Richly Field China Development Limited - Proxy Solicitation & Information Statement 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in United Pacific Industries Limited, you should at once hand this circular and the accompanying proxy form to the purchaser(s) or transferee(s), or to the bank, stockbroker, registered dealer in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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Website: www.upi.com.hk, www.irasia.com/listco/hk/upi

(I) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF 28.84% EQUITY INTEREST IN YUJI DEVELOPMENT CORPORATION*

(II) SUBSCRIPTION OF SHARES UNDER SPECIFIC MANDATE AND (III) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

IN RELATION TO DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF PANTRONICS HOLDINGS LIMITED AND PANTENE GLOBAL HOLDINGS LIMITED AND THE SHAREHOLDER’S LOANS

Financial adviser to United Pacific Industries Limited

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Independent financial adviser to the Independent Board Committee and the Independent Shareholders

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

A letter from the Board is set out on pages 6 to 41 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 42 to 43 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 44 to 96 of this circular. A notice convening the SGM of the Company to be held at Plaza 3, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 1 April 2014 at 9:00 a.m. is set out on pages N-1 to N-3 of this circular. A form of proxy for use at the SGM is enclosed herewith.

Whether or not you are able to attend and vote at the SGM in person, you are requested to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting (as the case may be) should you so wish.

for identification purpose only

17 March 2014

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Appendix I — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Unaudited pro forma financial information
of the Remaining Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — Financial information of the PHL Group . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV — Financial information of the PGH Group . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

DEFINITIONS

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

“Acquisition” the proposed acquisition by the Buyer of approximately 28.84% of the issued share capital in the Target Company pursuant to the Acquisition Agreement

“Acquisition Agreement” the conditional share purchase agreement dated 8 February 2014 entered into by the Buyer and the Vendors in relation to the Acquisition “associate(s)” has the meaning ascribed to it under the Listing Rules “Board” the board of Directors “Business Day(s)” a day (or days) (other than Saturday) on which banks in Hong Kong are open to conduct business generally throughout their normal business hours

“Buyer” Rise Up International Limited, a company incorporated in the BVI with limited liability and a direct wholly-owned subsidiary of the Company “BVI” the British Virgin Islands “Company” United Pacific Industries Limited, a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 00176)

“Completion” completion of the Acquisition, the Share Subscription and the Disposal in accordance with the terms and conditions of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement, respectively “connected persons” has the meaning ascribed to it under the Listing Rules “Director(s)” director(s) of the Company

“Disposal” the proposed disposal of the Sale Shares and the Shareholder’s Loans by the Company to the Purchasers pursuant to the Disposal Agreement “Disposal Agreement” the conditional sale and purchase agreement dated 8 February 2014 entered into by the Company and the Purchasers in relation to the Disposal

“Disposal Companies” PHL and PGH

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DEFINITIONS

“Disposal Group”

the PHL Group and the PGH Group

“EMS”

electronic manufacturing services

“Group”

the Company and its subsidiaries

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Independent Board Committee”

an independent board committee, comprising all the independent non-executive Directors, namely Mr. Ramon Sy Pascual, Dr. Wong Ho Ching, Mr. Lan Yen-Po and Ms. Hu Gin Ing, established to provide recommendations to the Independent Shareholders on the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement

“Independent Financial Adviser”
Changjiang Corporate Finance (HK) Limited, a corporation licensed to conduct Type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement
“Independent Shareholders” the Shareholders other than Mr. Hsu, Mr. Anthony Lee and their respective associates
“Investment Commission”
the Investment Commission of the Ministry of Economic Affairs of Taiwan
“Last Trading Day”
7 February 2014, being the last trading day of the Shares before the issue of the announcement of the Company dated 8 February 2014 in relation to the Acquisition, the Share Subscription and the Disposal
“Latest Practicable Date”
11 March 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Long Fu”
龍富事業股份有限公司 (Long Fu Enterprise Corporation)*, a company incorporated under the laws of Taiwan, in which the Target Company owned approximately 77.75% of its total issued share capital as at the Latest Practicable Date

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DEFINITIONS

“Long Stop Date” 31 March 2014 or such other later date as may be agreed by the parties from time to time in writing “Lung Yen” 龍巖股份有限公司 (Lung Yen Life Service Corp)*, a company whose shares are listed on the Taiwan Stock Exchange (stock code: 5530) “Mr. Hsu” Mr. Simon Hsu Nai-Cheng, an executive Director and the executive vice-chairman of the Company “ODM” original design manufacturer “OEM” original equipment manufacturer “Pensions Regulator” the statutory body, created under the Pensions Act 2004, which regulates UK work-based pension schemes “PGH” Pantene Global Holdings Limited, a company incorporated in Hong Kong with limited liability and a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date “PGH Group” PGH and its subsidiaries as at the Latest Practicable Date “PGH Sale Shares” 5,000,000 shares in the issued share capital of PGH, representing the entire issued share capital of PGH as at the Latest Practicable Date “PGH Shareholder’s Loan” the net amount due from the PGH Group to the Remaining Group as at Completion “PHL” Pantronics Holdings Limited, a company incorporated in the BVI with limited liability and a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date “PHL Group” PHL and its subsidiaries as at the Latest Practicable Date “PHL Sale Shares” 200 shares in the issued share capital of PHL, representing the entire issued share capital of PHL as at the Latest Practicable Date “PHL Shareholder’s Loan” the net amount due from the PHL Group to the Remaining Group as at Completion “PRC” the People’s Republic of China, which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan

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DEFINITIONS

“Purchasers”	New Wave Capital Limited and Kings Victory Limited,
	companies incorporated in the BVI with limited liability and
	beneficially owned by Mr. Hsu, and each of the Purchasers, a
	“Purchaser”
“Remaining Group”	the Group after Completion or the Group excluding the PHL
	Group and the PGH Group prior to Completion (as the case
	may be)
“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	the PHL Sale Shares and the PGH Sale Shares
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting to be convened and held by the
	Company for the Independent Shareholders to consider and, if
	thought fit, approve the Acquisition Agreement, the
	Subscription Agreement, the Disposal Agreement and the
	transactions contemplated thereunder
“Share(s)”	share(s) of HK$0.10 each in the share capital of the Company
“Share Subscription”	subscription of the Subscription Shares by the Vendors
	pursuant to the Subscription Agreement
“Shareholders”	holders of the Shares
“Shareholder’s Loans”	the PHL Shareholder’s Loan and the PGH Shareholder’s Loan
“Specific Mandate”	the specific mandate to be sought from the Independent
	Shareholders at the SGM to authorise the Directors to allot
	and issue the Subscription Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Agreement”	the conditional subscription agreement dated 8 February 2014
	entered into by the Company and the Vendors, pursuant to
	which the Company agreed to allot and issue and the Vendors
	agreed to subscribe for the Subscription Shares
“Subscription Price”	approximately HK$0.887 per Share
“Subscription Share(s)”	the new Share(s) to be allotted and issued by the Company to
	the Vendors pursuant to the Subscription Agreement
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers

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	DEFINITIONS
“Target Company”	宇錡建設股份有限公司(Yuji Development Corporation)*, a
	company incorporated in accordance with the laws of Taiwan
	whose shares are as to approximately 56.25% owned by Lung
	Yen as at the Latest Practicable Date
“Target Group”	the Target Company and Long Fu
“TWD”	New Taiwan dollars, the lawful currency of Taiwan
“UK”	the United Kingdom
“U.S.”	the United States of America
“US$”	the United States dollar, the lawful currency of the U.S.
“Vendors”	comprise 40 third parties independent of the Company and its
	connected persons, who in aggregate held approximately
	28.84% shareholding in the Target Company as at the Latest
	Practicable Date
“£”	pound sterling, the lawful currency of the UK
“%”	per cent

* for identification purpose only

For the purpose of illustration only, currency translations in this circular have been made using the following exchange rates unless otherwise specified:

US$1 = HK$7.78 TWD1 = HK$0.2575 £1 = HK$12.71

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LETTER FROM THE BOARD

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Website: www.upi.com.hk, www.irasia.com/listco/hk/upi

Executive Directors:

Mr. David Howard Clarke (Chairman)

Mr. Simon Hsu Nai-Cheng (Executive Vice-chairman) Mr. Henry Woon-Hoe Lim (Chief Executive Officer) Mr. Patrick John Dyson (Chief Financial Officer) Ms. Kelly Lee

Principal place of business in Hong Kong: Unit 1903-05 19/F, Nan Fung Tower 173 Des Voeux Road Central Hong Kong

Non-executive Director

Mr. Anthony Lee

Independent Non-executive Directors:

Mr. Ramon Sy Pascual Dr. Wong Ho Ching Mr. Lan Yen-Po Ms. Hu Gin Ing

Registered office Clarendon House Church Street Hamilton HM 11 Bermuda

17 March 2014

To the Shareholders,

Dear Sir or Madam,

(I) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO

ACQUISITION OF 28.84% EQUITY INTEREST IN YUJI DEVELOPMENT CORPORATION*

(II) SUBSCRIPTION OF SHARES UNDER SPECIFIC MANDATE AND

(III) VERY SUBSTANTIAL DISPOSAL AND

CONNECTED TRANSACTION IN RELATION TO

DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF PANTRONICS HOLDINGS LIMITED AND PANTENE GLOBAL HOLDINGS LIMITED AND THE SHAREHOLDER’S LOANS

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LETTER FROM THE BOARD

INTRODUCTION

On 8 February 2014, the Buyer and the Vendors entered into the Acquisition Agreement, pursuant to which the Buyer conditionally agreed to acquire and the Vendors conditionally agreed to sell approximately 28.84% of the total issued share capital in the Target Company, a company principally engaged in funeral-related businesses including sale and management of columbarium units and cemetery plots in Taiwan, at a cash consideration of TWD513,728,077 (equivalent to approximately HK$132.3 million). On the same day, the Company and the Vendors entered into the Subscription Agreement, pursuant to which the Vendors agreed to subscribe for and the Company agreed to allot and issue the Subscription Shares at the Subscription Price per Subscription Share. The completion of the Acquisition and the Share Subscription are inter-conditional and shall coincide and take place simultaneously.

To regulate the funds flow for the payment of consideration for the Acquisition and the Share Subscription and performance of the Acquisition Agreement and the Subscription Agreement by the parties in accordance with their respective terms and to ensure that the completion of the Acquisition and the Share Subscription shall take place simultaneously, a framework deed was entered into by, among others, the Company, the Buyer and the Vendors on 8 February 2014. To secure that funds paid as consideration for the Acquisition are to be used by Vendors for payment of the subscription price under the Share Subscription, an escrow arrangement has been agreed upon for the purpose of achieving the above purpose.

On 8 February 2014, the Company and the Purchasers entered into the Disposal Agreement, pursuant to which the Company conditionally agreed to sell and the Purchasers conditionally agreed to purchase the Sale Shares and the Shareholder’s Loans at a total cash consideration of US$25.0 million (equivalent to HK$194.5 million). The completion of the Disposal is conditional, among others, on completion of the Acquisition.

The purpose of this circular is to provide you with, among others, (i) details of the Acquisition, the Share Subscription and the Disposal, (ii) the financial information of the Disposal Group, (iii) the pro forma financial information of the Remaining Group, taking into account the Acquisition, the Share Subscription and the Disposal, (iv) the recommendation from the Independent Board Committee to the Independent Shareholders in relation to the Acquisition, the Share Subscription and the Disposal, (v) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition, the Share Subscription and the Disposal, and (vi) the notice of the SGM together with the form of proxy.

I. THE ACQUISITION AND THE SHARE SUBSCRIPTION

ACQUISITION AGREEMENT

Date:

8 February 2014

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LETTER FROM THE BOARD

Parties:

(i) The Buyer, as the purchaser; and
(ii) The Vendors, as the sellers

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendors and in relation to those Vendors that are corporations, their respective beneficial owners, are third parties independent of the Company and its connected persons.

Target to be acquired:

The Buyer has conditionally agreed to acquire from the Vendors approximately 28.84% of the total issued share capital in the Target Company free from all encumbrances at completion of the Acquisition. As at the Latest Practicable Date, the Target Company owned approximately 77.75% of the issued share capital of Long Fu, its sole subsidiary. Further details of the Target Company and its sole subsidiary are set out in the section headed “Information on the Target Company” below. As at the Latest Practicable Date, the Company intends to hold the interests in the Target Group to be acquired for long term, and has no intention to acquire further interests in the Target Company.

Consideration:

The consideration for the Acquisition is TWD513,728,077 (equivalent to approximately HK$132.3 million), which shall be paid in cash to the Vendors on or before completion of the Acquisition. As advised by the Taiwan legal advisers to the Company (the “ Taiwan Legal Advisers ”), pursuant to Article 6 of 外國人投資條例 (the Statute for Investment by Foreign Nationals), only certain types of assets are allowed for use as consideration for acquisition of shares in Taiwan companies, including (i) cash, (ii) machinery and equipment or raw materials for own use, (iii) patent right, trademark right, copyright, technical know-how or other intellectual property right, and (iv) other properties recognised by the Investment Commission. Given that it is uncertain if the approval from the Investment Commission will be granted if shares of the Company are to be used as consideration for the Acquisition, the Group is advised to settle the consideration for the Acquisition in cash instead of shares of the Company.

The Buyer as the borrower entered into a commitment letter (the “ Commitment Letter ”) with CTBC Bank (中國信託商業銀行) (the “ Bank ”), a commercial bank in Taiwan, on 5 March 2014 for the provision of a bridge loan with a facility limit of HK$140 million (the “ Bridge Loan ”) to the Buyer in order to finance the Acquisition. Pursuant to the Commitment Letter, the Bank agrees to provide the Bridge Loan, subject to certain documentation requirements, agreement of the definitive documentation for the Bridge Loan and the approval of the Acquisition by the Independent Shareholders at the SGM. The Directors expect the definitive agreement of the Bridge Loan to be signed before the SGM. As provided under the Commitment Letter, the Buyer has to repay the Bridge Loan within thirty (30) days after the Bridge Loan is drawn down and the applicable interest rate is 0.50% above the Bank’s cost of funds per annum. The Bridge Loan is guaranteed by the Company. As

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LETTER FROM THE BOARD

at the Latest Practicable Date, the Bank’s cost of funds is 2.25% for a 30-day term and the applicable interest rate under the Bridge Loan is therefore 2.75%. Provided that the Bridge Loan is fully drawn down and the interest rate of 2.75% is applied for a 30-day term, the interest expense associated with the Bridge Loan would be approximately HK$321,000.

The consideration for the Acquisition was determined after arm’s length negotiation between the Company and the Vendors based on, among others, (i) the profitability of the Target Group, (ii) the net asset value of the Target Company as at 31 December 2012, and (iii) the growth potential and prospects of the funeral market as evidenced in the growing trend of aged population and the increasing number of deaths in Taiwan.

According to the management of the Target Company, the profit attributable to the shareholders of the Target Company increased from approximately TWD144.1 million for the nine months ended 30 September 2012 to approximately TWD162.0 million for the nine months ended 30 September 2013, representing an increase of approximately 12.4%. According to the statistics of the Department of Household Registration Affairs, Ministry of Interior, Taiwan, the population aged 60 or above in Taiwan increased by approximately 40.3% from approximately 2.9 million in 2003 to approximately 4.1 million in 2013, and the percentage of which to total population in Taiwan increased from approximately 12.8% in 2003 to approximately 17.4% in 2013. In addition, the number of deaths in Taiwan increased by approximately 19.2% from 130,801 in 2003 to 155,908 in 2013.

Conditions

Completion of the Acquisition is conditional on the fulfillment of, among others, the following conditions:

(i) completion of the Share Subscription pursuant to the Subscription Agreement having occurred simultaneously with the completion of the Acquisition;
(ii) the passing by the Independent Shareholders at the SGM of the resolution approving the Acquisition Agreement and the transactions contemplated thereunder;
(iii) the transactions contemplated under the Acquisition Agreement having complied with the applicable laws of relevant jurisdiction (including but not limited to Hong Kong and Taiwan) and approvals, consents, clearance or waivers from all relevant governmental authorities (including but not limited to approval and regulatory authorities in Hong Kong and Taiwan) having been obtained, and where any such approvals, consents, clearance or waivers is subject to conditions, such conditions being acceptable to the absolute discretion of the Buyer and the Vendors;
(iv) the Investment Commission having granted or agreed to grant the approval, consents, clearance or waivers for the Acquisition (the “ 1[st] Foreign Investment Approval ”), and where any such approvals, consents, clearance or waivers is subject to conditions, such conditions being acceptable to the absolute discretion of the Buyer;

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LETTER FROM THE BOARD

(v) the Investment Commission having confirmed in writing the completion of the filing requirements in relation to the 1[st] Foreign Investment Approval, and where any such confirmation is subject to conditions, such conditions being acceptable to the absolute discretion of the Buyer;
(vi) the Company having obtained all necessary approvals, consents, clearance or waivers (if applicable) under the Listing Rules and any applicable laws from the regulatory authorities, including the Stock Exchange and the SFC in respect of the transactions contemplated under the Acquisition Agreement, and where any such approvals, consents, clearance or waivers is subject to conditions, such conditions being acceptable to the absolute discretion of the Buyer;
(vii) all representations and warranties given by the Buyer and the Vendors under the Acquisition Agreement remaining true and accurate in all material respects and not misleading in any respect as of the date of completion of the Acquisition;
(viii) the Buyer, the legal or other advisers of the Buyer having completed legal, financial, business, litigation and assets due diligence review on the Target Group and being satisfied with the results of such reviews in all respects;
(ix) the Buyer having received and satisfied in its absolute discretion (in substance and form) a legal opinion issued by a firm of lawyers qualified to practise in Taiwan; and
(x) if required, the Buyer having successfully obtained a commercial loan in terms acceptable to the absolute discretion of the Buyer for payment of the consideration for the Acquisition.

The above conditions (i) to (vi) cannot be waived. As at the Latest Practicable Date, conditions (iv), (viii), and (ix) above have been fulfilled and condition (vii) above has been waived by the Buyer in respect of the Warranty (as defined below). For the reasons for the waiver of condition (vii) above, please refer to the section headed “Development after signing of the Acquisition Agreement” below.

If any of the above conditions is not fulfilled or waived prior to the Long Stop Date, the party for the benefit of whom the conditions that are not fulfilled or waived may terminate the Acquisition Agreement by written notice to the other party.

Completion

Completion of the Acquisition shall take place within five Business Days after satisfaction (or waiver, as the case may be) of all the conditions (other than condition (i) above which shall be satisfied at completion of the Acquisition) or any other date as may be agreed by the parties in writing.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

At present, the Group is principally engaged in (i) the contract manufacturing, on OEM and EMS bases, of a wide range of power-related and electrical or electronic products; (ii) the manufacturing, procurement and distribution of (a) a broad line of hand, lawn and garden tools, (b) magnetic tools and products including the provision of magnetic-based industrial solutions, and (c) metrology and measurement tools; and (iii) the manufacturing and distribution of electronic consumer products.

The Group has been developing a diversified business strategy such that its different business segments cater to different groups of customers in different parts of the world, which allows it to adapt and react to sudden changes in demand and to realise its full business potential in different markets, thereby diversifying the sources of risk for the Group.

The Group has continued to review its existing businesses from time to time and has striven to improve the business operation and financial position of the Group. The Group is also actively exploring potential investment opportunities in order to enhance Shareholders’ value. In view of the uncertainty as to the economies of the U.S. and Europe which are important markets for the Group, the Directors consider that it is beneficial for the Group to seek suitable investment opportunities from time to time to diversify its existing business portfolio into businesses with growth potential, that expand its geographical reach, broaden its source of income and further improve the financial position of the Group.

Ms. Kelly Lee, an executive Director, joined the Board in May 2013. Given the diminishing margin in the manufacturing businesses of the Group and the financial situation and cash flows of the PGH Group (please refer to the section headed “Reasons for and benefits of Disposal” below for details), Ms. Kelly Lee introduced the potential opportunity concerning the Acquisition in October 2013 with a view to diversifying the existing business portfolio of the Group into businesses with high margins and strong cash flows in future given its profitability. The gross profit margin and net profit margin of the Target Company for the year ended 31 December 2012 were approximately 90.9% and 41.1% respectively whereas those of the Target Group for the nine months ended 30 September 2013 were approximately 89.2% and 36.4% respectively. Other than the Target Group, the Directors have not considered any other funeral-related businesses.

In view of the global trend of aging population and the increasing number of deaths in Taiwan, the Directors (including the independent non-executive Directors) believe that there is considerable growth potential in the funeral market. According to the statistics of the Department of Household Registration Affairs, Ministry of Interior, Taiwan, the number of deaths in Taiwan has increased by approximately 19.2% in the last decade from 130,801 persons in 2003 to 155,908 persons in 2013.

The Group is a conglomerate and has adopted strategy to diversify its existing business portfolio into businesses with growth potential, and the Directors are optimistic that, despite their limited experience in funeral business, the management of the Group as a whole is capable of managing such an investment.

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LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) consider that the Acquisition represents an attractive investment opportunity for the Group to tap into the funeral market with its growth potential, diversified income generation and additional cash flows, and that the terms of the Acquisition Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

INFORMATION ON THE TARGET COMPANY

The Target Company, incorporated in April 2006 in accordance with the laws of Taiwan, is principally engaged in funeral-related businesses including sale and management of columbarium units and cemetery plots in Taiwan. For the year ended 31 December 2012, the Target Company generated approximately 91% of its revenue from sale of columbarium units and cemetery plots. Prior to commencing its funeral-related business in 2011, the Target Company was principally engaged in the development, lease and sales of residential and commercial buildings. Upon completion of the Acquisition, the Target Company will be equity accounted for as an associated company in the consolidated financial statements of the Company.

Long Fu, incorporated in March 2013 in accordance with the laws of Taiwan, is the sole subsidiary of the Target Company and was owned as to approximately 77.75% by the Target Company as at the Latest Practicable Date. Since its incorporation, Long Fu has neither commenced any business operations nor generated any revenue. As at the Latest Practicable Date, Long Fu has not yet carried on any business activities other than owning land and assets for the purpose of carrying out similar business activities as the Target Company (i.e. sale and management of columbarium units and cemetery plots) in the future. As at the Latest Practicable Date, the management of the Target Company has no concrete plan as to when Long Fu will commence operations.

The Target Company generates its revenue mainly from sale and management of columbarium units and cemetery plots. As advised by the management of the Target Company, the Target Company has been focusing on the mid-end market within the industry. As at the Latest Practicable Date, the Target Group has five columbarium and/or cemetery sites, namely 臺北私立萬壽山墓園 (Taipei Cemetery), 嘉雲寶城 (Chia Yun Memorial Tower), 台中寶山紀念墓園 (Baoshan Memorial Zone), 桃園富岡私立富貴山莊墓園 (Taoyuan Cemetery) and 金山私立國榮公墓 (Jinshan Cemetery), which are in various stages of development and completion across Taiwan, and among three of these five sites, three columbarium towers and one outdoor cemetery are operating with columbarium units and cemetery plots immediately available for sale.

