New Focus Auto Tech Holdings Limited — Proxy Solicitation & Information Statement 2007

Apr 16, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

This circular appears for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for the shares of New Focus Auto Tech Holdings Limited.

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NEW FOCUS AUTO TECH HOLDINGS LIMITED 新焦點汽車技術控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 360)

DISCLOSEABLE TRANSACTION

PROPOSED ACQUISITION INVOLVING THE ISSUE OF NEW SHARES

16 April 2007

* For identification purpose only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Equity Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information on Aiyihang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Information on the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Implication of the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17

DEFINITIONS

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

“2006 AGM”	the annual general meeting of the Company held on
	22 May 2006
“2009 Audited Accounts Date”	the date on which the audited accounts of Aiyihang
	for the year ending 31 December 2009 is issued
“Acquisition”	the acquisition by the Company from the Vendor of
	the Equity Interest pursuant to the Equity Transfer
	Agreement
“Additional Capital”	the aggregate of RMB20,000,000 (of which
	RMB10,200,000 from the Company and RMB9,800,000
	from the Vendor) capital investment to Aiyihang
	pursuant to the Equity Transfer Agreement
“Adjustment Sum”	the amount of adjustment to Consideration payable
	under the Equity Transfer Agreement
“Aggregate Audited Net Profit”	the aggregate of audited net profit of Aiyihang for the
	three years ending 31 December 2009
“Aiyihang”	北京愛義行汽車服務有限責任公司(Beijing Aiyihang
	Auto Service Ltd.), a limited liability company
	established in the PRC which is owned as to 91.67%
	by the Vendor and as to 8.33% by Zhao, both of whom
	are Independent Third Parties
“Announcement”	the announcement issued by the Company dated 27
	March 2007 in relation to the Acquisition
“Board”	the board of Directors
“Capital Injection”	the injection of Additional Capital by the Company
	and the Vendor
“Company”	New Focus Auto Tech Holdings Limited, a company
	incorporated in the Cayman Island with limited
	liability, the shares of which are listed on the Stock
	Exchange
“Completion”	completion of the Equity Transfer Agreement in
	accordance with the terms therein

– 1 –

DEFINITIONS

“Consideration”	the initial sum of RMB40,000,000 together with
	Adjustment Sum payable by the Company to the
	Vendor for the Acquisition pursuant to the Equity
	Transfer Agreement
“Consideration Shares”	13,660,442 new Shares to be allotted and issued to the
	Vendor at the issue price of HK$2.07 per Share, being
	part of the Consideration payable by the Company to
	the Vendor pursuant to the Equity Transfer Agreement
“Director(s)”	director(s) of the Company
“Equity Interest”	the 51% equity interest in Aiyihang to be transferred
	by the Vendor to the Company under the Equity
	Transfer Agreement
“Equity Transfer Agreement”	the equity transfer agreement dated 19 March 2007
	entered into between the Company and the Vendor
	for the sale and purchase of the Equity Interest
“Existing General Mandate”	the general mandate granted to the Directors at the
	2006 AGM to allot, issue and otherwise deal with up
	to 80,520,000 Shares, representing 20% of the aggregate
	nominal amount of the issued share capital of the
	Company as at the date of the 2006 AGM
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Third Party”	a party and, if applicable, the ultimate beneficial owner
	of the party who is independent of the Company and
	connected persons of the Company
“Latest Practicable Date”	12 April 2007 being the last practicable date prior to
	the printing of this circular for ascertaining certain
	information contained in this circular
“Listing Committee”	the listing sub-committee of the directors of the Stock
	Exchange elected or appointed in accordance with the
	Articles of Association of the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange

– 2 –

DEFINITIONS

“Loan Conversion”	the conversion of RMB15,500,000 loan advanced from
	the Vendor and Zhao in the books of Aiyihang to
	capital of Aiyihang by way of injection of additional
	capital
“Long-stop Date”	18 December 2007, or such later date as the Vendor
	and the Company may agree in writing
“PRC”	the People’s Republic of China
“Price”	the price for the Equity Interest as agreed by the
	Company and the Vendor under the Equity Transfer
	Agreement
“Registration”	the approvals from the Beijing Administration of
	Industry and Commerce (Beijing AIC) in respect of
	the change in shareholder of Aiyihang as a result of
	the Acquisition and the completion of the procedures
	for amending the business licence of Aiyihang to show
	that the Company (or its associate) has become the
	shareholder thereof
“RMB”	Renminbi
“Shares”	ordinary Share(s) of HK$0.01 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendor”	Mr. Xing Aiyi (邢愛義), who owns 91.67% equity
	interest in Aiyihang, an Independent Third Party
“Zhao”	Ms. Zhao Dongqiao (趙東橋), the wife of the Vendor,
	who owns 8.33% equity interest in Aiyihang, an
	Independent Third Party
“%”	per cent

For the purpose of this circular and for illustration purpose only, all amounts in RMB have been translated into HK$ at the rate of HK$1.00: RMB0.9902.

