Innovax Holdings Limited - Proxy Solicitation & Information Statement 2017

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 you should take, you should consult your 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 shares in Tesson Holdings Limited, you should at once hand this circular to the purchaser or the transferee or to the bank manager, licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

This circular appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the shares or other securities of the Company.

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.

TESSON HOLDINGS LIMITED 天臣控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock code: 1201)

(1) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) PROPOSED REFRESHMENT OF GENERAL MANDATE; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

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Capitalised terms used in this cover shall have the same meanings as defined in this circular.

A letter from the Board is set out on pages 6 to 20 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 21 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 22 to 39 of this circular.

A notice convening of the SGM of the Company to be held at Picasso Room B, B1 Level, InterContinental Grand Stanford Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 11:00 a.m. on 28 February 2017 is set out on pages 47 to 51 of this circular. A form of proxy for use at the SGM is enclosed with this circular.

If you are not able to attend the SGM, please complete and sign the form of proxy in accordance with the instructions printed thereon and return it to the Company’s registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the SGM or any adjournment thereof should you so wish.

13 February 2017

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Notice of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47

– i –

DEFINITIONS

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

“Assignment”

the proposed assignment by the Lender in favour of the Subscriber of all rights, titles, benefits and interests in and to the Outstanding Loan pursuant to the Subscription Agreement

“associate(s)”

has the meaning ascribed to it under the Listing Rules

“Board”

the board of Directors

“Business Day(s)”

a day (other than a Saturday, Sunday or public holiday in Hong Kong) on which licensed banks are generally open for business in Hong Kong

“Bye-laws”

the bye-laws of the Company

“Company”

Tesson Holdings Limited (stock code: 1201), a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange

“Completion”
completion of the Transactions contemplated under the Subscription Agreement
“Completion Date”

the date on which Completion shall take place, being a date falling within 5 Business Days following the date on which the conditions precedent under the Subscription Agreement are fulfilled (or such other date as the Company and the Subscriber may agree in writing)

“connected person(s)”

has the meaning ascribed to it under the Listing Rules

“controlling shareholder(s)”

has the meaning ascribed to it under the Listing Rules

“Conversion Price”

the initial conversion price of the Convertible Bonds of HK$1.60 per Conversion Share, subject to adjustments

– 1 –

DEFINITIONS

“Conversion Share(s)” new Share(s) to be allotted and issued by the Company to the Subscriber upon the exercise of the conversion rights attaching to the Convertible Bonds at the Conversion Price
“Convertible Bonds” convertible bonds in a principal amount of HK$300,000,000 to be issued by the Company pursuant to the Subscription Agreement
“Director(s)” the director(s) of the Company

the director(s) of the Company

“Existing General Mandate” the general mandate granted by the Shareholders at the Previous AGM to the Directors to allot, issue and deal with up to a maximum of 118,436,080 Shares

“Group” the Company and its subsidiaries

“HK$”

the lawful currency of Hong Kong dollars

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”
the independent board committee of the Company, comprising all the independent non-executive Directors, which has been formed for the purpose of advising the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder
“Independent Financial Advisor”
Akron Corporate Finance Limited, a licensed corporation under the SFO, registered to conduct Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder
“Independent Shareholders”

Shareholders other than (i) the Subscriber; and (ii) other Shareholders who are interested in the Transactions

“Independent Third Party(ies)”

third party(ies) independent of and not connected with the Company and its connected persons

– 2 –

DEFINITIONS

“Latest Practicable Date” 8 February 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein “Lender” Cloud Apex Global Limited, a company incorporated in the British Virgin Islands with limited liability and is whollyowned by the Subscriber “Listing Committee” the listing committee of the Stock Exchange “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Long Stop Date” the earlier of (i) the thirtieth (30th) day after the date of the SGM; and (ii) 31 March 2017 (or such other date as the Company and the Subscriber may agree in writing)

“New General Mandate” the general mandate proposed to be sought at the SGM to authorise the Directors to allot, issue and deal with new Shares not exceeding 20% of the aggregate nominal amount of share capital of the Company in issue as at the date of the SGM

“Outstanding Loan” the outstanding interest-bearing loan owed by the Company to (i) the Lender only immediately prior to the Assignment, and (ii) to the Subscriber only immediately following the Assignment, which amounted to HK$382,728,417.91 as at the Latest Practicable Date

“PRC”

the People’s Republic of China, and for the purpose of this circular, excluding Hong Kong, Macau and Taiwan

“Previous AGM” “Refreshment of General Mandate”

the annual general meeting of the Company held on 31 May 2016 the proposed revocation of the Existing General Mandate and grant of the New General Mandate

– 3 –

DEFINITIONS

“Set Off”	the partial repayment of the Outstanding Loan by way
	of setting off the Subscription Amount in full against a
	corresponding principal amount of the Outstanding Loan as
	contemplated under the Subscription Agreement
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	laws of Hong Kong)
“SGM”	the special general meeting of the Company to be convened
	and held to consider and, if thought fit, approve, among
	other matters, (i) the Subscription Agreement and the
	transactions contemplated thereunder (including the grant
	of the Specific Mandate); and (ii) the Refreshment of
	General Mandate
“Share(s)”	ordinary shares of HK$0.10 each in the share capital of the
	Company
“Shareholders”	the holders of Shares
“Specific Mandate”	the specific mandate to allot and issue the Conversion
	Shares to be sought from the Independent Shareholders at
	the SGM
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscriber”	Double Key International Limited, which (i) is a company
	incorporated in the British Virgin Islands with limited
	liability; (ii) is a controlling shareholder of the Company;
	and (iii) is wholly-owned by Ms. Cheng Hung Mui who is
	an executive Director
“Subscription”	the proposed subscription of the Convertible Bonds by the
	Subscriber pursuant to the Subscription Agreement
“Subscription Agreement”	the conditional subscription agreement dated 17 January
	2017 and entered into between the Company, the Subscriber
	and the Lender in relation to the Transactions

– 4 –

DEFINITIONS

“Subscription Amount” HK$300,000,000 payable by the Subscriber for the subscription of the Convertible Bonds under the Subscription Agreement “Transactions” the transactions contemplated under the Subscription Agreement, including the Subscription and the Assignment “%” per cent.

The English translation of Chinese names are included in this circular for identification purpose only and should not be regarded as their official English translation. In the event of any inconsistency, the Chinese name prevails.

– 5 –

LETTER FROM THE BOARD

TESSON HOLDINGS LIMITED 天臣控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock code: 1201)

Executive Directors: Registered office: Ms. Cheng Hung Mui Clarendon House Mr. Tin Kong 2 Church Street Mr. Zhou Jin Hamilton HM 11 Mr. Chen Dekun Bermuda Mr. Tao Fei Hu Mr. Sheng Siguang Head office and principal place of business in Hong Kong: Independent non-executive Directors: Room 1007 Mr. Wang Jinlin Tsim Sha Tsui Centre, West Wing Mr. Ng Ka Wing 66 Mody Road Mr. See Tak Wah Tsim Sha Tsui Hong Kong 13 February 2017

To the Independent Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) PROPOSED REFRESHMENT OF GENERAL MANDATE; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

The purpose of this circular is to provide you with, among others, (i) information on the Transactions; (ii) information of the Refreshment of General Mandate; and (iii) a notice of the SGM.

– 6 –

LETTER FROM THE BOARD

(1) THE TRANSACTIONS

Reference is made to the announcement of the Company dated 17 January 2017 in relation to the Transactions. On 17 January 2017, the Subscription Agreement was entered into between the Company, the Subscriber and the Lender pursuant to which (i) the Lender has conditionally agreed to assign all rights, titles, benefits and interests in and to the Outstanding Loan in favour of the Subscriber at Completion; and (ii) the Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to issue the Convertible Bonds in the principal amount of HK$300,000,000, which would entitle the holder(s) thereof to convert the Convertible Bonds into a maximum of 187,500,000 Conversion Shares at the initial Conversion Price of HK$1.60 per Conversion Share (subject to adjustments) upon the full exercise of the conversion rights. The Subscription Amount of HK$300,000,000 payable by the Subscriber will be satisfied by the Set Off at Completion.

The Subscription Agreement

Date

17 January 2017 (after trading hours)

Parties

(i) the Company (as issuer);
(ii) Double Key International Limited (as subscriber); and
(iii) the Lender

As at the Latest Practicable Date, the Subscriber (which is wholly-owned by Ms. Cheng Hung Mui who is an executive Director) is a controlling shareholder of the Company which holds 635,887,534 Shares, representing approximately 61.36% of the total issued share capital of the Company, and the Lender is wholly-owned by the Subscriber. Accordingly, the Subscriber and the Lender are connected persons of the Company.

The Assignment and the Set Off

Pursuant to the Subscription Agreement, the Lender has conditionally agreed to assign all rights, titles, benefits and interests in and to the Outstanding Loan in favour of the Subscriber, and subject to the fulfillment of the conditions set out in the section headed “Conditions precedent” below, the Assignment shall take place at Completion.