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LETTER FROM THE BOARD

The table below shows (i)(a) total land area and total gross floor area of buildings operated by the Target Group, (b) total gross floor area of cemetery plots completed and operated by the Target Group, (c) total gross floor area of cemetery plots completed but not yet sold, (d) number of completed columbarium units operated by the Target Group, and (e) number of completed columbarium units not yet sold, as at 31 December 2013, and (ii) the range of the selling prices of columbarium units and cemetery plots of the Target Group for the year ended 31 December 2013, in each of the five columbarium and/or cemetery sites, as provided by the management of the Target Company:

					Total gross		Number	Range of selling
				Total gross	floor area of	Number	of	prices of
				floor area of	completed	of	completed	columbarium
Columbarium			Total gross	completed	cemetery	completed	columbarium	units (“CU”)
and/or		Total land	floor area of	cemetery	plots not yet	columbarium	units not yet	and cemetery
cemetery sites	Location	area	building	plots	sold	units	sold	plots (“CP”)
(Note 7)		(in square	(in square	(in square	(in square			(in TWD)
		metre)	metre)	metre)	metre)
1. Taipei Cemetery	新北市萬里區	301,768	18,163	54	48	75,807	28,336	CU: From 14,000
(Notes 1, 2 &	(Wanli District,							to 1,360,000
3)	New Taipei City)							CP: 980,000
2. Chia Yun	嘉義縣水上鄉	28,076	9,191	—	—	94,884	47,131	CU: From 10,000
Memorial Tower	(Shuishang							to 1,240,000
(Notes 1 & 4)	Township, Chiayi
	Country)
3. Baoshan	台中市太平區	30,427	2,243	—	—	24,772	17,999	CU: From 5,000
Memorial Zone	(Taiping District,							to 350,000
(Notes 1 & 5 )	Taichung City)
4. Taoyuan	桃園縣新屋鄉	41,401	—	—	—	—	—	—
Cemetery	(Xinwu
(Note 6)	Township,
	Taoyuan County)
5. Jinshan	新北市金山區	662	9	—	—	—	—	—
Cemetery	(Jinshan District,
(Note 6)	New Taipei City)

Note 1: As at the Latest Practicable Date, only Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone have columbarium towers which are operating with columbarium units available for sale. As advised by the management of the Target Company, as at the Latest Practicable Date, the Target Group intends to focus more on the development of Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone. According to the management of the Target Company, the selling price of each columbarium unit varies depending on, among others, its size, its aesthetic design, the floor of the building on which it is located, the position within the room of the building in which it is located, and the direction it faces.
Note 2: As at the Latest Practicable Date, only Taipei Cemetery has an outdoor cemetery which is operating with cemetery plots available for sale. For the year ended 31 December 2013, only one cemetery plot was sold with a selling price of TWD980,000.
Note 3: As at 31 December 2013, in Taipei Cemetery, construction of approximately 54 square metres of cemetery plots has been completed, in which approximately 48 square metres are available for sale whereas construction of 75,807 columbarium units has been completed, in which 28,336 columbarium units are available for sale. As advised by the management of the Target Company, as at the Latest Practicable Date, the Target Company plans to build additional cemetery plots of approximately 76,242 square metres and additional 81,854 columbarium units in the future and there is no concrete plan as to when the construction of these additional cemetery plots and columbarium units will be completed.
Note 4: As at 31 December 2013, in Chia Yun Memorial Tower, construction of 94,884 columbarium units has been completed, in which 47,131 columbarium units are available for sale. As advised by the management of the Target Company, as the Latest Practicable Date, the Target Company plans to build additional 17,228 columbarium units in the future and there is no concrete plan as to when the construction of these additional columbarium units will be completed. There are no cemetery plots in Chia Yun Memorial Tower.

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LETTER FROM THE BOARD

Note 5: As at 31 December 2013, in Baoshan Memorial Zone, construction of 24,772 columbarium units has been completed, in which 17,999 columbarium units are available for sale. As advised by the management of the Target Company, as at the Latest Practicable Date, the Target Company plans to build new cemetery plots of approximately 17,023 square metres and additional 72,972 columbarium units in the future and there is no concrete plan as to when the construction of these new cemetery plots and additional columbarium units will be completed.
Note 6: As at the Latest Practicable Date, Taoyuan Cemetery and Jinshan Cemetery are not in operation and no columbarium units or cemetery plots are available for sale. The land parcels owned by Long Fu, the sole subsidiary of the Target Company, are located in Taoyuan Cemetery. As advised by the management of the Target Company, as at the Latest Practicable Date, no construction work has been performed in Taoyuan Cemetery and Jinshan Cemetery and there is no concrete plan as to when Taoyuan Cemetery and Jinshan Cemetery will commence operations.
Note 7: As at 31 December 2013, the Target Group also owned a cemetery located at the Xindian District, New Taipei City, Taiwan with total land area of approximately 15,644 square metres. The information of this cemetery was not shown in the table above because, as at the Latest Practicable Date, it has been sold to an individual. Please refer to the section headed “Development after signing of the Acquisition Agreement” below for details.

The additional columbarium units and cemetery plots to be built in Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone in the future (the “ Development ”), as disclosed in notes 3, 4 and 5 to the table above, are based on the estimation of the management of the Target Company with reference to the size of the respective columbarium and/or cemetery sites. There is no concrete plan as to when the Development will be completed and how much it will cost to carry out and complete the Development. The Target Group shall comply with all relevant rules and regulations in Taiwan in relation to the Development.

As advised by the management of the Target Company, Long Fu is in the process of obtaining the qualification to apply for an operator’s license such that it can operate Taoyuan Cemetery and the Taiwan Legal Advisor is of the view that there is no legal impediment for Long Fu in obtaining such operator’s license. The area of the land currently owned by Target Company in Jinshan Cemetery is very small as compared to the total land area owned by the Target Group. As at 30 September 2013, the book value of the land in Jinshan Cemetery was approximately TWD2.4 million, representing approximately 0.1% of the net asset value of the Target Group. As advised by the Taiwan Legal Advisers, as at the Latest Practicable Date, the Target Company has not yet obtained the operating right of the land in Jinshan Cemetery. Given the insignificant portion of the land in Jinshan Cemetery among the total land owned by the Target Group, the Directors consider the absence of such operating right would not have any material adverse impact on the consideration for the Acquisition as well as the overall operation and business development of the Target Group. As advised by the management of the Target Company, the Target Group would like to focus their current resources in the development of the other cemeteries and therefore have no current plan in relation to the land in Jinshan Cemetery.

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LETTER FROM THE BOARD

Set out below is a summary of the key financial information of the Target Company for each of the two years ended 31 December 2011 and 2012, as extracted from the audited accounts of the Target Company prepared based on the accounting principles generally accepted in Taiwan (“ ROC GAAP ”), and each of the nine months ended 30 September 2012 and 2013, as extracted from the unaudited consolidated management accounts of the Target Company:

Extracts of consolidated income statements of the Target Company (Note 1)

	For the nine months	For the nine months	For the	year ended	year ended
	ended 30 September		31 December
	2013	2012	2012		2011
	TWD’ million	TWD’ million	TWD’ million	TWD’ million
	Unaudited	Unaudited	Audited	Audited
	(Note 2)
Revenue	445	292	399		56
Profit before taxation	198	154	181		20
Profit after taxation	162	144	164		18

Extracts of consolidated balance sheets of the Target Company (Note 1)

	As at
	30 September	As at 31	December
	2013	2012	2011
	TWD’ million	TWD’ million	TWD’ million
	Unaudited	Audited	Audited
	(Note 2)
Total assets	2,322	2,086	2,851
Net asset value	1,944	1,782	1,618

Note 1: The financial information for the nine months ended 30 September 2013 is extracted from the unaudited consolidated management accounts of the Target Company whereas that for the two years ended 31 December 2012 and 2011 are extracted from the audited accounts of the Target Company on an unconsolidated basis as Long Fu had not yet been incorporated at that time.

Note 2: The profit after taxation for the nine months ended 30 September 2013 and the net asset value as at 30 September 2013 represented those attributable to the shareholders of the Target Company.

The auditors of the Company and the Target Company have confirmed that there are no material differences between the Target Company’s financial statements prepared under ROC GAAP and those prepared under International Financial Reporting Standards (“ IFRSs ”). The auditor of the Company has also confirmed that there are no material differences between the Target Company’s financial statements prepared under IFRSs and those prepared under Hong Kong Financial Reporting Standards (“ HKFRSs ”). The Directors are therefore of the view that the Target Company’s financial statements also comply with HKFRSs in all material respects.

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LETTER FROM THE BOARD

The Target Company commenced funeral-related operations in 2011 and started to generate revenue in October 2011. Revenue increased significantly for the year ended 31 December 2012 as compared to the previous year, mainly attributable to the general business growth in 2012 as a result of appropriate marketing strategy and the fact that a full-year revenue was recognised in 2012 whereas only three months of revenue was recognised in 2011.

DEVELOPMENT AFTER SIGNING OF THE ACQUISITION AGREEMENT

Notification from the Vendors

On 3 March 2014, the Buyer received a written notification from the Vendors informing the Buyer that the parcels of land (the “ Land Parcels ”) located at the Xindian District, New Taipei City, Taiwan (the “ Xindian Cemetery ”), with total land area of approximately 4,732 tsubo (坪) or approximately 15,644 square meters owned by the Target Company, were sold to an individual (the “ Party ”) (the “ Land Disposal ”) at a consideration of TWD47 million (equivalent to approximately HK$12.1 million) pursuant to a sale and purchase agreement (“ Disposal SPA ”) entered into between the Target Company and the Party on 16 January 2014. As at the date of execution of the Disposal SPA, as advised by the management of the Target Company, the Xindian Cemetery is not in operation and no construction work has been performed on it. To the best knowledge of the Directors, the Party is not related to the Company and the Directors. The management of the Target Company also confirmed that the Party is neither a shareholder nor a director of the Target Company and Long Fu.

Immediately after the Land Disposal and as at the Latest Practicable Date, the Target Group has five columbarium and/or cemetery sites which are in various stages of development and completion across Taiwan, and among three of these five sites, three columbarium towers and one outdoor cemetery are operating with columbarium units and cemetery plots available for sale.

The Buyer was also informed by the Vendors that the extent of ownership (the “ Extent of Land Ownership ”) in any parcel of land located at the Target Group’s columbarium and/or cemetery sites will be reduced correspondingly as and when a columbarium unit or cemetery plot is sold in the usual and ordinary course of business of the Target Group.

As advised by the Taiwan Legal Advisers, whenever a columbarium unit or cemetery plot is sold to a purchaser in the usual and ordinary course of business, fractions of the ownership of the land where the columbarium unit or cemetery plot is located are transferred to the purchaser pursuant to the sale and purchase agreement entered into between the Target Company and the purchaser. The Extent of Land Ownership will therefore change from time to time when columbarium units and cemetery plots are sold.

Implication

Pursuant to the Acquisition Agreement, the Vendors warranted that the Target Group shall, at Completion, exclusively possess full title to the ownership of the Land Parcels and have the Extent of Land Ownership as specified in the Acquisition Agreement (the “ Warranty ”).

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LETTER FROM THE BOARD

Given the occurrence of the Land Disposal and the fact that the Extent of Land Ownership at Completion shall be different from that stated in the Acquisition Agreement, condition (vii) as stated in the paragraph headed “Conditions” under the section headed “Acquisition Agreement” shall not be fulfilled at Completion.

Directors’ assessments and conclusion

Consideration for the Acquisition

As mentioned above, the consideration for the Acquisition is determined by reference to, among others, the net asset value of the Target Company as at 31 December 2012. According to the audited accounts of the Target Company for the year ended 31 December 2012 and the unaudited management accounts of the Target Company for the nine months ended 30 September 2013, the carrying amount of the Land Parcels (the “ Book Value ”) as at 31 December 2012 and 30 September 2013 was approximately TWD45.4 million (equivalent to approximately HK$11.7 million). Pursuant to the Disposal SPA, the consideration for the Land Disposal is TWD47 million (equivalent to approximately HK$12.1 million), representing a premium of approximately 3.5% over the Book Value. As at the Latest Practicable Date, TWD17 million (equivalent to approximately HK$4.4 million) of the consideration for the Land Disposal has been received by the Target Company. The remaining balance of TWD30 million (equivalent to approximately HK$7.7 million) shall be settled in fifteen equal monthly installments during the period from June 2014 to August 2015. Any profit arising from the Land Disposal will be recognized in the financial statements of the Target Group for the year ending 31 December 2014. If there is any distribution of the Target Group’s profit for the year ending 31 December 2014, as a result of the Land Disposal, as dividends to the shareholders of the Target Company, it will only occur after Completion.

In addition, the change in the Extent of Land Ownership arising from sale of columbarium units and cemetery plots is in the usual and ordinary course of business of the Target Group.

Given that (i) no revenue and therefore profit are derived from the Xindian Cemetery as it has not yet been developed, (ii) the Land Parcels were sold at a premium over the Book Value, and (iii) the Book Value only accounted for approximately 2.3% of the net asset value of the Target Group as at 30 September 2013, the Directors consider that the Land Disposal will not have any material adverse impact on the net asset value of the Target Company, and therefore the consideration for the Acquisition.

Conclusion

On the above basis, in respect of the Warranty, the Directors have agreed to waive condition (vii) to the Acquisition as stated in the paragraph headed “Conditions” under the section headed “Acquisition Agreement” above. However, pursuant to the Acquisition Agreement, no waiver of a party of any breach by any other party of any provision in the Acquisition Agreement shall be deemed to be a waiver of any subsequent breach of that provision. In other words, even if the breach of

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LETTER FROM THE BOARD

Warranty with respect to the Land Disposal is waived under condition (vii), in the event that such condition is subsequently breached again by the Vendors, the Buyer can still exercise its rights under the Acquisition Agreement and is then entitled to claim for damages and/or terminate the Acquisition Agreement.

Except for the change in the Extent of Land Ownership arising from the sale of columbarium units or cemetery plots in the usual and ordinary course of business of the Target Group, the management of the Target Company advised that the Target Group has no intention to sell any further lands and buildings of the Target Group included in the Acquisition Agreement unless any disposal is considered to be in the interests of the shareholders of the Target Company. The Company will publish an announcement and/or despatch to the Shareholders any revised or supplementary circular if there is any material breach or waiver of the Vendors’ warranties before Completion. Moreover, the Company will re-comply with the relevant Listing Rules requirements (including where necessary obtaining independent shareholders’ approval) if there is any waiver of material breach of the Vendors’ warranties (other than the change in the Extent of Land Ownership) after the SGM and before Completion.

Taking into account (i) that the Land Disposal will not have material adverse impact on the net asset value of the Target Group and therefore the consideration for the Acquisition as explained above, (ii) that the interests of the Company and the Shareholders are safeguarded by the Acquisition Agreement in the event that any further assets included in the Acquisition Agreement are sold by the Target Group as mentioned above, and (iii) the benefits to be brought about by the Acquisition to the Group as mentioned in the section headed “Reasons for and benefits of the Acquisition” above, the Directors consider that the Acquisition is fair and reasonable.

DUE DILIGENCE REVIEW ON THE TARGET GROUP

The Taiwan Legal Advisers were engaged to carry out review on, among others, the transaction structure of the Acquisition and the Share Subscription, the legality of the ownership of the shares of the Target Company of the Vendors, the due incorporation of the Target Company and Long Fu, the legality of the Target Group’s business and the legal title of the land parcels and buildings of the Target Group. In addition, the Company has also reviewed the past financial information of the Target Group for the two years ended 31 December 2012 and the nine months ended 30 September 2013 and conducted site visits to the major funeral facilities of the Target Group in Taiwan. Set out below are the major findings of the due diligence work as addressed in a legal opinion issued by the Taiwan Legal Advisers:

(i) The Target Company and Long Fu are legally and validly existing. As the Target Company has obtained an operator’s license from the New Taipei City Government, completed the required company or business registration and joined the Funeral Services Association, it can be engaged in the operation of funeral facilities under Article 42 of 殯葬管理條例 (the Mortuary Service Administration Act). As at the Latest Practicable Date, Long Fu is in the process of obtaining the qualification to apply for an operator’s license so that it can operate funeral facilities in the future;

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LETTER FROM THE BOARD

(ii) Among all land parcels included in the Acquisition Agreement with total area of approximately 402,333 square metres owned by the respective registered owners as at 31 December 2013, approximately 30,145 square metres of land parcels (the “ Subject Lands ”) are registered under the name of Mr. Lee Shih-Tsung as such parcels of land are classified as arable land and, pursuant to Article 33 of 農業發展條例 (the Agricultural Development Act), cannot be registered under the name of private entity. Pursuant to trust agreements entered into between the Target Company and Mr. Lee Shih-Tsung, the Subject Lands are held on trust by Mr. Lee Shih-Tsung for and on behalf of the Target Company, and it was agreed in such agreements that when the Target Company is allowed to be registered as the owner of the Subject Lands under relevant Taiwan laws and regulations in the future, title of the Subject Lands shall be transferred and registered under the name of the Target Company. Due to such trustee/beneficiary relationship, the Target Company has the right to request Mr. Lee Shih-Tsung to transfer the title of the Subject Lands in the future and the Target Company is entitled to lawfully use the Subject Lands under the trust agreements. The Taiwan Legal Advisors opined that such trust arrangement is legal and valid under the laws of Taiwan. Except for the Subject Lands, the Target Company and Long Fu are the registered owners of all other land parcels and buildings included in the Acquisition Agreement;
(iii) As advised by the Taiwan Legal Advisers, except for the Subject Lands which are classified as arable land, all other land parcels included in the Acquisition Agreement can be used for the purpose of operating funeral facilities. Taking into account that the book value of the Subject Lands only accounted for approximately 1.0% of the net asset value of the Target Group as at 30 September 2013, the Directors consider such restriction on the usage of the Subject Lands will not have material adverse impact on the business development of the Target Group in the future. As further advised by the Taiwan Legal Advisers, the existing usage of the buildings included in the Acquisition Agreement, including the three columbarium towers currently operated by the Target Company in Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone, is in accordance with those stated in the respective property ownership certificates;
(iv) Long Fu entered into an agreement (the “ Taoyuan SPA ”) with a seller to purchase from the seller parcels of land which form Taoyuan Cemetery. However, two land parcels (numbered 353-26 and 353-27) of Taoyuan Cemetery, which were not included as part of the parcels of land to be acquired in the Taoyuan SPA, were transferred to and registered under the name of Long Fu. As advised by the Taiwan Legal Advisers, the seller shall, according to the Taoyuan SPA, transfer all the land parcels in Taoyuan Cemetery to Long Fu. As such, the Taiwan Legal Advisers are of the view that there is no risk that the ownership of these two land parcels will be challenged by any third party in the future, even though they were not included in the Taoyuan SPA;
(v) Prior to the Land Disposal, the Target Company entered into an agreement (the “ Xindian SPA ”) with a seller to purchase from the seller parcels of land which form Xindian Cemetery. However, the land parcel (numbered 475-7), which forms part of Xindian Cemetery but was not included as part of the land parcels to be acquired in the Xindian SPA, was transferred to and registered under the name of the Target Company. As advised by the Taiwan Legal Advisers, due to the same reason as mentioned in point (iv) above, the Target Company shall not be subject to any third party claim in the future in relation to the prior acquisition of this land parcel under the Xindian SPA and the Land Disposal; and

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LETTER FROM THE BOARD

(vi) As advised by the Taiwan Legal Advisers, as at the Latest Practicable Date, the Target Company has not yet obtained the operating right of the land in Jinshan Cemetery. Given the insignificant portion of the land in Jinshan Cemetery among the total land owned by the Target Group, the Directors consider the absence of such operating right would not have any material adverse impact on the consideration for the Acquisition as well as the overall operation and business development of the Target Group.

THE SUBSCRIPTION AGREEMENT

Date:

8 February 2014

Parties:

(i) The Company, as the issuer; and
(ii) The Vendors, as the subscribers

Subscription Price

The Subscription Price of approximately HK$0.887 per Subscription Share represents:

(i) a premium of approximately 4.4% over the closing price of the Shares of HK$0.85 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a premium of approximately 5.6% over the average of the closing prices of the Shares of approximately HK$0.84 per Share as quoted on the Stock Exchange for the last five trading days of the Shares up to and including the Last Trading Day;
(iii) a premium of approximately 5.6% over the average of the closing prices of the Shares of approximately HK$0.84 per Share as quoted on the Stock Exchange for the last ten trading days of the Shares up to and including the Last Trading Day;
(iv) a premium of approximately 97.1% over the audited consolidated net asset value per Share of approximately HK$0.45 as at 30 September 2013; and
(v) a premium of approximately 12.3% over the closing price of the Shares of HK$0.79 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Subscription Shares

The total number of Subscription Shares to be allotted and issued shall be calculated by dividing the HK$ equivalent of the consideration for the Acquisition (to be deposited into a bank account as designated by the Company) by the Subscription Price.

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LETTER FROM THE BOARD

Assuming (i) there is no change in the issued share capital of the Company on or before Completion other than the issue of the Subscription Shares, and (ii) an exchange rate of TWD1 to HK$0.2575 is applied, the total number of Subscription Shares to be allotted and issued is 149,193,586, representing approximately 14.8% and 12.9% of the Company’s issued share capital as at the Latest Practicable Date and enlarged issued share capital, respectively.

The Subscription Shares, when issued, shall rank pari passu in all respects with all other Shares on the date of the issue of the Subscription Shares.

Each of the Vendors irrevocably and unconditionally undertakes not to sell, dispose of or create any encumbrance on any Subscription Shares for a period of six months from the date of allotment and issue of such Subscription Shares without the prior written consent or waiver of the Company.

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

Conditions

Completion of the Share Subscription is conditional on the fulfillment of, among others, the following conditions:

(i) completion of the Acquisition pursuant to the Acquisition Agreement having occurred simultaneously with the completion of the Share Subscription;
(ii) the passing by the Independent Shareholders at the SGM of the resolution approving the Subscription Agreement and the transactions contemplated thereunder, including without limitation, the allotment and issue of the Subscription Shares to the Vendors;
(iii) the transactions contemplated under the Subscription Agreement having complied with the applicable laws of relevant jurisdiction (including but not limited to Hong Kong and Taiwan) and approvals, consents, clearance or waivers from all relevant governmental authorities (including but not limited to approval and regulatory authorities in Hong Kong and Taiwan) having been obtained, and where any such approvals, consents, clearance or waivers is subject to conditions, such conditions being acceptable to the absolute discretion of the Company and the Vendors;
(iv) the listing committee of the Stock Exchange having granted or agreed to grant (either unconditionally or conditionally) the listing of, and permission to deal in, the Subscription Shares, and where any such grant or permission is subject to conditions, such conditions being acceptable to the absolute discretion of the Company;

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LETTER FROM THE BOARD

(v) the Company having obtained all necessary approvals, consents, clearance or waivers (if applicable) under the Listing Rules and any applicable laws from the regulatory authorities, including the Stock Exchange and the SFC in respect of the transactions contemplated under the Subscription Agreement, and where any such approvals, consents, clearance or waivers is subject to conditions, such conditions being acceptable to the absolute discretion of the Company; and
(vi) all representations and warranties given by the Company and the Vendors under the Subscription Agreement remaining true and accurate in all material respects and not misleading in any respect as of the date of completion of the Share Subscription.

The above conditions (i) to (v) cannot be waived. As at the Latest Practicable Date, none of the above conditions has been fulfilled, and the Company and the Vendors have no intention to waive condition (vi) above.

If any of the above conditions is not fulfilled or waived prior to the Long Stop Date, the party for the benefit of whom the conditions that are not fulfilled or waived may terminate the Subscription Agreement by written notice to the other party.

Completion

Subject to fulfillment (or waiver, as the case may be) of all the above conditions, completion of the Share Subscription shall coincide and take place simultaneously with the occurrence of completion of the Acquisition.

GRANT OF SPECIFIC MANDATE

The Directors will seek the approval of the Independent Shareholders at the SGM for the grant of the Specific Mandate to authorise the Directors to allot and issue the Subscription Shares.