– 3 –

LETTER FROM THE BOARD

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NEW FOCUS AUTO TECH HOLDINGS LIMITED 新焦點汽車技術控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 360)

Executive Directors: Hung Wei-Pi, John (Chairman) Wu Kwan-Hong Hung Ying-Lien Lu Yuan Cheng Douglas Charles Stuart Fresco Norman L. Matthew

Registered offices: Century Yard, Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Non-executive Directors: Low Hsiao-Ping Independent non-executive Directors: Du Haibo Zhou Tai-Ming Uang Chii-Maw

Principal place of business in Hong Kong: Unit 604, 6/F., Printing House 6 Duddell Street Central Hong Kong

16 April 2007

To the shareholders of the Company

Dear Sir and Madam,

DISCLOSEABLE TRANSACTION

PROPOSED ACQUISITION INVOLVING THE ISSUE OF NEW SHARES

INTRODUCTION

The Company announced on 27 March 2007 that the Company entered into the Equity Transfer Agreement with the Vendor, pursuant to which, the Company has conditionally agreed to acquire 51% equity interest in Aiyihang from the Vendor for an aggregate consideration of RMB40,000,000 (equivalent to approximately HK$40,395,880) subject to certain post-completion adjustments. The Company and the Vendor also agreed to inject Additional Capital to Aiyihang within one month after completion of Registration.

The purpose of this circular is to provide you further information in relation to the Acquisition.

* For identification purpose only

– 4 –

LETTER FROM THE BOARD

THE EQUITY TRANFER AGREEMENT

The principal terms and conditions of the Equity Transfer Agreement are detailed as follows:

Date

19 March 2007

Parties to the Equity Transfer Agreement

• (1) Mr. Xing Aiyi (邢愛義 ) (or his nominee) (“Vendor”) as the transferor

To the best knowledge and belief of the Directors and having made all reasonable enquiries, the Vendor is an Independent Third Party and is not a connected person of any Directors, chief executive or substantial shareholders of the Company and its subsidiaries, or any of their respective associates.

• (2) The Company (or its associate) as the transferee

Interest to be Acquired

The Equity Interest shall be acquired by the Company (or its associates).

According to the Equity Transfer Agreement, the Company has agreed that it will not transfer the Equity Interest or create or permit to arise any mortgage, pledge or other form of security or encumbrance on the Equity Interest during the three years ending 31 December 2009 without the prior written consent of the Vendor.

The Consideration

The price of the Equity Interest (“Price”) was arrived at by the Company and the Vendor after arm’s length negotiation, which is calculated at the following pricing formula:

Price = (A x 20% + B x 35% + C x 45%) x price/earning ratio of 10 times x 51%

where

		audited net profit after
A	=	tax of Aiyihang for the	12 x
		period from Registration	the number of months for the
		to 31 December 2007	period from Registration to
			31 December 2007
B	=	audited net profit after tax of Aiyihang for year ending
		31 December 2008
C	=	audited net profit after	tax of Aiyihang for year ending 31
		December 2009

– 5 –

LETTER FROM THE BOARD

The Company and the Vendor consider three years being a reasonable length of time for assessing the on-going performance of Aiyihang and linking the Price to profit of Aiyihang would encourage enhanced performance of Aiyihang by allowing the Vendor to share the results which is to be reflected in the Price. The weight attached to the profit for each year in the calculation of the Price, which is in ascending order namely 20%, 35% and 45% for the three years ending 31 December 2009 respectively, was determined with a view to encourage sustained performance and development of Aiyihang as the Vendor will be able to benefit from the continuous expansion and development of Aiyihang.

Based on commercial negotiation and consideration, the Company and the Vendor agreed that the Price shall be satisfied in the following manner:

• (A) an initial sum of RMB40,000,000 (equivalent to approximately HK$40,395,880) (of which RMB12,000,000 is in cash and the balance RMB28,000,000 by the issue of Consideration Shares) (details of which are set out in the sub-section “Payment of Consideration” below); and

• (B) an Adjustment Sum to be determined with reference to the Price after net profit figures for the three years ending 31 December 2009 are available and the value of (A) above based on the value of the Consideration Shares at that time. ((A) and (B) are referred to collectively as the “Consideration”).

