RemeGen Co., Ltd. — Capital/Financing Update 2007

Apr 23, 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 licensed securities dealer or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

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

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

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HUALI HOLDINGS (GROUP) LIMITED

(incorporated in the Cayman Islands with limited liability) (Stock Code: 3366)

DISCLOSEABLE TRANSACTION ACQUISITION OF LAND USE RIGHTS

10 April, 2007

CONTENTS

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**LETTER **	FROM THE BOARD
A.	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
B.	THE TRANSFER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
C.	INFORMATION OF THE LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
D.	CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
E.	PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
F.	TERMINATION IN CASE OF FAILURE TO OBTAIN
	THE THREE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
G.	REASONS FOR THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
H.	INFORMATION OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
I.	INFORMATION ON THE TRANSFEROR . . . . . . . . . . . . . . . . . . . . . . . .	8
J.	DISCLOSEABLE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
K.	ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9

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DEFINITIONS

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

• “Acquisition”

• the acquisition of the land use rights of the Land pursuant to the Transfer Agreement;

“Adjustment” adjustment to be made to the Consideration if the actual site area of the Land as determined by the red-line map as approved by the relevant planning bureau is less than 220,000 square metres at a deduction rate of RMB293 (equivalent to approximately HK$295) per square metre; “associates” has the meaning as ascribed to it under the Listing Rules;

• “Board” the board of Directors;

• “Company” Huali Holdings (Group) Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Stock Exchange;

• “connected person(s)” has the meaning as ascribed to it under the Listing Rules;

• “Consideration” the consideration for the Acquisition pursuant to the Transfer Agreement, being RMB64,460,000 (equivalent to approximately HK$64,999,000) in total, or RMB293 (equivalent to approximately HK$295) per square metre, subject to the Adjustment;

• “Directors” the directors of the Company; “Escrow Account” an escrow account jointly operated by the Transferor and the Transferee with a bank the operation of which is governed by an escrow agreement entered into by the Transferor, the Transferee and the relevant bank;

• “Group” the Company and its subsidiaries; “HK$” Hong Kong dollar, the lawful currency of Hong Kong; “Hong Kong” the Hong Kong Special Administrative Region of the PRC;

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DEFINITIONS

• “Huizhou Huali” or “Transferee” , a wholly foreign owned joint venture enterprise incorporated in the PRC and an indirect wholly owned subsidiary of the Company;

• “Land” subject matter of the Transfer Agreement, being a piece of industrial-use land with a total site area of approximately 220,000 square metres situated at (Hangcheng Industrial

• Park, Xinqiao Village, Danshui Town, Huiyang District), Guangdong Province, the PRC. The final total site area of the Land may be adjusted based on the red-line map as approved by the relevant planning bureau, but shall not be more than 220,000 square metres;

• “Latest Practicable Date” 4 April 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular;

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

• “PRC” the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region of the PRC and the Taiwan region;

• “RMB” Renminbi, the lawful currency of the PRC; “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended or supplemented from time to time;

• “Shares” shares of the Company; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Three Certificates” the state owned land use rights certificate(s) ( ) to be issued by the relevant land bureau of the PRC, the planning permit for construction of land ( ) and the red-line map to be issued by the relevant planning bureau of the PRC;

• “Transfer Agreement” the agreement for transfer of land use rights of the Land dated 19 March 2007 entered into between the Transferor and the Transferee;

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DEFINITIONS

“Transferor” “%”

(Guangdong Yonghe Pharmaceuticals Development Limited), a Sino-foreign equity joint venture enterprise with limited liability incorporated in the PRC; and per cent.

Unless otherwise specified in this circular, amounts denominated in RMB have been translated, for the purpose of illustration only, into HK$ at an exchange rate of HK$100 = RMB99.17.

If there is any inconsistency between the Chinese names of PRC entities, departments, facilities or titles mentioned in this circular and their English translations, the Chinese version shall prevail.

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LETTER FROM THE BOARD

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HUALI HOLDINGS (GROUP) LIMITED

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 3366)

Executive Directors: Mr. Zheng Fan (Chairman) Mr. Ni Zheng Mr. Liu Danlin Mr. Zhou Guangneng

Non-executive Director:

Registered Office: Clifton House 75 Fort Street PO Box 1350 GT George Town Grand Cayman Cayman Islands

Ms. Xie Mei

Head Office and

Independent non-executive Directors:

Mr. Lee Kit Wah Mr. Chen Xiangdong Mr. Xiao Yongping

Principal Place of Business: Suite 3203-3204, Tower 6 The Gateway, Harbour City Canton Road Tsim Sha Tsui Kowloon, Hong Kong

10 April 2007

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION ACQUISITION OF LAND USE RIGHTS

A. INTRODUCTION

On 20 March 2007, the Board announced that Huizhou Huali, an indirect wholly owned subsidiary of the Company, entered into the Transfer Agreement with the Transferor on 19 March 2007, to acquire the land use rights of the Land at a consideration of RMB64,460,000 (equivalent to approximately HK$64,999,000), subject to the Adjustment.

The Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. The purpose of this circular is to provide you with further details in relation to, among other things, the Acquisition.

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LETTER FROM THE BOARD

B. THE TRANSFER AGREEMENT

Date: 19 March 2007 Transferor: (Guangdong Yonghe Pharmaceuticals Development Limited), a Sino-foreign equity joint venture enterprise with limited liability incorporated in the PRC Transferee: Huizhou Huali, a wholly foreign owned joint venture enterprise incorporated in the PRC and an indirect wholly-owned subsidiary of the Company

Pursuant to the Transfer Agreement, the Transferor, having obtained the relevant state owned land use rights certificates ( ) of the Land in its name and hence having legal title of the Land, has agreed to transfer the land use rights of the Land to the Transferee subject to the terms and conditions thereof.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Transferor and its ultimate beneficial owners are third parties independent of and not connected with the Group and the connected persons (as defined under the Listing Rules) of the Company.

C. INFORMATION OF THE LAND

The Land, which is currently vacant, is located at (Hangcheng Industrial Park, Xinqiao Village, Danshui Town, Huiyang District), Guangdong Province, the PRC and has a total site area of approximately 220,000 square metres. The final total site area of the Land may be adjusted based on the red-line map as approved by the relevant planning bureau, but shall not be more than 220,000 square metres. The Land shall be used for industrial purpose. The Transferor undertakes that the term of the Land as to be approved by the relevant land bureau by way of issuance of the state owned land use rights certificate(s) ( ) shall be 50 years expiring on 19 August 2054.

According to a valuation report prepared by an independent valuer engaged by the Group, the value of the Land as of 7 March 2007 was estimated to be approximately RMB300 per square metre, inclusive of tax payments of approximately RMB9 per square metre, or approximately RMB64,020,000 in aggregate, exclusive of tax payments of approximately RMB9 per square metre.

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LETTER FROM THE BOARD

D. CONSIDERATION

The Consideration is RMB64,460,000 (equivalent to approximately HK$64,999,000), i.e. at RMB293 (equivalent to approximately HK$295) per square metre, subject to the Adjustment. The Consideration is inclusive of tax payments arising from the Acquisition.

The Consideration for the Acquisition was arrived at after arm’s length negotiations between the parties with reference to the land premium for industrial land at nearby areas of Huiyang District, Guangdong Province, the PRC.

The Directors consider that the Land was acquired at market price and the terms of the Acquisition are fair and reasonable and are in the interests of the Company and its shareholders as a whole.

E. PAYMENT TERMS

The Consideration shall be satisfied by the Transferee in the following manner:

• (a) within three business days from the date of signing of the Transfer Agreement (i.e. 22 March 2007), the Transferee shall remit 30% of the Consideration into the Escrow Account;

• (b) the Transferor shall, within 3 days from the date of signing of the Transfer Agreement inform the Transferee the necessary documents required for application of the Three Certificates, and shall procure the issue of the planning permit for construction of land ( ) under the name of the Transferee within 30 days from the day of receipt of the necessary documents provided by the Transferee. Within ten business days upon the issue of the planning permit for construction of land ( ) under the name of the Transferee, the Transferee shall remit 40% of the Consideration into the Escrow Account, and the Transferor shall proceed with the transfer of the state owned land use rights; and

• (c) within ten business days upon the issue of the state owned land use rights certificate(s) ( ) with the Transferee recorded as the relevant land use rights owner and after the Transferee having confirm the Three Certificates being correct, the Transferee shall pay to the Transferor the remaining Consideration (subject to the Adjustment) and shall together with the Transferor arrange the bank to release the Consideration (plus any accrued interest) placed in the Escrow Account to the Transferor, and on the same day, the Transferor shall deliver the original copy of the Three Certificates to the Transferee.

Within 5 days after signing of the Transfer Agreement, the Transferor shall deliver the current red-line map held by the Transferor to the Transferee, and the Transferor and the Transferee shall, within one month after signing of the Transfer Agreement, confirm the actual site area of the Land based on such red-line map. But the final total site area of the Land shall be adjusted based on the red-line map as approved by the relevant planning bureau of the Land issued to the Transferee.

As at the Latest Practicable Date, the Transferee has remitted RMB45,122,000, being 70% of the Consideration, into the Escrow Account.

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LETTER FROM THE BOARD

F. TERMINATION IN CASE OF FAILURE TO OBTAIN THE THREE CERTIFICATES

The Transferor undertakes that it shall be responsible for obtaining the Three Certificates in the name of the Transferee within two months from the date of receipt of the necessary documents for the application of the Three Certificates from the Transferee in accordance with the terms of the Transfer Agreement.