REASONS FOR THE SHARE SUBSCRIPTION AND USE OF PROCEEDS

The Directors (including the independent non-executive Directors) consider that the Share Subscription will increase the capital base of the Company and broaden its Shareholder base while it will result in dilution of the shareholdings of existing Shareholders. The net proceeds from the Share Subscription, after deducting related expenses, will be approximately HK$132.1 million, and shall be used to repay the Bridge Loan which will be drawn to satisfy the consideration for the Acquisition.

As at 30 September 2013, the net cash of the Group, being cash and cash equivalent less the sum of bank borrowings and obligations under finance leases, amounted to approximately HK$113.6 million. As such, the Directors do not want to use up all its cash for the Acquisition which can otherwise be used in its existing operations as working capital. Moreover, as stated above, the Directors consider that the Share Subscription will help to broaden the shareholder base of the Company. On this basis, the Directors choose to repay the Bridge Loan by way of issue of the

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LETTER FROM THE BOARD

Subscription Shares instead of internal resources. Given the Subscription Price is at premiums over the market prices of the Shares for various periods as set out in section headed “Subscription Price” above, the Directors consider such means of financing, i.e. the Share Subscription, is in the interest of the Company and the Shareholders as a whole.

The Directors (including the independent non-executive Directors) consider that the Subscription Agreement is entered into on an arm’s length basis and on normal commercial terms between the Company and the Vendors and that the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

EFFECTS ON THE SHAREHOLDING STRUCTURE OF THE COMPANY AS A RESULT OF THE ISSUE OF THE SUBSCRIPTION SHARES

Assuming (i) there is no change in the issued share capital of the Company on or before Completion other than the issue of the Subscription Shares, and (ii) an exchange rate of TWD1 to HK$0.2575 is applied to calculate the number of Subscription Shares to be issued, the shareholding structures of the Company as at the Latest Practicable Date and immediately after the allotment and issue of the Subscription Shares are set out below:

Shareholders Mr. Anthony Lee (Note 2) Mr. Hsu Other Directors (including beneficial interests) Public Shareholders The Vendors (Note 2, 3 & 4) Other public Shareholders	As at the Latest Practicable Date Number of Shares % 281,313,309 27.92 11,397,606 1.13 13,907,391 1.38 — — 700,824,847 69.57 1,007,443,153 100.00	Upon allotment and issue of the Subscription Shares (Note 1) Number of Shares % 281,313,309 24.32 11,397,606 0.99 13,907,391 1.20 149,193,586 12.90 700,824,847 60.59 1,156,636,739 100.00	Upon allotment and issue of the Subscription Shares (Note 1) Number of Shares % 281,313,309 24.32 11,397,606 0.99 13,907,391 1.20 149,193,586 12.90 700,824,847 60.59 1,156,636,739 100.00
			100.00

Note 1: Assuming none of the share options granted by the Company is exercised on or before the date of allotment and issue of the Subscription Shares. As at the Latest Practicable Date, the Company has 13,500,000 new Shares which may be issued pursuant to the outstanding share options. The actual number of Subscription Shares to be allotted and issued at completion of the Share Subscription is calculated based on the amount of the HK$ equivalent of the consideration for the Acquisition to be deposited into a bank account as designated by the Company.

Note 2: Mr. Anthony Lee confirmed that he is not acting in concert (as defined under the Takeovers Code) with the Vendors.

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LETTER FROM THE BOARD

Note 3: Each of the Vendors would not be a substantial shareholder of the Company upon completion of the Share Subscription.
Note 4: The Subscription Shares represented approximately 14.8% of the Company’s issued share capital as at the Latest Practicable Date.

IMPLICATION OF THE LISTING RULES

As one or more of the applicable percentage ratios in respect of the Acquisition under the Listing Rules is over 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, the Target Company is owned as to (i) approximately 56.25% by Lung Yen, a company whose shares are listed on the Taiwan Stock Exchange and controlled by Mr. Lee Shih-Tsung, the father of Ms. Kelly Lee and Mr. Anthony Lee, (ii) approximately 28.84% by the Vendors, (iii) approximately 14.90% by Mr. Lee Shih-Tsung, and (iv) approximately 0.01% by 成昌投資股份有限公司 (Cheng Chang Investment Company Limited), a company ultimately controlled by Mr. Lee Shih-Tsung. Mr. Lee Shih-Tsung is also a director and the chairman of Lung Yen. As reported in the 2012 annual report of Lung Yen, Mr. Lee Shih-Tsung controlled approximately 53.82% of Lung Yen and the effective interests held by Ms. Kelly Lee and Mr. Anthony Lee in Lung Yen were approximately 0.78% and 1.61%, respectively. As at the Latest Practicable Date, Mr. Lee Shih-Tsung and Ms. Kelly Lee do not hold any Share so far as the Directors are aware.

Mr. Lee Shih-Tsung is a substantial shareholder of the Target Company and is an associate of Ms. Kelly Lee and Mr. Anthony Lee under the Listing Rules. On the other hand, Mr. Hsu, an executive Director, has a material interest in the Disposal (see below), the completion of which is conditional on completion of the Acquisition. As such, Mr. Anthony Lee, Mr. Hsu and their respective associates shall abstain from voting in respect of the resolution approving the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder at the SGM. As at the Latest Practicable Date, Mr. Anthony Lee and Mr. Hsu are interested in approximately 27.92% and 1.13% of the issued Shares. Mr. Hsu has abstained from voting at the board resolution in relation to the Acquisition and the Share Subscription while the remaining Directors have approved by way of unanimous vote.

The Directors will also seek the approval of the Independent Shareholders at the SGM for the grant of the Specific Mandate to authorise the Directors to allot and issue the Subscription Shares.

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LETTER FROM THE BOARD

II. THE DISPOSAL

THE DISPOSAL AGREEMENT

Date:

8 February 2014

Parties:

(i) The Company, as the seller of the Sale Shares and the Shareholder’s Loans;
(ii) New Wave Capital Limited, as the Purchaser of the PHL Sale Shares and the PHL Shareholder’s Loan; and
(iii) Kings Victory Limited, as the Purchaser of the PGH Sale Shares and the PGH Shareholder’s Loan.

Assets to be disposed:

Subject to the terms and conditions of the Disposal Agreement, the Company shall sell and the Purchasers shall acquire from the Company the Sale Shares and the Shareholder’s Loans, free from all charges, liens, encumbrances, equities and other adverse claims and interests and with all rights attaching thereto after Completion (including the right to all dividends thereafter paid, declared or made in respect thereof).

Under the Disposal Agreement, the Shareholder’s Loans amount to approximately HK$83.0 million, comprising the PHL Shareholder’s Loan of approximately HK$13.4 million and the PGH Shareholder’s Loan of approximately HK$69.6 million.

Consideration:

The consideration payable by the Purchasers to the Company is US$25.0 million (equivalent to HK$194.5 million), comprising:

(i) US$20,781,877 (equivalent to approximately HK$161.7 million) for the PHL Sale Shares;
(ii) US$1,718,123 (equivalent to approximately HK$13.4 million) for the settlement of the PHL Shareholder’s Loan;

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LETTER FROM THE BOARD

(iii) US$2,499,999 (equivalent to approximately HK$19.4 million) for the PGH Sale Shares; and
(iv) US$1 (equivalent to HK$8) for the settlement of the PGH Shareholder’s Loan,

which shall be paid in cash in the following manner:

(i) a deposit in the sum of US$1.0 million (equivalent to approximately HK$7.8 million) (the “ Deposit ”) shall be paid by the Purchasers within seven Business Days of the date of the Disposal Agreement; and
(ii) the balance of the consideration in the sum of US$24.0 million (equivalent to approximately HK$186.7 million) shall be paid by the Purchasers upon Completion.

As at the Latest Practicable Date, the Deposit has been settled.

The waiver of the PGH Shareholder’s Loan of approximately HK$69.6 million is in respect of the net shareholder’s loan owed by the PGH Group to the Company. It principally relates to funds provided to PGH by the Company in order to finance PGH’s purchase of the Spear & Jackson group (“ S&J ”) in 2006/2007. In the normal course, this balance would have been repaid using dividend income from S&J to its parent, PGH. The size of the actuarial deficit in the defined benefit pension plan operated by certain UK-based subsidiaries of the PGH Group (the “ Plan ”) places severe restrictions on S&J’s ability to make upstream dividend payments to its parent. Because of the call that the Plan would have on excess cash funds in S&J, in the event of such payments being made, the Plan trustees could assert (potentially via the Pensions Regulator) that these payments have reduced the strength of the principal employer’s financial covenant and require one-time contributions to be made into the Plan of an amount equivalent to any dividend paid. The requirement to make matching such one-time contributions would then place severe pressure on S&J’s available cash resources and prevent S&J to pay dividend. As at result, PGH has had no funds to repay the PGH Shareholder’s Loan and no realistic prospect of having such funds in the future. Under these circumstances, the PGH Shareholder’s Loan has therefore been settled by US$1 only.

The consideration for the Disposal was determined after arm’s length negotiation between the Company and the Purchasers taking into account, among others, (i) the recent financial performance and position of the Disposal Group, (ii) the European economies in which the Disposal Group has material operations located, (iii) the rising labor and raw material costs of the PRC manufacturing businesses of the Disposal Group, (iv) the possible increases in annual contributions to the Plan as a result of the worsening deficit, and (v) other commercial reasons and benefits set out in the section headed “Reasons for and benefits of the Disposal”, below.

Conditions

Completion of the Disposal is conditional on the fulfillment of the following conditions:

(i) the passing by the Independent Shareholders at the SGM of the resolution approving, among others, the Disposal Agreement and the transactions contemplated thereunder in accordance with the Listing Rules and applicable laws;

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(ii) the Company having obtained all approvals, consents or waivers of any governmental body that has jurisdiction over the Company, as required for the execution and performance of the Disposal Agreement by the Company and the entering into and completing the transactions contemplated under the Disposal Agreement;
(iii) the completion of the Acquisition; and
(iv) receipt by the Company of the full amount of the Deposit.

None of the above conditions can be waived. As at the Latest Practicable Date, only condition (iv) above have been fulfilled. The Disposal Agreement shall be automatically terminated on the Long Stop Date if Completion does not occur on or before the Long Stop Date.

If the Disposal Agreement is terminated, (i) the Company shall return the Deposit to the Purchasers provided that such termination does not result from breach of the Disposal Agreement by any or all of the Purchasers, and (ii) the Company shall forfeit the full amount of the Deposit if Completion does not occur as a result of breach of the Disposal Agreement by any or all of the Purchasers.

Completion

Subject to fulfillment of all of the above conditions, completion of the Disposal shall take place immediately after completion of the Acquisition.

Break fee

The Company has agreed to pay the Purchasers a sum of US$5.0 million (equivalent to HK$38.9 million) if:

(a) Completion does not occur as a result of non-fulfilment of any of the conditions (i) to (iii) to the Disposal above and the Company, within a period of eight months from the date of termination of the Disposal Agreement, disposes of, transfers or sells or enters into any agreement with any third party for the purpose of selling, transferring or otherwise disposing of the Disposal Group or any member of the Disposal Group at a consideration (in cash and/or in-kind) equal to or higher than the consideration for the Disposal, provided that in the event that the Company enters into any agreement as aforesaid, such agreement shall have been completed, whether or not such completion occurs within or after the abovementioned eight-month period; or
(b) the Independent Financial Adviser advises in writing to the Independent Board Committee and/or the Independent Shareholders to recommend the Independent Shareholders to vote against the transactions contemplated under the Disposal Agreement and the Independent Shareholders do not approve the Disposal at the SGM, in connection with any regional or global financial conditions which have an effect on the economic benefits of the transactions contemplated under the Disposal Agreement.

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LETTER FROM THE BOARD

The background for setting the break fee in condition (b) above is as follows:

In the event that there is a change in any regional or global financial conditions which have an effect on the economic benefits of the transactions contemplated under the Disposal Agreement (“ Financial Conditions ”) at any time between signing of the Disposal Agreement and Completion which may result in a change of value of the Disposal Group, in particular the value of the PGH Group, in favour of the Company, the Shareholders may no longer find it fair and reasonable to dispose of the Disposal Group at the agreed consideration; in such case the Shareholders may vote against the Disposal at the SGM and therefore the Company will be able to walk away from the Disposal since the Disposal Agreement shall then be terminated without any compensation to the Purchasers if there is no such condition (b). The existence of condition (b) is in response to the Purchasers’ request to protect their downside risks that the Company may walk away from the Disposal without compensating the Purchasers in the event of the occurrence of Financial Conditions. The Purchasers consider that should the Financial Conditions change not in favour of the Purchasers, they are obliged to purchase the Disposal Group as the Shareholders will then vote in favour of the Disposal. The parties therefore agreed to provide compensation to the Purchasers as per condition (b) above. However, it has to be stressed that condition (b) will only be triggered if a change of Financial Conditions occurs in the limited period between the date of signing the Disposal Agreement and Completion, otherwise, there is no obligation on the part of the Company to pay the break fee under condition (b). Changes in Financial Conditions refer to changes in regional or global macro-economic environment, including changes in interest rates.

In order to narrow the situations for triggering condition (b) and to impose an objective criterion that the Financial Conditions have changed before triggering condition (b), there are two additional conditions that must be fulfilled, (I) the Independent Financial Adviser will advise objectively and independently in writing to the Independent Board Committee and/or the Independent Shareholders to recommend the Independent Shareholders to vote against the Disposal in the event that there is a change in Financial Conditions; and (II) the Independent Shareholders disapproving the Disposal at the SGM.

Condition (b) references a potential set of circumstances occurring in the limited period between the signing of the Disposal Agreement and Completion whereby conditions in financial markets improve to such an extent that the actuarial deficit in the Plan reduces significantly or is eliminated altogether. Such movements would then remove one of the key drivers of the consideration that is attributed to the PGH Group.

In such circumstances, if the Company did not then proceed with the Disposal following (I) recommendation not to do so by the Independent Financial Adviser, and also (II) Independent Shareholders’ disapproval at the SGM, this non-completion of the Disposal resulting from circumstances that are “in favour of the Company” would trigger the break fee.

The Purchasers contend that condition (b) is reasonable on the basis that the Purchasers cannot “walk away” from the Disposal if financial markets deteriorate and the deficit increases as a result. In these circumstances where Financial Conditions have moved “not in favour of the Purchasers”, the Independent Financial Adviser would recommend and the Independent Shareholders would be expected to vote in favour of the Disposal. This would result from the consideration attributable to the PGH Group being more favourable to the Company as there would be no downward adjustment to reflect the adverse impact of an increased actuarial deficit and the additional cash burden that this would present to the Disposal Group.

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LETTER FROM THE BOARD

In the event that Independent Financial Adviser recommends the Independent Shareholders to vote against the Disposal on the basis that the terms of the Disposal Agreement are not fair and reasonable to the Company, but not on the basis that there is a change in Financial Conditions, the Company will not be obliged to pay the break fee under condition (b), but may, if the conditions for payment of break fee as set out in condition (a) are fulfilled, be obliged to pay the break fee under condition (a).

The Directors consider that the Purchasers’ request for the payment of a break fee is not unusual in commercial transactions and the Directors have negotiated with the Purchasers to narrow the situations in which break fee is payable, and in which it would not be unfair for the Company to pay the break fee.

Undertakings from the Purchasers

Please refer to the section headed “Undertakings from the Purchasers” below for details.

Undertaking from the Company

The Company undertakes not to (a) between the date of the Disposal Agreement and the earlier to occur of Completion or date of termination of the Disposal Agreement, and (b) in the event that Completion does not occur as a result of non-fulfillment of any of the conditions (i) to (iii) to the Disposal above, within a period of eight months from the date of termination of the Disposal Agreement, solicit any offer from, discuss or negotiate with any third party for the purpose of selling, transferring or otherwise disposing of the Disposal Group or any member of the Disposal Group. If such undertaking is breached, the Company shall irrevocably, unconditionally and fully indemnify and hold harmless the Purchasers against any and all damage, loss, cost and expenses (including reasonable legal costs and expenses) to the extent caused by such breach.

REASONS FOR AND BENEFITS OF THE DISPOSAL

Background to the Disposal

As consistent with its past policies, the Group continually reviews its existing businesses and trading strategy to seek opportunities, both in terms of acquisitions and divestments, that will improve its overall financial position and which will enhance the Group’s profitability and free cash generation.

The Directors consider it beneficial to seek suitable new investments which, where material, may be funded by the sale of current Group operations, in order to enter businesses which will offer greater earnings potential than the existing operational portfolio.

The PGH Group has three divisions, the largest of which is a hand and garden tool business that operates in highly competitive markets where the risk of losing customers is high, margins are low and where, because of intense competitor pressure, there are restricted opportunities to significantly increase sales year on year.

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LETTER FROM THE BOARD

The PGH Group, as a whole, has a material proportion of its operations located in Europe, a geographical region that has exhibited sluggish growth potential, and this further dilutes the amounts that the PGH Group can add to Shareholders’ value.

In addition, the PGH Group operates a defined benefit pension plan in respect of certain of its UK subsidiaries. The Plan has a deficit which has increased markedly over recent years resulting in a corresponding increase in the annual contributions that the Group has had to pay into the Plan over this period and will have to pay in the foreseeable future. The result is that an ever larger proportion of the PGH Group’s cash generation must be used to make good the deficit in the Plan and to pay annual levies to the Pension Protection Fund (“ PPF ”) (a UK regulatory parachute fund that has been established to pay compensation to members of pension plans whose sponsoring employers have become insolvent or where there are insufficient assets in the pension plans to cover the promised pension payments). The specific issues arising from the pension liability are discussed below.

The cash constraints imposed by the funding requirements of the Plan will inevitably reduce the amount of cash available for strategic initiatives, essential capital expenditure and other investment. It will also restrict the cash available to return to investors. It may also, in time, necessitate a placing or rights issue to generate additional funds to cover the increased pension contributions.

The sale of the PGH Group as a single, standalone entity is remote given its future business outlook, the global economic landscape and, going forward, the uncertainty concerning amounts to be paid into the Plan.

This lack of marketability has been borne out by previous attempts to sell the PGH Group which have either elicited no interest or have produced offers to buy the PGH Group that have carried nominal or zero purchase consideration.

The Directors have been trying to look for potential buyers of the PGH Group in the past three years. The Directors were of the view that the terms of indicative preliminary offers from independent third parties to the Company in the past were not fair due to, among others, low offer price, until January 2014 when the Company received a formal offer from the Purchasers concerning the disposal of the PHL Group and the PGH Group by the Company.

The PHL Group, although profitable, has seen its profit decrease over the last financial year as labor and raw material costs have increased and sales demand from key customers has weakened as a result of adverse economic conditions in the principal geographical regions in which it operates. The outlook for sales and margins shows no clear potential for material improvement and this will, as with the PGH Group, limit the ability of the PHL Group to invest for future growth and to provide adequate returns to Shareholders.

The possibility of selling the PGH Group and the PHL Group as a combined transaction is opportunistic and offers value to both purchaser and vendor. The ultimate beneficial owner of the Purchasers, being Mr. Hsu, has prior knowledge of both the PGH Group and the PHL Group and is well placed to understand the complexities of both business groups and to deal with the challenges that both face.

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LETTER FROM THE BOARD

The Directors consider that the worsening underfunding of the Plan in conjunction with little to no economic growth in Europe and inflationary production cost pressures in China will impose an increasingly significant brake on the Group’s growth prospects. From the Group’s perspective, therefore, the combined sale of the PGH Group and the PHL Group will allow the Group to exit from low margin businesses and avoid the increasing cost pressures in its PRC manufacturing businesses, and will allow the divestment of certain UK-based companies that have an increasing cash commitment to make good a volatile UK pension liability.

The James Neill Pension Plan and its implication for the PGH Group

Background

The Group operates a contributory defined benefit pension plan, the James Neill Pension Plan (or the Plan), that covers a number of its employees in certain of its UK-based subsidiaries (the “ Participating Employers ”, including the principal employer, i.e. the “ Sponsoring Employer ”) of the PGH Group. The Plan effectively creates an obligation on the Participating Employers to provide agreed benefits to current and past employees at retirement. The Plan is funded by contributions from both the active members of the Plan and the Participating Employers and is administered by the Plan’s trustees (the “ Trustees ”) and their advisers.

An actuarial valuation of the Plan, performed by the Plan’s actuary, is required at least every three years (the “ Triennial Valuation ”), which establishes the value of the Plan’s assets and the amount required to pay the promised pensions as they fall due. If the pension liabilities are greater than the pension assets, the pension plan is underfunded and there is a pension deficit which, under regulatory requirements, the Sponsoring Employer is required to make good over as soon as possible.

If the pension assets are less than the pension liabilities after the determination of the Triennial Valuation, a schedule of annual contributions (the “ Contribution Schedule ”) must then be agreed between the Trustees and the Sponsoring Employer after consultation with the Plan’s actuary. The purpose of the Contribution Schedule is to provide a summary of annual contributions required from the Participating Employers over an agreed time frame to meet both the cost of ongoing pension provision and also the cost of making good the past service deficit as quickly as can be reasonably afforded by the Participating Employers in accordance with relevant regulatory requirements.

The Contribution Schedule is subject to revision and amendment in future periods depending on fluctuations, both favourable and adverse, in (i) the value of the Plan’s investments, (ii) the actuarially determined value of the liabilities, and (iii) the financial strengths and cash flow requirements of the Participating Employers.

Accounting treatment of the Plan

The financial impact of the Plan is fully reflected in the consolidated financial statements of the Company and its effect is seen in the balance sheet, profit and loss account and cash flow statements.

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LETTER FROM THE BOARD

As a result, the volatility that the Plan generates in profit, net assets and cash flow makes benchmarking performance against competitor companies difficult. For accounting purposes, the Plan’s deficit is calculated and disclosed in accordance with Hong Kong Accounting Standard (“ HKAS ”) 19 — Employee Benefits.

A summary of the most recent deficits, stated in line with the requirements of HKAS19 and included in the Company’s consolidated balance sheet, is as follows:

For the year ended 30 September	HK$’million
2010	179.3
2011	132.2
2012	245.2
2013	189.6

It should be noted that the assumptions used in calculating the Plan’s assets and liabilities for accounting purposes are not the same as those used in the Triennial Valuation. Certain assumptions are derived on a best estimate basis which differs from the approach used by the Plan’s actuary in the Triennial Valuation. In addition, the discount rate used to calculate the net present value of the Plan’s liabilities is based on the yield on AA-rated corporate bonds rather than the yield on long duration UK government bonds that is used in the Triennial Valuation. The difference between these two yields can be significant and as a result, the deficit shown in the Triennial Valuation is typically higher than the deficit calculated for accounting purposes. This is of importance as it is the deficit shown by the Triennial Valuation which determines the annual payments that are required from the Participating Employers under the Contribution Schedule.

Present situation

According to the current Contribution Schedule as agreed in January 2011 by reference to the Triennial Valuation as at 5 April 2010 which showed a Plan deficit (the “ Technical Deficit ”) of approximately £24.5 million, the Group’s annual contributions to the Plan will be £2.1 million in the year to 5 April 2014, increasing each year thereafter at a rate of 4.2% on each 6 April in the period to 5 April 2030.

The Contribution Schedule will be subject to amendment following the completion of the Triennial Valuation carried out as at 5 April 2013 (the “ 2013 Valuation ”). However, as at the Latest Practicable Date, the negotiations between the Trustees and the Sponsoring Employer regarding the agreement of the 2013 Valuation and the corresponding Contribution Schedule are ongoing with the intention that these could be concluded as soon as possible. In any event, agreement has to be reached prior to 5 July 2014, the regulatory deadline for the finalisation of the 2013 Valuation.