– 7 –

LETTER FROM THE BOARD

In addition, pursuant to the Subscription Agreement, the Subscription Amount of HK$300,000,000 payable by the Subscriber will be satisfied by setting off the full amount of the Subscription Amount against a corresponding principal amount of the Outstanding Loan at Completion. Accordingly, immediately following Completion, (i) the Subscriber will be holder of the Convertible Bonds, and (ii) the principal amount of the Outstanding Loan of HK$382,728,417.91 (assuming that there is no change in the amount of the Outstanding Loan from the Latest Practicable Date up to the Completion Date) will be reduced to HK$82,728,417.91.

Conditions precedent

Completion is conditional upon satisfaction of the following conditions:

(i) the approval(s) by the Independent Shareholders at the SGM for the Subscription Agreement and the transactions contemplated thereunder (including the grant of the Specific Mandate) having been obtained in accordance with the Listing Rules; and
(ii) the Listing Committee having granted the listing of, and permission to deal in, the Conversion Shares.

None of the above conditions can be waived. In the event that the above conditions are not fulfilled on or before the Long Stop Date, the Subscription Agreement will cease and determine and all rights and obligations under the Subscription Agreement will be terminated save for any antecedent breach.

As at the Latest Practicable Date, none of the above conditions has been fulfilled.

Completion

Completion shall take place on the Completion Date, subject to the fulfillment of all the conditions precedent under the Subscription Agreement.

– 8 –

LETTER FROM THE BOARD

Principal terms of the Convertible Bonds

Principal amount : HK$300,000,000.

Issue price : 100% of the principal amount.
Maturity date : From the date of issue of the Convertible Bonds up to 30 June 2036 (the “ Maturity Date ”).
Interest rate : 3.00% per annum on the outstanding principal amount of the Convertible Bonds, which will be payable by the Company quarterly in arrears on (a) the last day of each quarter (i.e. 31 March, 30 June, 30 September and 31 December); and (b) on the date of redemption or maturity.

Conversion rights : Holder of the Convertible Bonds will have the right, during the period commencing on the date of issue of the Convertible Bonds and ending on the third anniversary to the date of issue of the Convertible Bonds, to convert the Convertible Bonds in whole or in part of the outstanding principal amount of the Convertible Bonds into Conversion Shares, provided that the exercise of the conversion rights will not result in the Company being in breach of any provision of the Listing Rules, including the requirement to maintain any prescribed minimum percentage of the issued share capital of the Company held by the public.

Conversion Price : The initial Conversion Price of HK$1.60 per Conversion Share represents:
(i) a premium of approximately 45.45% over the closing price of HK$1.10 per Share quoted on the Stock Exchange on the date of the Subscription Agreement;
(ii) a premium of approximately 41.59% over the average closing price of approximately HK$1.13 per Share quoted on the Stock Exchange for the last five trading days for the Shares immediately prior to date of the Subscription Agreement;

– 9 –

LETTER FROM THE BOARD

(iii) a premium of approximately 37.93% over the average closing price of approximately HK$1.16 per Share quoted on the Stock Exchange for the last ten trading days for the Shares immediately prior to date of the Subscription Agreement;
(iv) a premium of approximately 68.42% over the adjusted net asset value of approximately HK$0.95 per Share, based on (i) the consolidated net asset value of the Company of approximately HK$626,729,000 as at 30 June 2016 as extracted from the interim report of the Company for the six months ended 30 June 2016; (ii) the net proceeds of approximately HK$352,808,000 arising from the Open Offer (as defined below); and (iii) the number of issued Shares as at the Latest Practicable Date; and
(v) a premium of approximately 40.35% to the closing price of HK$1.14 per Share quoted on the Stock Exchange on the Latest Practicable Date.

The Conversion Price was arrived at after arm’s length negotiation between the Company and the Subscriber with reference to, among others, the prevailing market price of the Shares. The Directors consider that the Conversion Price is fair and reasonable and is in the interest of the Company and the Shareholders as a whole.

Adjustment to : Conversion Price

The Conversion Price shall from time to time be adjusted in accordance with the relevant provisions under the terms and conditions of the Convertible Bonds upon occurrence of the following events:

(i) an alteration of the nominal amount of the Shares by reason of consolidation, subdivision, reclassification or otherwise;

– 10 –

LETTER FROM THE BOARD

(ii) an issue of Shares credited as fully paid to Shareholders by way of capitalization of profits or reserves (including any share premium account or capital redemption reserve), other than Shares issued in lieu of a cash dividend;
(iii) a capital distribution (as such term is defined in the conditions of the Convertible Bonds) to Shareholders being made by the Company;
(iv) a rights issue of Shares to all or substantially all Shareholders, or a grant to all or substantially all Shareholders any options or warrants to subscribe for Shares, in each case at less than 80% of the market price of the Shares;
(v) an issue wholly for cash by the Company of securities convertible into or exchangeable for or carrying rights of subscription for Shares, at a consideration per Share which is less than 80% of the market price of the Shares, or the conversion, exchange or subscription rights of any such securities (other than in accordance with the terms applicable thereto) are altered or modified so that the consideration per Share is less than 80% of the market price of the Shares;
(vi) an issue of Shares being made wholly for cash at a price less than 80% of the market price of the Share;
(vii) an issue of Shares for the acquisition of asset at a total effective consideration per Share which is less than 80% of the market price of the Shares; and

– 11 –

LETTER FROM THE BOARD

(viii) any other event where the Company determines that an adjustment should be made to the Conversion Price as a result of any event or circumstance not referred to above. In such case, the Company shall, at its own expense, consult an independent investment bank or its auditors to determine what adjustment (if any) to the Conversion Price is fair and reasonable to take account thereof, and the date on which such adjustment shall be made and take effect.

Conversion Shares :

Based on the initial Conversion Price of HK$1.60 per Conversion Share, a maximum of 187,500,000 Conversion Shares will be allotted and issued upon exercise of the conversion rights attaching to the Convertible Bonds in full.

The aggregate nominal value of the Conversion Shares (with a par value of HK$0.10 each) will be HK$18,750,000.

The Conversion Shares will be allotted and issued under the Specific Mandate to be sought from the Independent Shareholders at the SGM.

Redemption : The Company may voluntarily redeem all or any part of the Convertible Bonds at any time following the issue of the Convertible Bonds and prior to the Maturity Date by repaying the holder(s) of the Convertible Bonds such amount of the outstanding principal amount (in HK$1,000,000 or multiples thereof) as may be determined by the Company together with interest accrued thereon up to the date of voluntary redemption.

The Company shall redeem the Convertible Bonds by repaying the holder(s) of the Convertible Bonds all outstanding principal amount and accrued but unpaid interests of the Convertible Bonds on the Maturity Date.

– 12 –

LETTER FROM THE BOARD

No interest shall be paid on the amount of the Convertible Bonds which has been converted into Conversion Shares prior to the Maturity Date.

Transferability : The Convertible Bonds are freely transferable by the holders in such principal amount in multiples of HK$1,000,000, provided that no Convertible Bonds may be transferred to any connected persons of the Company without the prior written consent of the Company.
Voting rights : Holders of the Convertible Bonds shall not be entitled to attend or vote at any meetings of the Company by reason only of it being a holder of the Convertible Bonds.
Listing : No application will be made for the listing of the Convertible Bonds on the Stock Exchange or any other stock exchange.

The Company has applied to the Stock Exchange for the listing of and permission to deal in the Conversion Shares to be allotted and issued upon exercise of the conversion rights attached to the Convertible Bonds.

Ranking : The Conversion Shares will, when allotted and issued, rank pari passu in all respects among themselves and with all other fully paid Shares in issue.
Events of default : After the occurrence of an event of default as specified in the terms and conditions of the Convertible Bonds, a holder of the Convertible Bonds may give notice to the Company that the Convertible Bonds are immediately due and payable.

Information of the Subscriber and the Lender

The Subscriber is (i) a company incorporated in the British Virgin Islands with limited liability; (ii) principally engaged in investment holding; (iii) a controlling shareholder of the Company which holds 635,887,534 Shares, representing approximately 61.36% of the total issued share capital of the Company as at the Latest Practicable Date; and (iv) wholly-owned by Ms. Cheng Hung Mui who is an executive Director.

– 13 –

LETTER FROM THE BOARD

The Lender is (i) a company incorporated in the British Virgin Islands with limited liability; (ii) principally engaged in investment holding; and (iii) a wholly-owned subsidiary of the Subscriber.

Reasons for the Transactions

The Group is principally engaged in printing and manufacturing of packaging products and the sale of lithium ion motive battery, lithium ion battery module, battery charging devices, battery materials machines and production lines, new energy solution and sale of relevant equipment, investments holding and import and export trading.

As the Subscription Amount will be satisfied by the Set Off at Completion, there will not be any proceeds arising from the Subscription.

As at the Latest Practicable Date, the Outstanding Loan in the outstanding principal amount of HK$382,728,417.91 (i) is unsecured; (ii) has fixed terms of repayment from 30 June 2017 to 30 June 2036; and (iii) bears an interest rate of 8.00% per annum. The Outstanding Loan represents the outstanding amount owed by the Group to the Subscriber (and its relevant subsidiary) pursuant to the restructuring deed dated 16 June 2014 executed between, among others, the Company, the related provisional liquidators and the Subscriber in connection with, among others, the restructuring of the indebtedness of the Group, which was used for the settlement/repayment of relevant claims made by or loans owed to the creditors of the Group pursuant to the schemes of arrangement made between the Group and its creditors (please refer to the announcement of the Company dated 4 December 2014 for details).