The purpose of the Adjustment Sum is to reflect the agreed Price, which may be payable by the Company to the Vendor or vice versa, as the case may be. For the calculation of the Adjustment Sum, the Company and the Vendor further agreed that:

• (i) if the Aggregate Audited Net Profit shall be not less than RMB12,000,000 (equivalent to approximately HK$12,118,764), the value of the Consideration as at the 2009 Audited Accounts Date should be not less than RMB40,000,000 (equivalent to approximately HK$40,395,880); and

• (ii) in the case the Adjustment Sum is payable by the Company, it will be capped at RMB40,000,000 (equivalent to approximately HK$40,395,880).

Based on the above, a mechanism for evaluating the Adjustment Sum according to different situations was worked out and details of which are set out below under the sub-section “Adjustment to the Consideration”. The Consideration therefore may or may not be the same as the Price depending on the variables involved in the mechanism of evaluating the Adjustment Sum.

– 6 –

LETTER FROM THE BOARD

Payment of Consideration

The Consideration shall be satisfied:

• (1) as to RMB12,000,000 (equivalent to approximately HK$12,118,764) in cash to the Vendor, payable in two instalments:

• (a) RMB6,000,000 (equivalent to approximately HK$6,059,382) is payable within 10 working days from the date of the Equity Transfer Agreement (“First Payment”); and

• (b) RMB6,000,000 (equivalent to approximately HK$6,059,382) is payable within 5 working days after completion of Registration (“Second Payment”).

• (2) as to the balance RMB28,000,000 (equivalent to approximately HK$28,277,116) by the allotment and issue of 13,660,442 new Shares as Consideration Shares, credited as fully paid, at an issue price of HK$2.07 each by the Company. The calculation of the Consideration Shares is as follows:

RMB28,000,000 (equivalent to HK$28,277,116) Consideration Shares = the average closing price of the Shares for the 90 trading days immediately preceding the date of the Equity Transfer Agreement

The above cash portion of the Consideration will be satisfied by the Group’s internal resources.

The Consideration Shares will be allotted and issued to the Vendor at the same time of the Second Payment.

The Consideration Shares represent approximately 3.37% of the issued Shares as of the Latest Practicable Date and 3.26% of the enlarged issued Shares immediately after Completion. The Consideration Shares have a market value of approximately HK$33,468,083 based on the closing price of HK$2.45 per Share on the Latest Practicable Date.

The Consideration Shares will be issued, credited as fully paid and shall rank pari passu in all respects with the existing Shares on the relevant date of allotment. An application has been made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal with, the Consideration Shares.

– 7 –

LETTER FROM THE BOARD

The issue price of each Consideration Share is HK$2.07 which represents:

• (a) a discount of approximately 13.03% to the closing price of HK$2.38 per Share as quoted on the Stock Exchange on 9 February 2007 (being the last trading day immediately prior to the date of the Announcement);

• (b) a discount of approximately 12.29% to the average closing price of HK$2.36 per Share as quoted on the Stock Exchange for the five consecutive trading days up to and including 9 February 2007 (being the last trading day immediately prior to the date of the Announcement); and

• (c) a discount of approximately 15.51% to the closing price of HK$2.45 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

In contemplation of the Acquisition, the Consideration Shares will be allotted and issued under the Existing General Mandate granted to the Directors at the 2006 AGM.

At the 2006 AGM, the issued ordinary share capital of the Company was HK$40,260,000 comprising 402,600,000 Shares. The Board was granted the Existing General Mandate at the 2006 AGM to allot, issue and otherwise deal with up to 80,520,000 Shares, representing 20% of the share capital of the Company in issue on the date of the 2006 AGM. The Existing General Mandate has not been exercised at all as at the Latest Practicable Date. Accordingly, the maximum number of new Shares which can be issued pursuant to the Existing General Mandate is 80,520,000 Shares (without taking into account the 13,660,442 Consideration Shares to be allotted and issued to the Vendor).

The Vendor undertakes that during the period from the issue of Consideration Shares to 31 December 2009, he will not, in each year, transfer more than 10% of the Consideration Shares to third party. The Vendor further agrees to give the Company one month’s written notice informing the Company the number of Consideration Shares and the transfer price thereof each time if he proposes to transfer 3% or more of the Consideration Shares; in the case the proposed transfer involves less than 3% of the Consideration Shares, the notification period will be 3 days.

Adjustment to the Consideration

Pursuant to the Equity Transfer Agreement, adjustment shall be made to Consideration within one month from the 2009 Audited Accounts Date.