According to the preliminary results of the 2013 Valuation prepared by the Plan’s actuary (the “ Actuarial Preliminary Report ”), the Technical Deficit as at 5 April 2013 was estimated to be approximately £104.7 million, showing a worsening funding position compared to that as at 5 April 2010.

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LETTER FROM THE BOARD

It is clear that, subject to determining what is commercially affordable to the Participating Employers, the Group’s annual contributions to the Plan in the future will be much higher than the current annual contributions of £2.1 million, given that the Actuarial Preliminary Report shows a deficit which is approximately 4 times higher than that of the Triennial Valuation in 2010.

Potential intervention by the Pensions Regulator

If the 2013 Valuation and the revised Contribution Schedule have not been agreed by 5 July 2014, the Trustees have to report the failure to the Pensions Regulator which regulates the conduct of defined benefit pension plans in the UK with statutory objectives of protecting the benefits of members of occupational schemes and reducing the risk of calls on the PPF.

The Pensions Regulator’s default position is that the Trustees should come to an agreement with the Sponsoring Employer which takes full account of the affordability of the contributions by the Participating Employers. However, if it is clear that an agreement cannot be reached, the Pensions Regulator has various powers to impose a resolution.

Present and future cash commitments relating to the Plan

According to the Actuarial Preliminary Report, the Technical Deficit as at 5 April 2013 is significantly more than that at 5 April 2010. The deficit is more than the value of the future contributions payable under the current Contribution Schedule and the current rate of contributions is insufficient to eliminate the increased deficit.

In determining the revised Contribution Schedule, changes in market conditions between the date of the 2013 Valuation (i.e. 5 April 2013) and the present time can be incorporated (“ Post-valuation Experience ”) in the calculation of the liabilities. If the impact of Post Valuation Experience is taken into account, the Plan’s actuary has estimated that the pension deficit would be reduced to approximately £55.0 million as at 31 August 2013. Such reduction is mainly a result of (i) the finalisation of certain provisional assumptions used in the Acturial Preliminary Report (principally the change in the use of the yield on 20-year rather than 15- year duration UK government bonds), and (ii) the increase in the yield on such bonds that has arisen between 5 April 2013 and 31 August 2013 which has served to significantly reduce the Plan’s liabilities. The change from the utilisation of the yield on 15 to 20 year duration bonds was proposed by the actuary of the Plan as, following a review of the profile of future pension payments, the use of longer duration bonds was thought to better match the anticipated incidence of these pension payments.

To make good a deficit of this reduced size, the current level of pension contributions will need to be increased significantly so that such deficit can be recovered over a period of acceptable length. One possible recovery plan based on a deficit of this size would increase annual contributions to approximately £4.7 million for a period of sixteen years ending on 5 April 2030 (i.e. the date on which the existing Contribution Schedule ends).

If Post Valuation Experience is ignored, the Actuarial Preliminary Report suggests that an annual contribution of approximately £8.3 million could be required for the same period of sixteen years.

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LETTER FROM THE BOARD

The Directors are of the view that any increase in the current level of pension contributions would place considerable strain on the PGH Group’s cash flows, curtail any capital investment and could ultimately render this unaffordable and unsustainable to the Group.

The increased financial burden as a result of the higher deficit as at 5 April 2013 has resulted in the Sponsoring Employer and the Trustees having difficulties in agreeing both the 2013 Valuation and the revised Contribution Schedule. There is no assurance that a revised Contribution Schedule which the PGH Group can afford will be agreed between the Trustees and the Sponsoring Employer in respect of the 2013 Valuation without the intervention of the Pensions Regulator.

Diminishing economic benefits received from the PGH Group

As disclosed in the Company’s 2013 interim report, receiving dividends from the PGH Group, despite its profitability, is difficult. This is due to the constraints imposed on the distribution of its profits caused by the large underfunded pension liability in the Plan which effectively means that any substantial dividend payments paid by the PGH Group to its parent would have to be matched with a special contribution from the Participating Employers into the Plan of up to the same amount.

Even if the requirement for the Participating Employers to make special contributions into the Plan is put to one side, the huge burden on the PGH Group to pay an out-sized portion of its cash flows into the Plan as well as to pay an annual levy to the PPF as an insurance policy to cover a potential future default of the Plan, will, in any event, restrict the PGH Group from paying upstream dividends to the Company or making inter-company loans to the Company and other group companies outside the UK.

The Plan deficit, as recognised in the Company’s consolidated balance sheet in accordance with HKAS 19, was approximately HK$189.6 million as at 30 September 2013 (the “ Accounting Deficit ”). If the Accounting Deficit is replaced with the Technical Deficit of £55.0 million (equivalent to approximately HK$699.1 million) as at 31 August 2013, the Group would turn from a net asset value of approximately HK$217.0 million to a net liability of approximately HK$292.5 million. Coupled with (i) the potential unaffordability of future increases in annual contributions to the Plan as a result of the worsening Technical Deficit, (ii) the considerable strain placed by any increase in the current level of pension contributions on the PGH Group’s cash flows which would then limit the funds available for other business development, and (iii) the restriction on dividend payments to the Company as mentioned above, the Directors consider that the consideration for the PGH Sale Shares of approximately HK$19.4 million is justified.

Reasonableness of the terms of the Disposal

Taking into account the potentially adverse trading factors in the PGH Group and the PHL Group that relate to low margin tools and contract manufacturing businesses, increasing cost pressures in PRC manufacturing businesses, the PGH Group’s exposure to slow growing European economies and, as explained above, the negative impact of a worsening pension position as reflected in:

(i) a very significant increase in the Technical Deficit from approximately £24.5 million as at 5 April 2010 to approximately £104.7 million as at 5 April 2013;

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(ii) the potential unaffordability of future increases in annual contributions that arise as a result of the worsening deficit and anticipated year on year increases in the annual levy to be paid to the PPF;
(iii) the significant proportion of the PGH Group’s cash flow that is absorbed both by pension contributions and also the annual PPF levy payments which would limit funds available for strategic reorganisation initiatives, research and development, essential capital expenditure and corporate acquisitions that would enhance Shareholders’ value; and
(iv) restrictions on dividend payments to the Company,

the Directors (including the independent non-executive Directors) consider that the disposal of both the PGH Group and the PHL Group as a package and that the combined consideration and other terms and conditions of the Disposal are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, despite that the Company is expected to recognise a significant loss on the Disposal upon Completion. For details of the estimated loss on Disposal, please refer to the section headed “Financial effects of the transactions” below.

Use of proceeds

The net proceeds from the Disposal, after deducting expenses attributable to the Disposal of approximately HK$5.0 million, are estimated to be approximately HK$176.1 million, which shall be used to supplement the Remaining Group’s working capital to maintain its normal production and operation, and will also form a source of funds to take advantage of suitable investment opportunities in businesses with increased growth potential that will broaden the Group’s source of income and further improve the financial position of the Group. As at the Latest Practicable Date, the Directors have no concrete plan as to how the proceeds from the Disposal will be specifically utilised. Any proceeds not deployed will be placed by the Company as bank deposits.

As at the Latest Practicable Date, there were no investment opportunities being discussed or negotiated that may use the proceeds from the Disposal as consideration. In deciding any potential investment opportunities, the Directors will consider such factors as the profitability of the target as well as the growth potential and prospect of the industry in which the target is operating.

UNDERTAKINGS FROM THE PURCHASERS

As advised by the Company’s UK legal advisers on pension matters in its legal opinion, the Pensions Regulator has the power, for a period of 2 years (the “ Look Back Period ”) after completion of the Disposal, to demand the Remaining Group to make contributions to the Plan by way of issue of a financial support direction (“ FSD ”) with a potential maximum amount equal to the Plan deficit measured on a “buy-out” basis. A FSD will require the recipient to put in place financial arrangements to support a pension plan which is insufficiently resourced.

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LETTER FROM THE BOARD

The buy-out deficit represents the difference between the value of a pension plan’s investments and its liabilities calculated by reference to the cost of buying annuities in the open market that would provide benefits to members that would be equal to those accrued to date under the terms of the existing defined benefit pension plan.

The UK legal advisers further advised in its legal opinion that, other than the potential claim from the Pensions Regulator, there are no grounds on which the Remaining Group could legitimately be exposed to other liabilities from other parties in relation to the Plan at any time, whether during the Look Back Period or after.

Each of the Purchasers has also undertaken not to sell, transfer or dispose of the share capital of any member of the Disposal Group (“ Subsequent Sale ”) for a period of two years from Completion, unless an undertaking having the same effect as the Undertaking is provided by the purchaser in the Subsequent Sale for the remainder of the abovementioned two-year period. Any breach of the above undertakings by the Purchasers will amount to a breach of the Disposal Agreement under which the Company is entitled to claim for damages.

INFORMATION ON THE DISPOSAL GROUP

The Disposal Group comprises the PHL Group and the PGH Group. The Disposal Companies are direct wholly-owned subsidiaries of the Company and are investment holding companies as at the Latest Practicable Date. Upon completion of the Disposal, the Disposal Companies will cease to be subsidiaries of the Company.

PHL is a company incorporated in the BVI with limited liability. The PHL Group is principally engaged in the contract manufacturing, on OEM and EMS bases, of a wide range of power-related and electrical or electronic products, including industrial-grade chargers, electronic components and products such as industrial work lights, coils and solenoids and printed circuit board assembly (PCBA), as well as end-user durables such as chargers for self-drive cars and toys for children, energy-efficient travel chargers and LED lights.

PGH is a company incorporated in Hong Kong with limited liability. The PGH Group is principally engaged in (i) the manufacturing, procurement and distribution of a broad line of hand, lawn and garden tools, (ii) the procurement and assembly of magnetic tools and products including cast alloy permanent magnets, magnetic tools, magnetic chucks and turnkey magnetic systems, and (iii) the manufacturing, assembly and procurement of metrology and measurement tools, including gauges for checking the threads, diameters, tapers of machined components, precision bore gauges and hardness testing equipment, for the automotive, aerospace, and oil and gas industries.

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LETTER FROM THE BOARD

Set out below is the summary of the unaudited consolidated income statements of the PHL Group and the PGH Group for the two years ended 30 September 2013, as extracted from Appendices III and IV to this circular, respectively:

	For the year ended	For the year ended	For the year ended
	30 September
	2013		2012
	(unaudited)	(unaudited)
	HK$’000		HK$’000
The PHL Group
Revenue	325,245		355,404
Profit before taxation	22,947		31,101
Profit for the year	17,602		25,804
The PGH Group
Continuing operations (Note)
Revenue	929,240		913,834
Profit before taxation	65,786		49,967
Profit for the year	46,143		31,797

Note: On 17 September 2012, PGH disposed its entire equity interest in an indirectly owned subsidiary to PGH’s fellow subsidiary as part of the reorganisation of the Group. Therefore, the results of the remaining members of the PGH Group is reported under “Continuing operations”.

As at 30 September 2013, the unaudited net asset values of the PHL Group and the PGH Group amounted to approximately HK$92.4 million and HK$217.0 million respectively.

IMPLICATION OF THE LISTING RULES

As one or more of the applicable percentage ratios in respect of the Disposal under the Listing Rules exceeds 75%, the Disposal constitutes a very substantial disposal of the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements.

As at the Latest Practicable Date, Mr. Hsu, an executive Director, is interested in the entire issued share capital of the Purchasers. The Purchasers are therefore associates of Mr. Hsu and connected persons of the Company under the Listing Rules. Accordingly, the Disposal constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the approval of the Independent Shareholders at the SGM. Mr. Hsu, Mr. Anthony Lee and their respective associates shall abstain from voting in respect of the resolution approving the Disposal Agreement and the transactions contemplated thereunder at the SGM. Mr. Hsu has abstained from voting at the board resolution in relation to the Disposal while the remaining Directors have approved by way of unanimous vote.

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LETTER FROM THE BOARD

III. CHANGE IN BOARD COMPOSITION

None of the Vendors is expected to hold any directorship in the Company after the Acquisition. Save and except the resignation of Mr. Hsu and Mr. Patrick John Dyson as directors of the Company upon completion of the Disposal, the Board and management of the Company are not expected to change immediately after the Acquisition. The resignation of Mr. Hsu as a Director is in accordance with the Disposal Agreement whereas the resignation of Mr. Patrick John Dyson as a Director is due to the fact that he would like to focus on the operations of the PGH Group and the PHL Group upon Completion. As at the Latest Practicable Date, so far as the Directors are aware, Mr. Lee Shih-Tsung is not expected to hold any directorship in the Company upon Completion.

IV. FINANCIAL EFFECTS OF THE TRANSACTIONS

Upon Completion, the Target Group will be equity accounted for as an associated company in the consolidated financial statements of the Company whereas each of the members in the Disposal Group will cease to be subsidiaries of the Company and the results of the Disposal Group will cease to be consolidated with those of the Company. In addition, any excess of the Group’s share of the net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition of the Target Group being the market value of the Subscription Shares as at the date of Completion will be recognised in the consolidated income statement of the Group in accordance with HKAS 28 — Investments in Associates. The actual amount of such excess, if any, can only be determined upon Completion after taking into account the net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at the date of Completion.

Disposal

According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular, assuming Completion had taken place on 1 October 2012, the estimated loss on the Disposal would have amounted to approximately HK$184.0 million, which is calculated as the consideration for the disposal of the Sale Shares of HK$181.1 million minus the aggregate of (i) the net asset value of the Disposal Group of approximately HK$235.9 million as at 1 October 2012, (ii) the estimated relevant fees and expenses in relation to the Disposal of approximately HK$5.0 million, (iii) an exchange reserve of the Disposal Group of approximately HK$54.5 million as at 1 October 2012 which shall be recycled to the consolidated income statement as a result of the Disposal, and (iv) the PGH Shareholder’s Loan of approximately HK$69.6 million that are to be settled by US$1 only.

Acquisition and Share Subscription

Assuming the Acquisition and the Share Subscription had taken place on 1 October 2012, the share of results of the Target Group for the year ended 30 September 2013 is estimated to be approximately HK$24.5 million, comprising the share of profits of the Target Group for the year ended 30 September 2013 of approximately HK$13.7 million and the excess of the Group’s share of the net fair value of the Target Company’s identifiable assets, liabilities and contingent liabilities as at 1 October 2012 over the cost of acquisition of the Target Group of approximately HK$10.8 million.

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LETTER FROM THE BOARD

Assuming only the Acquisition and the Share Subscription had completed on 1 October 2012, the Group’s profit for the year ended 30 September 2013 would increase from approximately HK$73.1 million to approximately HK$92.5 million. Assuming only the Acquisition and the Share Subscription had completed on 30 September 2013, (i) the Group’s total assets would increase from approximately HK$1,013.6 million to approximately HK$1,160.8 million and its total liabilities would remain unchanged at approximately HK$557.7 million, thereby increasing the Group’s net assets from approximately HK$455.9 million to approximately HK$603.1 million, and (ii) the Group’s gearing ratio, being the sum of bank borrowings and obligations under finance leases less cash and bank balances and divided by total equity, will remain zero. The net financial effect of the Bridge Loan and the Share Subscription is minimal given the Bridge Loan obtained shall be settled by the proceeds from the Share Subscription.

Shareholders should note that the actual loss on the Disposal will be calculated on the basis of the relevant figures as at the date of Completion and will be subject to audit and therefore could be different from the aforementioned amount. The actual share of results of the Target Group is also subject to the date of Completion and the financial performance of the Target Group thereafter and therefore could be different from the aforementioned amount.

Overall

According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular, (i) the Group’s total assets would decrease from approximately HK$1,013.6 million to approximately HK$473.1 million and its total liabilities would decrease from approximately HK$557.7 million to approximately HK$72.8 million, thereby decreasing the Group’s net assets from approximately HK$455.9 million to approximately HK$400.3 million, assuming Completion had taken place on 30 September 2013, (ii) the Group’s gearing ratio, being the sum of bank borrowings and obligations under finance leases less cash and bank balances and divided by total equity, will remain zero, assuming Completion had taken place on 30 September 2013, and (iii) the Group’s financial performance for the year ended 30 September 2013 would turn from a net profit of approximately HK$73.1 million to a net loss of approximately HK$165.3 million, assuming Completion had taken place on 1 October 2012.

V. INFORMATION ON THE REMAINING GROUP

Upon completion of the Disposal, the Company will cease to hold any issued share capital in the Disposal Companies and the Disposal Companies will cease to be subsidiaries of the Company.

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LETTER FROM THE BOARD

The Remaining Group had manufacturing facilities in Guangdong, the PRC, with 200 executive and clerical staff (including the staff at the head office of the Company) and 696 factory workers as at 30 September 2013 (excluding those of the Target Group). According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular, assuming Completion had taken place on 30 September 2013, total assets and net assets of the Remaining Group are estimated to be approximately HK$473.1 million and HK$400.3 million, respectively. Assuming Completion had taken place on 1 October 2012, the revenue of the Remaining Group for the year ended 30 September 2013 would be approximately HK$226.3 million. On this basis, the Directors are of the view that the Remaining Group would have a sufficient level of operations after Completion.

Moreover, according to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular, assuming Completion had taken place on 30 September 2013, it is estimated that the Remaining Group would have total assets and net assets of approximately HK$473.1 million and HK$400.3 million respectively immediately upon Completion, including cash and bank balances of approximately HK$229.8 million. The percentage of cash and cash equivalents to total assets and net assets would therefore be approximately 48.6% and 57.4%, respectively, immediately upon Completion. As the Company’s assets will not consist wholly or substantially of cash immediately upon Completion, the Directors are of the view that the Company will not be a “cash company” as described under Rule 14.82 of the Listing Rules.

VI. GENERAL INFORMATION

The notice convening the SGM is set out on pages N-1 to N-3 to this circular.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend and vote at the SGM in person, you are requested to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting (as the case may be) should you so wish.

VII. VOTING AT THE SGM

Pursuant to Rule 13.39 of the Listing Rules, all votes of the Shareholders at the general meetings must be taken by poll. The chairman of the SGM will therefore demand a poll for every resolution put to the vote of the SGM pursuant to paragraph 73 of the bye-laws of the Company.

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LETTER FROM THE BOARD

VIII. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 42 to 43 of this circular which contains its recommendation to the Independent Shareholders in relation to the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement.

Your attention is also drawn to the letter from the Independent Financial Adviser set out on pages 44 to 96 of this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement, and the principal factors and reasons taken into account in arriving at its recommendation.

The Directors consider that the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement are determined after arm’s length negotiations between the parties and on normal commercial terms. The Directors further consider that the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Independent Board Committee, having taken into account the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement and the advice of the Independent Financial Adviser, considers that the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement are on normal commercial terms which are fair and reasonable. The Independent Board Committee also considers that the entering into of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement, while not in the ordinary and usual course of business of the Company because of their “once off” nature, is nevertheless in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM.

IX. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of SGM.

Yours faithfully for and on behalf of the Board

United Pacific Industries Limited David Howard Clarke Chairman

* for identification purpose only

— 41 —

17 March 2014

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation from the Independent Board Committee to the Independent Shareholders in relation to the Acquisition Agreement, the Subscription Agreement, the Disposal Agreement and the transactions contemplated thereunder.

==> picture [42 x 41] intentionally omitted <==

==> picture [168 x 84] intentionally omitted <==

Website: www.upi.com.hk, www.irasia.com/listco/hk/upi

To the Independent Shareholders

Dear Sir or Madam,

(I) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF 28.84% EQUITY INTEREST IN YUJI DEVELOPMENT CORPORATION*

(II) SUBSCRIPTION OF SHARES UNDER SPECIFIC MANDATE AND

(III) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO

DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF PANTRONICS HOLDINGS LIMITED AND PANTENE GLOBAL HOLDINGS LIMITED AND THE SHAREHOLDER’S LOANS

We refer to the circular of the Company dated 17 March 2014 (the “ Circular ”), of which this letter forms a part. Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise you on the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement and the transactions contemplated thereunder. Changjiang Corporate Finance (HK) Limited has been appointed as the Independent Financial Adviser to advise us and you in this regard. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving its advice, are contained in its letter set out on pages 44 to 96 of the Circular. Your attention is also drawn to the “Letter from the Board” and the additional information set out in the appendices to the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Taking into account, among other things, the principal factors and reasons considered by, and the opinion of Changjiang Corporate Finance (HK) Limited as stated in its letter of advice, we consider that the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM.

Yours faithfully, Independent Board Committee

Mr. Ramon Sy Pascual Dr. Wong Ho Ching Mr. Lan Yen-Po Ms. Hu Gin Ing Independent Non-executive Directors

for identification purpose only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, prepared for the purpose of inclusion in this circular.

Suite 1908, 19/F Cosco Tower 183 Queen’s Road Central Hong Kong

17 March 2014

To the Independent Board Committee and the Independent Shareholders of United Pacific Industries Limited

Dear Sirs,

(I) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO ACQUISITION OF 28.84% EQUITY INTEREST IN YUJI DEVELOPMENT CORPORATION*

(II) SUBSCRIPTION OF SHARES UNDER SPECIFIC MANDATE AND

(III) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF PANTRONICS HOLDINGS LIMITED AND PANTENE GLOBAL HOLDINGS LIMITED AND THE SHAREHOLDER’S LOANS

I. INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect to the Acquisition, the Share Subscription and the Disposal, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular dated 17 March 2014 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 8 February 2014, the Company announced that, among other things:

(a) pursuant to the Acquisition Agreement, the Buyer conditionally agreed to acquire and the Vendors conditionally agreed to sell approximately 28.84% of the total issued share capital in the Target Company, at a consideration of TWD513,728,077 (equivalent to approximately HK$132.3 million), which shall be settled by way of cash on or before completion of the Acquisition;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) pursuant to the Subscription Agreement, the Vendors agreed to subscribe for and the Company agreed to allot and issue the Subscription Shares at the Subscription Price per Subscription Share; and
(c) pursuant to the Disposal Agreement, the Company conditionally agreed to sell and the Purchasers conditionally agreed to purchase the Sale Shares, representing the entire issued share capital of PHL and PGH, together with the Shareholder’s Loans, representing the net amount due from the PHL Group and the PGH Group to the Remaining Group as at Completion at a total cash consideration of US$25.0 million (equivalent to approximately HK$194.5 million).

With respect to the Acquisition and the Share Subscription, as one or more of the applicable percentage ratios under the Listing Rules is over 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, the Target Company is owned as to (i) approximately 56.25% by Lung Yen, a company whose shares are listed on the Taiwan Stock Exchange and controlled by Mr. Lee Shih-Tsung, the father of Ms. Kelly Lee and Mr. Anthony Lee, (ii) approximately 28.84% by the Vendors, (iii) approximately 14.90% by Mr. Lee Shih-Tsung, and (iv) approximately 0.01% by 成昌投資股份有限公司 (Cheng Chang Investment Company Limited), a company ultimately controlled by Mr. Lee Shih-Tsung. Mr. Lee Shih-Tsung is also a director and the chairman of Lung Yen. As reported in the 2012 annual report of Lung Yen, Mr. Lee Shih-Tsung controls approximately 53.82% of Lung Yen and the effective interests held by Ms. Kelly Lee and Mr. Anthony Lee in Lung Yen were approximately 0.78% and 1.61% respectively. As at the Latest Practicable Date, Mr. Lee Shih-Tsung and Ms. Kelly Lee do not hold any Shares so far as the Directors are aware. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendors and in relation to those Vendors that are corporations, their respective beneficial owners, are third parties independent of Mr. Lee Shih-Tsung.