It has been the intention of the Board to reduce the debt level of the Group as well as to minimise its interest burden arising from the Outstanding Loan. Upon Completion, the outstanding principal amount of the Outstanding Loan with an interest rate of 8.00% per annum will be significantly reduced and replaced by the Convertible Bonds with a lower interest rate of 3.00% per annum. The Maturity Date of the Convertible Bonds is also the same as that of the Outstanding Loan. Should the Subscriber convert the Convertible Bonds into Conversion Shares, it is expected that both the gearing ratio and debt level of the Group will be improved.

The Directors consider that (i) the Subscription will allow the Group to reduce its interest burden and finance costs, improve its gearing ratio and debt level and strengthen its financial position; and (ii) the terms of the Subscription Agreement are fair and reasonable and are in the best interests of the Company and the Shareholders as a whole.

– 14 –

LETTER FROM THE BOARD

Effects on the shareholding structure of the Company

Assuming there will not be any change in the issued share capital of the Company from the Latest Practicable Date up to Completion, set out below is the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price:

The Subscriber Burgeon Max Holdings Limited and its concert parties (Note 1) Lankai Limited and its concert parties (Note 2) Other public shareholders Total	At the Latest Practicable Date Number of Shares Approximate % 635,887,534 61.36 100,000,000 9.65 100,000,000 9.65 200,428,166 19.34 1,036,315,700 100.00	Upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price Number of Shares Approximate % 823,387,534 67.28 100,000,000 8.17 100,000,000 8.17 200,428,166 16.38 1,223,815,700 100.00	Upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price Number of Shares Approximate % 823,387,534 67.28 100,000,000 8.17 100,000,000 8.17 200,428,166 16.38 1,223,815,700 100.00
			100.00

Notes:

Burgeon Max Holdings Limited is owned as to 60% by Ms. Wang Jin and 40% by Ms. Wu Siqing, an Independent Third Party. Ms. Wang Jin is the spouse of Mr. Sheng Siguang, an executive Director.
Lankai Limited is wholly owned by Mr. Li Yujun, an Independent Third Party.

– 15 –

LETTER FROM THE BOARD

Equity fund raising activity during the past twelve months

Set out below is the equity fund raising activity of the Company during the past twelve months immediately preceding the Latest Practicable Date:

Date of		Net proceeds	Intended use of	Actual use of	Actual use of
announcement	Description	raised	proceeds	net	proceeds
		(approximate)		(approximate)
17 June 2016	The open offer (the	HK$352.8 million	For development of the	(i)	HK$293.3 million
	“Open Offer”)		lithium ion motive		were used as intended;
	of 444,135,300		battery business of the		and
	offer Shares in the		Group
	proportion of three			(ii)	HK$59.5 million are
	offer Shares for every				remained for future
	four Shares held at				development of the
	the issue price of				lithium ion motive
	HK$0.80 per Share				battery business of the
					Group.

Save as disclosed above, the Company has not conducted any equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

Listing Rules implications

As at the Latest Practicable Date, the Subscriber is a controlling shareholder of the Company which holds 635,887,534 Shares, representing approximately 61.36% of the total issued share capital of the Company, and the Lender is wholly-owned by the Subscriber.

Accordingly, the Subscriber and the Lender are connected persons of the Company for the purpose of chapter 14A of the Listing Rules. The Subscription constitutes a connected transaction of the Company under the Listing Rules and is subject to the announcement, reporting and Independent Shareholders’ approval requirements pursuant to the Listing Rules.

Any Shareholder who is interested in the Transactions shall abstain from voting on the resolution(s) to approve the Subscription Agreement and the transactions contemplated thereunder at the SGM. To the best of the Director’s knowledge, information and belief after having made all reasonable enquiries, save for the Subscriber, no Shareholder is interested in the Transactions and will be required to abstain from voting on the resolution(s) to approve the Subscription Agreement and the transactions contemplated thereunder at the SGM.

– 16 –

LETTER FROM THE BOARD

General

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders on the Subscription Agreement and the transactions contemplated thereunder. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

Completion is conditional upon satisfaction of certain conditions precedent under the Subscription Agreement and therefore may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the Shares and if they are in any doubt about their position, they should consult their professional advisers.

(2) PROPOSED REFRESHMENT OF GENERAL MANDATE

Background of and reasons for the Refreshment of General Mandate

At the Previous AGM, the Shareholders had approved, among others, an ordinary resolution to grant to the Directors the Existing General Mandate to issue, allot and deal with up to 118,436,080 Shares, which is equivalent to 20% of the issued share capital of the Company as at the date of the Previous AGM.

The Company has not utilised or made any refreshment of the Existing General Mandate since the Previous AGM up to the Latest Practicable Date. Accordingly, 118,436,080 new Shares may be further issued and allotted under the Existing General Mandate.

As a result of the Open Offer as announced by the Company on 17 June 2016, the Company had allotted and issued an aggregate of 444,135,300 Shares on 9 September 2016. Accordingly, the issued share capital of the Company has then been enlarged to 1,036,315,700 Shares.

– 17 –

LETTER FROM THE BOARD

As a result of the increase in the issued share capital of the Company as described above, the Existing General Mandate (which has not been utilised up to the Latest Practicable Date) only represents approximately 11.43% of the existing issued share capital of the Company subsequent to the Open Offer. The Directors consider that the Refreshment of the General Mandate will give the Board the required flexibility for any future allotment and issue of Shares on behalf of the Company as and when considered necessary. In the event that there are any further funding needs or if an attractive offer for investment in the Shares is received from potential investors before the next annual general meeting, the Board will be able to address such funding needs or respond to the market and such investment offer promptly by considering the issue of Shares at the maximum of 20% of the issued share capital of the Company as at the date of the SGM. The Board believes that a fund raising exercise pursuant to a general mandate is simpler and faster than other types of fund raising exercises and removes uncertainties in circumstances when a specific mandate may not be obtained in a timely manner.

As at the Latest Practicable Date, the Group has not yet identified any investment opportunity and it does not have any immediate plan for any issue of Shares under the New General Mandate

As at 31 December 2016, the cash and bank balance of the Group was approximately HK$134 million. Based on the projection of the Company, it is estimated that the working capital requirement of the Group for the upcoming four months will be approximately HK$56 million for the daily operation of the Group’s existing businesses and approximately HK$67 million for developing the ion motive battery business of the Group. Having considered the above working capital requirement, while the Group will still maintain a positive cash position, the Group’s cash level will be reduced to approximately HK$11 million by the end of May 2017. In the event that any unexpected circumstances occur prior to the next annual general meeting which is expected to be held in May 2017, the projected level of liquidity and the cash position of the Group may be insufficient to cover or deal with such circumstances. Therefore, the Directors consider that it will be in the interest of the Group to maintain maximum flexibility in its ability to raise additional working capital for its existing business operation and for coping with any unexpected business challenges.

Having considered that (i) the Existing General Mandate (which has not been utilised up to the Latest Practicable Date) only represents approximately 11.43% of the existing issued share capital of the Company; (ii) the next annual general meeting of the Company is expected to be held in May 2017, which is around four months away from the Latest Practicable Date; (iii) the Refreshment of General Mandate will provide maximum flexibility to the Group in its ability to raise funds to meet its business needs and future challenges as and when they arises; and (iv) the Refreshment of General Mandate allows the Company to take advantage, in a timely and effective manner, of any investment opportunities for the benefit of the Company and its Shareholders as a whole, the Board considers that the Refreshment of General Mandate is in the interest of the Company and the Shareholders as a whole.

– 18 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company had an aggregate of 1,036,315,700 Shares in issue. The Company will convene the SGM at which an ordinary resolution will be proposed to the Shareholders that the Directors be granted the general mandate to allot and issue Shares not exceeding 20% of the issued share capital of the Company as at the date the SGM.

As such, based on 1,036,315,700 Shares in issue as at the Latest Practicable Date and assuming that there are no changes in the issued share capital of the Company from the Latest Practicable Date up to the date of the SGM, subject to the passing of the relevant ordinary resolution to approve the Refreshment of General Mandate at the SGM, the Directors will be authorised to allot and issue up to 207,263,140 new Shares under the New General Mandate, being 20% of the total number of Shares in issue as at the Latest Practicable Date. The New General Mandate will expire at the earliest of (a) the conclusion of the next annual general meeting of the Company; (b) the date by which the next annual general meeting of the Company is required by the Bye-laws or the applicable laws of the Bermuda to be held; or (c) the date upon which such authority is revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company prior to the next annual general meeting of the Company.

Listing Rules Implications

The Open Offer was completed on 9 September 2016. According to the Listing Rules, where the Company offers or issues securities to its shareholders pro rata to their existing holdings (including where overseas shareholders are excluded for legal or regulatory reasons), it will not be necessary for the Company to comply with, among others, the requirement to obtain independent shareholders’ approval in order to refresh its general mandate immediately thereafter such that amount in percentage terms of the unused part of the general mandate upon refreshment is the same as the unused part of the general mandate immediately before the issue of securities. In light of this, no Shareholder will be required to abstain from voting in relation to the resolution to approve, among others, the proposed grant of the New General Mandate.

