximately HK$491,400,000).

– 29 –

LETTER FROM DONVEX CAPITAL

One of the Subscribers, Sun East LLC (“Sun East”), is the substantial Shareholder of the Company such that Sun East is a connected person of the Company. Accordingly the Subscription by Sun East (the “Sun East Subscription”) pursuant to the Subscription Agreement made between the Company and Sun East (the “Sun East Subscription Agreement”) constitutes a non-exempt connected transaction for the Company under, and is subject to reporting, announcement and Independent Shareholders’ approval requirements pursuant to the Listing Rules.

An Independent Board Committee (comprising all the independent non-executive Directors) has been formed to advise the Independent Shareholders on the connected transaction contemplated under the Sun East Subscription Agreement. Sun East and its associates will abstain from voting at SGM.

BASIS OF OUR OPINION

In formulating our opinion, we consider that we have reviewed sufficient and relevant information and documents and have taken reasonable steps as required under Rule 13.80 of the Listing Rules to reach an informed view and to provide a reasonable basis for our recommendation. We have relied on the information, statements, opinion and representations contained or referred to in this circular and all information and representations which have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so at the date hereof. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the letter from the Board contained in this circular were reasonable made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in this circular.

The Company confirmed that it has provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of the information contained in this circular so as to provide a reasonable basis of our opinion. We have no reason to suspect that any material facts or information, which is known to the Company, have been omitted or withheld from the information supplied or opinions expressed in this circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted any form of independent in-depth investigation into business and affairs of the prospects of the Company, Sun East or any of their respective subsidiaries or associates.

– 30 –

LETTER FROM DONVEX CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our opinion to the Independent Board Committee and the Independent Shareholders in relation to the connected transactions contemplated under the Sun East Subscription Agreement, we have taken into account the following principal factors:

1. Business and financial information of the Company

The Group is principally engaged in environmental products business and natural resources business. In addition, the Group is actively exploring business opportunities in the automobile industry in the US, which include the research, development and commercialization of energy saving and environmentally friendly, multi-fuel hybrid engine.

Tabularised below is a summary of the audited consolidated financial results of the Group as extracted from the annual reports of the Company:

	For the
	six months
	ended
Consolidated Income	30 June	For the year ended 31 December
Statement	2012	2011	2010	2009
	HK$’000	HK$’000	HK$’000	HK$’000
	(unaudited)	(audited)	(audited)	(audited)
Revenue	17,154	70,440	28,608	10,393
Gross profit/(loss)	5,418	28,859	15,033	7,632
Profit/(Loss) before
taxation	(69,637)	(193,293)	(254,787)	(126,773)
Net Profit/(Loss)
for the period	(59,145)	(193,585)	(253,611)	(126,250)
Net Profit/(Loss)
attribute to owners of
the Company	(55,937)	(191,178)	(251,471)	(125,076)

– 31 –

LETTER FROM DONVEX CAPITAL

	As at
Consolidated	30 June	Year	ended 31 December
Balance Sheet	2012	2011	2010	2009
	HK$’000	HK$’000	HK$’000	HK$’000
	(unaudited)	(audited)	(audited)	(audited)
Cash and cash
equivalents	53,196	53,595	147,248	114,714
Total current assets	240,518	162,604	239,769	201,229
Total current liabilities	98,582	92,602	71,102	39,128
Net assets value	313,202	254,165	412,762	228,042

As shown above, the operation of the Company continuously recorded loss for the three years ended 31 December 2011, 2010 and 2009, and for the six months period ended 30 June 2012.

As stated in the announcement dated 25 November 2012, the Company intends to use the net proceeds raised from the Subscriptions as below:

i) approximately 70% for (a) the investment in the Project Company (subject to and pursuant to the terms of the Cooperative Agreement as disclosed in the subparagraph headed “Establishment of Project Company” in the letter from the Board); and (b) the investment in and/or acquisition of battery and energy technologies as disclosed in the subparagraph headed “Battery and Energy Technologies” in the letter from the Board; and
ii) the remaining net proceeds, and to the extent that the net proceeds are not applied for acquisition and/or investment purposes, to be utilized to fund the general working capital of the Group which is mainly for research and development purpose and staff and overheads costs.

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LETTER FROM DONVEX CAPITAL

2. Information of Sun East

Sun East is a limited liability company incorporated in California, the United States of America, whose principal business is investment holdings. Sun East is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the United States of America) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr Yeung Yung is the chairman of the Company and an executive Director. Sun East is a substantial Shareholder of the Company and a connected person of the Company. Hence, the Sun East Subscription constitutes a connected transaction for the Company.

3. Principal terms of the Sun East Subscription Agreement

Pursuant to the Sun East Subscription Agreement, 1,239,802,200 new Shares will be issued to Sun East (the “Sun East Subscription Shares”), representing 14.13% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 9.06% of the issued share capital of the Company as enlarged by the Subscription Shares. These new Shares, when issued and fully paid, will rank pari passu among themselves and with Shares in issued at the time of issue and allotment of the Sun East Subscription Shares.

4. The Subscription Price

The Subscription Price under the Sun East Subscription Agreement is HK$0.1 per Share and the total cash consideration payable by Sun East for the Sun East Subscription Shares is approximately US$15,884,900 (equivalents to approximately HK$123,980,220). The Subscription Price was arrived at after arm’s length negotiations between the Company and each of the Subscribers.

(i) Comparison of the Subscription Price

The Subscription Price under the Sun East Subscription Agreement of HK$0.1 per Share represents:

(a) a discount of about 9.9% to the closing price of HK$0.1110 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of about 9.9% to the average closing price of HK$0.1110 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;

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LETTER FROM DONVEX CAPITAL

(c) a discount of about 12.4% over the average closing price of HK$0.1141 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
(d) a discount of approximately 18.0% to the closing price of HK$0.122 per Share as quoted on the Stock Exchange on 9 January 2013, being the Latest Practicable Date; and
(e) a premium of approximately 180.46% to the Group’s unaudited consolidated net asset value per Share of approximately HK$0.0357 per Share calculated based on the Group’s unaudited consolidated net asset value (net of minority interest) of HK$312.78 million as at 30 June 2012 and 8,772,159,756 Shares as at 30 June 2012.

(ii) Review on Share price performance

In assessing the reasonableness of the Subscription Price under the Sun East Subscription Agreement, we have reviewed the Share prices level during a period starting from 24 November 2011 to 9 January 2013, being one year prior to the signing of the Sun East Subscription Agreement, up to the Latest Practicable Date (the “Review Period”).

During the Review Period, catastrophic events such as the European sovereigndebt crisis happened to give severe impacts to global stock markets, including the Hong Kong stock market, such that the Hang Seng Index fell to its lowest level of 16,170 points in October 2011 and remained sluggish in the first half of 2012. In the second half of 2012, due to the expectation of the launch of the third round of quantitative easing by central banks in the United States (“QE3”), extra liquidity is expected to be injected to the market and market sentiment has improved significantly such that the Hang Seng Index rose to its highest level of 23,402 points in January 2013. Having considered that the overall financial market conditions had changed significantly amid tighter credit conditions, a drop in corporate earnings, sluggish market sentiment and a decline in global equity markets, in which all of these events have adverse impact on the operations of the Group, we believe that it is appropriate to analyse the Subscription Price under the Sun East Subscription Agreement relative to the performance of the Shares during the Review Period. Any shorter review period may not have coverage of the effects of such catastrophic events as stated above and is therefore not comprehensive for use in the analysis.