The Transferor shall pay to the Transferee a daily penalty at a rate of 0.3% of the Consideration already paid by the Transferee if the Transferor fails to obtain the Three Certificates within the agreed timeframe as provided in the Transfer Agreement. If the Transferor fails to obtain the Three Certificates within the agreed timeframe as provided in the Transfer Agreement for more than 30 days, the Transferee shall be entitled to terminate the Transfer Agreement, and the Transferor shall:

• (i) refund to the Transferee the full amount of the Consideration already paid by the Transferee plus the accrued interest;

• (ii) pay damages at a rate of 0.3% of the Consideration already paid by the Transferee per day during the period of delay; and

• (iii) indemnify any extra costs incurred by the Transferee arising out of acquisition of another land use rights.

G. REASONS FOR THE ACQUISITION

As stated in the prospectus of the Company dated 24 October 2005, the Group plans to acquire a piece of land in Shenzhen for building a factory to expand its production capacity, and approximately HK$45 million of the net proceeds from the public offer and placing of Shares will be used for acquiring a piece of land in Shenzhen for such purpose. After considering the land costs involved in acquiring a piece of land in Shenzhen and its nearby counties, the Directors consider that it is more cost-effective in expanding its production base in Huizhou instead of Shenzhen, both of which are located in the Guangdong province.

The Group intends to use the Land to facilitate the Group’s production expansion. A new production facility will be built on the Land and the production capacity of the Group is expected to be enhanced accordingly. The Group may also consider to relocate the Group’s operation in Shenzhen to the new production base. For the time being, the Company does not have a concrete plan for the site located at Shenzhen if the relocation is carried out.

The Consideration will be satisfied by the net proceeds from the public offer and placing of Shares as mentioned above and internally generated funds of the Group.

The Group anticipates that the Land will be put into use for production purposes in the second quarter of 2008 and, until then, the acquisition of the Land will not have any material effect on the Group’s earnings. On asset side, the Group’s current assets will decrease insofar

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LETTER FROM THE BOARD

as cash is used to fund the Acquisition, but such decrease in current assets will be matched by a corresponding increase in other asset item. Accordingly, the Directors expect that the Acquisition will not cause any material adverse effect on the earnings and assets and liabilities of the Group.

The Directors consider that the terms of the Acquisition and the Transfer Agreement are fair and reasonable and in the interests of the Company and the shareholders of the Company as a whole.

H. INFORMATION OF THE GROUP

The Group is principally engaged in the manufacture of quality paper-based packaging containers and materials, including corrugated paperboard and printed cartons for customers in the PRC.

I. INFORMATION ON THE TRANSFEROR

The Transferor is a Sino-foreign equity joint venture enterprise with limited liability incorporated in the PRC and principally engaged in building Chinese medicine cultural and technological centre, researching, manufacturing and operating biotechnological products, health products and Chinese herbal medicine. It was authorized by (the People’s Government of Huiyang District, Huizhou City, Guangdong, the PRC) to transfer the land use rights of the land located in (Hangcheng Industrial Park, Xinqiao Village, Danshui Town, Huiyang District), Guangdong Province, the PRC to interested project companies pursuant to a notification issued by (the People’s Government of Huiyang District, Huizhou City, Guangdong, the PRC) dated 5 September 2005.

J. DISCLOSEABLE TRANSACTION

As the relevant percentage ratios in respect of the Acquisition are more than 5% but less than 25%, the Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of Listing Rules.

K. ADDITIONAL INFORMATION

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

By Order of the Board,

Huali Holdings (Group) Limited Zheng Fan

Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group.

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

2. DISCLOSURE OF INTERESTS

(i) Directors’ and chief executive’s interests and/or short positions in securities of the Company and its associated corporations

As at the Latest Practicable Date, interests and short positions 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) held by the Directors and chief executives of the Company which have been 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 were taken or deemed to have under such provisions of the SFO) or have been entered in the register maintained by the Company pursuant to section 352 of the SFO, or otherwise have been notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) are as follows:

Long Positions in the Ordinary Shares of the Company

		No. of	Approximate
		Shares	shareholding
Name	Capacity/Nature	involved	percentage
Ni Zheng (Note 1)	Beneficial owner	2,000,000	1.00%
Liu Danlin (Note 2)	Beneficial owner	1,700,000	0.85%
Zhou Guangneng (Note 3)	Beneficial owner	1,700,000	0.85%

Notes:

• (1) Ni Zheng is interested as a grantee of options to subscribe for 2,000,000 Shares under the Share Option Scheme of the Company.

• (2) Liu Danlin is interested as a grantee of options to subscribe for 1,700,000 Shares under the Share Option Scheme of the Company.