As the Target Company is owned as to over 10% by Mr. Lee Shih-Tsung, the father and therefore an associate of Ms. Kelly Lee and Mr. Anthony Lee, the Directors, the Acquisition constitutes a connected transaction of the Company under Rule 14A.13(1)(b)(i) of the Listing Rules. The Acquisition, coupled with the Share Subscription, is therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Mr. Lee Shih-Tsung is a substantial shareholder of the Target Company and is an associate of Ms. Kelly Lee and Mr. Anthony Lee under the Listing Rules. On the other hand, Mr. Hsu, an executive Director, has a material interest in the Disposal (see below), the completion of which is conditional on completion of the Acquisition. As such, Mr. Anthony Lee, Mr. Hsu and their respective associates shall abstain from voting in respect of the resolution approving the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder at the SGM. As at the Latest Practicable Date, Mr. Anthony Lee and Mr. Hsu are interested in approximately 27.92% and 1.13% of the issued Shares. Mr. Hsu has abstained from voting at the board resolution in relation to the Acquisition and the Share Subscription while the remaining Directors have approved by way of unanimous vote. The issue of the Subscription Shares under the Subscription Agreement is subject to the Specific Mandate to be sought from the Independent Shareholders at the SGM. The completion of the Acquisition and the Share Subscription are inter-conditional and shall coincide and take place simultaneously.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With respect to the Disposal, as one or more of the applicable percentage ratios in respect of the Disposal under the Listing Rules exceeds 75%, the Disposal constitutes a very substantial disposal of the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements. As at the Latest Practicable Date, Mr. Hsu, an executive Director, is interested in the entire issued share capital of the Purchasers. The Purchasers are therefore associates of Mr. Hsu and connected persons of the Company under the Listing Rules. Accordingly, the Disposal constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the approval of the Independent Shareholders at the SGM. Mr. Hsu, Mr. Anthony Lee and their respective associates shall abstain from voting in respect of the resolution to approve the Disposal Agreement and the transactions contemplated thereunder at the SGM. Mr. Hsu has abstained from voting at the board resolution in relation to the Disposal while the remaining Directors have approved by way of unanimous vote. The completion of the Disposal is conditional, among others, on completion of the Acquisition.

II. THE INDEPENDENT BOARD COMMITTEE

The Board currently consists of ten Directors, namely Mr. David Howard Clarke, Mr. Simon Hsu Nai-Cheng, Mr. Henry Woon-Hoe Lim, Mr. Patrick John Dyson and Ms. Kelly Lee as executive Directors; Mr. Anthony Lee as non-executive Director; and Mr. Ramon Sy Pascual, Dr. Wong Ho Ching, Mr. Lan Yen-Po and Ms. Hu Gin Ing as independent non-executive Directors.

The Independent Board Committee comprising all the independent non-executive Directors has been constituted to consider the terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement, and to advise and make recommendations to the Independent Shareholders as to how to vote at the SGM on the resolutions in relation thereto. Mr. Ramon Sy Pascual, Dr. Wong Ho Ching, Mr. Lan Yen-Po and Ms. Hu Gin Ing have been appointed by the Board to serve as members of the Independent Board Committee. Changjiang Corporate Finance (HK) Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Acquisition, the terms of the Share Subscription and the terms of the Disposal.

III. BASIS OF OUR OPINION

As the Independent Financial Adviser, we have taken all reasonable steps to satisfy and comply with the requirements under Rule 17.92 (together with the notes thereto). In formulating our opinion, we have relied solely on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company and/or its management staff (the “ Management ”) and/or the Directors. We have assumed that all statements, information, opinions and representations contained or referred to in the Circular and all information and representations which have been provided by the Company and/or the Management and/or the Directors, for which it is/they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be so at the date hereof. We have no reason to believe that any information or representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all the opinions and representations for matters relating to the Company made or

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

provided by the Directors and/or the Management contained in the Circular have been reasonably made after due and careful enquiry. We consider that we have reviewed sufficient information to enable us to form a reasonable basis for our opinion. We have not, however, conducted any independent verification of the information provided, nor have we carried out any form of in-depth investigation into the business and affairs of the Company.

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and the Share Subscription, we have considered the following principal factors and reasons set out below:

A. The Acquisition

1. Business and financial information of the Group

The Company is an investment holding company. The Group is principally engaged in five business sectors, namely the contract manufacture, on OEM and EMS bases, of a wide range of power-related and electrical or electronic products (“ Contract Manufacturing ”); the manufacture, procurement and distribution of a broad line of hand, lawn and garden tools (“ Tools ”); the procurement and assembly of magnetic tools and products including the provision of magnetic-based industrial solutions (“ Magnetic Technologie s”); the manufacture, assembly and procurement of metrology and measurement tools (“ Precision Measurement ”); and the manufacture and distribution of electronic consumer products (“ Consumer Electronics ”).

Set out below is a summary of the audited consolidated operating results and financial positions of the Group for the two years ended 30 September 2013 as extracted from the annual report of the Company for the financial year ended 30 September 2013 (the “ Annual Report ”):

	Year ended 30 September	Year ended 30 September
	2013	2012
	HK$’000	HK$’000
	(Audited)	(Audited)
Revenue	1,480,767	1,468,610
Cost of sales	(1,039,831)	(1,030,994)
Gross profit	440,936	437,616
Profit before taxation	100,568	85,382
Profit for the year	73,050	60,574

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	As at	As at
	30 September	30 September
	2013	2012
	HK$’000	HK$’000
	(Audited)	(Audited)
Total assets	1,013,598	983,754
Total liabilities	557,732	601,850
Net assets	455,866	381,904

As stipulated in the Annual Report, for the year ended 30 September 2013, the revenue of the Group was approximately HK$1,480.8 million, which represents an approximate 0.8% increase over the corresponding figure of approximately HK$1,468.6 million in 2012. With reference to the Annual Report, the increase in the Group’s revenue was a result of the Group securing a contract with an internationally recognised brand for the supply of baby monitoring products in North America, which caused an increase in the Group’s revenue in the Consumer Electronics sector of approximately 13.5%. The Group’s gross profit increased from approximately HK$437.6 million for the year ended 30 September 2012 to approximately HK$440.9 million for the year ended 30 September 2013, with the overall gross profit margin remaining stable at approximately 29.8% for the two years ended 30 September 2013.

Profit for the year increased to approximately HK$73.1 million for the year ended 30 September 2013, representing an increase of approximately 20.6%, as compared to approximately HK$60.6 million for the year ended 30 September 2012. Meanwhile, the profit margin increased from approximately 4.1% for the year ended 30 September 2012 to approximately 4.9% for the year ended 30 September 2013. With reference to the Annual Report, this increase in profitability was mainly due to manufacturing efficiencies and specific cost reduction initiatives implemented in the UK and Australia. In particular in 2012, the Group’s hacksaw blade manufacturing plant in Jiangmen, Guangdong Provinces, PRC (the “ Jiangmen Plant ”), encountered high scrap levels and labour inefficiencies but these problems were successfully addressed by the Group in 2013 and profitability improved accordingly.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the selected information of the Group’s sector revenue and sector results (profit before taxation) for the two years ended 30 September 2013 as extracted from the Annual Report:

Sector revenue - Contract Manufacturing - Tools - Magnetic Technologies - Precision Measurement - Consumer Electronics Total Sector results (Profit before taxation) - Contract Manufacturing - Tools - Magnetic Technologies - Precision Measurement - Consumer Electronics Total	Year ended 30 September 2013 2012 HK$’000 HK$’000 (Audited) (Audited) 325,245 355,405 615,222 606,943 131,907 125,685 182,111 181,206 226,282 199,371 1,480,767 1,468,610 28,125 31,105 22,396 3,344 30,991 27,787 30,181 26,676 11,584 8,107 123,277 97,019	Year ended 30 September 2013 2012 HK$’000 HK$’000 (Audited) (Audited) 325,245 355,405 615,222 606,943 131,907 125,685 182,111 181,206 226,282 199,371 1,480,767 1,468,610 28,125 31,105 22,396 3,344 30,991 27,787 30,181 26,676 11,584 8,107 123,277 97,019
		1,468,610
		31,105 3,344 27,787 26,676 8,107
		97,019

Contract Manufacturing

For the year ended 30 September 2013, the Contract Manufacturing sector reported a revenue of approximately HK$325.2 million, representing a decrease of approximately 8.5% as compared to the same period last year (i.e. HK$355.4 million) and contributed approximately 22.0% of total Group revenue. Such decrease was due to a slowing demand from existing customers in the US and Europe against a sluggish economic back drop.

The Contract Manufacturing sector results for the year ended 30 September 2012 and 30 September 2013 amounted to a profit before taxation of approximately HK$31.1 million and approximately HK$28.1 million, respectively, which was in line with a decrease in revenue over the same corresponding year. With reference to the Annual Report, labour shortages, rising wages in the PRC, adverse exchange movements and electricity shortages continued to drive up the costs. The Company expects that labour and technical staff shortages are likely to continue in 2014. Further, based on the latest reduced sales orders, the Company indicates that Contract Manufacturing sector is continuing to slow, which will adversely affect the Group’s revenue for the first quarter of 2014 and is anticipated to impact revenue in the second quarter and beyond.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Tools

For the year ended 30 September 2013, the Tools sector reported a revenue of approximately HK$615.2 million, representing a slight increase of approximately 1.4% as compared to the same period last year (i.e. HK$606.9 million) and contributed approximately 41.5% of total Group revenue. The biggest turnaround for the year ended 30 September 2013 in the Tools sector results where profit before taxation increased by approximately 578.8% from approximately HK$3.3 million in 2012 to approximately HK$22.4 million in 2013 due to the stabilisation of the manufacturing operations at the Jiangmen Plant and the successful implementation of restructuring initiatives in the UK.

Magnetic Technologies

For the year ended 30 September 2013, the Magnetic Technologies sector reported a revenue of approximately HK$131.9 million, representing an increase of approximately 4.9% as compared to the same period last year (i.e. HK$125.7 million) and contributed approximately 8.9% of total Group revenue. Such increase was mainly due to the sales performance from Asia market for filtration systems, representing an increase of approximately 68% as compared to the financial year ended 30 September 2012 and the launch of a new product range called the “Boilermag”, which is a magnetic filter used in domestic central heating systems. For the year ended 30 September 2013, the Magnetic Technologies sector results reported a profit before taxation of approximately HK$31.0 million, representing an increase of approximately 11.5% as compared to the same period last year (i.e. HK$27.8 million). Such increase was attributable to profit generated from the Company’s associate, Ningbo Hi-tech Assemblies Co. Ltd (“ Ningbo Hi-tech ”). The Company owns 25% of Ningbo Hi-tech, a company engaged in the manufacturing and sales of magnetic, plastic and other materials and magnetic assembles. Ningbo Hi-tech’s profits have been growing over the past two years (FY2012: +56.3% YoY; FY2013: +55.5% YoY).

Precision Measurement

For the year ended 30 September 2013, the Precision Measurement sector reported a revenue of approximately HK$182.1 million, representing a slight increase of approximately 0.5% as compared to the same period last year (i.e. HK$181.2 million) and contributed approximately 12.3% of total Group revenue. For the year ended 30 September 2013, the Precision Measurement sector results reported a profit before taxation of approximately HK$30.2 million, representing an increase of approximately 13.1% as compared to the same period last year (i.e. HK$26.7 million). Such increase was due to an increased order intake from equipment upgrades in the industrial sector, supplemented by the launch of new products and an expansion in production capacity.

Consumer Electronics

For the year ended 30 September 2013, the Consumer Electronics sector reported a revenue of approximately HK$226.3 million, representing an increase of approximately 13.5% as compared to the same period last year (i.e. HK$199.4 million) and contributed approximately 15.3% of total Group revenue. Such increase was mainly due to increase in demand for baby monitors in North America as it is widely accepted as a necessity for families and newborn children. For the year ended 30 September 2013, the Consumer Electronics sector results reported a profit before taxation of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

approximately HK$11.6 million, representing an increase of approximately 43.2% as compared to the same period last year (i.e. HK$8.1 million). Such increase in profitability was mainly due to manufacturing efficiencies, increased automation of the production process, product optimisation, process improvement and maintaining a lean company structure. With reference to the Annual Report, baby monitors represent the biggest portion of the Group’s total sales revenue with the bulk of those sales exported to USA and Canada. We were advised by the Management that approximately 91.5% of the Consumer Electronics sector’s total revenue came from baby monitor sales for the year ended 30 September 2013.

We set out below information in respect of the consolidated statements of cash flow of the Company for the year ended 30 September 2013 with reference to the Annual Report:

		Year ended 30 September	Year ended 30 September
		2013	2012
		HK$’000	HK$’000
		(Audited)	(Audited)
Net	cash generated from operating activities	57,188	70,454
Net	cash generated from/(used in) investing activities	1,205	(7,803)
Net	cash used in financing activities	(21,767)	(48,349)
Net	increase in cash and cash equivalents	36,626	14,302

For the year ended 30 September 2012, the Group had a net cash inflow from operating activities of approximately HK$70.5 million. For the year ended 30 September 2013, the Group had a net cash inflow from operating activities of approximately HK$57.2 million. The decrease in net cash flow from operating activities was primarily due to higher pension contributions to the defined benefit pension plan of approximately HK$19.1 million (2012: HK$12.2 million), working capital increases of approximately HK$26.8 million (2012: HK$5.1 million) and the restructuring costs paid of approximately HK$4.3 million (2012: HK$3.7 million).

For the year ended 30 September 2013, the Group had a net cash inflow from investing activities of approximately HK$1.2 million as compared to net cash outflow from investing activities of approximately HK$7.8 million for the year ended 30 September 2012. The net cash inflow from investing activities in 2013 includes approximately HK$3.7 million of dividends receivable from the Group’s associate and approximately HK$5.0 million in relation to the release of pledged bank deposits, offset by approximately HK$7.8 million of property, plant and equipment purchases. The net cash outflow from investing activities in 2012 includes approximately HK$8.1 million of property, plant and equipment purchases, approximately HK$2.7 million of dividends receivable from the Group’s associate and approximately HK$2.0 million in relation to the purchase of available-for-sale financial assets.

We note that the net increase in cash and cash equivalents for the year ended 30 September 2013 was principally due to a decrease in the repayment of bank borrowings of approximately HK$36.4 million and the proceeds raised from the exercise of share options of approximately HK$3.1 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Business and financial information of the Target Group

As referred to in the Letter from the Board, the Target Company was incorporated in April 2006 in accordance with the laws of Taiwan and is principally engaged in funeral-related businesses including sale and management of columbarium units and cemetery plots in Taiwan. For the year ended 31 December 2012, the Target Company generated approximately 91% of its revenue from sale of columbarium units and cemetery plots. Prior to commencing its funeral-related business in 2011, the Target Company was principally engaged in the development, lease and sales of residential and commercial buildings. Upon completion of the Acquisition, the Target Company will be equity accounted for as an associated company in the consolidated financial statements of the Company. Long Fu, incorporated in March 2013 in accordance with the laws of Taiwan, is the sole subsidiary of the Target Company and was owned as to approximately 77.75% by the Target Company as at the Latest Practicable Date. Since its incorporation, Long Fu has neither commenced any business operations nor generated any revenue. As at the Latest Practicable Date, Long Fu has not yet carried on any business activities other than owning land and assets for the purpose of carrying out similar business activities as the Target Company (i.e. sale and management of columbarium units and cemetery plots) in the future. As at the Latest Practicable Date, the management of the Target Company has no concrete plan as to when Long Fu will commence operations. The Target Company generates its revenue mainly from sale and management of columbarium units and cemetery plots. As advised by the management of the Target Company, the Target Company has been focusing on the mid-end market within the industry.

As advised by the Taiwan legal advisers to the Company, among others, (i) the Target Company and Long Fu are legally and validly existing. As the Target Company has obtained an operator’s license from the New Taipei City Government, completed the required company or business registration and joined the Funeral Services Association, it can be engaged in the operation of funeral facilities under Article 42 of 殯葬管理條例 (the Mortuary Service Administration Act). As at the Latest Practicable Date, Long Fu is in the process of obtaining the qualification to apply for an operator’s license so that it can operate funeral facilities in the future; (ii) among all land parcels included in the Acquisition Agreement with total area of approximately 402,333 square metres owned by the respective registered owners as at 31 December 2013, approximately 30,145 square metres of land parcels located in Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone (together the “ Subject Lands ”) are registered under the name of Mr. Lee Shih-Tsung as such parcels of land are classified as arable land and, pursuant to Article 33 of 農業發展條例 (the Agricultural Development Act), cannot be registered under the name of private entity. Pursuant to the trust agreements entered into between the Target Company and Mr. Lee Shih-Tsung, the Subject Lands are held on trust by Mr. Lee Shih-Tsung for and on behalf of the Target Company, and it was agreed in such agreements that when the Target Company is allowed to be registered as the owner of the Subject Lands under relevant Taiwan laws and regulations in the future, title of the Subject Lands shall be transferred and registered under the name of the Target Company. Due to such trustee/beneficiary relationship, the Target Company has the right to request Mr. Lee Shih-Tsung to transfer the title of the Subject Lands in the future and the Target Company is entitled to lawfully use the Subject Lands under the trust agreements. Taiwan legal advisor to the Company opined that such trust arrangement is legal and valid under the laws of Taiwan. Except for the Subject Lands, the Target Company and Long Fu are the registered owners of all other land parcels and buildings included in the Acquisition Agreement; and (iii) except for the Subject Lands which are classified as arable land, all other land

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

parcels included in the Acquisition Agreement can be used for the purpose of operating funeral facilities. The existing usage of the buildings included in the Acquisition Agreement, including the three columbarium towers currently operated by the Target Company in Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone, is in accordance with those stated in the respective property ownership certificates. We have relied upon the advice and information given by the Taiwan legal advisers to the Company regarding the titles of land and buildings and the legality of the Target Group’s business including whether all relevant licenses and approvals were obtained. Apart from the above, we did not note any other restrictions on the usage of land and buildings owned by the Target Group.

As at the Latest Practicable Date, the Target Group has 5 columbarium and/or cemetery sites, which are in various stages of development and completion across Taiwan, and among 3 of these 5 sites, 3 columbarium towers and one outdoor cemetery are operating with columbarium units and cemetery plots immediately available for sale. The 5 columbarium and/or cemetery sites include Taipei Cemetery (“ 臺北私立萬壽山墓園 ”), Chia Yun Memorial Tower (“ 嘉雲寶城 ”), Baoshan Memorial Zone (“ 台中寶山紀念墓園 ”), Taoyuan Cemetery (“ 桃園富岡私立富貴山莊墓園 ”) and Jinshan Cemetery (“ 金山私立國榮公墓 ”), which together have a total land area of 402,334 square meter and total building gross floor area of 29,606 square meter.

The table below shows (i) total land area operated by the Target Group; (ii) total gross floor area of buildings operated by the Target Group; (iii) total gross floor area of cemetery plots completed and operated by the Target Group; (iv) total gross floor area of cemetery plots completed but not yet sold; (v) number of completed columbarium units operated by the Target Group; and (vi) number of completed columbarium units but not yet sold as at 31 December 2013 in each of the 5 columbarium and/or cemetery sites, as provided by the management of the Target Company:

					Total gross
				Total gross	floor area of		Number of
Columbarium				floor area of	completed	Number of	completed
and/or			Total gross	completed	cemetery	completed	columbarium
cemetery sites		Total land	floor area of	cemetery	plots but not	columbarium	units but not
(Note 7)	Location	area	buildings	plots	yet sold	units	yet sold
		(in square	(in square	(in square	(in square
		metre)	metre)	metre)	metre)
Taipei Cemetery	新北市萬里區	301,768	18,163	54	48	75,807	28,336
(Notes 1, 2 &	(Wanli District,
3)	New Taipei City)
Chia Yun	嘉義縣水上鄉	28,076	9,191	—	—	94,884	47,131
Memorial	(Shuishang Township,
Tower (Notes 1	Chiayi Country)
& 4)
Baoshan Memorial	台中市太平區	30,427	2,243	—	—	24,772	17,999
Zone (Notes 1	(Taiping District,
& 5)	Taichung City)
Taoyuan Cemetery	桃園縣新屋鄉	41,401	—	—	—	—	—
(Note 6)	(Xinwu Township,
	Taoyuan County)
Jinshan Cemetery	新北市金山區	662	9	—	—	—	—
(Note 6)	(Jinshan District,
	New Taipei City)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

_Note _	1:	As at the Latest Practicable Date, only Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial
		Zone have columbarium towers which are operating with columbarium units available for sale. As advised
		by the management of the Target Company, as at the Latest Practicable Date, the Target Group intends to
		focus more on the development of Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial
		Zone.
_Note _	2:	As at the Latest Practicable Date, only Taipei Cemetery has an outdoor cemetery which is operating with
		cemetery plots available for sale.
_Note _	3:	As at 31 December 2013, in Taipei Cemetery, construction of approximately 54 square metres of cemetery
		plots has been completed, in which approximately 48 square metres are available for sale whereas
		construction of 75,807 columbarium units has been completed, in which 28,336 columbarium units are
		available for sale. As advised by the management of the Target Company, as at the Latest Practicable Date,
		the Target Company plans to build additional cemetery plots of approximately 76,242 square metres and
		additional 81,854 columbarium units in the future and there is no concrete plan as to when the construction
		of these additional cemetery plots and columbarium units will be completed.
_Note _	4:	As at 31 December 2013, in Chia Yun Memorial Tower, construction of 94,884 columbarium units has been
		completed, in which 47,131 columbarium units are available for sale. As advised by the management of the
		Target Company, as the Latest Practicable Date, the Target Company plans to build additional 17,228
		columbarium units in the future and there is no concrete plan as to when the construction of these additional
		columbarium units will be completed. There are no cemetery plots in Chia Yun Memorial Tower.
_Note _	5:	As at 31 December 2013, in Baoshan Memorial Zone, construction of 24,772 columbarium units has been
		completed, in which 17,999 columbarium units are available for sale. As advised by the management of the
		Target Company, as at the Latest Practicable Date, the Target Company plans to build new cemetery plots
		of approximately 17,023 square metres and additional 72,972 columbarium units in the future and there is
		no concrete plan as to when the construction of these new cemetery plots and additional columbarium units
		will be completed.
_Note _	6:	As at the Latest Practicable Date, Taoyuan Cemetery and Jinshan Cemetery are not in operation and no
		columbarium units or cemetery plots are available for sale. The land parcels owned by Long Fu, the sole
		subsidiary of the Target Company, are located in Taoyuan Cemetery. As advised by the management of the
		Target Company, as at the Latest Practicable Date, no construction work has been performed in Taoyuan
		Cemetery and Jinshan Cemetery and there is no concrete plan as to when Taoyuan Cemetery and Jinshan
		Cemetery will commence operations.
_Note _	7:	As at 31 December 2013, the Target Group also owned a cemetery located at the Xindian District, New
		Taipei City, Taiwan with total land area of approximately 15,644 square metres. The information of this
		cemetery was not shown in the table above because, as at the Latest Practicable Date, it has been sold to
		an individual. Please refer to the section headed “Development after signing of the Acquisition Agreement”
		as set out in the “Letter from the Board” for details.

As stated in the Letter from the Board, the additional columbarium units and cemetery plots to be built in Taipei Cemetery, Chia Yun Memorial Tower and Baoshan Memorial Zone in the future (the “ Development ”), as disclosed in notes 3, 4 and 5 to the table above, are based on the estimation of the management of the Target Company according to the size of the respective columbarium and/or cemetery sites. There is no concrete plan as to when the Development will be completed and how much it will cost to carry out and complete the Development.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As advised by the management of the Target Company, Long Fu is in the process of obtaining qualification to apply for an operator license such that it can operate Taoyuan Cemetery and the Taiwan Legal Adviser is of the view that there is no legal impediment for Long Fu in obtaining such operator license. The area of the land currently owned by Target Company in Jinshan Cemetery is very small as compared to the total land area owned by the Target Group. As advised by the management of the Target Company, the Target Group would like to focus their current resources in the development of other cemeteries and therefore have no current plan in relation to the land parcels in Jinshan Cemetery.