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LETTER FROM DONVEX CAPITAL

The chart below illustrates the movement of the daily closing Share prices in HK$ per Share during the Review Period:

==> picture [319 x 186] intentionally omitted <==

----- Start of picture text -----

0.18
0.16
0.14
0.12
0.1
0.08 Subscription Price = HK$0.1
0.06
0.04
0.02
0
1/12/20113/1/20121/2/20121/3/20122/4/20122/5/20121/6/20123/7/20121/8/20123/9/20123/10/20121/11/20123/12/20122/1/2013
----- End of picture text -----

Source: website of the Stock Exchange (www.hkex.com.hk)

During the Review Period, the closing of the Shares ranged from HK$0.073 per Share to HK$0.155 per Share. As such, the Subscription Price of HK$0.1 under the Sun East Subscription Agreement lies within the range of the closing prices within the Review Period.

As the Hang Seng Index has an upward trend since June 2012, we have compared the Subscription Price with the Share price performance within in the six months prior to and including the Latest Practicable Date as shown in the chart below:

==> picture [309 x 166] intentionally omitted <==

----- Start of picture text -----

0.14
0.12
0.1
Subscription Price = HK$0.1
0.08
0.06
0.04
0.02
0
1/8/2012 3/9/2012 3/10/2012 1/11/2012 3/12/2012 2/1/2013
----- End of picture text -----

Source: website of the Stock Exchange (www.hkex.com.hk)

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LETTER FROM DONVEX CAPITAL

During the six months prior to and including the Latest Practicable Date, the closing of the Shares ranged from HK$0.094 per Share to HK$0.125 per Share. Although the Subscription Price of HK$0.1 under the Sun East Subscription Agreement lies within the range of the closing prices within the six months prior to and including the Latest Practicable Date, we noted that the range of Share price is wide, and the Share price is usually higher than the Subscription Price of HK$0.1. In view of (i) the Subscriptions (excluding the Sun East Subscription) can enlarge the Shareholder base; (ii) the chance of the approval of debt financing is low for the Company as discussed in the section named “Debt financing”; (iii) the Subscription Price is in line with the market trend as discussed under the section named “Comparison on basis with identifiable connected subscriptions; and (iv) the Subscriptions are much more secured than rights issue or open offer as concluded in the section named “Equity financing”, we are of the view that the Subscription Price is fair and reasonable

(iii) Comparison on basis with identifiable connected subscriptions

We have compared the Subscription Price to the subscription prices of subscriptions for new shares by connected person involving companies listed on the Stock Exchange during the Review Period.

We have considered selecting listed companies with similar business nature of the Company for comparison. However, no listed companies with similar business nature of the Company have carried out subscription of new shares by connected person (as defined under the Listing Rules) during the Review Period. In order to obtain the market trend of the subscription prices for new shares during the Review Period, instead of selecting listed companies with similar business nature of the Company, our selection criteria is to select transactions involving the subscription of new shares by a connected person within the Review Period from the Stock Exchange’s website. We have, to the best of our effort, knowledge and endeavour, selected and identified an exhaustive list of 6 transactions involving the subscription of new shares by a connected person (as defined under the Listing Rules) within the Review Period (“Connected Subscription Comparables”) to compare the premium or discount of their respective subscription price to (i) the applicable last trading day as stated in the relevant announcement (“LTD”); (ii) the 5-day average closing price prior to and including the LTD before the release of the respective announcement; and (iii) the 10-day average closing price prior to and including the LTD before the release of the respective announcement as shown in the following table.

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LETTER FROM DONVEX CAPITAL

					Premium/	Premium/
					(discount)	(discount)
					of the	of the
					subscription	subscription
					price over/	price over/
				Premium/	(to) the	(to) the
				(discount)	5-day	10-day
				of the	average	average
				subscription	closing	closing
				price over/	price prior	price prior
				(to) the	to and	to and
Date of			Subscription	closing price	including	including
announcement	Company Name	Stock Code	price	on the LTD	the LTD	the LTD
			(HK$)	(%)	(%)	(%)
				(Approx.)	(Approx.)	(Approx.)
1 September 2012	Yanchang Petroleum	346	0.51	(3.77)	(6.25)	(7.61)*
	International Limited
31 August 2012	China Nonferrous Metals	8306	0.08	23.08	31.58*	34.68
	Company Limited
12 April 2012	Hua Lien International (Holding)	969	0.6	0.00	1.35	0.00
	Company Limited
19 January 2012	Bingo Group Holdings Limited	8220	0.03	(59.46)	(58.90)	(58.33)
12 January 2012	Chun Wo Development Holdings	711	0.4	9.59	9.89	9.74
	Limited
30 December 2011	Yueshou Environmental	1191	0.036	(10.00)	(10.89)	(10.67)*
	Holdings Limited
			range	(59.46) to	(58.90) to	(58.33) to
				23.08	31.58	34.68
25 November 2012	The Company	1188	0.1	(9.90)	(9.90)	(12.40)

(Source: Hong Kong Exchanges and Clearing Limited)

(*based on share price information from the Hong Kong Exchanges and Clearing Limited website)

As shown in the above table, the premium/discount of which the subscription price of the Connected Subscription Comparables represented over/to (i) the closing price immediately prior to announcement ranged from a discount of approximately 59.46% to a premium of approximately 23.08%; (ii) the 5 days average closing price ranged from a discount of approximately 58.90% to a premium of approximately 31.58%; and (iii) the 10 days average closing price ranged from a discount of approximately 58.33% to a premium of approximately 34.68%.

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LETTER FROM DONVEX CAPITAL

We noticed that the sample size is small as there are only 6 Connected Subscription Comparables being identified with a result of a wide range of premium/discount. Considering those Connected Subscription Comparables are in other industries, which is different from the Company, we are of the view that the range of the premium/discount of the Connected Subscription Comparables to the corresponding closing prices as of their last trading day merely provides an indication of the range of the subscription prices accepted in the market during the Review Period for our reference.

In addition, in order to further assess the market practice of the subscription price of new shares, instead of just Connected Subscription Comparables, we also consider the subscription of new shares by independent third parties (“Independent Subscription Comparables”) in the following section.

(iv) Comparison on basis with identifiable independent subscriptions

We have, to the best of our effort, knowledge and endeavour, selected and identified an exhaustive list of 14 Independent Subscription Comparables within the Review Period from the Stock Exchange’s website in order to compare the premium or discount of their respective subscription price to (i) the last trading day (“LTD”); (ii) the 5-day average closing price prior to and including the LTD before the release of the respective announcement; and (iii) the 10-day average closing price prior to and including the LTD before the release of the respective announcements as shown in the following table.