– 8 –

LETTER FROM THE BOARD

Adjustment to Consideration is based on the Price, the Aggregate Audited Net Profit and the then value of the Consideration before the Adjustment Sum (“Value”) where:

Number of Consideration Shares (note) x the average Value = closing price of the Shares for the 90 trading days immediately preceding 2009 Audited Accounts Date + RMB12,000,000

• (note) being 13,660,442 at issue, to be adjusted accordingly if there is any variation in the Company’s share capital arising from any sub-division or consolidation or issue of new Shares etc. during the period from the date of the Equity Transfer Agreement to 31 December 2009

Below is the mechanism for evaluating the Adjustment Sum:

• (1) In the case Price = RMB40,000,000; if

• (a) Value ≥ RMB40,000,000, there will be no adjustment;

• (b) Value < RMB40,000,000, the Company has to pay the Vendor an Adjustment Sum, being the difference between RMB40,000,000 and the Value.

• (2) In the case Price > RMB40,000,000; if

• (a) Value > RMB40,000,000 and (Price – RMB40,000,000) ≤ (Value – RMB40,000,000), there will be no adjustment to Consideration;

• (b) Value > RMB40,000,000 and (Price – RMB40,000,000) > (Value – RMB40,000,000), the Company has to pay to the Vendor an Adjustment Sum equal to (Price – RMB40,000,000) – (Value – RMB40,000,000);

• (c) Value ≤ RMB40,000,000, the Company has to pay to the Vendor an Adjustment Sum equal to (Price – RMB40,000,000) + (RMB40,000,000 – Value).

• (3) In the case Price < RMB40,000,000; if

• (a) the Aggregate Audited Net Profit is not less than RMB12,000,000; then

  • (i) if Value < RMB40,000,000, the Company has to pay to the Vendor an Adjustment Sum equal to the difference between RMB40,000,000 and the Value;

– 9 –

LETTER FROM THE BOARD

  - (ii) if Value ≥ RMB40,000,000, the Vendor shall pay to the Company an Adjustment Sum based on the following calculations, whichever is the smallest:

     - RMB40,000,000 – Price; or

     - RMB40,000,000 – (audited net asset value of Aiyihang as at 31 December 2009 x 51%); or

     - Value – RMB40,000,000

• (b) the Aggregate Audited Net Profit is less than RMB12,000,000; then

  • (i) if Value < RMB40,000,000 and (RMB40,000,000 – Price) ≥ (RMB40,000,000 – Value), the Vendor shall pay to the Company an Adjustment Sum equal to (RMB40,000,000 – Price) – (RMB40,000,000 – Value);

  • (ii) if Value < RMB40,000,000 and (RMB40,000,000 – Price) < (RMB40,000,000 – Value), the Company shall pay to the Vendor an Adjustment Sum equal to (RMB40,000,000 – Value) – (RMB40,000,000 – Price);

  • (iii) if Value ≥ RMB40,000,000, the Vendor shall pay to the Company an Adjustment Sum based on the following calculations, whichever is smaller:

    • RMB40,000,000 – Price; or

    • RMB40,000,000 – (audited net asset value of Aiyihang as at 31 December 2009 x 51%).

• (4) The Adjustment Sum shall be paid by the Vendor or the Company (as the case may be) to the other party within one month from the 2009 Audited Accounts Date.

• (5) In any event, the Adjustment Sum payable by the Company under the Equity Transfer Agreement shall not exceed RMB40,000,000 (equivalent to approximately HK$40,395,880) and such Adjustment Sum shall be paid in cash.

– 10 –

LETTER FROM THE BOARD

• (6) In the case the Adjustment Sum is payable by the Vendor to the Company, the Vendor may at his option pay such sum by way of cash or by the transfer of equivalent value of his equity interest in Aiyihang to the Company. In the latter case, the percentage of equity interest of Aiyihang to be transferred shall be calculated as follows:

equity interest of Aiyihang = Adjustment ÷ Price to be transferred Sum 51%

The Consideration was arrived at after arm’s length negotiations between the Company and the Vendor.