Extracts of consolidated income statements of the Target Company (Note 1)

	Nine months ended	Nine months ended	Year	ended
	30 September		31 December
	2013	2012	2012	2011
	TWD’000	TWD’000	TWD’000	TWD’000
	(Unaudited)	(Unaudited)	(Audited)	(Audited)
	(Note2)
Revenue	444,887	291,958	399,314	56,147
Gross profit	397,016	266,360	362,853	50,273
Profit before taxation	198,260	153,619	180,589	20,363
Profit after taxation	162,005	144,119	163,921	17,756

Note 1: The financial information for the nine months ended 30 September 2013 is extracted from the unaudited consolidated management accounts of the Target Company whereas that for each of the two years ended 31 December 2011 and 2012 is extracted from the audited accounts of the Target Company on an unconsolidated basis as Long Fu had not yet been incorporated at that time.

Note 2: The profit after taxation for the nine months ended 30 September 2013 represented those attributable to the shareholders of the Target Company.

With reference to the unaudited consolidated management accounts of the Target Company for the nine months ended 30 September 2013, the revenue of the Target Company was approximately TWD444.9 million (approximately HK$114.6 million), which represents an increase of approximately 52.4% over the corresponding figure of approximately TWD292.0 million (approximately HK$75.2 million) for the nine months ended 30 September 2012. According to the management of the Target Company, we note that the increase in the Target Company’s revenue was a result of increase sales income derived from sales of columbarium facilities in Taipei Cemetery, Chia Yun Memorial Tower

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and Baoshan Memorial Zone. The profit after taxation for the nine months ended 30 September 2013 was approximately TWD162.0 million (approximately HK$41.7 million), an increase of approximately 12.4% over the corresponding period last year of approximately TWD144.1 million (approximately HK$37.1 million).

With reference to the audited accounts of the Target Company for the year ended 31 December 2012, the revenue of the Target Company was approximately TWD399.3 million (approximately HK$102.8 million), which represents an increase of approximately 611.8% over the corresponding figure of approximately TWD56.1 million (approximately HK$14.4 million) for the year ended 31 December 2011. As stated in the Letter from the Board, the Target Company commenced funeral-related operations in 2011 and started to generate revenue in October 2011. Revenue increased significantly for the year ended 31 December 2012 as compared to the previous year, mainly attributable to the general business growth in 2012 as a result of implementing an appropriate marketing strategy and the fact that a full-year revenue was recognised in 2012 whereas only three months of revenue was recognised in 2011. The profit after taxation for the year ended 31 December 2012 was approximately TWD163.9 million (approximately HK$42.2 million), an increase of approximately 8 times over the corresponding period last year of approximately TWD17.8 million (approximately HK$4.6 million).

Extracts of consolidated balance sheets of the Target Company (Note 1)

	As at 30	September	As at 31	December
	2013	2012	2012	2011
	TWD’000	TWD’000	TWD’000	TWD’000
	(Unaudited)	(Unaudited)	(Audited)	(Audited)
	(Note 2)
Total assets	2,322,456	1,978,995	2,086,017	2,851,187
Net asset value	1,944,054	1,762,171	1,781,973	1,618,052

Note 1: The financial information for the nine months ended 30 September 2013 is extracted from the unaudited consolidated management accounts of the Target Company whereas that for each of the two years ended 31 December 2011 and 2012 are extracted from the audited accounts of the Target Company on an unconsolidated basis as Long Fu had not yet been incorporated at that time.

Note 2: The net asset value as at 30 September 2013 represented the value attributable to the shareholders of the Target Company.

According to the unaudited consolidated management accounts of the Target Company as at 30 September 2013, the total assets and net asset value of the Target Company were approximately TWD2,322.5 million (equivalent to approximately HK$598.0 million) and TWD1,944.1 million (equivalent to approximately HK$500.6 million). The total assets and net asset value of the Target Company as at 30 September 2013 include the long-term investment in Long Fu. The Target Company’s total assets comprised mainly building construction in progress, inventories and cash and cash equivalents. The inventories of the Target Company comprised mainly columbaria that were ready to be sold and columbaria construction in progress. As at 30 September 2013, the amount of the Target Company’s inventories was approximately TWD1,871.9 million (equivalent to approximately HK$482.0 million), representing a decrease of approximately 0.9% over the balance of approximately TWD1,889.4 million (equivalent to approximately HK$486.5 million) as at 30 September 2012.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the audited accounts of the Target Company for the year ended 31 December 2012, the total assets and net asset value of the Target Company were approximately TWD2,086.0 million (equivalent to approximately HK$537.1 million) and TWD 1,782.0 million (equivalent to approximately HK$458.9 million). As at 31 December 2012, the amount of the Target Company’s inventories was approximately TWD1,996.1 million (equivalent to approximately HK$514.0 million), representing an increase of approximately 21.1% over the balance of approximately TWD1,648.4 million (equivalent to approximately HK$424.5 million) as at 31 December 2013. According to the management of the Target Company, we note that the increase in Target Company’s inventories was as a result of the acquisition of Chia Yun Memorial Tower and Taoyuan Cemetery in 2012.

3. Funeral-related industry outlook in Taiwan

The Directors have set out in the reasons for and benefits of the Acquisition in the Letter from the Board. The Directors consider that the Acquisition:

(i) allows the Group to diversify the sources of risk by adopting a diversified business strategy to cater for different business segments for different groups of customers in different parts of the world, which allows it to adopt and react to sudden changes in demand and to realise its full business potential in different markets;
(ii) represents an attractive investment opportunity for the Group to tap into the funeral market with its growth potential due to the global trend of aging population and the increasing number of deaths in Taiwan; and
(iii) expects to further strengthen and broaden the Group’s sources of revenue, with additional cash flows and thus improve the Group’s financial position.

Further, as set out in the Letter from the Board, the Group is a conglomerate and has adopted strategy to diversify its existing business portfolio into businesses with growth potential, and the Directors are optimistic that, despite their limited experience in funeral business, the management of the Group as a whole is capable of managing such an investment.

In the past 10 years, the GDP of Taiwan has increased from approximately TWD11,365.3 billion (equivalent to approximately HK$2,926.6 billion) in 2004 to approximately TWD14,583.0 billion (equivalent to approximately HK$3,755.1 billion) in 2013. The GDP of Taiwan increased by approximately 3.6% in 2013 as compared to 2012. The charts below illustrate the growth of Taiwan’s GDP and GDP per capita during the period from 2004 to 2013.

==> picture [406 x 162] intentionally omitted <==

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

Taiwan GDP Taiwan GDP Per Capita
(TWD million) (TWD)
15,000,000
600,000
12,500,000
10,000,000 550,000
7,500,000
500,000
5,000,000
450,000
2,500,000
0 400,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
GDP (Million TWD)
----- End of picture text -----

Source: Directorate-General of Budget, Accounting and Statistics, Executive Council, Taiwan

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Taiwan is ranked the 52[nd] most populous nation in the world. According to the 2013 statistics available from the Ministry of Interior, the total population of Taiwan was approximately 23.4 million. The population aged 60 or above (the “ Aged Population ”) in Taiwan increased from approximately 3.0 million in 2004 to approximately 4.1 million in 2013, representing a percentage increase of approximately 36.7%. In 2013, the Aged Population amounted to approximately 17.4% of the total population of Taiwan. The number of death in the past 10 years, represented a percentage increase of approximately 15.4%, increasing from approximately 135,092 in 2004 to approximately 155,908 in 2013. The mortality rate in Taiwan was approximately 6.7%. It has remained with a range of approximately 6.0% to approximately 6.7% during the last 10 years. The charts below illustrate the population breakdown of Taiwan residents by age from 2004 to 2013 and the mortality rate in Taiwan from 2004 to 2013:

Population breakdown of Taiwan residents by age (2004 - 2013)

==> picture [366 x 195] intentionally omitted <==

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

13.1% 13.2% 13.3% 13.6% 14.0% 14.6% 15.2% 15.9% 16.7% 17.4%
67.6% 68.1% 68.5% 68.8% 69.0% 69.1% 69.2% 69.0% 68.7% 68.3%
19.3% 18.7% 18.1% 17.6% 17.0% 16.3% 15.6% 15.1% 14.6% 14.3%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Population Age 0-14 Population Age 15-59 Population Age 60+
----- End of picture text -----

Source: Ministry of Interior’s website: www.moi.gov.tw

Number of deaths and mortality rate in Taiwan (2004-2013)

==> picture [389 x 182] intentionally omitted <==

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

155,908
160,000 6.9%
154,251 6.7%
155,000 152,915
6.7%
145,772
150,000 143,624 6.6%
143,582 6.6% 6.5%
145,000 139,398 141,111
140,000 135,839 6.3% 6.3% 6.3%
135,092
6.2%
135,000 6.2% 6.1%
130,000 6.0% 6.1% 6.0% 5.9%
125,000
5.7%
120,000
115,000 5.5%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
No. of Deaths Death Rate
----- End of picture text -----

Source: Ministry of Interior’s website: www.moi.gov.tw

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The increasing number of deaths and the growing trend of Aged Population provide the funeral-related industry with ample growth opportunities. The total population of Taiwan are constantly expanding at a fast pace. The Aged Population has been growing at a much faster rate than the total population. It is anticipated that the number of deaths will increase when the current Aged Population is deceased, which will lead to a greater demand for funeral-related businesses. The increasing demand in funeral-related businesses is also reflected by the increase in the number of sites of mortuary homes and crematoria , as well as storing facilities for bone ashes and bone relics. According to the 2012 statistics from the Ministry of Interior, as at the end of 2012, there were 51 sites of mortuary homes cemeteries with 250 chapels (2003: 36 mortuary homes cemeteries with 204 chapels) and 35 sites of crematoria with 199 incinerators (2003: 31 crematoria with 149 incinerators). At the same time, storing facilities for bone ashes and bone relics has increased from 350 in 2003 to 469 in 2012. As at the Latest Practicable Date, 2013 statistics regarding the number of sites of mortuary homes and crematories in Taiwan and the storing facilities for bone ashes and bone relics in Taiwan have not yet been announced by the Ministry of Interior.

As advised by the Management, the funeral-related industry in Taiwan is a highly regulated industry in which there are many government imposed restrictions and rules that set entry barriers. The approval and incorporation process is very complicated and therefore, Taiwanese operators of funeral-related businesses have always faced obstacles and were rebuffed by the government when applying for permits. The total supply of cemeteries has been decreased between 2003 to 2012, due to urban development and limited land supply for cemeteries in Taiwan. The supply of land for use by cemeteries has been under tight control as any application for such land use has to go through a series of approval processes from various government authorities. According to the 2012 statistics available from the Ministry of Interior, the number of cemeteries sites and the total land area of cemeteries sites has been decreased from 3,154 sites in 2003 to 3,144 sites in 2012 and decreased from 104.6 million square meters to 95.4 million square meters, respectively. The Directors expect that the limited supply of land is expected to continue given that in recent years, the number of approvals for the operation of cemeteries sites has decreased as local authorities in many regions started promoting alternative burial options to conserve land resources. This has therefore raised the entry barrier for newcomers which has resulted in less competition for the existing players that have already established cemeteries. As advised by the Directors, they believe that the raised entry barrier will not limit the growth potential of the Target Group given (a) its established Sites, with presence in strategic locations within certain major cities (i.e. Taipei, Taichung, Chiayi, and Taoyuan) in Taiwan that are well connected to transportation networks and are easily accessible; and (b) its ability to satisfy customers’ needs through provision of professional and customised funeral-related services by allowing customers to personalise the funeral services they receive by selecting value-added services in addition to the set funeral services packages which the Target Group offers, which differentiates their services from other competitors in the funeral-related services market in Taiwan. As at the Latest Practicable Date, the Target Company has 5 Sites in Taiwan, namely Taipei Cemetery (“ 臺北私立萬壽山墓園 ”), Chia Yun Memorial Tower (“ 嘉雲寶城 ”), Baoshan Memorial Zone (“ 台中寶山紀念墓園 ”), Taoyuan Cemetery (“ 桃園富岡私立富貴山莊墓園 ”) and Jinshan Cemetery (“ 金山私立國榮公墓 ”). Please refer to the section headed “2. Business and financial information of the Target Group” as above for details regarding the 5 columbarium and/or cemetery sites.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having taken into consideration that (i) the future of the funeral-related industry in Taiwan is promising as mentioned above; (ii) the Acquisition aligns with the Group’s existing strategy to broaden the Group’s access to different business segments in different parts of the world with growth potential (i.e. funeral-related industry in Taiwan); (iii) the Company demonstrates the potentials to further the Group’s business developments by leveraging on the positive future outlook of the Taiwan’s funeral-related industry; (iv) the funeral-related businesses in Taiwan is very competitive with high entry barriers to entry, which has resulted in less competition for the Target Company with already established cemeteries in Taiwan; and (vi) the Acquisition can broaden the Group’s source of income and further improve its financial position, we thus concur with the Directors’ view that the funeral-related industry in Taiwan will have a positive effect on the financial performance to the Group in the long run. Accordingly, we are of the view that the Acquisition is in the ordinary course of business and will be beneficial to the Company and the Shareholders as a whole.

4. Notification from the Venders after signing of the Acquisition Agreement

As stated in the Letter from the Board, on 3 March 2014, the Buyer received a written notification from the Vendors informing the Buyer that the parcels of land (the “ Land Parcels ”) located at Xindian District, New Taipei City, Taiwan (the “ Xindian Cemetery ”), with total land area of approximately 4,732 tsubo (坪) or approximately 15,644 square meters owned by the Target Company, were sold to an individual (the “ Party ”) (the “ Land Disposal ”) at a consideration of TWD47 million (equivalent to approximately HK$12.1 million) pursuant to sale and purchase agreement (“ Disposal SPA ”) entered into between the Target Company and the Party on 16 January 2014. As at the date of execution of the Disposal SPA, as advised by the management of the Target Company, the Xindian Cemetery is not in operation and no construction work has been performed on it. To the best knowledge of the management of the Target Company and the Directors, the Party is not related to the Group and the Directors. The management of the Target Company also confirmed that the Party is neither a Shareholder nor a director of the Target Company and Long Fu.

In addition, the Buyer was also informed by the Vendors that the extent of ownership (“ Extent of Land Ownership ”) in any parcel of land located at the Target Group’s columbarium and/or cemetery sites will be reduced correspondingly as and when a columbarium unit or cemetery plot is sold in the usual and ordinary course of business of the Target Group. As advised by the Taiwan legal advisers to the Company, whenever a columbarium unit or cemetery plot is sold to a purchaser in the usual and ordinary course of business, fractions of the ownership of the land where the columbarium unit or cemetery plot is located are transferred to the purchaser pursuant to the sale and purchase agreement entered into between the Target Company and the purchaser. The Extent of Ownership will therefore change from time to time when columbarium units and cemetery plots are sold.

5. Principal terms of the Acquisition

5.1 Subject matter of the Acquisition

Acquisition of approximately 28.84% of the total issued share capital of the Target Company free from all encumbrances at completion of the Acquisition. As at the Latest Practicable Date, the Company intends to hold the interests in the Target Group to be acquired for long term, and has no

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

intention to acquire further interests in the Target Company. Details of the conditions precedent of the completion of the Acquisition are set out in the sub-section headed “Conditions” under the section headed “The Acquisition Agreement” in the “Letter from the Board”. Pursuant to the Acquisition Agreement, the Vendors warranted that the Target Group shall, at Completion, exclusively possess full title to the ownership of the Land Parcels and have the Extent of Ownership as specified in the Acquisition Agreement (the “ Warranty ”). Given the occurrence of the Land Disposal and the fact that the Extent of Land Ownership at Completion shall be different from that stated in the Acquisition Agreement, condition (vii) as stated in the sub-section headed “Conditions” under the section headed “The Acquisition Agreement” in the “Letter from the Board” shall not be fulfilled at Completion and the Directors have agreed to waive condition (vii) accordingly. Pursuant to the Acquisition Agreement, conditions (i) to (vi) cannot be waived and as at the Latest Practicable Date, conditions (iv), (viii) and (ix) have been fulfilled. In addition, no waiver of a party of any breach by any other party of any provision in the Acquisition Agreement shall be deemed to be a waiver of any subsequent breach of that provision. In other words, even if breach of Warranty with respect to the Land Disposal is waived under condition (vii), in the event that such condition is subsequently breached again by the Vendors, the Buyer can still exercise its rights under the Acquisition Agreement and is then entitled to claim for damages and/or terminate the Acquisition Agreement. Except for the change in the Extent of Land Ownership arising from the sale of columbarium units or cemetery plots in the usual and ordinary course of business of the Target Group, the management of the Target Company advised that the Target Group has no intention to sell any further lands and buildings of the Target Group included in the Acquisition Agreement unless any disposal is considered to be in the interests of the shareholders of the Target Company.

5.2 Basis of consideration

Pursuant to the terms of the Acquisition Agreement, the consideration for the Acquisition is TWD513,728,077 (equivalent to approximately HK$132.3 million), which shall be settled by way of cash on or before completion of the Acquisition.

As stated in the Letter from the Board, the consideration for the Acquisition was determined after arm’s length negotiations between the Company and the Vendors based on, among others, (i) the profitability of the Target Company, (ii) the net asset value of the Target Company as at 31 December 2012; and (iii) the growth potential and prospects of the funeral market as evidenced in the growing trend of aged population and the increasing number of deaths in Taiwan.

As mentioned above, the consideration for the Acquisition is determined by reference to, among others, the net asset value of the Target Company as at 31 December 2012. As advised by the management of the Target Company, Long Fu is in the process of obtaining the qualification to apply for an operator’s license such that it can operate Taoyuan Cemetery and the Taiwan legal advisers to the Company is of the view that there is no legal impediment for Long Fu in obtaining such operator’s license. Regarding the land in Jinshan Cemetery, we note that the area of the land currently owned by Target Company in Jinshan Cemetery is very small, with total land area of 662 square metres as compare to the total land area owned by the Target Group of approximately 402,334 square metres.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We also note that as at 30 September 2013, the book value of land in Jinshan Cemetery was approximately TWD2.4 million, representing approximately 0.1% of the net asset value of the Target Group, which is insignificant as the basis of determining consideration for the Acquisition despite the absence of the operating right of the land in Jinshan Cemetery as at the Latest Practicable Date.

In addition, according to the audited accounts of the Target Company for the year ended 31 December 2012 and the unaudited management accounts of the Target Company for the nine months ended 30 September 2013, the carrying amount of the Land Parcels (the “ Book Value ”) as at 31 December 2012 and 30 September 2013 was approximately TWD45.4 million (equivalent to approximately HK$11.7 million). We are also advised by the Directors that the terms regarding the change in the Extent of Land Ownership arising from sale of columbarium units and cemetery plots is in the usual and ordinary course of business of the Target Group. Taking into account the fact that (i) Xindian Cemetery has not yet been developed as at the date of execution of the Disposal SPA, no revenue and therefore profit are derived from the Xindian Cemetery; (ii) the Book Value only accounted for approximately 2.3% of the net asset value of the Target Group as at 30 September 2013, which is insignificant as the basis of determining consideration for the Acquisition; (iii) that the interests of the Company and the Shareholders are safeguard by the Acquisition Agreement in the event that further assets included in the Acquisition Agreement are sold by the Target Group, as mentioned in the section headed “5.1 Subject matter of the Acquisition” as above and (iv) the benefits to be brought about by the Acquisition to the Group as mentioned in the section headed “3. Funeral-related industry outlook in Taiwan” above, we consider waiver of condition (vii) as stated in the sub-section headed “Conditions” under the section headed “The Acquisition Agreement” in the “Letter from the Board” to be reasonable.

5.2.1 Comparable companies analysis

For the purpose of assessing the fairness and reasonableness of the consideration of the Acquisition, we have applied the price-to-earnings ratio (“ P/E Ratio ”) and price-to-book ratio (“ P/B Ratio ”) to make comparison for the consideration of the Acquisition.

To assess the fairness and reasonableness of the consideration of the Acquisition, we have searched for companies listed on the Stock Exchange, as well as companies listed on the Tokyo Stock Exchange and the Taiwan Stock Exchange, which are profit making and are primarily engaged in the funeral-related businesses with their respective major/single largest source of revenue derive from funeral-related businesses, which are similar to that of the Target Company. To the best of our knowledge and as far as we are aware of, we found 7 comparable companies (the “ Acquisition Comparable Companies ”) which are all the funeral-related companies based on the criteria mentioned above (notwithstanding the market capitalisation of the Acquisition Comparable Companies varies in terms of size and geographical location), which we considered comparable to the Company and thus form representative and exhaustive samples.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Stock	Stock	Market		P/E	P/B
Company name	Exchange	code	capitalisation	Principal business	Ratio	Ratio
			(Notes 1		(Note 2)	(Note 3)
			and 5)
			(HK$’million)		(times)	(times)
Fu Shou Yuan	Hong Kong	1448	9,720	Provision of death care	47.3	22.0
International				services and operation of
Group Limited				cemeteries and funeral
(Note 4)				facilities in the PRC
Lungyen Life Service	Taiwan	5530	8,616	Provision of funeral service,	19.0	4.4
Corp.				development and lease of
				interment premises, and
				development and ease of
				residential areas and
				buildings in Taiwan
Cocolonet Co.	Japan	6060	321	Provision and sales of	4.9	0.6
Limited.				funeral services, burial
				related items (include
				headstones, caskets,
				flowers) and wedding
				services in Japan
Heian Ceremony	Japan	2344	713	Provision, operation and	9.1	0.7
Service Co.				sales of wedding, funeral,
Limited				and catering services;
				consulting for property and
				casualty insurances in Japan
San Holdings, Inc.	Japan	9628	629	Operation and provision of	8.9	0.4
				funeral and hearse services
				in Japan
Sun Life Corporation	Japan	4656	493	Provision of wedding and	13.6	1.4
				funeral services; operation
				of hotels, nursing and
				personal care facilities and
				vocational schools in Japan
TEAR Corporation	Japan	2485	745	Provision and operation of	19.0	3.4
				funeral services, funeral
				parlors and inheritance
				related services in Japan
				Maximum	47.3	22.0
				Minimum	4.9	0.4
				Median	13.6	1.4
				Average	21.1	6.9
				Target Company	9.8	0.9

Source: Website of the Stock Exchange of Hong Kong Limited (www.hkex.com.hk), the Tokyo Stock Exchange (www.tse.or.jp), the Taiwan Stock Exchange (www.twse.com.tw) and Bloomberg

Notes:

(1) The market capitalisation of the Acquisition Comparable Companies is based on their respective closing share prices as at 7 February 2014, being the Last Trading Day prior to the Acquisition Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(2) P/E multiples are calculated based on the market capitalisation (using the respective share prices as at the Last Trading Day in the case of the Acquisition Comparable Companies), divided by the respective consolidated profit attributable to shareholders for the last 12-month period unless noted otherwise.
(3) P/B multiples are calculated based on the market capitalisation (using the respective share prices as at the Last Trading Day in case of the Acquisition Comparable Companies), divided by the respective shareholders’ equity as at latest available date unless noted otherwise.
(4) Fu Shou Yuan International Group Limited P/B multiple is calculated based on its market capitalisation (using the respective share prices as at the Last Trading Day in case of the Acquisition Comparable Companies), divided by the respective shareholders’ equity stated in its IPO prospectus as at 30 June 2013.
(5) Foreign exchange assumptions: as at the Last Trading Day TWD/HKD: 0.2561 and JPY/HKD: 7.5951 as published on Bloomberg.