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LETTER FROM DONVEX CAPITAL

					Premium/	Premium/
					(discount)	(discount)
					of the	of the
				Premium/	subscription	subscription
				(discount)	price over/	price over/
				of the	(to) the 5-day	(to) the 10-
				subscription	average	day average
				price over/	closing price	closing price
				(to) the	prior to and	prior to and
			Subscription	closing price	including the	including the
Date of announcement	Company Name	Stock Code	price	on the LTD	LTD	LTD
			(HK$)	(%)	(%)	(%)
				(Approx.)	(Approx.)	(Approx.)
12 December 2012	Wealth Glory Holdings Limited	8269	0.17	(10.53)	6.25	9.89*
5 December 2012	Siberian Mining Group Company	1142	0.25	(3.85)	(15.82)	(21.63)
	Limited
27 November 2012	V.S. International Group Limited	1002	0.168	(6.67)	(2.21)	(3.89)
30 July 2012	Enviro Energy International	1102	0.152	(7.90)	(9.00)	(10.10)
	Holdings Limited
18 July 2012	Sino Oil and Gas Holdings	702	0.15	(15.73)	(16.67)	(17.13)
	Limited
11 July 2012	Cypress Jade Agricultural	875	0.205	(18.00)	(17.00)	(16.19)*
	Holdings Limited
14 June 2012	China Water Property Group	2349	0.6	(13.04)	(13.79)	(14.04)*
	Limited
21 May 2012	Dejin Resources Group	1163	0.08	1.27	(4.99)	(16.93)*
	Company Limited
21 May 2012	Creative Energy Solutions	8109	2.8	(7.09)	(7.09)	(7.09)
	Holdings Limited
15 February 2012	Sateri Holdings Limited	1768	2.64	(7.00)	(5.00)	0.80*
14 February 2012	China Grand Pharmaceutical and	512	0.333	(2.10)	(1.20)	(0.75)*
	Healthcare Holdings Limited
12 January 2012	Long Success International	8017	0.04	0.00	(5.21)	(14.89)
	(Holdings) Limited
15 December 2011	China Financial International	721	0.45	(9.09)	(9.82)	(10.54)*
	Investments Limited
13 December 2011	Larry Jewelry International	8351	0.76	(15.60)	(5.50)	(2.20)
	Company Limited
			range	(18.00) to	(17.00) to	(21.63) to
				1.27	6.25	9.89
25 November 12	The Company	1188	0.1	(9.90)	(9.90)	(12.40)

(Source: Hong Kong Exchanges and Clearing Limited)

(*based on share price information from the Hong Kong Exchanges and Clearing Limited website)

As shown in the above table, the premium/discount of which the subscription price of the Independent Subscription Comparables represented over/to (i) the closing price immediately prior to announcement ranged from discount of approximately 18.00% to a premium of approximately 1.27%; (ii) the 5 days average closing price ranged from a discount of approximately 17.00% to a premium of approximately 6.25%; and (iii) the 10 days average closing price ranged from a discount of approximately 21.63% to a premium of approximately 9.89%.

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LETTER FROM DONVEX CAPITAL

(v) Our views on the fairness and reasonableness of the Sun East Subscription Price

As the discount of the Sun East Subscription Price to the corresponding closing prices as of the Last Trading Day is within the range of the premium/discount of the Connected Subscription Comparables and the Independent Subscription Comparables to the corresponding closing prices as of their last trading day, we are of the view that the Subscription Price is in line with the market trend during the Review Period. Based on the above, we consider that the Subscription Price of HK$0.1 per Sun East Subscription Share is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

5. CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

Scenario 1

Upon completion of the Sun East Subscription, 1,239,802,200 new Shares will be issued to Sun East. Assuming the Subscription Shares were successfully subscribed in full by the Subscribers, the total number of Shares will increase from 8,772,159,756 to 13,686,159,756 as shown in the following table:

Shareholders Sun East LLC (Note 1) Yeung Yung (Note 1) Sub-total (A): Fortune Venture Holding Limited (Note 2) Liu Stephen Quan (Note 2) Sub-total (B):	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 2,213,268,989 25.23 10,000,000 0.11 2,223,268,989 25.34 241,760,000 2.76 40,000,000 0.46 281,760,000 3.22	Immediately after completion of the Subscriptions (Note 4) Number of Shares % 3,453,071,189 25.23 (Note 5) 10,000,000 0.07 3,463,071,189 25.30 241,760,000 1.77 40,000,000 0.29 281,760,000 2.06	Immediately after completion of the Subscriptions (Note 4) Number of Shares % 3,453,071,189 25.23 (Note 5) 10,000,000 0.07 3,463,071,189 25.30 241,760,000 1.77 40,000,000 0.29 281,760,000 2.06
			25.30
			1.77 0.29
			2.06

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LETTER FROM DONVEX CAPITAL

Shareholders Other Directors Li Zhengshan Zhu Shengliang Hui Wing Sang, Wilson Sub-total (C): Subscribers (excluding Sun East LLC) (Note 3) Run Hai (Note 6) Good Shine Fortune Ever Xu Maomao Public Shareholders Sub-total (D) public Shareholders before and immediately following completion of the Subscriptions (including Good Shine, Fortune Ever and Xu Maomao) TOTAL (A) + (B) + (C) + Shares held by Run Hai (if any) + (D)	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 8,700,000 0.10 5,333,883 0.06 2,904,000 0.03 16,937,883 0.19 – – – – – – – – 6,250,192,884 71.25 6,250,192,884 71.25 8,772,159,756 100	Immediately after completion of the Subscriptions (Note 4) Number of Shares % 8,700,000 0.06 5,333,883 0.04 2,904,000 0.02 16,937,883 0.12 1,716,000,000 12.54 780,000,000 5.70 624,000,000 4.56 554,197,800 4.05 6,250,192,884 45.67 8,208,390,684 59.98 13,686,159,756 100	Immediately after completion of the Subscriptions (Note 4) Number of Shares % 8,700,000 0.06 5,333,883 0.04 2,904,000 0.02 16,937,883 0.12 1,716,000,000 12.54 780,000,000 5.70 624,000,000 4.56 554,197,800 4.05 6,250,192,884 45.67 8,208,390,684 59.98 13,686,159,756 100
			0.12
			12.54 5.70 4.56 4.05 45.67
			59.98
			100

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LETTER FROM DONVEX CAPITAL

Notes:

Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr. Yeung Yung (as well as his spouse) is deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) under Part XV of the SFO. Dr Yeung Yung is an executive Director.
Fortune Venture Holding Limited is a company incorporated in the British Virgin Islands whose entire issued share capital is solely and beneficially owned by Ms Li Xiaoqin (the spouse of Mr Liu Stephen Quan). Mr Liu Stephen Quan is deemed to be interested in the Shares held by his spouse by virtue of Part XV of the SFO. Mr Liu Stephen Quan is an executive Director.
Except for Sun East LLC (being one of the Subscribers), the Subscribers are Independent Third Parties.
The Subscriptions, if successfully completed, would involve the allotment and issue of a maximum of 4,914,000,000 Shares (subject to adjustment depending on the conversion rate of US$ to HK$ upon the Subscription Completion).
The Sun East Subscription contemplated under the Sun East Subscription Agreement, if consummated, would involve the allotment and issue of up to 1,239,802,200 new Shares.
As shown in the above table, Run Hai (being one of the Subscribers) will become a substantial Shareholder (as defined in the Listing Rules) and hence, a connected person of the Company, immediately after completion of the Subscriptions. The Subscription Shares held by Run Hai will not be considered as being held in public hands under the Listing Rules.