• (3) Zhou Guangneng is interested as a grantee of options to subscribe for 1,700,000 Shares under the Share Option Scheme of the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions 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) as recorded in the register required to be kept by the Company under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

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GENERAL INFORMATION

APPENDIX

• (ii) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, as far as is known to the Directors, the following persons (not being a Director or chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO:

Long Position in the Ordinary Shares of the Company

			Approximate
		No. of	shareholding
Name	Capacity/Nature	Shares held	percentage
Substantial Shareholders
Pacific Climax Limited	Beneficial owner	134,370,000	67.185%
(Note 1)
Overseas Chinese Town	Interest of a controlled	134,370,000	67.185%
(HK) Company Limited	corporation (Note 3)
(“OCT (HK)”) (Note 2)
Overseas Chinese Town	Interest of a controlled	134,370,000	67.185%
Enterprises Co. (“OCT	corporation (Note 5)
Group”) (Note 4)
Others
Polyfairz Group Limited	Beneficial owner	15,630,000	7.815%
(formerly known as
Polyfair Limited)
Zhang Zhi Lin	Interest of a controlled	15,630,000	7.815%
	corporation (Note 6)
Tang Qinmei	Interest of spouse (Note 7)	15,630,000	7.815%

Notes:

• (1) Mr. Ni Zheng, Mr. Zhou Guangneng and Ms. Xie Mei, Directors, are also directors of Pacific Climax Limited.

• (2) Mr. Zheng Fan, a Director, is the chairman of the board of directors of OCT (HK). Mr. Zhou Guangneng and Mr. Liu Danlin, Directors, are the deputy general managers of OCT (HK). Mr. Ni Zheng and Ms. Xie Mei, Directors, are also directors of OCT (HK).

• (3) OCT (HK) is the beneficial owner of all the issued share capital in Pacific Climax Limited. Therefore OCT (HK) is deemed, or taken to be interested in these shares which are beneficially owned by Pacific Climax Limited for the purpose of the SFO.

• (4) Mr. Zheng Fan, a Director, is the Chief Cultural Officer of OCT Group. Ms. Xie Mei, a Director, is a supervisor of the strategic development department of OCT Group.

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GENERAL INFORMATION

APPENDIX

• (5) OCT Group is the beneficial owner of all the issued shares in OCT (HK) (OCT Group holds 454,999,998 shares in OCT (HK) in its own name. Mr. Zheng Fan, an executive Director, and Mr. Guo Yubin hold one share each in OCT (HK) on trust for OCT Group) and which is in turn the beneficial owner of all the issued share capital in Pacific Climax Limited and therefore OCT Group is deemed, or taken to be, interested in the 134,370,000 shares which are beneficially owned by Pacific Climax Limited for the purposes of the SFO.

• (6) Polyfairz Group Limited (formerly known as Polyfair Limited) is beneficially owned as to 90% by Mr. Zhang Zhilin and thus a controlled corporation of Mr. Zhang Zhilin, and Mr. Zhang Zhilin is deemed, or taken to be, interested in the 15,630,000 shares which are beneficially owned by Polyfairz Group Limited for the purpose of the SFO.

• (7) Ms. Tang Qinmei is the spouse of Mr. Zhang Zhilin. Therefore, Ms. Tang Qinmei is deemed, or taken to be, interested in all the Shares in which Mr. Zhang Zhilin is interested for the purpose of the SFO.

Save as disclosed above, no other interests required to be recorded in the register kept under section 336 of the SFO have been notified to the Company.

As at the Latest Practicable Date, the following party (other than the Directors or chief executive of the Company) was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of members of the Group:

		Approximate
		shareholding
Names of shareholder	Name of company	percentage
Mudanjiang Nanhua Hesheng Paper	Mudanjiang Huali Packaging	15%
Co., Ltd. (“Mudanjiang Nanhua”)	Company Limited
(Note)

Note: Mudanjiang Nanhua is formerly known as Mudanjiang Nanhua Industrial Company Limited.

3. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates (as defined in the Listing Rules) has any interest in any business which competes or is likely to compete with the business of the Group.

4. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors has a service contract with any member of the Group which was not determinable by the Group within one year without payment of compensation (other than normal statutory compensation).

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GENERAL INFORMATION

APPENDIX

5. LITIGATION

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

6. GENERAL

• (a) The company secretary and the qualified accountant of the Company is Mr. Fong Fuk Wai, who is a fellow member of the Hong Kong Institute of Certified Public Accountants.

• (b) The Company’s registered office is at Clifton House, 75 Fort Street, PO Box 1350 GT, George Town, Grand Cayman, Cayman Islands. The head office and principal place of business is at Suites 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong.

• (c) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Ltd. at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’S Road East, Wan Chai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text.

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