– 19 –

LETTER FROM THE BOARD

SGM

A notice convening of the SGM of the Company to be held at Picasso Room B, B1 Level, InterContinental Grand Stanford Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 11:00 a.m. on 28 February 2017 is set out on pages 47 to 51 of this circular. A form of proxy for use at the SGM is enclosed with this circular.

Whether or not you are able to attend the SGM, 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 registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Board considers that the terms of the Subscription Agreement are fair and reasonable, and the entering into of the Subscription Agreement and the Refreshment of General Mandate are in the interest of the Company and the Shareholders as a whole. Accordingly, the Directors would recommend the Independent Shareholders to vote in favour of the resolutions approving (i) the Subscription Agreement and the transactions contemplated thereunder; and (ii) the Refreshment of General Mandate at the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 21 of this circular, the letter from the Independent Financial Adviser set out on pages 22 to 39 of the circular, which contain their advices in respect of the terms of the Subscription Agreement and the transactions contemplated thereunder and the information set out in the appendix of this circular.

Yours faithfully

By order of the Board Tesson Holdings Limited Tin Kong Chairman

– 20 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

TESSON HOLDINGS LIMITED 天臣控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock code: 1201)

13 February 2017

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

We refer to the circular of the Company dated 13 February 2017 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter unless the context otherwise requires.

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders in respect of the terms of the Subscription Agreement and the transactions contemplated thereunder.

We wish to draw your attention to the letter from the Board on pages 6 to 20 of the Circular, which sets out details of the Subscription Agreement and the transactions contemplated thereunder. We also wish to draw your attention to the letter from the Independent Financial Adviser on pages 22 to 39 of the Circular, which contains their advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Subscription Agreement and the transactions contemplated thereunder.

Having taken into account the terms of the Subscription Agreement and the advice and recommendation of the Independent Financial Adviser, we consider that the Subscription Agreement is on normal commercial terms and that such terms are fair and reasonable so far as the interests of the Independent Shareholders are concerned, and the Subscription Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution(s) which will be proposed at the SGM to approve the Subscription Agreement and the transactions contemplated thereunder (including the grant of the Specific Mandate).

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Wang Jinlin Mr. Ng Ka Wing Mr. See Tak Wah Independent non-executive Independent non-executive Independent non-executive Director Director Director

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder, and is prepared for inclusion in this circular.

==> picture [113 x 48] intentionally omitted <==

13 February 2017

The Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular issued by the Company to its Shareholders dated 13 February 2017 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 17 January 2017 (after trading hours), the Company entered into the Subscription Agreement with the Subscriber and the Lender, pursuant to which (i) the Lender has conditionally agreed to assign all rights, titles, benefits and interests in and to the Outstanding Loan in favour of the Subscriber at Completion; and (ii) the Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to issue the Convertible Bonds in the principal amount of HK$300,000,000. The Subscription Amount of HK$300,000,000 payable by the Subscriber will be satisfied by the Set Off at Completion. Accordingly, immediately following Completion, (i) the Subscriber will be holder of the Convertible Bonds, and (ii) the principal amount of the Outstanding Loan of HK$382,728,417.91 (assuming that there is no change in the amount of the Outstanding Loan as at the Latest Practicable Date up to the Completion Date) will be reduced to HK$82,728,417.91.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, the Subscriber and the Lender are connected persons of the Company for the purpose of Chapter 14A of the Listing Rules. The Subscription constitutes a connected transaction of the Company under the Listing Rules and is subject to the announcement, reporting and Independent Shareholders’ approval requirements pursuant to the Listing Rules.

To the best of the Director’s knowledge, information and belief after having made all reasonable enquiries, save for the Subscriber, no Shareholder is interested in the Transactions and will be required to abstain from voting on the resolution(s) to approve the Subscription Agreement and the transactions contemplated thereunder at the SGM.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Wang Jinlin, Mr. Ng Ka Wing and Mr. See Tak Wah has been formed to advise the Independent Shareholders on the Subscription Agreement and the transactions contemplated thereunder. We, Akron Corporate Finance Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company or any other parties that could reasonably be regarded as relevant to our independence. In the last two years, we have not acted as the independent financial adviser to the independent board committee and the independent Shareholders of the Company for any transaction.

Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to the Listing Rules.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

In formulating our advice and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinion and representations contained or referred to in the Circular and the statements, information, opinion and representations provided to us by the management of the Company and the Directors. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the management of the Company and the Directors, for which they are solely and wholly responsible, were true, accurate and complete at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors as set out in the Circular were reasonably made after due and careful inquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and representations contained in the Circular.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular as a whole misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, or its subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Subscription Agreement and the transactions contemplated thereunder. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

In giving our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder, we have taken into consideration the following factors and reasons:

1. Background and financial information of the Group

Set out below is the key financial results of the Group as extracted from the annual report of the Company for the two years ended 31 December 2015 (the “ 2015 Annual Report ”) and the interim report of the Company for the six months ended 30 June 2016 (the “ 2016 Interim Report ”) for the respective period:

	For the six	For the	For the
	months ended	year ended	year ended
	30 June 2016	31 December 2015	31 December 2014
	HK$’000	HK$’000	HK$’000
Revenue	332,925	795,307	758,687
Gross profit	111,038	242,909	238,290
Gross profit margin (%)	33.4%	30.5%	31.4%
Profit for the year/period	22,613	75,407	62,884
Profit attributable to shareholders	5,346	28,248	22,981
Total assets	1,530,073	1,414,605	1,099,574
Net current assets/(liabilities)	301,803	457,203	(226,505)
Total equity	626,729	645,052	386,201
Equity attributable to owners
of the Company	252,577	261,848	10,304
Total borrowings	208,503	88,907	489,706
Bank balances and cash	95,746	204,359	53,702
Gearing ratio (Note)	59%	54%	67%

Note: Gearing ratio is defined as total liabilities over total assets.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group recorded audited consolidated revenue of approximately HK$795.3 million for the year ended 31 December 2015, representing a slightly increase of approximately 4.8% from 2014. According to the 2015 Annual Report, the increase in revenue of the Group was mainly attributable to the increase in the revenue arising from printing and manufacturing of tobacco packaging. Gross profit margin remained relatively stable at approximately 30.5% for the year ended 31 December 2015 as compared to approximately 31.4% in the corresponding period in 2014. Administrative expenses for the year ended 31 December 2015 was approximately HK$147.3 million (for the year ended 31 December 2014: approximately HK$152.6 million). The slight decrease of approximately 3.5% was due to decrease in depreciation since some of the property, plant and equipment are fully depreciated during 2015. For the distribution and selling expenses, it increased by approximately 10.0% to approximately HK$4.4 million (for the year ended 31 December 2014: approximately HK$4.0 million), which is in line with the increase in revenue. Finance costs for the year ended 31 December 2015 slightly increased to approximately HK$6.8 million (for the year ended 31 December 2014: approximately HK$6.1 million), resulting from the movement in borrowings.

The Group maintained sufficient working capital as at 31 December 2015 with net current assets of approximately HK$457.2 million (as at 31 December 2014: net current liabilities of approximately HK$226.5 million) and bank balances and cash of approximately HK$204.4 million (as at 31 December 2014: approximately HK$53.7 million). The gearing ratio was about 54% as at 31 December 2015 (as at 31 December 2014: approximately 67%).

As disclosed in the 2016 Interim Report, the Group recorded unaudited consolidated revenue of approximately HK$332.9 million for the six months ended 30 June 2016 (For the six months ended 30 June 2015: approximately HK$344.8 million), representing a decrease of approximately 3.5%. Gross profit margin also slightly decreased from approximately 35.1% to 33.4%. The revenue of the Group and gross profit margin decreased mainly because the market of tobacco was affected by the overall economic environment of the PRC, which resulted in the decrease in unit selling price of tobacco packaging products. Administrative expenses for the six months ended 30 June 2016 was approximately HK$78.8 million (for the six months ended 30 June 2015: approximately HK$83.0 million), comprising administrative expenses for Lithium Ion Motive Battery Business in the amount of approximately HK$7.7 million and administrative expenses for printing business in the amount of approximately HK$71.1 million. The decrease in administrative expenses for printing business by approximately 14.4% was due to a decrease in depreciation since some of the property, plant and equipment were fully depreciated and there was a one-off research and development expenses recorded for the six months ended 30 June 2014.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The distribution and selling expenses for the six months ended 30 June 2016 was approximately HK$3.0 million (for the six months ended 30 June 2015: approximately HK$2.1 million). The increase was mainly due to the sales commission paid to a salesman of one of the Group’s subsidiary to encourage his effort. Finance costs for the six months ended 30 June 2016 was decreased to approximately HK$2.3 million (for the six months ended 30 June 2015: approximately HK$4.9 million), resulting from the decrease in interest rate, which mainly due to decrease in the borrowing interest rate from the People’s Bank of China.

The Group maintained sufficient working capital as at 30 June 2016 with net current assets of approximately HK$301.8 million (as at 31 December 2015: approximately HK$457.2 million) and bank balances and cash of approximately HK$95.7 million (as at 31 December 2015: approximately HK$204.4 million) and pledged bank deposits of approximately HK$31.5 million (as at 31 December 2015: nil). The gearing ratio was about 59% as at 30 June 2016 (as at 31 December 2015: approximately 54%).