As illustrated on the above table, the P/E Ratio for the Acquisition Comparable Companies represents a range from 4.9 times to 47.3 times, with an average P/E Ratio of 21.1 times. The implied P/E Ratio for the Acquisition of the Target Company is 9.8 times (derived from the consideration of TWD513.7 million (equivalent to approximately HK$132.3 million) divided by 28.84% of the profit after taxation of the Target Company of approximately TWD181.8 million (equivalent to approximately HK$46.6 million) for the last 12-month period (i.e. from 1 October 2012 to 30 September 2013), which is below the average, the median and within the range of the P/E Ratio of the Acquisition Comparable Companies. Given that the implied P/E Ratio of the Target Company is (i) within the range of P/E Ratio of the Acquisition Comparable Companies; and (ii) below the median and average of the P/E Ratio of the Acquisition Comparable Companies, we are of the view that the consideration for the Acquisition of fair and reasonable.

Based on the Acquisition consideration of TWD513.7 million (equivalent to approximately HK$132.3 million) divided by 28.84% of the net asset of the Target Company of approximately TWD1,944.1 million (equivalent to approximately HK$500.6 million), the implied P/B Ratio is approximately 0.9 times, which is below the average, the median and within the range of the P/B Ratio of the Acquisition Comparable Companies. Given that the implied P/B Ratio of the Target Company is (i) within the range of P/B Ratio of the Acquisition Comparable Companies; and (ii) below the median and average and median of the P/B Ratio of the Acquisition Comparable Companies, we are of the view that the consideration for the Acquisition is fair and reasonable.

5.3 Bridge Loan

As stated in the Letter from the Board, the Buyer as the borrower entered into a commitment letter (the “ Commitment Letter ”) with CTBC Bank (中國信託商業銀行) (the “ Bank ”), a commercial bank in Taiwan, on 5 March 2014 for the provision of the bridge loan with a facility limit of HK$140 million (the “ Bridge Loan ”) to the Buyer in order to finance the Acquisition. Pursuant to the Commitment Letter, the Bank agrees to provide the Bridge Loan, subject to certain documentation requirements, agreement of the definitive documentation for the Bridge Loan and the approval of the Acquisition by the Independent Shareholders at the SGM. As provided under the Commitment Letter, the Buyer has to repay the Bridge Loan within thirty (30) days after the Bridge Loan is drawn down and the applicable interest rate is 0.50% above the Bank’s cost of funds per annum. The Bridge Loan is guaranteed by the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the major terms in relation to the Bridge Loan and are not aware of any terms uncommon to market practice. We are also advised that the terms of Bridge Loan were arrived after arm’s length negotiations and were determined with reference to the prevailing market interest. As at the Latest Practicable Date, the Bank’s cost of fund is 2.25% for a 30-day term and the applicable interest rate under the Bridge Loan is therefore 2.75%. Provided that the Bridge Loan is fully drawn down and the interest rate of 2.75% is applied for a 30-day term, the interest expense associated with the Bridge Loan would be approximately HK$321,000. Taking into account (i) that the Bridge Loan is obtained from an independent third party bank, and (ii) the insignificance of the interest expense associated with the Bridge Loan, we are of the view that the terms of Bridge Loan are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

B. The Share Subscription

1. Reasons for the Share Subscription

Pursuant to the Subscription Agreement entered into between the Company and the Vendors, the Company has conditionally agreed to allot and issue and the Vendors have conditionally agreed to subscribe for a total of 149,193,586 Subscription Shares at the price of approximately HK$0.887 per Subscription Share. The net proceeds to be generated from the Share Subscription will amount to approximately HK$132.1 million, which shall be used to repay the Bridge Loan which will be drawn to satisfy the consideration for the Acquisition. The Directors have confirmed that the cash consideration for the Acquisition of TWD513,728,077 (equivalent to approximately HK$132.3 million) will be funded as to approximately HK$132.1 million by the net proceeds from the Share Subscription, and as to approximately HK$0.2 million by internal resources of the Group.

As at 30 September 2013, the net cash of the Group, being cash and cash equivalent less the sum of bank borrowings and obligations under finance leases, amounted to approximately HK$113.6 million. As such, the Directors do not want to use up all its cash for the Acquisition which can otherwise be used in its existing operations as working capital. Moreover, the Directors consider that the Share Subscription will help to broaden the shareholder base of the Company. On this basis, the Directors choose to repay the Bridge Loan by way of issue of the Subscription Shares instead of internal resources.

As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, we have obtained and reviewed the Taiwan legal opinion (including relevant laws and regulations as disclosed therein) on the feasibility and legality regarding the settlement of consideration of the Acquisition. We have enquired and have been advised by the Taiwan legal advisers to the Company that pursuant to Article 6 of 外國人投資條例 (the Statute for Investment by Foreign Nationals) provides that “Investments made under in this Statute consist of the following kinds: 1. cash; 2. machinery and equipment or raw materials for own use; 3. patent right, trademark right, copyright, technical know-how or other intellectual property right; and 4. other property in which the investor may invest under the Investment Commission’s approval.” By issuing new shares and swapping the same with the Shares held by the Shareholders, the Company originally proposed to satisfy consideration for the Acquisition by issuance of new Shares. The Taiwan legal advisers to the Company, however, is uncertain on whether such method of financing belongs to “other property in which the investor may invest under the Investment Commission’s approval” as set forth in Article

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6 of 外國人投資條例 (the Statute for Investment by Foreign Nationals). Taking into account of the uncertainity if the approval from the Investment Commission will be granted if Shares are to be used as consideration for the Acquisition, and in order to comply with the provisions of Article 6 of 外國人投資條例 (the Statute For Investment by Foreign Nationals), the Group is advised to settle the consideration for the Acquisition in cash instead of Shares.

As a result, the settlement of the consideration of the Acquisition by way of cash followed by Share Subscription is to ensure compliance with Article 6 外國人投資條例 (Statute For Investment by Foreign Nationals). Moreover, save for interest expenses related to the Bridge Loan, the net financial effect of cash followed by the Share Subscription and Share Subscription alone to the Group will be nearly the same. We are of the view that the settlement method is in the interests of the Company and the Independent Shareholders as a whole.

2. Terms of the Share Subscription

The Subscription Shares will be allotted and issued at a Subscription Price of approximately HK$0.887 per Subscription Share, which is calculated by dividing the HK$ equivalent of the consideration for the Acquisition by the Subscription Price. The Subscription Share represents approximately 14.8% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 12.9% of the issued share capital of the Company as enlarged by the issue of Subscription Shares.

At the date of completion of the Share Subscription in accordance with the terms and conditions of the Subscription Agreement (or such other date as the Company and the Vendors may agree), the Vendors shall pay to the Company the aggregate Subscription Price for the Subscription Shares agreed to be subscribed, subject to 149,193,586 Subscription Shares, and the Company shall allot and issue all the Subscription Shares to the Vendors. The Subscription Shares, when issued, shall rank pari passu in all respects with all other Shares on the date of the issue of the Subscription Shares. Each of the Vendors irrevocably and unconditionally undertakes not to sell, dispose of or create any encumbrance on any Subscription Shares for a period of six months from the date of allotment and issue of such Subscription Shares without prior written consent or waiver from/by the Company. The Subscription Shares will also be allotted and issued by the Company under the Specific Mandate.

As stated in the Letter from the Board, the Directors (including the independent non-executive Directors) consider that the Subscription Agreement is entered into on an arm’s length basis and on normal commercial terms between the Company and the Vendors and that the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. We have reviewed the major terms of the Subscription Agreement and discussed with the Directors regarding those major terms of the Subscription Agreement and are not aware of any terms which are uncommon to normal market practice. We are also advised that the terms of the Subscription Agreement were determined by the Company and the Vendors after arm’s length negotiations. Having considered the above, we are of the view that the terms of the Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Subscription Price

The Subscription Price of approximately HK$0.887 per Subscription Share represents:

a. a premium of approximately 4.4% over the closing price of HK$0.85 per Share as quoted on the Stock Exchange on the Last Trading Day;
b. a premium of approximately 5.6% over the average of the closing prices per Share of approximately HK$0.84 as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;
c. a premium of approximately 5.6% over the average of the closing prices per Share of approximately HK$0.84 as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
d. a premium of approximately 97.1% over the audited consolidated net asset value per Share of approximately HK$0.45 as at 30 September 2013 (based on a total of 1,007,443,153 Shares as at the Latest Practicable Date and the Group’s audited consolidated net asset value attributable to the Shareholders of approximately HK$455.9 million as at 30 September 2013); and
e. a premium of approximately 12.3% over the closing price of the Shares of HK$0.79 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

To assess the fairness and reasonableness of the Subscription Price, we have reviewed the historical closing prices and trading volumes of the Shares during the period from 8 February 2013 to the date prior to the Subscription Agreement (i.e. 7 February 2014), being the 12 full calendar months period prior to the Subscription Agreement (the “ Historical Review Period ”).

3.1. Historical closing prices

The following graph illustrates the movement of the historical daily closing price of the Shares during the Historical Review Period:

==> picture [245 x 152] intentionally omitted <==

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

Subscription Price = HK$ 0.887
0.95
0.85
0.75
0.65
0.55
0.45
0.35
0.25
Closing Price (HK$)
8/2/2013 28/2/2013 20/3/2013 9/4/2013 29/4/2013 19/5/2013 8/6/2013 28/6/2013 18/7/2013 7/8/2013 27/8/2013 16/9/2013 6/10/2013 26/10/2013 15/11/2013 5/12/2013 25/12/2013 14/1/2014 3/2/2014
----- End of picture text -----

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above chart, (i) the highest closing price of Shares during the Historical Review Period was HK$0.88 on 29 January 2014; and (ii) the lowest closing price was HK$0.295 on 19 February 2013, 20 February 2013 and 21 February 2013. The Subscription Price of approximately HK$0.887 represents a premium of approximately 0.8 % over such highest closing price of Shares and represents a premium of approximately 200.7% over such lowest closing price of Shares.

3.2 Historical trading volume

For the purpose of assessing the trading liquidity of the Shares, we set out below the historical monthly trading volume of the Shares during the Historical Review Period:

					Approximate
					percentage of
					average daily	Approximate
					trading	percentage of
					volume to	average daily
					total number	trading
					of Shares	volume to
					held by	total number
		Maximum	Minimum	Average daily	public	of Shares in
	Total trading	daily trading	daily trading	trading	Shareholders	issue at the
	volume for	volume for	volume for	volume for	at the Latest	Latest
	the month/	the month/	the month/	the month/	Practicable	Practicable
	period	period	period	period	Date	Date
	(number of	(number of	(number of	(number of	(Note 1)	(Note 2)
	shares)	shares)	shares)	shares)	%	%
2013
February*	32,479,000	14,522,000	—	2,706,583	0.39	0.27
March	384,084,791	286,447,309	—	19,204,240	2.74	1.91
				(Note 3)
April	332,554,400	274,102,000	190,000	16,627,720	2.37	1.65
				(Note 4)
May	64,354,978	10,107,760	390,000	3,064,523	0.44	0.30
June	33,547,622	7,540,867	150,000	1,765,664	0.25	0.18
July	7,156,000	1,092,000	—	325,273	0.05	0.03
August	3,912,400	565,000	—	186,305	0.03	0.02
September	6,970,000	4,192,000	—	348,500	0.05	0.03
October	6,489,600	1,422,000	8,000	309,029	0.04	0.03
November	8,999,036	4,057,680	—	428,526	0.06	0.04
December	5,762,400	1,195,000	—	288,120	0.04	0.03
2014
January	43,041,358	12,188,111	98,000	2,049,588	0.29	0.20
February	3,474,000	1,334,000	130,000	868,500	0.12	0.09
The Review**	932,825,585	286,447,309	0	3,854,651	0.55	0.38
Period

Notes:

The trading volumes of the Company are recorded from 8 February 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

** The trading volumes of the Company are recorded up to the date prior to the Acquisition Agreement and the Subscription Agreement (i.e. 7 February 2014).
Based on the total number of Shares held by public Shareholders of 700,368,847 Shares as at the Latest Practicable Date.
Based on the total number of issued Shares of 1,007,443,153 Shares as at the Latest Practicable Date.
As advised by the Directors, on 25 March 2013, Mr. Anthony Lee purchased 281,313,309 Shares, representing approximately 98.2% of the total volume during the day and approximately 73.2% of the total volume during the month. On the same day, Ms. Chu Yuet Wah (i.e. a former substantial Shareholder) sold 261,313,309 Shares, representing approximately 91.2% of the total volume during the day and approximately 68.0% of the total volume during the month.
As advised by the Directors, on 22 April 2013, Mr. Chim Pui Chung (i.e. a former substantial Shareholder) sold 271,000,000 Shares, representing approximately 98.9% of the total volume during the day and approximately 81.5% of the total volume during the month.

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

The graph and table above further illustrated the liquidity of the Shares was particularly low. During the Historical Review Period, the highest average daily trading volume was in March 2013 of approximately 19,204,240 Shares, representing approximately 1.91% of the total number of issued Shares and approximately 2.74 % of the total number of Shares held by the public Shareholders. The total average daily trading volume during the Historical Review Period was approximately 3,854,651 Shares, representing merely approximately 0.38% of the total number of issued Shares and approximately 0.55% of the total number of Shares held by the public Shareholders. Therefore, we consider the liquidity of the Shares to be thin and/or low throughout the Historical Review Period.

With reference to the above, given that (i) the Subscription Price of approximately HK$0.887 represents a premium of approximately 0.8 % over such highest closing price of Shares and represents a premium of approximately 200.7% over such lowest closing price of Shares; and (ii) the trading liquidity of the Shares during the Historical Review Period is thin and/or low, we are of the view that the terms and conditions of the Subscription are on normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

4 Potential financial effects of the Acquisition and the Share Subscription

The financial effects of the Acquisition and the Share Subscription are summarized as the following. It should be noted that the analyses, below are for illustrative purposes only and do not purport to represent how the financial position of the Company will be upon Completion.

4.1 Earnings

After Completion, the Target Group’s results will be equity accounted for as an associated company in the consolidated financial statements of the Company. According to HKAS 28 Investments in Associates, the income statement of the Company should include the post-acquisition share of profits that the associate company generated as share of results of an associate. As disclosed in the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Annual Report, the Group recorded profit attributable to owners of the Company of approximately HK$73.1 million for the year ended 30 September 2013. Assuming the completion of the Acquisition and the Share Subscription had taken place on 1 October 2012, the Group’s profit for the year ended 30 September 2013 would have increased from approximately HK$73.1 million to approximately HK$92.6 million. The share of results of the Target Group for the year ended 30 September 2013 is estimated to be approximately HK$24.5 million, comprising the share of profits of the Target Group for the year ended 30 September 2013 of approximately HK$13.7 million and the excess of the Group’s share of the net fair value of the Target Company’s identifiable assets, liabilities and contingent liabilities as at 1 October 2012 over the cost of acquisition of the Target Group of approximately HK$10.8 million. The adjusted profit attributable to owners of the Company would increase by approximately HK$19.5 million, comprising the share of results of the Target Group for the year ended 30 September 2013 of approximately HK$24.5 million and the estimated legal and professional fee allocated to be related to the Acquisition of approximately HK$5.0 million, which would enable the Group to enjoy a higher profit.

In addition, save for the expenses relating to the Share Subscription, we are of the view that the completion of the Share Subscription will not have any immediate impact on the Group’s earnings as the net proceeds from the Share Subscription are intended to be used to repay the cash consideration for the Acquisition.

4.2 Net asset value

According to the Annual Report, the Group’s audited net assets were approximately HK$455.9 million and the Group’s audited net asset value per Share was approximately HK$0.45 as at 30 September 2013. According to HKAS 28 “Investments in Associates”, the balance sheet of the Company shall recognise the investment of the Target Group at cost, and the carrying amount of the Target Group is increased or decreased to recognise the Company’s share of the profit or loss of the Target Group after the date of Acquisition (taking into account the fair value adjustments to the carrying value of assets in the determination of the ‘bargain purchases’ amount). Based on the unaudited pro forma financial information of Remaining Group as set out in Appendix II to the circular and assuming completion of the Acquisition had been taken place on 30 September 2013, the adjusted non-current assets would increase by approximately HK$152.5 million, taking into account, among others, the fair value adjustments of approximately HK$18.0 million. According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to the circular, the fair value adjustments of approximately HK$18.0 million represents the recognition of the excess of the Group’s share of the net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013, totaling approximately HK$152.5 million over the cost of acquisition of the Target Company of TWD 513.7 million (equivalent to approximately HK$134.5 million). The excess of HK$18.0 million is based on independent professional valuation report and management accounts of the Target Group as at 30 September 2013 as if Acquisition had taken place on 30 September 2013. The valuation was performed by an independent professional valuer in Taiwan, China Intangible Asset Appraisement Co., Ltd. (“ CIAAC ”), for the purpose of determining the fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013. The actual amount of such access can only be determined at the date of Completion and cost of acquisition of the Target Group would be based on the market value of the Subscription Shares at the date of Completion. At the same time, the Share Subscription would increase the share capital of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Group. Based on the Subscription Price of HK$0.887, the share capital and share premium arising on the Share Subscription adjusted for related expense of the Share Subscription would increase by approximately HK$134.2 million, the net proceeds of the Share Subscription shall be used to repay the loan to be obtained to satisfy the consideration for the Acquisition of TWD513,728,077 (equivalent to approximately HK$134.5 million based on the closing rate of TWD1.00 to HK$0.2618 as at 30 September 2013). The shortfall amount of approximately HK$0.3 million and the estimated legal and professional fee allocated to be related to the Acquisition of approximately HK$5.0 million shall be settled by internal resources of the Company. The Acquisition and the Share Subscription should increase the Group’s net asset value to approximately HK$603.1 million and the Group’s net asset value per share to approximately HK$0.52 (based on a total of 1,156,636,739 in issue after the completion of Share Subscription).

We have relied upon the bases and assumptions of the valuation report prepared by CIAAC on the fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013 of approximately HK$152.5 million as mentioned above and we understand that CIAAC is a Certified Valuation Analyst of International Association of Consultants, Valuers and Analysts and is a member of Chinese Association of Business and Intangible Assets Valuation (中華無形資產暨企業評價發展協會) (certificate number: 000005). CIAAC’s team members have relevant experience in valuing funeral related assets/businesses in Taiwan. We have reviewed the qualification and experience of CIAAC, and based on CIAAC’s representation to us, we consider that it is fair and reasonable for CIAAC to conduct the valuation of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013 given their relevant qualification and experience.

4.3 Working capital

The consideration for the Acquisition of TWD513,728,077 (equivalent to approximately HK$132.3 million) shall be settled by the loan to be obtained from the net proceeds of the Share Subscription through the issuance of 149,193,586 Subscription Shares by the Company to the Vendors at completion date (which shall coincide with the date of completion of the Acquisition) at a price of approximately HK$0.887 per Subscription Share. Therefore, the Acquisition will not have any effects on the cash position of the Group.

5 Effect on the shareholding structure of the Company

Reference is made to the shareholding structure of the Company as set out in the section headed “Effects on the shareholding structure of the Company as a result of the issue of the Subscription Shares” in the Letter from the Board. The shareholding of the existing Independent Shareholders will decrease from approximately 69.5% down to approximately 60.6% upon completion of the Share Subscription, assuming a maximum of 149,193,586 Subscription Shares will be allotted and issued in full and also assuming none of the share options granted by the Company is exercised on or before the date of allotment and issue of the Subscription Shares. As at the Latest Practicable Date, the Company has 13,500,000 new Shares which may be issued pursuant to the outstanding share options.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notwithstanding the number of Shares in issue will increase by the issuance of Subscription Shares, the audited net asset value of the Company per Share immediately following the completion of Share Subscription will be HK$0.52 (based on a total of 1,156,636,739 in issue after the completion of subscription), which is higher than the audited net asset value of the Company per Share of HK$0.45 as at 30 September 2013. On this basis, the value of the existing Shareholders’ interest in the Company’s combined net asset value would be effectively increased as a result of the Subscription as well as the Acquisition.

Having considered (i) the benefits of the Share Subscription attributable to the Group as mentioned in the paragraph headed “1. Reasons for the Share Subscription” above; (ii) the fairness and reasonableness of the Subscription Price of approximately HK$0.887 in the section headed “3. The Subscription Price” above; (iii) that the issue of the Subscription Shares will strengthen the Company’s capital base, broaden its Shareholder base and enhance the Group’s overall net asset position; and (iv) the issue of Subscription Shares for settlement of the consideration of the Acquisition would enable the Group retain its cash for usage in its existing operations as working capital; and (v) that the value of the existing shareholders interest in the Company’s net asset value would be effectively increased as a result of the Share Subscription as well as the Acquisition, we consider that the dilution effect on the shareholdings of the existing Independent Shareholder resulting from Share Subscription is acceptable, fair and reasonable.

C. THE DISPOSAL

On 8 February 2014, the Company and the Purchasers entered into the Disposal Agreement, pursuant to which, among other things, the Company agreed to sell and the Purchasers agreed to purchase the Sale Shares, representing the entire issued share capital of the Disposal Group and the Shareholders’ Loans, representing the net amount due from the Disposal Group to the Remaining Group as at Completion for a total cash consideration of approximately US$25.0 million (equivalent to approximately HK$194.5 million). Completion of the Disposal is conditional upon, among other things, the completion of the Acquisition. Details of the conditions precedent to the completion of the Disposal are set out in the sub-section headed “Conditions” under the section headed “The Disposal Agreement” in the Letter from the Board.

1. Background of the Disposal Group

1.1 Information on the Disposal Group

As stated in the Letter from the Board, the Disposal Group comprises the PHL Group and the PGH Group. The Disposal Companies are direct wholly-owned subsidiaries of the Company and are investment holding companies as at the Latest Practicable Date. Upon completion of the Disposal, the Disposal Companies will cease to be subsidiaries of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PHL is a company incorporated in the BVI with limited liability. The PHL Group is principally engaged in the contract manufacturing, on OEM and EMS bases, of a wide range of power-related and electrical or electronic products, including industrial-grade charges, electronic components and products such as industrial work lights, coils and solenoids and printed circuit board assembly, as well as end-user durables such as charges for self-drive cars and toys for children, energy-efficient travel chargers and LED lights.

PGH is a company incorporated in Hong Kong with limited liability. The PGH Group is principally engaged in (i) the manufacture, procurement and distribution of a broad line of hand, lawn and garden tools; (ii) the procurement and assembly of magnetic tools and products including cast alloy permanent magnets, magnetic tools, magnetic chucks and turnkey magnetic systems; and (iii) the manufacture, assembly and procurement of metrology and measurement tools, including gauges for checking the threads, diameters, tapers of machined components, precision bore gauges and hardness testing equipment, for the automotive, aerospace, and oil and gas industries.

1.2 Financial information of the Disposal Group

The table below sets out the summary of the unaudited consolidated income statement of the PHL Group and the PGH Group for the two years ended 30 September 2013, as extracted from Appendices III and IV to this circular, respectively:

	For the	year ended
	30 September
	2013	2012
	HK$’million	HK$’million
	(Unaudited)	(Unaudited)
PHL Group
Profit before taxation	22,947	31,101
Profit after taxation	17,602	25,804
PGH Group
Continuing operations (Note)
Profit before taxation	65,786	49,967
Profit after taxation	46,143	31,797

Note: On 17 September 2012, PGH disposed of its entire equity interest in an indirectly owned subsidiary to PGH’s fellow subsidiary as part of the reorganization of the Group. Therefore, the results of the remaining members of the PGH Group is reported under “Continuing operations”.