As disclosed in the table above, the equity interest held by Sun East in the Company will remain unchanged at approximately 25.23%. The interest of the public Shareholders (including Good Shine, Fortune Ever and Xu Maomao) will decrease by approximately 11.27% from approximately 71.25% to 59.98%. The interest of the public Shareholders (excluding all the Subscribers) will decrease by approximately 25.58% from approximately 71.25% to 45.67%. We noticed that the Subscriptions will bring along such dilution effect to the public Shareholders (excluding all the Subscribers), and we are of the view that such dilution effect is fair and reasonable considering (i) the Subscriptions (excluding the Sun East Subscription) can enlarge the Shareholder base; (ii) the Subscription Price is fair and reasonable as concluded under the section named “The Subscription Price”; (iii) the chance of the approval of debt financing is low for the Company as discussed in the section named “Debt financing”; and (iv) the Subscriptions are much more secured than rights issue or open offer as concluded in the section named “Equity financing”.

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LETTER FROM DONVEX CAPITAL

Scenario 2

Given that each of the Subscription Agreements are not inter-conditional, we have analysed the maximum effect on the shareholding structure of the Company in the event that only the Sun East Subscription is proceeded as shown in the following table.

Shareholders Sun East LLC (Note 1) Yeung Yung (Note 1) Sub-total (A): Fortune Venture Holding Limited (Note 2) Liu Stephen Quan (Note 2) Sub-total (B): Other Directors Li Zhengshan Zhu Shengliang Hui Wing Sang, Wilson Sub-total (C): Public Shareholders (D) TOTAL (A) + (B) + (C) + (D)	As at the date of the Announcement and the Latest Practicable Date Number of Shares % 2,213,268,989 25.23 10,000,000 0.11 2,223,268,989 25.34 241,760,000 2.76 40,000,000 0.46 281,760,000 3.22 8,700,000 0.10 5,333,883 0.06 2,904,000 0.03 16,937,883 0.19 6,250,192,884 71.25 8,772,159,756 100	Immediately after completion of the Sun East Subscription(Note 3) Number of Shares % 3,453,071,189 34.49 (Note 3) 10,000,000 0.10 3,463,071,189 34.69 241,760,000 2.41 40,000,000 0.40 281,760,000 2.81 8,700,000 0.09 5,333,883 0.05 2,904,000 0.03 16,937,883 0.17 6,250,192,884 62.33 10,011,961,956 100	Immediately after completion of the Sun East Subscription(Note 3) Number of Shares % 3,453,071,189 34.49 (Note 3) 10,000,000 0.10 3,463,071,189 34.69 241,760,000 2.41 40,000,000 0.40 281,760,000 2.81 8,700,000 0.09 5,333,883 0.05 2,904,000 0.03 16,937,883 0.17 6,250,192,884 62.33 10,011,961,956 100
			34.69
			2.41 0.40
			2.81
			0.09 0.05 0.03
			0.17
			62.33
			100

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LETTER FROM DONVEX CAPITAL

Notes:

Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr. Yeung Yung (as well as his spouse) is deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) under Part XV of the SFO. Dr Yeung Yung is an executive Director.
Fortune Venture Holding Limited is a company incorporated in the British Virgin Islands whose entire issued share capital is solely and beneficially owned by Ms Li Xiaoqin (the spouse of Mr Liu Stephen Quan). Mr Liu Stephen Quan is deemed to be interested in the Shares held by his spouse by virtue of Part XV of the SFO. Mr Liu Stephen Quan is an executive Director.
The Sun East Subscription contemplated under the Sun East Subscription Agreement, if consummated, would involve the allotment and issue of up to 1,239,802,200 new Shares.

As shown in the above table, on the basis of 8,772,159,756 Shares in issue as at the Latest Practicable Date and assuming there is no further issue or repurchase of Shares during the period from the Latest Practicable Date up to and including the date of completion of the Sun East Subscription, the consummation of the Sun East Subscription would cause an increase in the shareholding in the Company of Sun East LLC and its associates from approximately 25.34% to approximately 34.69% of the issued share capital of the Company as enlarged by the Sun East Subscription. Such increase would give rise to an obligation on the part of Sun East LLC and parties acting in concert (as defined in the Takeovers Code) with it to make a mandatory offer under Rule 26 of the Takeovers Code.

Our view

Although the Subscriptions from both scenarios will bring along a dilution effect to the Independent Shareholders who are not a party of any of the Subscriptions, we are of the view that the dilution effect to the Independent Shareholders who are not a party of any of the Subscriptions is fair and reasonable considering (i) the Subscriptions (excluding the Sun East Subscription) can enlarge the Shareholder base; (ii) the Subscription Price is fair and reasonable as concluded under the section named “The Subscription Price”; (iii) the chance of the approval of debt financing is low for the Company as discussed in the section named “Debt financing”; and (iv) the Subscriptions are much more secured than rights issue or open offer as concluded in the section named “Equity financing”.

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LETTER FROM DONVEX CAPITAL

6. Other fund raising alternatives

(i) Debt financing

We have made enquires with the Directors and the Directors confirmed that apart from equity financing, the Group will also consider debt financing, such as bank borrowings and issue of bonds, to be the other possible fund raising alternatives available to the Group. However, the Directors are of the view that the ability of the Group to obtain bank borrowings usually depends on the Group’s profitability, financial position and the then prevailing market condition. In view of the net loss position of the Group, the Directors consider that the chance of the approval of bank loan is low. Furthermore, the bank loan application may be subject to lengthy due diligence and negotiations with banks. In addition, in light of debt financing will usually incur an interest burden on the Group, the Directors consider debt financing to be relatively uncertain and time-consuming as compared to equity financing, such as subscription of new Shares, for the Group to obtain additional funding.

(ii) Equity financing

The Company has also considered other means of raising permanent equity capital, including by means of a rights issue or an open offer available to all Shareholders. However, pursuant to Chapter 7 of the Listing Rules, a rights issue of a listed issuer must be fully underwritten in normal circumstances. In addition, the Directors consider that, in the absence of an underwriter, the Company may have difficulties to complete a rights issue or an open offer given the possibilities that certain public Shareholders may not be interested to participate in a rights issue or an open offer. Although the Company has not formally discussed with any independent underwriter, the Directors advised that, due to the continuous loss position of the Company, it would be difficult for the Company to get an underwriter to underwrite the entire rights issue or an open offer with reasonable underwriting fee and a fair placing price. Furthermore, a rights issue or open offer would involve numerous steps including notice period for book closure, issue of prospectus and offer period under the prevailing Listing Rules.