2. Reasons for and benefits of the Subscription

As at the Latest Practicable Date, the Outstanding Loan in the outstanding principal amount of approximately HK$382.7 million (i) is unsecured; (ii) has fixed terms of repayment from 30 June 2017 to 30 June 2036; and (iii) bears an interest rate of 8% per annum. The Outstanding Loan represents the outstanding amount owed by the Group to the Subscriber (and its relevant subsidiary) pursuant to the restructuring deed dated 16 June 2014 executed between, among others, the Company, the related provisional liquidators and the Subscriber in connection with, among others, the restructuring of the indebtedness of the Group, which was used for the settlement/repayment of relevant claims made by or loans owed to the creditors of the Group pursuant to the schemes of arrangement made between the Group and its creditors (please refer to the announcement of the Company dated 4 December 2014 for details).

We are given to understand that it has been the intention of the Board to reduce the debt level of the Group as well as to minimise its interest burden arising from the Outstanding Loan.

According to the 2016 Interim Report, cash and bank balances of the Group reduced from approximately HK$204.4 million as at 31 December 2015 to approximately HK$95.7 million as at 30 June 2016. Despite the drop in cash and bank balances, aggregate amount of interest-bearing borrowings and amount due to shareholder and related party of the Group increased from approximately HK$541.3 million as at 31 December 2015 to approximately HK$638.6 million as at 30 June 2016. Taking into account the cash position and amount of outstanding indebtedness of the Group, we are of the view that it will be beneficial for the Group to trim down its debt level.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Subscription Agreement, the Subscription Amount will be satisfied by the Set Off at Completion and there will not be any proceeds arising from the Subscription. The Set Off is essentially partial repayment of the Outstanding Loan. Assuming that there is no change in the amount of the Outstanding Loan from the Latest Practicable Date up to the Completion Date, the principal amount of the Outstanding Loan will be reduced to approximately HK$82.7 million immediately upon Completion.

Upon Completion, the outstanding principal amount of the Outstanding Loan with an interest rate of 8% per annum will be significantly reduced and replaced by the Convertible Bonds with a lower interest rate of 3% per annum. The Maturity Date of the Convertible Bonds is also the same as that of the Outstanding Loan.

Based on corresponding amount of HK$300 million of the Outstanding Loan which will be replaced by the Convertible Bonds and reduction of interest rate of 5% per annum (being the difference between interest rate of the Outstanding Loan at 8% per annum and interest rate of the Convertible Bonds at 3% per annum), it will result to an annual interest saving of approximately HK$15 million, representing almost 20% of net profit of the Group of approximately HK$75.4 million for the year ended 31 December 2015. Moreover, less cash outflow will be resulted from lower interest payment obligation. In this connection, those amount of cash resources being saved stemming from lower interest payment will then be available for the Group’s business development in order to make the most efficient use of the Group’s financial resources. In addition, should the Subscriber convert the Convertible Bonds into Conversion Shares, it would be expected that it will lower the debt level of the Group, improve the gearing ratio and strengthen the capital base and financial positions of the Group.

In view of the above, we consider and concur with the Directors that the Subscription will (i) reduce the interest burden and finance costs of the Group; and (ii) improve both the gearing ratio and debt level of the Group upon conversion of the Convertible Bonds and strengthen the Group’s financial positions and financial performance.

After taking into account of the aforesaid, we are of the view that the Subscription is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Subscription Agreement

On 17 January 2017 (after trading hours), the Company entered into the Subscription Agreement with the Subscriber and the Lender in relation to (i) the Assignment; and (ii) the Subscription. The Assignment shall take place at Completion. The Subscription Amount of HK$300,000,000 payable by the Subscriber for the subscription of the Convertible Bonds will be satisfied by the Set Off.

Further details of the Subscription Agreement are set out under the section headed “The Subscription Agreement” in the Letter from the Board

4. Principle terms of the Convertible Bonds

The principal terms of the Convertible Bonds to be subscribed by the Subscriber pursuant to the Subscription Agreement are summarized below. For further details of the terms of the Convertible Bonds, please refer to the Letter from the Board.

Principal amount	:	HK$300,000,000
Issue price	:	100% of the principal amount
Maturity date	:	From the date of issue of the Convertible Bonds up to 30
		June 2036 (the “Maturity Date”)
Interest rate	:	3% per annum on the outstanding principal amount of the
		Convertible Bonds, which will be payable by the Company
		quarterly in arrears on (a) the last day of each quarter (i.e.
		31 March, 30 June, 30 September and 31 December); and
		(b) on the date of redemption or maturity

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conversion rights : Holder of the Convertible Bonds will have the right, during the period commencing on the date of issue of the Convertible Bonds and ending on the third anniversary to the date of issue of the Convertible Bonds, to convert the Convertible Bonds in whole or in part of the outstanding principal amount of the Convertible Bonds into Conversion Shares, provided that the exercise of the conversion rights will not result in the Company being in breach of any provision of the Listing Rules, including the requirement to maintain any prescribed minimum percentage of the issued share capital of the Company held by the public.
Conversion Price : The initial Conversion Price of HK$1.60 per Conversion Share.
Conversion Shares : Based on the initial Conversion Price of HK$1.60 per Conversion Share, a maximum of 187,500,000 Conversion Shares will be allotted and issued upon exercise of the conversion rights attaching to the Convertible Bonds in full.
Redemption : The Company may voluntarily redeem all or any part of the Convertible Bonds at any time following the issue of the Convertible Bonds and prior to the Maturity Date by repaying the holder(s) of the Convertible Bonds such amount of the outstanding principal amount (in HK$1,000,000 or multiples thereof) as may be determined by the Company together with interest accrued thereon up to the date of voluntary redemption.

No interest shall be paid on the amount of the Convertible Bonds which has been converted into Conversion Shares prior to the Maturity Date.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Analysis on the terms of the Convertible Bonds

The initial Conversion Price of HK$1.60 per Conversion Share represents:

(i) a premium of approximately 45.5% over the closing price of HK$1.10 per Share quoted on the Stock Exchange on the date of the Subscription Agreement;
(ii) a premium of approximately 41.6% over the average closing price of HK$1.13 per Share quoted on the Stock Exchange for the last five trading days for the Shares immediately prior to date of the Subscription Agreement;
(iii) a premium of approximately 37.9% over the average closing price of HK$1.16 per Share quoted on the Stock Exchange for the last ten trading days for the Shares immediately prior to date of the Subscription Agreement;
(iv) a premium of approximately 68.4% over the adjusted net asset value of approximately HK$0.95 per Share, based on (i) the consolidated net asset value of the Company of approximately HK$626,729,000 as at 30 June 2016 as extracted from the interim report of the Company for the six months ended 30 June 2016; (ii) the net proceeds of approximately HK$352,808,000 arising from the Open Offer (as defined in the Circular); and (iii) and the number of issued Shares as at the Latest Practicable Date; and
(v) a premium of approximately 40.4% over the closing price of HK$1.14 per Share quoted on the Stock Exchange on the Latest Practicable Date.

As set out in the Letter from the Board, the Conversion Price was arrived at after arm’s length negotiation between the Company and the Subscriber with reference to, among others, the prevailing market price of the Shares.

In order to further assess the fairness and reasonableness of the Conversion Price, we have reviewed (i) the daily closing price of the Shares as quoted on the Stock Exchange from 18 January 2016 up to and including the date of the Subscription Agreement (the “ Review Period ”), being a period of one year prior to the date of the Subscription Agreement; (ii) the average daily trading volume of the Shares during the Review Period; and (iii) the comparison on the recent issuance of convertible bonds/notes by companies listed on the main board of the Stock Exchange.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Historical Share price performance

==> picture [340 x 107] intentionally omitted <==

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

2
1.8 Conversion Price of HK$1.60 per Conversion Share
1.6 Conversion
1.4 Price
1.2
1 Share
0.8 Price
0.6
0.4
Share price (HK$)
----- End of picture text -----

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

Note: Trading of Shares was halted from 15 June 2016 to 17 June 2016.

As shown in the chart above, the closing price of the Shares during the Review Period ranges from the lowest closing price of approximately HK$0.748 per Share recorded on 16 May 2016 to the highest closing price of approximately HK$1.220 per Share recorded on 23 December 2016 with an average closing price per Share of approximately HK$0.891. We note that the Conversion Price is above the daily closing prices during the Review Period. The Conversion Price of HK$1.60 represents a premium of approximately 113.9% over the lowest closing price per Share, a premium of approximately 31.2% to the highest closing price per Share and a premium of approximately 79.6% to the average closing price per Share during the Review Period.