In the PRC automobile chain services industry, Aiyihang is one of considerable size (with operation revenue of over RMB40,000,000) (equivalent to approximately HK$40,395,880), which is able to achieve a profitable standing and has a wellmanaged operation. Given the rather unique nature of Aiyihang in terms of its size and operation pattern, no readily available comparable in the market as to the level of price earning ratio could be found. With reference of an average price earning ratio of 16 – 20 times for overseas automobile services companies and having taken into account, among other things, the possible synergistic effect on the Group’s operations and the positive impact on the Group’s market position and profit performance to be brought by the Acquisition, the Directors are of the view that the price earning ratio of 10 times used in determining the Price and the terms of the Equity Transfer Agreement are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Capital Injection

The Company and the Vendor agreed to inject RMB20,000,000 (equivalent to approximately HK$20,197,939) as additional capital to Aiyihang within one month from the date of completion of Registration on a pro rata basis as per their then respective equity interest in Aiyihang, namely RMB10,200,000 (equivalent to approximately HK$10,300,949) from the Company and RMB9,800,000 (equivalent to approximately HK$9,896,990) from the Vendor and Zhao.

After completion of the Capital Injection, no party shall, without the prior consent of the other party:

• (a) inject further capital to Aiyihang;

• (b) transfer its/his equity interest in Aiyihang; or

• (c) create or permit to arise any mortgage, pledge or any other form of security or encumbrance on his/its equity interest in Aiyihang.

– 11 –

LETTER FROM THE BOARD

Other Terms

Upon payment of the First Payment, the Company shall pay to the Vendor a sum of RMB3,000,000 (equivalent to approximately HK$3,029,691) in return for the Vendor agreeing not to dispose of more than 10% of the Consideration Shares each year during the period from the issue of the Consideration Shares to 31 December 2009. No restriction was imposed on the use of such sum and it will be repaid in full by the Vendor to the Company unconditionally on or before 31 March 2010 without interest.

There is no arrangement or intention to appoint the Vendor as a Director under the Equity Transfer Agreement.

Shareholding Structure

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date and immediately after the Completion.

Shareholder Mr. HUNG Wei-Pi, John (Note A) Mr. FRESCO Douglas Charles Stuart_(Note A) Directors(Note B)_ Vendor Public Total	As at the Latest Practicable Date Number of Shares % 162,404,000 40.02 50,524,000 12.45 24,908,000 6.13 0 0 167,999,000 41.40 405,835,000 100.00	Immediately after Completion Number of Shares % 162,404,000 38.71 50,524,000 12.04 24,908,000 5.94 13,660,442 3.26 167,999,000 40.05 419,495,442 100.00	Immediately after Completion Number of Shares % 162,404,000 38.71 50,524,000 12.04 24,908,000 5.94 13,660,442 3.26 167,999,000 40.05 419,495,442 100.00
			100.00

Note A: Including the interest of their respective associate Note B: Excluding the interest of Mr. John Hung and Mr. Fresco

The allotment and issue of the Consideration Shares to the Vendor will not result in a change in control of the Company.

Except for Shares issued pursuant to the share option scheme of the Company adopted on 13 February 2005, the Company has not raised any funds from any issue of equity securities in the last twelve months immediately preceding the date of the Announcement.

– 12 –

LETTER FROM THE BOARD

Conditions of the Equity Transfer Agreement

Completion of the Equity Transfer Agreement is conditional upon, among other things, the following being fulfilled:

• (a) Completion of Loan Conversion and after completion of Loan Conversion, the net assets value of Aiyihang shall be not less than RMB12,500,000 (equivalent to approximately HK$12,623,712);

• (b) Completion of Registration. Application for Registration shall only take place after Loan Conversion has been completed; and

• (c) The Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the Consideration Shares.

As at the Latest Practicable Date, none of the conditions precedent has been fulfilled. If any of the conditions precedent have not been fulfilled by the Long-stop Date (or such other date as the Vendor and the Company may agree in writing), the provisions of the Equity Transfer Agreement shall from such date have no effect and no parties to the agreement shall have any claim against the others. All sums paid under the Equity Transfer Agreement by the Company to the Vendor shall be repaid in full to the Company.

Notwithstanding the above, if Loan Conversion shall not have completed within two months from the date of the Equity Transfer Agreement, the Company shall be entitled to:

• (a) the return of all sums already paid to the Vendor together with interest accrued thereon according to one-year term loan interest rate based on the actual number of days lapsed; and

• (b) terminate the Equity Transfer Agreement.

Completion

Completion shall take place within five working days following the fulfillment of all the conditions precedent (or such other date as the Company and the Vendor shall agree in writing).

Upon Completion, the Group will have 51% equity interest in Aiyihang and the profit attributable to the Equity Interest will contribute to the profit of the Company. Aiyihang will become a subsidiary of the Company and its results will be accounted for in the consolidated financial statements of the Group. It is expected that the Equity Transfer Agreement itself will have no material effects on the assets and liabilities of the Group. Having considered the well-established market position and operation of Aiyihang, the Directors are of the view that the Acquisition would have a positive impact on the Group’s earnings.