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LETTER FROM DONVEX CAPITAL

We noticed that most of the net proceeds from the Subscriptions are used for (i) the investment in the Project Company (subject to and pursuant to the terms of the Cooperative Agreement as disclosed in the subparagraph headed “Establishment of Project Company” in the letter from the Board); (ii) the investment in and/or acquisition of battery and energy technologies as disclosed in the subparagraph headed “Battery and Energy Technologies” in the letter from the Board; and (iii) general working capital of the Group including research and development costs and staff overheads costs, such that the Company has no urgent funding needs. However, provided that the Company’s net loss position which may discourage Shareholder to participate in rights issue or open offer, it is inefficient and ineffective to raise funds for the Group by way of rights issue or open offer. The Subscriptions are the only fund raising exercise which could be secured by the Company as at the Latest Practicable Date. In order to ensure the Company has sufficient funds for its working capital and future acquisition when opportunity arises, the Director is of the view that it would be better to capture the Subscription to raise fund for the Company instead of fund raising by way of rights issue or open offer, which there are a lot of uncertain factors to the Company, including but not limited to the identification of an underwriter or the interest of the Shareholder in participating in rights issue or open offer.

In addition, to maintain the pro-rata shareholding in a rights issue or open offer, the existing Shareholders will have to participate in the rights issue or open offer, or otherwise their shareholding will be diluted. This may create undue financial burden on certain existing Shareholders as a consequence. Although Shareholders may choose to sell their nil-paid rights in the secondary market, it is possible that the liquidity of the rights may be low such that Shareholders may need to sell the rights in a discount, thus decreasing Shareholder’s value.

We also noticed that both the Subscription and a rights issue or open offer will bring along dilution effect to existing Shareholders if they do not participate in the rights issue or open offer, in view of (i) the Subscriptions (excluding the Sun East Subscription) can enlarge the Shareholder base; (ii) a rights issue or open offer takes longer time to complete than the Subscription as the former would involve numerous steps including notice period for book closure, issue of prospectus and offer period under the prevailing Listing Rules; (iii) the potential substantial underwriting costs for a rights issue or open offer as compared to the Subscription; and (iv) the difficulties in finding an underwriter to underwrite the rights issue or open offer given the loss position of the Company, we consider the Subscription to be a better financing alternative over a rights issue or open offer. As such, we concur with the Directors’ view that the Sun East Subscription is fair and reasonable.

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LETTER FROM DONVEX CAPITAL

7. Possible financial effects

Cashflow

According to the 2012 interim report of the Group, as of 30 June 2012, the Group had cash and cash equivalents of approximately HK$53.20 million and unaudited net assets of approximately HK$313.20 million. Upon completion of the Sun East Subscription, the liquidity and cash position of the Group will be improved as the Subscription will facilitate the Company to raise net proceeds of approximately US$15.89 million (equivalent to approximately HK$123.98 million). Accordingly, we are of the view that the cash position and the net current assets of the Company are expected to improve upon Completion.

Earnings

Save for the expenses relating to the Subscription, we are of the view that the Completion will not have any immediate material impact on the earnings of the Group.

Net assets value

According to the 2012 interim report of the Group, as at 30 June 2012, the unaudited net asset value of the Group was approximately HK$313.20 million. Upon completion of the Sun East Subscription, the net asset value will improve as the Sun East Subscription will increase the total assets and share capital of the Company.

Net assets value per Share

The amount of gross proceeds of approximately US$15.89 million (equivalent to approximately HK$123.98 million) is expected to be received by the Company upon completion of the Sun East Subscription. As a result, bank balances and cash, total assets and net assets of the Group are expected to increase by the same amount. As the Subscription Price is of a premium to the Group’s net asset value per Share as discussed under the section named “Comparison of the Subscription Price”, the net asset value per Share of the Group is expected to increase upon the completion of the Sun East Subscription.

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LETTER FROM DONVEX CAPITAL

RECOMMENDATION

Having considered (i) the Subscriptions (excluding the Sun East Subscription) represents a good opportunity to enlarge the Shareholder base; (ii) the Subscription Price under the Sun East Subscription Agreement lies within the range of Share prices within the Review Period; (iii) the Subscription Price is in line with the market trend as discussed under the section named “Comparison on basis with identifiable connected subscriptions”; and (iv) the continuous loss of the Company has resulted in the difficulties in obtaining bank loan and procuring an underwriter to underwrite a rights issue or an open offer, we are of the opinion that the terms of the Sun East Subscription Agreement are (i) in the ordinary and usual course of business of the Company; (ii) on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) is in the interests of the Group and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Sun East Subscription.

Yours faithfully,

For and on behalf of Donvex Capital Limited Doris Sy Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL

(a) Share capital

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised share capital: 800,000,000,000 Shares Issued and fully paid share capital: 8,772,159,756 Shares	HK$ 80,000,000,000

	HK$ 877,215,975.60

All the existing Shares rank pari passu in all respects with each other including rights to dividends, voting and return of capital.

(b) Share options

Save for the options carrying the rights to subscribe for up to a total of 1,281,992,000 Shares at the exercise prices ranging from HK$0.102 to HK$0.368 granted under the share option scheme adopted by the Company on 12 June 2003, there were no outstanding options of the Company as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX

(c) Convertible securities

As at the Latest Practicable Date, none of the members of the Group has granted any options, warrants or other rights to call for the issue of or agreed to issue any share or loan capital or any instrument convertible into or exchangeable for shares of such capital, and none of the members of the Group is a party to or otherwise bound by any agreement for the purchase or repurchase of shares of any member of the Group.

3. DISCLOSURE OF INTERESTS

(a) Directors and chief executive

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of the SFO which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have taken under such provisions of the SFO); or (b) were required pursuant to section 352 of the SFO to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange:

Interests in Shares

Name of Director Yeung Yung Liu Stephen Quan Zhu Shengliang Hui Wing Sang, Wilson Li Zhengshan	Number of Shares Capacity 2,213,268,989 (Note 2) Controlled Corporation 10,000,000 (Note 3) Beneficial owner 2,223,268,989 241,760,000 (Note 4) Family interest 40,000,000 Beneficial owner 281,760,000 5,333,883 Beneficial owner 2,904,000 Beneficial owner 8,700,000 Beneficial owner	Approximate percentage of shareholding (Note 1)
		25.34%
		3.21% 0.06% 0.03% 0.10%

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GENERAL INFORMATION

APPENDIX

Notes:

(1) The percentage of shareholding is calculated on the basis of 8,772,159,756 Shares in issue as at the Latest Practicable Date and did not take into account any Shares which may fall to be allotted and issued upon exercise of any subscription rights attaching to any share options granted by the Company.
(2) These Shares are held by Sun East LLC. Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr Yeung Yung (as well as his spouse) was deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) by virtue of Part XV of the SFO. Dr Yeung Yung is an executive Director.
(3) The spouse of Dr Yeung Yung is deemed to be interested in these Shares personally and beneficially held by Dr Yeung Yung by virtue of Part XV of the SFO.
(4) These Shares are held by Fortune Venture Holdings Limited, a company incorporated in the British Virgin Islands whose entire issued share capital is solely and beneficially owned by Ms Li Xiaoqin (the spouse of Mr Liu Stephen Quan). Mr Liu Stephen Quan is deemed to be interested in the Shares held by his spouse through Fortune Venture Holdings Limited by virtue of Part XV of the SFO. Mr Liu Stephen Quan is an executive Director.