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Historical trading liquidity of the Shares

We have further reviewed the trading liquidity of the Shares. The table below sets out the number of trading days, the average daily trading volume of the Shares traded in each month, and the respective percentages of the Shares’ monthly average daily trading volume as compared to (i) the total number of issued Shares held by the public as at the Latest Practicable Date; and (ii) the total number of issued Shares as at the Latest Practicable Date during the Review Period:

				Percentage of
				average daily
			Percentage of	trading volume
			average daily	for the month
		Average daily	trading volume	to total number
		trading volume	for the month	of issued Shares
	Number of	of the Shares	to total number	held by public
Month	trading days	for the month	of issued Shares	Shareholders
		(Note 1)	(Note 2)	(Note 3)
			(Approximately)	(Approximately)
2016
January	10	334,700	0.03%	0.11%
February	18	167,166	0.02%	0.06%
March	21	214,190	0.02%	0.07%
April	20	235,400	0.02%	0.08%
May	21	139,523	0.01%	0.05%
June	18	389,333	0.04%	0.13%
July	20	416,850	0.04%	0.14%
August	22	1,641,363	0.16%	0.55%
September	21	2,141,416	0.21%	0.71%
October	19	631,421	0.06%	0.21%
November	22	1,914,043	0.18%	0.64%
December	20	1,314,400	0.13%	0.44%
2017
January (Up to and include
the date of the Subscription
Agreement)	11	741,727	0.07%	0.25%
		Maximum	0.21%	0.71%
		Minimum	0.01%	0.05%
		Average	0.08%	0.28%

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

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

Average daily trading volume of the Shares for the month equals to monthly total trading volume of the Shares divided by number of trading days in the respective month.
Based on 1,036,315,700 Shares in issue as at the Latest Practicable Date.
Based on 300,428,166 Shares held by the public Shareholders as at the Latest Practicable Date.

As illustrated from the table above, during the Review Period, the average daily trading volume of the Shares was low. The lowest of the Group’s average daily trading volume was approximately 139,523 Shares in May 2016 and the highest was approximately 2,141,416 Shares in September 2016. The average daily trading volume of the Shares falls in the range of (i) approximately 0.01% to approximately 0.21% of the total number of issued Shares as at the Latest Practicable Date with an average of approximately 0.08%; and (ii) approximately 0.05% to approximately 0.71% of the total number of issued Shares held by the public Shareholders as at the Latest Practicable Date with an average of approximately 0.28%. As such, we consider that the trading volume of the Shares during the Review Period was thin.

(c) Comparison with other convertible bonds/notes

In order to assess the fairness and reasonableness of the major principal terms of the Convertible Bonds, we have reviewed the transactions announced by companies listed on the main board of the Stock Exchange, in which the transactions involved subscription or placing of convertible bonds/notes by connected person during a six months’ period from the date of the Subscription Agreement (the “ CB Comparables ”). Based on the aforesaid criteria, we have identified seven CB Comparables and we consider that such list is exhaustive.

Having considered the recent volatility of the capital market in Hong Kong and that the CB Comparables (i) adequately covered the prevailing market conditions and sentiments of the capital market in Hong Kong; (ii) such period represented recent structure of the convertible bonds/notes issues in Hong Kong; and (iii) the number of the CB Comparables identified allowed the Shareholders to have a general understanding of recent convertible bonds/notes transactions being conducted in the capital market of Hong Kong, we consider that the size of the CB Comparables is adequate and represent fair and representative samples.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

						Premium/
					Premium/	(Discount) of the
					(Discount) of the	conversion
					conversion	price over/(to)
					price over/(to)	average
					closing price	closing price per
					per share	share for the last
					on the last	five trading
					trading day	days prior
					prior to/on	to/on the
		Date of		Annual	the date of the	date of the
Company	Stock code	announcement	Maturity	interest rate	announcement	announcement
			year	%	%	%
China Agri-Products	149	23 August 2016	5	7.5	9.6	9.3
Exchange Limited
Sino Energy International	1096	31 August 2016	2	7.5	11.4	12.8
Holdings Group Limited
Best Food Holding	1488	18 September 2016	5	3.0	(5.6)	(6.8)
Company Limited
Sun Century Group Limited	1383	20 September 2016	2	–	4.0	3.2
China Fortune Financial	290	21 September 2016	3	2.0	(82.9)	(81.4)
Group Limited
Wuling Motors Holdings	305	13 October 2016	3	4.0	22.8	24.1
Limited
Lamtex Holdings Limited	1041	21 November 2016	2	2.0	–	(0.4)
		Maximum	5	7.5	22.8	24.1
		Minimum	2	–	(82.9)	(81.4)
		Average	3	3.7	(5.8)	(5.6)
The Company	1201	17 January 2017	3	3.0	45.5	41.6
			(Note)

Note:

Maturity Date of the Convertible Bonds will be in 2036. However, the Convertible Bonds will have conversion rights for three years from the date of issue. Thereafter, the Convertible Bonds will not have any conversion rights.

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conversion Price

As illustrated in the table above, the conversion prices of the CB Comparables ranged from (i) a discount of approximately 82.9% to a premium of approximately 22.8% to the respective closing prices of their shares on the last trading day or the date of the relevant announcements, with an average discount of approximately 5.8%; and (ii) a discount of approximately 81.4% to a premium of approximately 24.1% to the respective average closing prices of their shares on the last five consecutive trading days immediately prior to and including the last trading day or the date of the relevant announcement, with an average discount of approximately 5.6%. We note that the premiums of the Conversion Price fall outside and are higher than each of the respective aforesaid market ranges. We therefore consider that the Conversion Price is fair and reasonable.

Interest rate

As illustrated in the table above, the CB Comparables bear interest rates from nil to 7.5% per annum, with an average interest rate of approximately 3.7% per annum. The Convertible Bonds bear 3% interest rate, which falls within the market range and is favourable than the market average. We therefore consider that the interest rate of 3% of the Convertible Bonds is fair and reasonable.

Maturity

As illustrated in the table above, the CB Comparables have the maturity ranged from 2 years to 5 years, with an average maturity of around 3 years. The Convertible Bonds with a maturity of 3 years falls within such market range and the market average. We therefore consider that the maturity of the Convertible Bonds is fair and reasonable.

Conclusion

In view of all the foregoing, we consider that the principal terms of the Convertible Bonds are fair and reasonable so far as the Independent Shareholders are concerned.

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Financial effect of the Subscription and the Set Off

(a) Effects on earnings

As set out in the Letter from the Board, the Outstanding Loan bears interests at 8% per annum, and the Convertible Bonds bears interests at 3% per annum. Accordingly, the issue of Convertible Bonds, which effectively replaces a proportion of the Outstanding Loan by the Convertible Bonds, would save the Group from the existing interest expense payable in respect of a proportion of the Outstanding Loan. The annual interest saving would amount up to HK$15 million as estimated based on (i) the principal amount of the Convertible Bonds of HK$300 million; and (ii) the reduction of interest at 5% per annum, being the difference between the respective interest rates of the Outstanding Loan and the Convertible Bonds.

(b) Effects on net assets

With the net asset value of the Group of approximately HK$626.7 million as at 30 June 2016 as set out in the 2016 Interim Report and the net proceeds of approximately HK$352.8 million arising from the Open Offer, the adjusted consolidated net asset value of the Group was approximately HK$979.5 million.

As advised by the management of the Company, the Convertible Bonds will be accounted for at fair value on the consolidated balance sheets of the Group upon Completion. The fair value of the Convertible Bonds will depend on certain market conditions, and that the equity portion and the liability portion of the Convertible Bonds to be recognised will subject to assessment and valuation by a professional valuer. The aforesaid amount will be set off against relevant portion of the Outstanding Loan.

In the event of conversion of Convertible Bonds into Shares at the Conversion Price of HK$1.60 per Conversion Share, and assuming that all the other things remain the same, it is expected to result in an increase of the Group’s total equity, by the value of the Conversion Shares being converted at the Conversion price and simultaneously a decrease in the Group’s liability. Therefore, the net asset value of the Group will be increased under such event of conversion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Effects on liquidity and working capital

As set out in the Letter from the Board, maturity date of the Outstanding Loan and the Convertible Bonds are the same with interest charged at 8% per annum and 5% per annum respectively. Accordingly, the Subscription and the Set Off, which effectively replaces corresponding amount of the Outstanding Loan by the Convertible Bonds, would save the Group from the lower interest expense payable. Accordingly, the liquidity and working capital position of the Group will be improved upon Completion.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position of the Group will be upon Completion.

7. Possible dilution effect on the shareholding interests of the public Shareholders

The table below sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price (assuming no other Shares are issued and/ or repurchased by the Company from the Latest Practicable Date up to the Completion), for illustrative and reference purpose:

The Subscriber Burgeon Max Holdings Limited and its concert parties (Note 1) Lankai Limited and its concert parties (Note 2) Other public shareholders Total	As at the Latest Practicable Date Number of Shares Approximate % 635,887,534 61.36 100,000,000 9.65 100,000,000 9.65 200,428,166 19.34 1,036,315,700 100.00	Upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price Number of Shares Approximate % 823,387,534 67.28 100,000,000 8.17 100,000,000 8.17 200,428,166 16.38 1,223,815,700 100.00	Upon Completion and assuming full conversion of the Convertible Bonds at the initial Conversion Price Number of Shares Approximate % 823,387,534 67.28 100,000,000 8.17 100,000,000 8.17 200,428,166 16.38 1,223,815,700 100.00
			100.00

Notes:

Burgeon Max Holdings Limited is owned as to 60% by Ms. Wang Jin and 40% by Ms. Wu Siqing, an Independent Third Party. Ms. Wang Jin is the spouse of Mr. Sheng Siguang, an executive Director.
Lankai Limited is wholly owned by Mr. Li Yujun, an Independent Third Party.