– 13 –

LETTER FROM THE BOARD

INFORMATION ON AIYIHANG

Business

Aiyihang was established in September 1997 by the Vendor and is currently having a registered capital of RMB18,500,000 (equivalent to approximately HK$18,683,094). Aiyihang is operating in the business of integrated automobile services and supplies, including environmental-friendly car-wash services, automobile decorations, automobile beautification, scratch repair and maintenance services. Aiyihang has obtained the ISO9001 certification. Aiyihang currently owns 9 super stores, which are in operation. In terms of the number of stores, the scale of operation and the influence on the market, Aiyihang is a leader in the automobile services and supplies industry in Beijing as well as the whole of PRC.

Financial Information of Aiyihang

Based on the latest audited accounts of Aiyihang for the period of 10 months ended 31 October 2006 prepared for the purpose of the Acquisition, the total assets and total net assets of Aiyihang as at 31 October 2006 was RMB27,449,000 (equivalent to approximately HK$27,720,662) and a deficit in the amount of RMB2,744,000 (equivalent to approximately HK$2,771,157) respectively. The net profit before and after taxation of Aiyihang for the 10 months ended 31 October 2006 amounted to RMB791,000 (equivalent to approximately HK$798,828) and RMB449,000 (equivalent to approximately HK$453,444) respectively. Based on Aiyihang’s management account for the year ended 31 December 2005, the net loss before and after taxation of Aiyihang amounted to RMB4,359.93 (equivalent to approximately HK$4,403) and RMB223,314.63 (equivalent to approximately HK$225,524) respectively.

The whole PRC automobile service industry is in the stage of fast development and under transition from expansion to profitability. Year 2005 was also a year of expansion and consolidation for Aiyihang. The loss in that year was mainly attributed to the extra administration and development costs and expenses incurred in establishing the framework for management and business development of Aiyihang in the next few years as well as in the process of preparation for the opening of 3 new super stores in year 2006 whilst growth in operation revenue still experienced a short-term lag.

INFORMATION ON THE VENDOR

The Vendor, aged 44, is the chairman and president of Aiyihang. He graduated from the Beijing University with a Bachelor Degree in Management. The Vendor was one of the founders of Aiyihang. In 1992, he established 愛義行汽車服務中心 (Aiyihang Auto Service Centre). In 1997, he established Aiyihang and has been the chairman and president until now. At the same time, the Vendor is a member of the 北京市宣武區政協委員會 (Committee of the Chinese People’s Political Consultative Conference, Xuanwu District, Beijing), vice president of the 宣武區工商業聯合會 (Xuanwu District Federation of Industry and Commerce) and an executive member of the 北京市工商業聯合會 (Beijing Federation of Industry and Commerce). He was granted the prizes of “優秀中國特色社會主義事業建

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LETTER FROM THE BOARD

設者 ” (“Outstanding Constructors of Socialist Cause with Chinese Characteristics”) in Beijing and “第四屆有突出貢獻的科教、技術、管理人才 ” (the Fourth “Talents with Outstanding Contributions in the Fields of Science Education, Technology and Management”).

INFORMATION ON THE GROUP

The Group is principally engaged in the manufacturing and sales of electronic and power-related automotive parts and accessories which are distributed primarily in North America and the Greater China regions. The Group is also engaged in the distribution of merchandise through its operation of automotive aftermarket services chain stores network in the PRC.

REASONS FOR THE ACQUISITION

The Directors believe that the Acquisition will create synergy and strengthen the competitiveness of the Group’s automotive service business.

The Group currently has no presence in Beijing, the city with the most private passenger cars in the PRC. Aiyihang, on the other hand, has been operating in the city with well established network and reputation. It has been the Group’s plan to have establishment in Beijing and Shanghai, the two most influential cities in the PRC. Given the vast differences in the level of economic development and consumer behaviors and preference in different cities in the PRC, entry into the Beijing market through acquisition of Aiyihang, a company already operating there, would be the most efficient and effective way in terms of both time and costs.

Besides, the Acquisition provides the Group with the opportunity to improve its knowledge on the PRC’s automobile services industry through the cooperation with Aiyihang, a competitor in the market, and to better understand its strengths and weaknesses in its operation.