Interests in share options of the Company

Name of Director Date of grant Exercisable period Exercise price (HK$) Yeung Yung 9 August 2005 29 August 2005 to 8 August 2015 0.102 6 February 2008 6 February 2008 to 5 February 2018 0.114 24 June 2009 24 June 2009 to 11 June 2013 0.123 26 May 2011 26 May 2011 to 11 June 2013 0.1338	Number of underlying Shares subject to outstanding Options 11,140,000 27,000,000 40,000,000 35,000,000 113,140,000	Approximate percentage of shareholding (Note)
		1.29%

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GENERAL INFORMATION

APPENDIX

Name of Director Date of grant Exercisable period Exercise price (HK$) Huang Chunhua 24 June 2009 24 June 2009 to 11 June 2013 0.123 17 November 2009 17 November 2009 to 11 June 2013 0.295 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Wang Chuantao 24 June 2009 24 June 2009 to 11 June 2013 0.123 17 November 2009 17 November 2009 to 11 June 2013 0.295 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Liu Stephen Quan 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Hui Wing Sang, Wilson 6 February 2008 6 February 2008 to 5 February 2018 0.114 24 June 2009 24 June 2009 to 11 June 2013 0.123 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Zhu Shengliang 9 August 2005 29 August 2005 to 8 August 2015 0.102 24 June 2009 24 June 2009 to 11 June 2013 0.123 10 July 2009 10 July 2009 to 11 June 2013 0.185 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Zhang Zhenwei 24 June 2009 24 June 2009 to 11 June 2013 0.123 26 May 2011 26 May 2011 to 11 June 2013 0.1338	Number of underlying Shares subject to outstanding Options 20,000,000 10,000,000 35,000,000 65,000,000 15,000,000 10,000,000 20,000,000 45,000,000 10,000,000 27,000,000 21,000,000 35,000,000 83,000,000 16,710,000 1,290,000 10,000,000 10,000,000 38,000,000 7,500,000 15,000,000 22,500,000	Approximate percentage of shareholding (Note)
		0.74%
		0.51% 0.11%
		0.95%
		0.43%
		0.26%

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GENERAL INFORMATION

APPENDIX

Name of Director Date of grant Exercisable period Exercise price (HK$) Xu Jianguo 15 April 2010 15 April 2010 to 11 June 2013 0.368 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Li Zhengshan 9 August 2005 29 August 2005 to 8 August 2015 0.102 6 February 2008 6 February 2008 to 5 February 2018 0.114 24 June 2009 24 June 2009 to 11 June 2013 0.123 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Xia Tingkang, Tim 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Zhu Guobin 26 May 2011 26 May 2011 to 11 June 2013 0.1338 Jang Bor Zeng Bohr 4 December 2012 4 December 2012 to 3 December 2022 0.1200 Zhamu Aruna 4 December 2012 4 December 2012 to 3 December 2022 0.1200	Number of underlying Shares subject to outstanding Options 5,000,000 15,000,000 20,000,000 5,570,000 5,000,000 4,430,000 15,000,000 30,000,000 10,000,000 10,000,000 66,000,000 34,000,000	Approximate percentage of shareholding (Note)
		0.23%
		0.34% 0.11% 0.11% 0.75% 0.39%

Note:

The percentage of shareholding is calculated on the basis of 8,772,159,756 Shares in issue as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX

(b) Substantial Shareholders

Save as disclosed below, the Directors and chief executive of the Company were not aware that there was any party who, as at the Latest Practicable Date, 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 Divisions 2 and 3 of Part XV of the SFO:

Name of Shareholder Nature of interest Sun East LLC Beneficial owner (Note 3) Yeung Yung Interest of controlled corporation (Note 3) Beneficial owner (Note 4)	Number of Shares (L) 2,213,268,989 (L) 2,213,268,989 (L) 10,000,000 (L) 2,223,268,989 (L)	Approximate percentage of interest (Note 2) 25.23% 25.23% 0.11%
		25.34%

Notes:

(1) The letter “L” represents the entity’s interest in the Shares.
(2) The percentage of shareholding is calculated on the basis of 8,772,159,756 Shares in issue as at the Latest Practicable Date.
(3) Sun East LLC is a limited liability company incorporated in California, the US, which is owned as to (i) 35% by Dr Yeung Yung (shared commonly with his spouse under the laws of California, the US) and (ii) 65% by Mr Ma Manwai (alias Ma Manwai, Philip) and Mr Jimmy Wang (alias Wang Jian) as co-trustees for certain trusts established for the benefit of the children of Dr Yeung Yung on 30 December 2002. Dr Yeung Yung (as well as his spouse) was deemed to be interested in the Shares held by Sun East LLC (and the spouse of Dr Yeung Yung is deemed to be interested in the Shares held by Dr Yeung Yung) by virtue of Part XV of the SFO. Dr Yeung Yung is an executive Director.

As at the Latest Practicable Date, none of the Directors was holding any directorship in Sun East LLC.

(4) The spouse of Dr Yeung Yung is deemed to be interested in these Shares directly and beneficially held by Dr Yeung Yung by virtue of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without compensation, other than statutory compensation).

5. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which have, since 31 December 2011, being the date of the latest published audited accounts of the Group, been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group.

None of the Directors was materially interested in any contract which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or any of their respective associates was considered to have interests in any business which competed or were likely to compete, either directly or indirectly, with the businesses of the Group.

7. LITIGATION

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

8. MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited consolidated accounts of the Company were made up.

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GENERAL INFORMATION

APPENDIX

9. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Group within two years immediately preceding the Latest Practicable Date:

(a) the conditional share transfer agreement dated 22 December 2011 entered into between Far East Golden Resources Investment Limited（遠東金源投資有限公司）(“ FEGR-HK ”) (as vendor), a wholly-owned subsidiary of the Company, and 王穎 (Wang Ying) (as purchaser) in relation to the disposal of the entire 65% equity interest held by FEGR-HK in Beijing Century Wanyeyuan Bio-Engineering Co., Ltd
（北京世紀萬業源生物工程技術有限公司）at the consideration of RMB41,000,000;
(b) the five several subscription agreements all dated 27 January 2012 entered into by the Company with five several subscribers (namely Glory Wish Development Limited, Well Manage Resources Limited, King Apex Holdings Investment Limited, Le Hong Liang（樂宏亮）and Ouyang Rui（歐陽瑞）) in respect of the subscription of an aggregate of 1,460,000,000 new Shares at HK$0.10 per Share;
(c) the Subscription Agreements; and
(d) the Cooperative Agreement.