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon Completion and full conversion of the Convertible Bonds at the initial Conversion Price, 187,500,000 Conversion Shares will be allotted and issued, representing approximately 18.09% of the total issued share capital of the Company as at the Latest Practicable Date and approximately 15.32% of the issued share capital of the Company as enlarged by the issuance of the Conversion Shares. Assuming that the Company does not issue and/or repurchase any Shares from the Latest Practicable Date up to Completion, the aggregate shareholding of the public Shareholders will decrease from approximately 19.34% as at the Latest Practicable Date to approximately 16.38% upon full conversion of the Convertible Bonds at the initial Conversion Price, representing a potential maximum dilution in public shareholding of approximately 2.96% in absolute terms and a potential dilution by approximately 15.31%.

Taking into account that (a) the reasons for entering into the Subscription Agreement as set out under the section headed “Reasons for and benefits of the Subscription” in this letter; and (b) our conclusion on the terms of the Convertible Bonds as set out under the section headed “Analysis on the terms of the Convertible Bonds” in this letter, we consider that the above-mentioned potential dilution attributable to the conversion of the Convertible Bonds (assuming that there is no other change in the issued share capital of the Company) is justifiable.

RECOMMENDATION

Having considered the factors and reasons as stated above, we are of the opinion that the Subscription Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

Akron Corporate Finance Limited Ross Cheung

Managing Director

– 39 –

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 respect and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors

As at the Latest Practicable Date, the interests and short positions of the Directors or the chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required (i) 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 were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered into the register referred to therein; or (iii) or are otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix 10 to the Listing Rules were as follows:

			Approximate
			percentage
			of issued share
		Number	capital of the
Name of Director	Capacity	of Shares held	Company
Cheng Hung Mui (Note a)	Interest of controlled corporation	823,387,534	79.45%
Sheng Siguang (Note b)	Family interest	100,000,000	9.65%
Chen Dekun (Note c)	Beneficial owner	1,000,000	0.10%
Chen Weixi (Note c)	Beneficial owner	2,000,000	0.19%
Tin Kong (Note c)	Beneficial owner	2,000,000	0.19%
Chan Wei (Note c)	Beneficial owner	2,000,000	0.19%

– 40 –

GENERAL INFORMATION

APPENDIX

Notes:

a. The Shares are held by Double Key International Limited in which Ms. Cheng Hung Mui, an executive Director, owns 100% shareholding interest.
b. The Shares are held by Burgeon Max Holdings Limited which is owned as to 60% by Ms. Wang Jin and 40% by Ms. Wu Siqing, an Independent Third Party. Ms. Wang Jin is the spouse of Mr. Sheng Siguang, an executive Director.
c. These Shares represent the underlying interest of the share options granted to the relevant Directors and chief executives of the Company under the share option scheme adopted by the Company on 13 June 2012. Please refer to the announcement of the Company dated 11 November 2016 for further details.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) are otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix 10 to the Listing Rules.

Substantial Shareholders

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO, and so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or a chief executive of the Company) had, or was deemed or taken to have, an interest or short position in the Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were directly or indirectly interested in 5% or more of the nominal value of any class of share capital, including options in respect of such capital, carrying voting rights to vote in all circumstances at general meeting of any member of the Group:

– 41 –

APPENDIX

GENERAL INFORMATION

			Approximate
			percentage of issued
	Capacity or nature	Number of Shares in	share capital of the
Name of Shareholder	of interests	long position	Company
Cheng Hung Mui	Interest of controlled corporation	823,387,534	79.45%
		(Note 1)
Double Key International	Beneficial owner	823,387,534	79.45%
Limited		(Note 1)
Burgeon Max	Beneficial owner	100,000,000	9.65%
Holdings Limited		(Note 2)
Lankai Limited	Beneficial owner	100,000,000	9.65%
		(Note 3)
Wang Jin	Interest of controlled corporation	100,000,000	9.65%
		(Note 2)
Sheng Siguang	Family interest	100,000,000	9.65%
		(Note 2)
Wu Siqing	Interest of controlled corporation	100,000,000	9.65%
		(Note 2)
Li Yujun	Interest of controlled corporation	100,000,000	9.65%
		(Note 3)

Notes:

The entire issued share capital of Double Key International Limited is wholly owned by Ms. Cheng Hung Mui, an executive Director. Therefore, Ms. Cheng Hung Mui is deemed to be interested in the Shares held by Double Key International Limited pursuant to the SFO.
The issued share capital of Burgeon Max Holdings Limited is owned as to 60% by Ms. Wang Jin and 40% by Ms. Wu Siqing. Therefore, Ms. Wang Jin and Ms. Wu Siqing are deemed to be interested in the Shares held by Burgeon Max Holdings Limited pursuant to the SFO. Besides, Mr. Sheng Siguang, an executive Director, is the spouse of Ms. Wang Jin and is accordingly deemed to be interested in the Shares beneficially owned by Ms. Wang Jin through her controlled corporation, Burgeon Max Holdings Limited pursuant to the SFO.
The entire issued share capital of Lankai Limited is wholly owned by Mr. Li Yujun. Therefore, Mr. Li Yujun is deemed to be interested in the Shares held by Lankai Limited pursuant to the SFO.

– 42 –

GENERAL INFORMATION

APPENDIX

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, there is no existing or proposed service contract between any of the Directors and any member of the Group other than service contracts that are expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

4. INTERESTS IN CONTRACT OR ARRANGEMENT

Save for the Subscription Agreement, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

5. INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since 31 December 2015, the date to which the latest published audited financial statements of the Group were made up, 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.

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or the controlling Shareholders or their respective associates had any interests in businesses which compete or may compete with the business of the Group or had any other conflict of interests which any such person has or may have with the Group.

7. LITIGATION

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

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

– 43 –

GENERAL INFORMATION

APPENDIX

9. MATERIAL CONTRACTS

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

(i) the independent subscription agreement dated 26 October 2015 entered into between the Company and Lankai Limited in relation to the subscription of 100,000,000 subscription shares at the subscription price of HK$0.80 per subscription share;
(ii) the connected subscription agreement dated 26 October 2015 entered into between the Company and Burgeon Max Holdings Limited in relation the subscription of 100,000,000 subscription shares at the subscription price of HK$0.80 per subscription share;
(iii) the acquisition agreement dated 31 December 2015 entered into between 天臣新能源（深圳）有限公司 (Tesson New Energy (Shen Zhen) Limited) ( “ Tesson (SZ) ” ) as purchaser and 陝西順乾能源科技有限公司 (Shaanxi Shunqian Energy Technology Co. Ltd.) and 陝西錦文新能源有限公司 (Shaanxi Jinwen New Energy Co. Ltd.) as vendors (both being Independent Third Parties) in relation to the sale and purchase of the entire issued share capital of 陝西力度電池有限公司 (Shaanxi Leaders Battery Co. Ltd.) (the “ Shaanxi Company ”) at a consideration of RMB19,495,524.60;
(iv) the assignment of loan dated 31 December 2015 entered into between Tesson (SZ) and China Cinda Asset Management Co. Ltd (Shaanxi Branch), an Independent Third Party, in relation to the settlement of approximately RMB88.8 million liability of the Shaanxi Company at a discount of approximately 50.7% to the settlement amount of RMB45 million which was completed on 28 January 2016;
(v) the underwriting agreement dated 14 June 2016 entered into between the Company and the Subscriber in relation to the Open Offer;
(vi) the capital injection agreement dated 29 November 2016 entered into between 陝西增材製造創業投資基金（有限合夥）(Shaanxi Zengcai Manufacturing Venture Capital Fund (limited partnership)) ( “ Shaanxi Zengcai ” ) , Tesson Technology (Hong Kong) Limited ( “ Tesson Technology ” )* , and Tesson (SZ), in relation to the subscription by Shaanxi Zengcai for approximately 6.67% of the enlarged equity interests in Tesson (SZ) by way of capital injection at the consideration of RMB30,000,000 by cash;

– 44 –

GENERAL INFORMATION

APPENDIX

(vii) the capital injection agreement dated 29 November 2016 entered into between 深圳紫金港新能源產業投資企業（有限合夥）(Shenzhen Zijin Port Energy Industry Investment Enterprise (limited partnership)) ( “ Shenzhen Zijin ” )* , Tesson Technology and Tesson (SZ), in relation to the subscription by Shenzhen Zijin for approximately 4.44% of the enlarged equity interests in Tesson (SZ) by way of capital injection at the consideration of RMB20,000,000 by cash; and

(viii) the Subscription Agreement.

10. EXPERT AND CONSENT

The following is the qualification of the expert who has given an opinion or advice contained in this circular:

Name Qualifications Akron Corporate a licensed corporation under the SFO, registered to conduct Finance Limited Type 6 (advising on corporate finance) regulated activity under the SFO

The expert above has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report or letter or opinion as set out in this circular and references to its name in the form and context in which it appear in this circular.