The Acquisition also helps to improve the overall strengths of the Group. The Group now has altogether 289 chain stores providing automobile services, most of which are medium-sized stores. For super stores (stores having an area of 1,000 to 5,000 square meters), the Group now has 10, 8 of which are located in Taiwan, 1 in Shanghai and 1 in Chengdu. Aiyihang currently has 9 super stores. On Completion, the Group’s super stores will be increased from 10 to 19 and the Group would be able to expand its loyal customer base by more than ten thousands. Besides, the Group would be able to increase its bargaining power with its suppliers in tires, audio equipments, navigation systems, etc., which would enable the Group to reduce its costs for obtaining supplies.

The Acquisition would also result in the increase in revenue of the Group. It is anticipated that the Acquisition will bring to the Group approximately RMB50,000,000 (equivalent to approximately HK$50,494,850) of revenue in the year 2007.

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LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

Since three of the relevant percentage ratios (as defined in the Listing Rules) in respect of the Acquisition exceed 5% but are less than 25%, the Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules and the Acquisition is subject to the requirements of notifying the Stock Exchange and publication of an announcement in the newspapers and the dispatch of circulars to the Shareholders.

DIRECTORS

As at the Latest Practicable Date, the members of the Board comprise (i) the executive Directors, namely Hung Wei-Pi John, Wu Kwan-Hong, Hung Ying-Lien, Lu Yuan Cheng, Douglas Charles Stuart Fresco and Norman L. Matthew; (ii) the non-executive Director, namely Low Hsiao-Ping and (iii) the independent non-executive Directors, namely Du Haibo, Zhou Tai Ming and Uang Chii-Maw.

ADDITIONAL INFORMATION

Your attention is also drawn to the general information as set out in the Appendix to this circular.

By order of the Board New Focus Auto Tech Holdings Limited Hung Wei-Pi, John Chairman

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APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

HK$

Authorized Capital

2,000,000,000 Shares Issued and fully paid or credited as fully paid As at the Latest Practicable Date 405,835,000 Shares 13,660,442 Consideration Shares 419,495,442 Shares	200,000,000 40,583,500.00 1,366,044.20
	41,949,544.20

All existing issued Shares rank equally in all respects, including capital, dividend and voting rights. The Shares in issue are listed on the Stock Exchange.

3. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares and underlying Shares of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests which they are taken or deemed to have under such provisions of the SFO) or which were required to be notified to the Company and the Stock Exchange pursuant to section 352 of

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APPENDIX

GENERAL INFORMATION

the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules were as follows:

(a) Interest in shares of the Company

		Number of
		shares in which
		interested
		(other than	Percentage
	Capacity/	under equity	of issued
Name	Nature of interest	derivatives)	shares
		(Note 1)
Mr. Hung Wei-Pi, John	Interest in a controlled	162,404,000 (L)	40.02%
	company_(Note 2)_
Mr. Douglas Charles	Interest in a controlled	50,524,000 (L)	12.45%
Stuart Fresco	company_(Note 3)_
Ms. Hung Ying-Lien	Beneficial owner	600,000 (L)	0.15%
Mr. Wu Kwan-Hong	Beneficial owner	600,000 (L)	0.15%
Mr. Lu Yuan-Cheng	Beneficial owner	748,000 (L)	0.18%

Notes:

1. The letter “L” denotes a long position in the shares.

2. These shares are registered in the name of and beneficially owned by Sharp Concept Industrial Limited, the entire issued share capital of which is registered in the name of and beneficially owned by Mr. Hung Wei-Pi, John. Under the SFO, Mr. Hung Wei-Pi, John is deemed to be interested in all the shares of the Company held by Sharp Concept Industrial Limited.

3. These shares are registered in the name of and beneficially owned by Golden Century Industrial Limited, the entire issued share capital of which is registered in the name of and beneficially owned by Mr. Douglas Charles Stuart Fresco. Under the SFO, Mr. Douglas Charles Stuart Fresco is deemed to be interested in all the shares of the Company held by Golden Century Industrial Limited.

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APPENDIX

GENERAL INFORMATION

(b) Interests in the underlying shares of the Company through equity derivatives

Certain Directors were granted share options under the share option scheme of the Company dated 13 February 2005. Share options granted to the Directors to subscribe for shares of the Company which were outstanding on Latest Practicable Date were as follows:

		Number of
		underlying				Percentage of
		shares in				issued share
	Nature of	respect of	Exercise	Price for	Exercise	capital of
Name	Interest	options granted	period	grant	price	the Company
						(%)
Mr. Wu Kwan-Hong	Beneficial	3,400,000 (L)	1 January 2006	HK$10.00	HK$0.94	0.83%
	owner		to 12 February 2015	(for all)	(per share)
Ms. Hung Ying-Lien	Beneficial	3,400,000 (L)	1 January 2006	HK$10.00	HK$0.94	0.83%
	owner		to 12 February 2015	(for all)	(per share)
Mr. Lu Yuan Cheng	Beneficial	3,250,000 (L)	1 January 2006	HK$10.00	HK$0.94	0.80%
	owner		to 12 February 2015	(for all)	(per share)

Note:

1. The letter “L” denotes a long position in underlying shares.

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

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APPENDIX

GENERAL INFORMATION

4. INTERESTS OF SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and according to the register of interests maintained by the Company under section 336 of the SFO, the following persons (other than a Director or chief executive of the Company) has, or were deemed or taken to have, interests or short position in the Shares which would fall to be disclosed to the Company under provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital of the Company.