10. EXPERT AND CONSENT

(a) The following is the qualification of the expert who has been named in this circular or has given opinions and advice contained in this circular:

Name

Qualification

Donvex Capital Limited

A licensed corporation registered under the SFO to conduct type 6 (advising on corporate finance) regulated activity under the SFO

(b) Donvex Capital Limited has no shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX

(c) Donvex Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name, letter and/or report in the form and context in which they respectively appear.
(d) Donvex Capital Limited has no direct or indirect interest in any asset which has been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2011, the date to which the latest published audited financial statements of the Group were made up.

11. GENERAL

(a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
(b) The secretary of the Company is Mr Ting Kwok Kit, Johnny, who is a fellow member of the Association of Chartered Certified Accountants, a member of the Certified General Accountants Association of Canada and a fellow member of the Hong Kong Institute of Chartered Secretaries.
(c) The qualified accountant of the Company is Mr Hui Wing Sang, Wilson, who is an associate member of The Hong Kong Institute of Certified Public Accountants (HKICPA).
(d) The Company’s principal share registrar and transfer office in Bermuda is HSBC Securities Services (Bermuda) Limited at 6 Front Street, Hamilton HM 11, Bermuda.
(e) The head office and principal place of business of the Company in Hong Kong is situated at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.
(f) The Company’s branch share registrar and transfer office in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(g) The English text of this circular prevails over the Chinese text in case of inconsistency.

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GENERAL INFORMATION

APPENDIX

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and principal place of business of the Company in Hong Kong at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the Special General Meeting:

(a) the memorandum of association and the bye-laws of the Company;
(b) the annual reports of the Company for each of the two financial years ended 31 December 2010 and 2011 and the interim report of the Company for the six months ended 30 June 2012;
(c) the letter from the Independent Board Committee, the text of which is set out on pages 27 to 28 of this circular;
(d) the letter from the Independent Financial Adviser, the extent of which is set out on pages 29 to 48 of this circular;
(e) the written consent from the expert referred to in the paragraph headed “Expert and Consent” in this Appendix;
(f) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix; and
(g) this circular.

for identification purpose only

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NOTICE OF SPECIAL GENERAL MEETING

==> picture [54 x 55] intentionally omitted <==

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

(incorporated in Bermuda with limited liability)

(Stock code: 1188)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ Meeting ”) of Hybrid Kinetic Group Limited (the “ Company ”) will be held at Suites 1407-8, 14th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Monday, 28 January 2013 at 11:00 a.m. for the purposes of considering and, if thought fit, passing (with or without modifications), each of the following resolutions (each a “ Resolution ”) as an ordinary resolution of the Company:

ORDINARY RESOLUTIONS

“ THAT (a) the connected transaction constituted by the entering into of the conditional subscription agreement dated 23 November 2012 (the “ Sun East Subscription Agreement ”, a copy of which has been produced to this meeting marked “A” and initialed by the chairman of this meeting for the purpose of identification) between Sun East LLC as subscriber and Hybrid Kinetic Group Limited (the “ Company ”) as issuer in relation to the subscription (the “ Sun East Subscription ”) by Sun East LLC for the investment amount of US$15,894,900 of such number of new ordinary shares (the “ Sun East Subscription Shares ”) of HK$0.10 each in the Company (not exceeding 1,239,802,200 Sun East Subscription Shares) at the subscription price of HK$0.10 per Subscription Share subject to and upon other terms and conditions contained in the Sun East Subscription Agreement together with the transactions contemplated thereunder (including the allotment and issue of the Sun East Subscription Shares) and all other matters thereof and incidental thereto or in connection therewith be and they are hereby generally and unconditionally approved in all respects and that the Sun East Subscription Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other new ordinary shares of HK$0.10 each in the Company in issue at the date of such allotment and issue; and (b) the Directors (or a duly authorised committee thereof) be and they are hereby

N – 1

NOTICE OF SPECIAL GENERAL MEETING

generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Sun East Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”

“ THAT (a) the entering into of the conditional subscription agreement dated 23 November 2012 (the “ Run Hai Subscription Agreement ”, a copy of which has been produced to this meeting marked “B” and initialed by the chairman of this meeting for the purpose of identification) between Run Hai International Limited（潤海國際有限公司）(“ Run Hai ”) as subscriber and Hybrid Kinetic Group Limited (the “ Company ”) as issuer in relation to the subscription (the “ Run Hai Subscription ”) by Run Hai for the investment amount of US$22,000,000 of such number of new ordinary shares (the “ Run Hai Subscription Shares ”) of HK$0.10 each in the Company (not exceeding 1,716,000,000 Run Hai Subscription Shares) at the subscription price of HK$0.10 per Subscription Share subject to and upon other terms and conditions contained in the Run Hai Subscription Agreement together with the transactions contemplated thereunder (including the allotment and issue of the Run Hai Subscription Shares) and all other matters thereof and incidental thereto or in connection therewith be and they are hereby generally and unconditionally approved in all respects and that the Run Hai Subscription Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other new ordinary shares of HK$0.10 each in the Company in issue at the date of such allotment and issue; and (b) the Directors (or a duly authorised committee thereof) be and they are hereby generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Run Hai Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”

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NOTICE OF SPECIAL GENERAL MEETING

“ THAT (a) the entering into of the conditional subscription agreement dated 23 November 2012 (the “ Good Shine Subscription Agreement ”, a copy of which has been produced to this meeting marked “C” and initialed by the chairman of this meeting for the purpose of identification) between Good Shine International Limited (“ Good Shine ”) as subscriber and Hybrid Kinetic Group Limited (the “ Company as issuer in relation to the subscription (the “ Good Shine Subscription ”) by Good Shine for the investment amount of US$10,000,000 of such number of new ordinary shares (the “ Good Shine Subscription Shares ”) of HK$0.10 each in the Company (not exceeding 780,000,000 Good Shine Subscription Shares) at the subscription price of HK$0.10 per Subscription Share subject to and upon other terms and conditions contained in the Good Shine Subscription Agreement together with the transactions contemplated thereunder (including the allotment and issue of the Good Shine Subscription Shares) and all other matters thereof and incidental thereto or in connection therewith be and they are hereby generally and unconditionally approved in all respects and that the Good Shine Subscription Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other new ordinary shares of HK$0.10 each in the Company in issue at the date of such allotment and issue; and (b) the Directors (or a duly authorised committee thereof) be and they are hereby generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Good Shine Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”
“ THAT (a) the entering into of the conditional subscription agreement dated 23 November 2012 (the “ Fortune Ever Subscription Agreement ”, a copy of which has been produced to this meeting marked “D” and initialed by the chairman of this meeting for the purpose of identification) between Fortune Ever Limited（富永有限公司）(“ Fortune Ever ”) as subscriber and Hybrid Kinetic Group Limited (the “ Company ”) as issuer in relation to the subscription (the “ Fortune Ever Subscription ”) by Fortune Ever for the investment amount of US$8,000,000 of such number of new ordinary shares (the “ Fortune Ever Subscription Shares ”) of HK$0.10 each in the Company (not exceeding 624,000,000 Fortune Ever Subscription Shares) at the subscription price of HK$0.10 per Subscription Share subject to and upon other terms and conditions contained in the Fortune Ever Subscription Agreement together with the transactions contemplated thereunder (including the