As at the Latest Practicable Date, the expert above did not have any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the expert above did not have any interest, direct or indirect, in any asset which since 31 December 2015, being the date to which the latest published audited consolidated financial statements of the Group were made up, have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

– 45 –

GENERAL INFORMATION

APPENDIX

11. MISCELLANEOUS

(a) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company in Hong Kong is located at Room 1007, Tsim Sha Tsui Centre, West Wing, 66 Mody Road, Tsim Sha Tsui, Hong Kong.
(b) The branch share registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Room 1712-1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
(c) The company secretary of the Company is Mr. Chan Wei, a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of Associate of Chartered Certified Accountants.
(d) The English text of this circular and the accompanying proxy form shall prevail over the Chinese text in the case of any inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at Room 1007, Tsim Sha Tsui Centre, West Wing, 66 Mody Road, Tsim Sha Tsui, Hong Kong during normal business hours from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the letter from the Independent Board Committee, the text of which is set out on page 21 of this circular;
(c) the letter from the Independent Financial Adviser, the text of which is set out on pages 22 to 39 of this circular;
(d) the written consent of the Independent Financial Adviser as referred to in the paragraph headed “Expert and Consent” in this appendix;
(e) the material contracts referred to under the paragraph headed “Material Contracts” above in this appendix; and
(f) this circular.

– 46 –

NOTICE OF SGM

TESSON HOLDINGS LIMITED 天臣控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock code: 1201)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of Tesson Holdings Limited (the “ Company ”) will be held at 11:00 a.m. on Tuesday, 28 February 2017 at Picasso Room B, B1 Level, InterContinental Grand Stanford Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong to consider and, if thought fit, approve, with or without modifications, the following resolution(s) as ordinary resolution(s):

ORDINARY RESOLUTION

“1. THAT :
(a) the subscription agreement dated 17 January 2017 (the “Subscription Agreement”) and entered into between the Company, Double Key International Limited (the “Subscriber”) and Cloud Apex Global Limited (the “Lender”), pursuant to which (i) the Lender has conditionally agreed to assign in favour of the Subscriber all rights, titles, benefits and interests in and to an interestbearing loan with an outstanding principal amount of HK$382,728,417.91 as at the date of this resolution due from the Company to the Lender; and (ii) the Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to issue convertible bonds in the principal amount of HK$300,000,000 due 2036 (the “Convertible Bonds”), a copy of the Subscription Agreement has been produced to the SGM and marked “A” and initialled by the chairman of the SGM for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed, and ratified;
(b) the creation and issue of the Convertible Bonds by the Company pursuant to the terms of the Subscription Agreement be and are hereby approved and confirmed;

– 47 –

NOTICE OF SGM

(c) the allotment and issue of new shares (the “Conversion Shares”) (subject to adjustments) in the capital of the Company upon the exercise of the conversion rights attached to the Convertible Bonds be and are hereby approved and confirmed; and the directors of the Company (the “Directors” and each a “Director”) be and are hereby granted a specific mandate to exercise powers of the Company to allot and issue such number of Conversion Shares as may be required to be allotted and issued upon the exercise of the conversion rights attached to the Convertible Bonds (subject to adjustments in accordance with the terms and conditions of the Convertible Bonds) (including, for the avoidance of doubt, such additional number of shares of the Company that may be required to be allotted and issued upon the exercise of the conversion rights attached to the Convertible Bonds following any adjustments to the conversion price of the Convertible Bonds); and
(d) any one Director be and is hereby generally and unconditionally authorised to do all such acts and things, to sign and execute all such documents for and on behalf of the Company, and if required, under the common seal of the Company, and to take such step(s) as he or she may in his or her absolute discretion considers necessary, appropriate or expedient to give effect to or in connection with the Subscription Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Convertible Bonds and the Conversion Shares.
THAT :
(a) to the extent not already exercised, the mandate to allot and issue shares of the Company given to the Directors at the annual general meeting of the Company held on 31 May 2016 be and is hereby revoked (without prejudice to any valid exercise of such general mandate prior to the passing of this resolution);
(b) subject to paragraph (d) below, the exercise by the Directors during the Relevant Period (as defined below) of all the powers of the Company to allot, issue and deal with authorised and unissued shares in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers be and is hereby generally and unconditionally approved;
(c) the approval in paragraph (b) above shall authorise the Directors to make or grant offers, agreements and options during the Relevant Period which would or might require the exercise of such powers after the end of the Relevant Period;

– 48 –

NOTICE OF SGM

(d) the total number of shares allotted and agreed conditionally or unconditionally to be allotted by the Directors pursuant to the approval in paragraph (b) above, otherwise than pursuant to:
(i) a Rights Issue (as defined below);
(ii) any issue of Shares upon the exercise of rights of subscription or conversion under the terms of any options, warrants or convertible bonds or similar rights granted by the Company or any securities which are convertible into shares of the Company;
(iii) the grant of options or rights to acquire shares of the Company or an issue of shares of the Company upon exercise of options or rights granted under the existing share option scheme of the Company or similar arrangement for the time being adopted and approved by the shareholders of the Company; and
(iv) any scrip dividend scheme or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company in accordance with the Bye-Laws of the Company;

shall not exceed 20% of the total number of shares of the Company as at the date of the passing of this resolution and this approval shall be limited accordingly;

(e) for the purpose of this resolution:

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

(i) the conclusion of the next annual general meeting of the Company;
(ii) the revocation or variation of the authority given under this resolution by an ordinary resolution passed by the Company’s shareholders in a general meeting; and
(iii) the expiration of the period within which the next annual general meeting of the Company is required by the Bye-Laws of the Company or any applicable laws to be held; and

– 49 –

NOTICE OF SGM

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

Yours faithfully

By order of the Board Tesson Holdings Limited Tin Kong Chairman

Hong Kong, 13 February 2017

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

Head office and principal place of business in Hong Kong: Room 1007 Tsim Sha Tsui Centre, West Wing 66 Mody Road Tsim Sha Tsui Hong Kong

– 50 –

NOTICE OF SGM

Notes:

(1) Any shareholder entitled to attend and vote at the meeting is entitled to appoint another person as his/her/its proxy to attend and vote instead of him/her/it. A shareholder who is the holder of two or more shares may appoint more than one proxy to attend on the same occasion. A proxy need not be a shareholder of the Company but must be present in person at the meeting to represent the shareholder. Completion and return of the form of proxy will not preclude a shareholder from attending the meeting and voting in person. In such event, his/her/its form of proxy will be deemed to have been revoked.
(2) Where there are joint holders of any share, any one of such joint holders may vote at the meeting, either personally or by proxy, in respect of such share as if he/she/it was solely entitled thereto, but if more than one of such joint holders be present at the meeting, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
(3) In order to be valid, the instrument appointing a proxy together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of that power or authority must be deposited at the offices of the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 17M/F., Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time for holding the meeting or any adjournment thereof.
(4) The resolution(s) as set out above will be determined by way of a poll.

As at the date of this notice, the executive directors of the Company are Ms. Cheng Hung Mui, Mr. Tin Kong, Mr. Zhou Jin, Mr. Chen Dekun, Mr. Tao Fei Hu and Mr. Sheng Siguang; and the independent non-executive directors of the Company are Mr. Wang Jinlin, Mr. Ng Ka Wing and Mr. See Tak Wah.

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AI assistant

Innovax Holdings Limited — Proxy Solicitation & Information Statement 2017

50753_rns_2017-02-10_1d45a7b9-8a1e-4503-a747-54b749461a89.pdf

TESSON HOLDINGS LIMITED 天臣控股有限公司

(1) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) PROPOSED REFRESHMENT OF GENERAL MANDATE; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

TESSON HOLDINGS LIMITED 天臣控股有限公司

(1) CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) PROPOSED REFRESHMENT OF GENERAL MANDATE; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

(1) THE TRANSACTIONS

The Subscription Agreement

Date

Parties

The Assignment and the Set Off

LETTER FROM THE BOARD

Conditions precedent

Completion

LETTER FROM THE BOARD

Principal terms of the Convertible Bonds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Information of the Subscriber and the Lender

LETTER FROM THE BOARD

Reasons for the Transactions

LETTER FROM THE BOARD

Effects on the shareholding structure of the Company

LETTER FROM THE BOARD

Equity fund raising activity during the past twelve months

Listing Rules implications

LETTER FROM THE BOARD

General

(2) PROPOSED REFRESHMENT OF GENERAL MANDATE

Background of and reasons for the Refreshment of General Mandate

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Listing Rules Implications

LETTER FROM THE BOARD

SGM

RECOMMENDATION

ADDITIONAL INFORMATION

TESSON HOLDINGS LIMITED 天臣控股有限公司

CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

Yours faithfully,

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

CONNECTED TRANSACTION IN RELATION TO SUBSCRIPTION OF CONVERTIBLE BONDS UNDER SPECIFIC MANDATE

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS OF OUR ADVICE

PRINCIPAL FACTORS CONSIDERED

1. Background and financial information of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Reasons for and benefits of the Subscription

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Subscription Agreement

4. Principle terms of the Convertible Bonds

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Analysis on the terms of the Convertible Bonds

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Historical Share price performance

(b) Historical trading liquidity of the Shares

(c) Comparison with other convertible bonds/notes

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conversion Price

Interest rate

Maturity

Conclusion

Innovax Holdings Limited Proxy Solicitation & Information Statement 2017