		Number of	Number of
		shares in which	shares in
		interested (other	which
	Capacity/	than under	interested	Total	Percentage
	Nature of	equity	under equity	number of	of issued
Name	interest	derivatives)	derivatives	shares	shares
Sharp Concept	Beneficial owner	162,404,000(L)	Nil	162,404,000	40.02%
Industrial Limited	(Note 2)
Ms. Jin Xiao-Yan	Family interest	162,404,000(L)	Nil	162,404,000	40.02%
	(Note 3)
Golden Century	Beneficial owner	50,524,000(L)	Nil	50,524,000	12.45%
Industrial Limited	(Note 4)
Ms. Linda Fresco	Family interest	50,524,000(L)	Nil	50,524,000	12.45%
	(Note 5)

Notes:

1. The letter “L” denotes a long position in the shares.

2. The Shares held by Sharp Concept Industrial Limited also represents the same interest held by Mr. Hung Wei-Pi, John as set out in the paragraph “Disclosure of Directors’ Interests” above.

3. Ms. Jin Xiao-Yan is the wife of Mr. Hung Wei-Pi, John, an executive Director. Under the SFO, she is deemed to be interested in all the shares of the Company held by Sharp Concept Industrial Limited which in turn is wholly and beneficially owned by Mr. Hung Wei-Pi, John.

4. The Shares held by Golden Century Industrial Limited also represents the same interest held by Mr. Douglas Charles Stuart Fresco as set out in the paragraph “Disclosure of Directors’ Interests” above.

5. Mrs. Linda Fresco is the wife of Mr. Douglas Charles Stuart Fresco, an executive Director. Under the SFO, she is deemed to be interested in all the shares of the Company held by Golden Century Industrial Limited which in turn is wholly and beneficially owned by Mr. Douglas Charles Stuart Fresco.

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, so far as was known to the Directors or chief executive of the Company, as at the Latest Practicable Date, there is no other person (not being a Director or chief executive of the Company) who had an interest or short position in the Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or in any options in respect of such capital.

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective associates was interested in any business, apart from the Group’s business, which competes or is likely to compete, either directly or indirectly, with the Group’s business.

There was no contract or arrangement subsisting at the Latest Practicable Date in which a Director is materially interested and which is significant in relation to the business of the Group.

6. DIRECTORS’ SERVICE CONTRACTS

Each of Mr. Hung Wei-Pi, John, Mr. Wu Kwan-Hong, Ms. Hung Ying-Lien, Mr. Lu Yuan Cheng, Mr. Douglas Charles Stuart Fresco and Mr. Norman L. Matthew, being the executive Directors, has entered into a service contract with the Company for an initial term of three years commencing from 13 February 2005 and thereafter will continue until terminated by not less than three calendar months’ notice in writing served by either party on the other expiring at the end of the initial term or any time thereafter.

Pursuant to the respective letters of appointment of the non-executive Director, namely, Mr. Low Hsiao-Ping and the Independent non-executive Directors, namely, Mr. Du Haibo, Mr. Zhou Tai-Ming and Mr. Uang Chii-Maw, each of them is appointed for a term of three years subjected to retirement by rotation in accordance with the articles of association of the Company.

Save as disclosed above, none of the Directors had entered into service contracts with the Company which were not determinable by the Company within one year without compensation (other than statutory compensation).

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APPENDIX

GENERAL INFORMATION

7. LITIGATION

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

8. MISCELLANEOUS

• (a) The registered office of the Company is situated at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies.

• (b) The principal place of business of the Company in Hong Kong is situated at Unit 604, 6/F., Printing House, 6 Duddell Street, Central, Hong Kong.

• (c) The company secretary of the Company is Mr. Cheng, Yun Chung Ronie who is an ACA.

• (d) The qualified accountant of the Company is Mr. Cheng, Yun Chung Ronie.

• (e) The branch registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited, 46/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (f) The English text of this document shall prevail over the Chinese text.

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