N – 3

NOTICE OF SPECIAL GENERAL MEETING

allotment and issue of the Fortune Ever Subscription Shares) and all other matters thereof and incidental thereto or in connection therewith be and they are hereby generally and unconditionally approved in all respects and that the Fortune Ever Subscription Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other new ordinary shares of HK$0.10 each in the Company in issue at the date of such allotment and issue; and (b) the Directors (or a duly authorised committee thereof) be and they are hereby generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Fortune Ever Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”

“ THAT (a) the entering into of the conditional subscription agreement dated 23 November 2012 (the “ XMM Subscription Agreement ”, a copy of which has been produced to this meeting marked “E” and initialed by the chairman of this meeting for the purpose of identification) between Mr Xu Maomao（徐毛毛）(“ XMM ”) as subscriber and Hybrid Kinetic Group Limited (the “ Company ”) as issuer in relation to the subscription (the “ XMM Subscription ”) by XMM for the investment amount of US$7,105,100 of such number of new ordinary shares (the “ XMM Subscription Shares ”) of HK$0.10 each in the Company (not exceeding 554,197,800 Subscription Shares) at the subscription price of HK$0.10 per Subscription Share subject to and upon other terms and conditions contained in the XMM Subscription Agreement together with the transactions contemplated thereunder (including the allotment and issue of the XMM Subscription Shares) and all other matters thereof and incidental thereto or in connection therewith be and they are hereby generally and unconditionally approved in all respects and that the XMM Subscription Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other new ordinary shares of HK$0.10 each in the Company in issue at the date of such allotment and issue; and (b) the Directors (or a duly authorised committee thereof) be and they are hereby generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the XMM Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”

N – 4

NOTICE OF SPECIAL GENERAL MEETING

“ THAT the directors (the “ Directors ”) of Hybrid Kinetic Group Limited (the “ Company ”) (or a duly authorised committee thereof) be and they are hereby generally and specifically authorised to allot and issue such number of new ordinary shares of HK$0.10 each in the Company (the “ Specific Mandate ”) as may be required to cover the appropriate number of the Subscription Shares pursuant to the respective terms and conditions of the Sun East Subscription Agreement (subject to the passing of resolution no. 1 above), the Run Hai Subscription Agreement (subject to the passing of resolution no. 2 above), the Good Shine Subscription Agreement (subject to the passing of resolution no. 3 above), the Fortune Ever Subscription Agreement (subject to the passing of resolution no. 4 above) and the XMM Subscription Agreement (subject to the passing of resolution no. 5 above). The Specific Mandate is in addition to, and shall not prejudice nor revoke any general or specific mandate(s) which has/have been granted or may from time to time be granted to the Directors by the shareholders of the Company prior to the passing of this resolution.”

Yours faithfully, By order of the Board Hybrid Kinetic Group Limited Yeung Yung Chairman

Hong Kong, 11 January 2013

Registered office: Principal place of business Canon’s Court in Hong Kong: 22 Victoria Street Suites 1407-8, 14th Floor Hamilton HM 12 Great Eagle Centre Bermuda 23 Harbour Road Wanchai, Hong Kong

N – 5

NOTICE OF SPECIAL GENERAL MEETING

Notes:

Any member of the Company entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint one or more separate proxy(ies) to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
A form of proxy for use at the Meeting is enclosed with the circular of the Company dated 11 January 2013.
To be valid, a form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed (or a certified copy thereof) must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting (or at any adjournment thereof). Completion and return of the form of proxy shall not preclude members from attending and voting in person at the Meeting or at any adjourned meeting (as the case may be) should they so wish.
Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders are present at the Meeting personally or by proxy, the joint member whose name stands first on the register of members of the Company in respect of such share, or his proxy, shall alone be entitled to vote and will be accepted to the exclusion of other joint registered holders in respect thereof.
The votes at the Meeting will be taken by poll.

As at the date of this notice, the board of directors of the Company comprise eleven executive directors, namely Dr Yeung Yung (Chairman), Dr Huang Chunhua (Deputy Chairman), Dr Jang Bor Zeng Bohr (Deputy Chairman), Dr Wang Chuantao (Chief Executive Officer), Mr Liu Stephen Quan, Mr Hui Wing Sang, Wilson, Dr Zhamu Aruna, Dr Zhu Shengliang, Dr Zhang Zhenwei, Mr Xu Jianguo and Mr Li Zhengshan, one non-executive director, namely Dr Xia Tingkang, Tim and six independent non-executive directors, namely Mr Wong Lee Hing, Dr Song Jian, Dr Zhu Guobin, Mr Cheng Tat Wa, Dr Li Jianyong and Mr Chan Sin Hang.

N – 6

AI assistant

Hybrid Kinetic Group Limited — Proxy Solicitation & Information Statement 2013

49754_rns_2013-01-10_6d1c74b3-5108-4e62-96bc-0efb60779325.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

Independent Financial Adviser to

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON SUBSCRIPTION OF NEW SHARES BY INDEPENDENT THIRD PARTIES PROPOSED GRANT OF SPECIFIC MANDATE AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

SUBSCRIPTION AGREEMENTS

Date:

Parties involved:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Subscription Price

LETTER FROM THE BOARD

Subscription Shares

LETTER FROM THE BOARD

Ranking of the Subscription Shares

Disposal and lock-up restriction

No change in members or composition of the Board

Conditions precedent to the Subscription Completion

LETTER FROM THE BOARD

Subscription Completion

Mandate for the issue of the Subscription Shares

Application for listing

LETTER FROM THE BOARD

REASONS FOR THE SUBSCRIPTIONS

LETTER FROM THE BOARD

USE OF NET PROCEEDS

LETTER FROM THE BOARD

(b) Battery and Energy Technologies

LETTER FROM THE BOARD

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING

Scenario 1

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Scenario 2

LETTER FROM THE BOARD

APPLICATION FOR LISTING

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST 12 MONTHS

APPROVAL OF THE BOARD

IMPLICATION OF THE LISTING RULES

INFORMATION ON THE COMPANY

LETTER FROM THE BOARD

SPECIAL GENERAL MEETING

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

HYBRID KINETIC GROUP LIMITED 正道集團有限公司

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON

LETTER FROM DONVEX CAPITAL

CONNECTED TRANSACTION INVOLVING SUBSCRIPTION OF NEW SHARES BY CONNECTED PERSON

INTRODUCTION

LETTER FROM DONVEX CAPITAL

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Business and financial information of the Company

LETTER FROM DONVEX CAPITAL

LETTER FROM DONVEX CAPITAL

2. Information of Sun East

3. Principal terms of the Sun East Subscription Agreement

4. The Subscription Price

(i) Comparison of the Subscription Price

LETTER FROM DONVEX CAPITAL

(ii) Review on Share price performance

LETTER FROM DONVEX CAPITAL

Hybrid Kinetic Group Limited Proxy Solicitation & Information Statement 2013