As stated in the Letter from the Board, as at 30 September 2013, the unaudited net asset values of the PHL Group and the PGH Group amounted to approximately HK$92.4 million and HK$217.0 million respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The unaudited net profit after taxation of the PHL Group amounted to approximately HK$25.8 million and approximately HK$17.6 million for the two financial years ended 30 September 2012 and 2013 respectively. The unaudited net asset value of the PHL Group as at 30 September 2013 amounted to approximately HK$92.4 million. As advised by the Management, the decrease of PHL Group’s performance in 2013 was mainly due to (i) the fact that PHL Group’s major customers ordered less products as a result of difficult economic conditions in key markets in Europe and US; and (ii) direct labour costs have been significantly impacted by increases in the PRC statutory minimum wage. For instance, in the province of Shenzhen, monthly minimum wage has been increased by approximately 13.6% from RMB1,320 in 2011 to RMB1,500 in 2012 and approximately 6.7% from RMB1,500 in 2012 to RMB1,600 in 2013.

The unaudited net profit after taxation of the PGH Group amounted to approximately HK$31.8 million and approximately HK$46.1 million for the two financial years ended 30 September 2012 and 2013 respectively. The unaudited net asset value of the PGH Group as at 30 September 2013 amounted to approximately HK$217.0 million. As advised by the Management, the improvements of PGH Group’s performance in 2013 were mainly attributable to (i) the increase in revenue in sector results from the Group’s Tools business of approximately HK$8.3 million, the Precision Measurement business of approximately HK$0.9 million and the Magnetic Technologies business of approximately HK$6.2 million; (ii) reduced costs of approximately HK$9.7 million as a result of increased production efficiency in the Tools division’s Jiangmen Plant; and (iii) an increase in the share of profits of approximately HK$2.5 million in Ningbo Hi-tech.

2. Information on the Purchasers

The Purchasers comprise New Wave Capital Limited and Kings Victory Limited, both of which are investment holding companies. The Purchasers are incorporated in the BVI with limited liability and are beneficially owned by Mr. Hsu.

3. Background of and reasons for the Disposal

As stated in the Letter from the Board, as consistent with its past policies, the Group continually reviews its existing businesses and trading strategy to seek opportunities, both in terms of acquisitions and divestments, that will improve its overall financial position and which will enhance the Group’s profitability and free cash flow. In addition, the Directors consider it beneficial to seek suitable new investments which, where material, may be funded by the sale of current Group operations, in order to enter businesses which will offer greater earnings potential than the existing operational portfolio.

Given that the worsening underfunding of the Plan in conjunction with little to no economic growth in Europe and inflationary production cost price pressures in the PRC will impose an increasingly significant brake on the Group’s growth prospects, the Directors consider that it is in the interests of the Company and the Shareholders to dispose the PGH Group and the PHL Group as a combined package. By disposing of the PGH Group, together with the PHL Group will allow the Group to avoid the increasing cost pressures in its PRC manufacturing businesses and at the same time, exit from low margin businesses. In addition, it will allow the divestment of certain UK-based companies that have an increasing cash commitment to make good a volatile UK pension liability.

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We have taken into account the following factors when assessing the rationale behind the Disposal:

3.1 Represents a good opportunity for the Group to dispose PHL Group’s business in an industry with less favourable operating condition

According to the PHL Group’s website (http://www.pantene.com.hk), PHL Group currently has a 20,000 square meter manufacturing plant in Songgang, Shenzhen in the PRC, with a labour force of approximately 1,400 employees. As advised by the Management, given that PHL Group’s products are assembled in the PRC, the rising wage levels in the PRC pose a threat to the Group’s ability to maintain its profit margin.

Labour cost in the PRC is affected by the demand for and supply of labour as well as economic factors in the PRC including the inflation rate and standard of living. According to the National Bureau of Statistics of China, the average labour cost in the PRC has increased by approximately 239.0% from 2003 to 2012. With reference to the notice released by the Shenzhen Municipal Human Resources and Social Security Bureau regarding the adjustment of the minimum wage in Shenzhen 《深圳市人力資源保障局關於調整我市最低工資標準的通知》, effective on 1 February 2014, the mandatory minimum wage has been increased by approximately 13.0 %, from RMB1,600 per month to RMB 1,808 per month, while its hourly minimum wages have been adjusted from RMB 14.5 to RMB 16.5. In 2013, 24 regions in China have adjusted their minimum wage levels, including Shenzhen, Shanghai, Guangdong, Xinjiang, Tianjin, Jiangsu, Zhejiang, Beijing, Shandong, Fujian, Jilin, Liaoning. Hubei, Ningxia, Shanxi, Yunan, Anhui, Henan, Jiangxi, Guangxi, Gansu, Sichuan, Shaanxi and Guizhou. Detailed information can be found in below table:

2013 Minimum wage updates

	Minimum	Minimum
Provinces	monthly wage	hourly wage	Effective date
	(RMB)	(RMB)
Shenzhen	1,808	16.5	1 February 2014
Shanghai	1,620	14.0	1 April 2013
Guangdong	1,550	15.0	1 May 2013
Xinjiang	1,520	15.2	1 June 2013
Tianjin	1,500	15.0	1 April 2013
Jiangsu	1,480	13.0	1 July 2013
Zhejiang	1,470	12.0	1 January 2013
Beijing	1,400	15.2	1 January 2013
Shandong	1,380	14.5	1 March 2013
Fujian	1,320	14.0	1 August 2013
Jilin	1,320	11.5	1 July 2013
Liaoning	1,300	13.0	1 July 2013
Hubei	1,300	14.0	1 September 2013
Ningxia	1,300	12.5	1 May 2013

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2013 Minimum wage updates
	Minimum	Minimum
Provinces	monthly wage	hourly wage	Effective date
	(RMB)	(RMB)
Shanxi	1,290	14.0	1 April 2013
Yunan	1,265	11.0	1 May 2013
Anhui	1,260	13.0	1 July 2013
Henan	1,240	11.7	1 January 2013
Jiangxi	1,230	12.3	1 April 2013
Guangxi	1,200	10.5	7 February 2013
Gansu	1,200	12.7	1 April 2013
Sichuan	1,200	12.6	1 July 2013
Shanxi	1,150	11.5	1 January 2013
Guizhou	1,030	11.0	1 January 2013

Source: Website of Shenzhen Municipal Human Resources and Society Security Bureau (http://www.szhrss.gov.cn)

From the above table, after the latest round of adjustments come into effect, we note that Shenzhen holds the highest monthly minimum wage at RMB1,808, followed by Shanghai at RMB1,620. Shenzhen will also have the nation’s highest hourly wage rate at RMB16.5, followed by Beijing and Xinjiang at RMB15.2. As advised by the Management, the minimum wage adjustment and the labour shortage across the province have put pressure on the operating cost for the Group which might affect the competitiveness and profitability of the Group. The Directors are of the view that the Disposal represents a good opportunity for the Group to dispose of the business in an industry with less operating condition and based on the analysis as mentioned aforesaid, we concur with the view of the Directors that it is in the interests of the Company to dispose of the PHL Group, as Shenzhen holds the highest monthly minimum wages in the PRC in 2014 which will put pressure on the operating costs of the Group in the long-run.

3.2 Floating exchange rate regime have an adverse effect on the profit margin of the PHL Group

On 21 July 2005, the PRC Government reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market demand and supply by reference to a basket currencies, determined by The People’s Bank Of China. This change in policy has resulted in the value of the RMB appreciating against the USD significantly, from the exchange rate of US$1:RMB8.28 in January 2005 to US$1:RMB6.22 in January 2013. As advised by the Management, most of the PHL Group’s sales and raw material purchases are denominated in US$ and HK$ where the manufacturing overhead is denominated in RMB. Appreciation of RMB against USD will therefore have an adverse effect on the profit margin of the PHL Group.

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3.3 A potentially significant increase in annual contributions that the Group has to pay into the Plan for a period of 16 years ending on 5 April 2030 which, theoretically, could rise to approximately £8.3 million (equivalent to approximately HK$105.5 million) and approximately £4.7 million (equivalent to approximately HK$59.7 million) as a result of the increases in the estimated Technical Deficit as at 5 April 2013 and 31 August 2013, respectively

As stated in the Letter from the Board, the Group operates a contributory defined benefit pension plan, the James Neill Pension Plan (the “ Plan ”), that covers a number of its employees in certain of its UK-based subsidiaries (the “ Participating Employers ”, including the principal employer, i.e. the “ Sponsoring Employer ”) of the PGH Group. The Plan effectively creates an obligation on the Participating Employers to provide agreed benefits to current and past employees at retirement. The Plan is funded by contributions from both the active members of the Plan and the Participating Employers and is administered by the Plan’s trustees (the “ Trustees ”) and their advisers. An actuarial valuation of the Plan, performed by the Plan’s actuary, is required at least every three years (the “ Triennial Valuation ”), which establishes the value of the Plan’s assets and the amount required to pay the promised pensions as they fall due. If the pension liabilities are greater than the pension assets, the pension plan is underfunded and there is a pension deficit which, under regulatory requirements, the Sponsoring Employer is required to make good over as short a time period as possible.

In addition, as stated in the Letter from the Board, if the pension assets are less than the pension liabilities after the determination of the Triennial Valuation, a schedule of annual contributions (the “ Contribution Schedule ”) must then be agreed between the Trustees and the Sponsoring Employer after consultation with the Plan’s actuary. The purpose of the Contribution Schedule is to provide a summary of annual contributions required from the Participating Employers over an agreed time frame to meet both the cost of ongoing pension provision and also the cost of making good the past service deficit as quickly as can be reasonably afforded by the Participating Employers in accordance with relevant regulatory requirements.

Set out below is a summary of (i) the fair value of the Plan’s assets; (ii) the present value of funded obligations; and (iii) the Plan’s deficit for each of the four years ended 30 September 2010, 2011, 2012 and 2013, stated in line with the Hong Kong Accounting Standard 19 — Employee Benefits and included in the Company’s consolidated financial statement:

		Present value
	Fair value of	of funded
For the year ended 30 September	Plan’s assets	obligations	Plan’s deficit
	(HK$’million)	(HK$’million)	(HK$’million)
2010	1,243.8	(1,423.1)	(179.3)
2011	1,192.9	(1,325.1)	(132.2)
2012	1,309.4	(1,554.6)	(245.2)
2013	1,366.9	(1,556.6)	(189.6)

In accordance with the current Contribution Schedule, from 6 April 2013 the annual rate of contribution will be £2.1 million (approximately HK$26.7 million) and this will increase each year at

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a rate of 4.2% for the remainder of the recovery period, currently estimated to be 17 years. These contributions are based on the recovery of a deficit of £24.5 million (approximately HK$311.4 million) shown by the triennial actuarial valuation as at 5 April 2010 (“ Technical Deficit ”). Set out below is the current Contribution Schedule, which shall be payable towards the Plan by the Company on each of 6 April in the period to 5 April 2030:

			Approximate
		Company	Company
Year	Period	contribution	contribution
		(£)	(HK$)
1	6 April 2010 to 5 April 2011	750,000	9,532,500
2	6 April 2011 to 5 April 2012	954,000	12,125,340
3	6 April 2012 to 5 April 2013	1,079,000	13,714,090
4	6 April 2013 to 5 April 2014	2,100,000	26,691,000
5	6 April 2014 to 5 April 2015	2,188,200	27,812,022
6	6 April 2015 to 5 April 2016	2,280,104	28,980,122
7	6 April 2016 to 5 April 2017	2,375,869	30,197,295
8	6 April 2017 to 5 April 2018	2,475,655	31,465,575
9	6 April 2018 to 5 April 2019	2,579,633	32,787,135
10	6 April 2019 to 5 April 2020	2,687,977	34,164,188
11	6 April 2020 to 5 April 2021	2,800,872	35,599,083
12	6 April 2021 to 5 April 2022	2,918,509	37,094,249
13	6 April 2022 to 5 April 2023	3,041,086	38,652,203
14	6 April 2023 to 5 April 2024	3,168,812	40,275,601
15	6 April 2024 to 5 April 2025	3,301,902	41,967,174
16	6 April 2025 to 5 April 2026	3,440,582	43,729,797
17	6 April 2026 to 5 April 2027	3,585,087	45,566,456
18	6 April 2027 to 5 April 2028	3,735,660	47,480,239
19	6 April 2028 to 5 April 2029	3,892,558	49,474,412
20	6 April 2029 to 5 April 2030	4,056,045	51,552,332

As stated in the Annual Report, the latest triennial valuation at 5 April 2013 is still to be finalised (“ 2013 Triennial Valuation ”) but the draft valuation shows a significantly increased deficit which will require the agreement of a revised Contribution Schedule incorporating increased annual pension contributions from the Company. The revised Contribution Schedule will also be subject to UK pension regulatory approval and may be liable to revision and amendment in future periods dependent on fluctuations, both favourable and adverse, in the actuarially determined value of the Plan investments and liabilities and the financial strengths and cash flow requirements of the Plan’s Participating Employers. As at the Latest Practicable Date, negotiations are still on-going between the Trustees and the Sponsoring Employer concerning the 2013 Triennial Valuation and, the revised Contribution Schedule with the intention that these could be concluded as soon as possible. In any event, agreement has to be reached prior 5 July 2014, the regulatory deadline for the finalisation of 2013 Triennial Valuation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the preliminary results of the 2013 Triennial Valuation as at 5 April 2013 which was carried out by the actuarial advisors to the Plan (“ 2013 Preliminary Report ”), the Technical Deficit was estimated to be approximately £104.7 million (equivalent to approximately HK$1,330.7 million). The preliminary results of the 2013 Triennial Valuation have been updated to 31 August 2013 by the Plan actuary (“ Revised 2013 Preliminary Report ”), and the Technical Deficit was estimated to be approximately £55.0 million (equivalent to approximately HK$699.1 million), taking into account changes in market conditions between the date of the 2013 Triennial Valuation (i.e. 5 April 2013) and 31 August 2013.

As a result, both the estimated Technical Deficit as at 5 April 2013, of approximately £104.7 million (equivalent to approximately HK$1,330.7 million) and the estimated Technical Deficit as at 31 August 2013, of approximately £55.0 million (equivalent to approximately HK$699.1 million) are more than the deficit at 5 April 2010 on which the annual contributions payable under the current Contribution Schedule were based. Under this Contribution Schedule, in the year from 6 April 2013 approximately £2.1 million (equivalent to approximately HK$26.7 million) will be paid and this will increase each year thereafter at a rate of 4.2% to 5 April 2030. Given that the Current Contribution Schedule is insufficient to eliminate the increased deficit, the current level of pension contributions will need to be increased significantly in order to recover the estimated Technical Deficit as at 5 April 2013 or the estimated Technical Deficit as at 31 August 2013.

With reference to the 2013 Preliminary Report and as advised by the Plan actuary, based on the estimated Technical Deficit as at 5 April 2013, the current annual contribution would have to increase from approximately £2.1 million (approximately HK$26.7 million) to approximately £8.3 million (equivalent to approximately HK$105.5 million) for a period of 16 years ending on 5 April 2030. On the other hand, with reference to the Revised 2013 Preliminary Report and as advised by the Plan actuary, based on the estimated Technical Deficit as at 31 August 2013, annual contributions would have to increase from approximately £2.1 million (approximately HK$26.7 million) to approximately £4.7 million (equivalent to approximately HK$59.7 million) for a period of 16 years ending on 5 April 2030.

3.4 Current level of pension contributions will need to increase significantly in order to recover the estimated Technical Deficit as at April 2013 or the estimated Technical Deficit as at 31 August 2013

According to the financial information on the Disposal Group as set out in Appendix IV to the Circular, as at 30 September 2013, the unaudited total liabilities of the PGH Group amounted to approximately HK$513.2 million, which include retirement benefit obligations of approximately HK$189.6 million. The estimated Technical Deficit as at 5 April 2013 was approximately £104.7 million (equivalent to approximately HK$1,330.7 million), which is approximately 4 times higher than the Technical Deficit of £24.5 million (approximately HK$311.4 million) as at 5 April 2010. The estimated Technical Deficit as at 31 August 2013 was approximately £55.0 million (equivalent to approximately HK$699.1 million), which is approximately 2 times higher than the Technical Deficit of £24.5 million (approximately HK$311.4 million) as at 5 April 2010. The estimated Technical Deficits as at 5 April 2013 and as at 31 August 2013 have increased markedly over recent years resulting in a corresponding increase in the Plan’s liabilities.

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Set out below is a summary of the potential financial impact of PGH Group in relation to the estimated Technical Deficit as at 5 April 2013 and the estimated Technical Deficit as at 31 August 2013:

		Estimated Technical	Estimated Technical	Estimated	Technical
		Deficit as at 5 April		Deficit as at	31 August
		2013 (i.e. £104.7 million,		2013 (i.e. £55.0 million,
		equivalent to		equivalent to
		approximately		approximately
		HK$1,330.7 million)		HK$699.1	million)
	As at	Proforma			Proforma
	30 September		of PGH		of PGH
	2013	Adj.	Group	Adj.	Group
Total asset
(HK$ million)	730.2	228.2	958.4	101.9	832.1
Total liabilities (HK$
million)	513.2	1,141.1	1,654.3	509.5	1,022.7
- Retirement benefit
obligations (HK$
million)	189.6	1,141.1	1,330.7	509.5	699.1
- Other liabilities
(HK$ million)	323.6		323.6		323.6
Net assets/(net
liabilities)
(HK$ million)	217.0	(912.9)	(695.9)	(407.6)	(190.6)

Note: The adjustments to total assets shown above represent the provision, at a rate of 20%, of the deferred tax that arises on the increase in pension liabilities relating to the incorporation in the balance sheet of the estimated Technical Deficits at 5 April 2013 and 31 August 2013.

Based on the above table, we note that assuming the estimated Technical Deficits as at 5 April 2013 and as at 31 August 2013 had crystallised as at 30 September 2013, the retirement benefit obligations of PGH Group would increase by approximately HK$1,141 million and by approximately HK$509.5 million, respectively. Such estimated Technical Deficits revaluation shall thereafter at the same time, increase the fair value of the Plan’s retirement benefit obligations by approximately HK$1,141 million and approximately HK$509.5 million respectively. We also note that based on the estimated Technical Deficits as at 5 April 2013 of approximately £104.7 million (equivalent to approximately HK$1,330.7 million), the implied total liabilities of the PGH Group of approximately HK$1,654.3 million exceeds the total assets as adjusted to include the deferred tax impact of including the estimated Technical Deficit, of the PGH Group of approximately HK$958.4 million, resulting in an implied net liabilities of approximately HK$695.9 million. In addition, based on the estimated Technical Deficits as at 31 August 2013 of approximately £55.0 million (equivalent to approximately HK$699.1 million), the implied total liabilities of the PGH Group of approximately HK$1,022.7 million exceeds the total assets as adjusted to include the deferred tax impact of including the estimated Technical Deficit, of the PGH Group of approximately HK$832.1 million, resulting in implied net liabilities of approximately HK$190.6 million. Note that the above comparative analysis

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ignores the mitigating impact on PGH Group’s net assets of providing, at the current UK corporation tax rate of 20% for additional deferred tax assets relating to the increase in the pension deficit. As such, the estimated Technical Deficits as at 5 April 2013 and as at 31 August 2013 increase the financial burden of the Group and thus adversely affect the intrinsic value of the PGH Group.

3.5 High uncertainties in the sustainability of the PGH Group’s profitability in the future

Based on the unaudited combined income statement of the PGH Group’s continuing operations, it recorded a profit before taxation of approximately HK$50.0 million and a profit after taxation of approximately HK$31.8 million for the year ended 30 September 2012 and a profit before taxation of approximately HK$65.8 million and a profit after taxation of approximately HK$46.1 million for the year ended 30 September 2013. Despite the profitability of the PGH Group for each of the two years ended 30 September 2013, we are advised by the Management that there are high uncertainties in the sustainability of the PGH Group’s profitability in the future.

The PGH Group has three divisions comprising the Tools division, the Magnetic Technologies division and the Precision Measurement division. The Tools division is the Group’s largest business segment, accounting for approximately 41.3% and approximately 41.5% of the Group’s total revenue for each of the two years ended 30 September 2012 and 2013, respectively. As stated in the Letter from the Board, the Tools business operates in a highly competitive market where the risk of losing customers is high, margins are low and where, because of intense competitor pressure, there are restricted opportunities to significantly increase sales year on year. We have discussed with the Management and note that apart from the hacksaw blade manufacture and niche hand tool manufacture at Robert Sorby Limited (i.e. one of the UK operating units of PGH Group), Tools products are no longer locally made but are procured mainly from India and Far East. In other words, customers could potentially source the same type of tools products from other suppliers. As advised by the Management, the Magnetic Technologies division’s highest margins are generated from the sale of bespoke magnetic applications. These are essentially one-off in nature and, since they are not standard products, do not have the benefit of being able to generate repeat sales. It is accordingly difficult to accurately assess future revenues. Additionally, these applications are sold into the capital goods market where demand can be volatile and subject to abrupt and unforeseen downturns. This is also a market where the Precision Measurement division operates and, historically, the Precision Measurement division has witnessed significant and unforeseen reductions in order intake as market conditions in this sector have deteriorated. This has led to restructuring and staff retrenchment. The Magnetic Technologies division’s profitability has been buoyed in recent years by its share of income in a 25% joint venture in the PRC. There is no guarantee that the current levels of profit enjoyed by the joint venture will endure and, in the medium term, the existing joint venture arrangement will terminate. In addition to the competitive pressure from other suppliers, the PGH Group is also adversely affected by the degree of leverage exerted on their volume of business in Europe (i.e. UK, France and rest of Europe), caused by pricing pressures and extension on settlement terms from big box retailers.

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We set out below the Real GDP per capita growth rate of Eurozone, France and United Kingdom.

Real GDP per capita growth rate

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% growth rate
3.0%
2.0% 1.7% 1.5%
1.5%
1.2%
1.0%
-0.6%
0.9% 0.4%
0.0%
-0.5%
2008 2009 2010 2011 2012
-1.0% -0.1% -0.7%
-2.0% -1.4% -1.3%
-3.6%
-3.0%
-4.0%
-4.8%
-5.0%
-6.0% -5.8%
-7.0%
Eurozone France United Kingdom
----- End of picture text -----

Source: http://ec.europa.eu/ European Commission

Note: Eurozone include the following 28 European countries per defined by European Commission: Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, United Kingdom, Austria, Finland, Sweden, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Bulgaria and Romania and Croatia.

Sales in Europe accounted for approximately 53.7% and approximately 53.9% of the PGH Group’s total revenue for each of the two years ended 30 September 2012 and 2013, respectively. The global economy continued to suffer from intensifying European debt crisis and its growth continued to be at low level. The real GDP per capita growth rate for the Eurozone dropped to approximately -0.7% in 2012 from approximately 1.5% in 2011. The further deterioration of the European debt crisis continued to affect the major economies in Europe. According to 2012 statistics available from the European Commission, the real GDP per capital growth of United Kingdom and France, together accounted for approximately 80% of PGH Group’s turnover from Europe. The real GDP per capita growth rate for United Kingdom dropped to approximately -1.3% in 2012 from approximately 0.4% in 2011, whereas the real GDP per capita growth rate for France dropped to approximately -0.5% from approximately 1.5% in 2011, respectively. As at the Latest Practicable Date, 2013 statistics regarding the real GDP per capital growth rate for the Eurozone, United Kingdom and France have not yet been announced by the European Commission.

The Management also advised that customers do not provide annual sales forecasts to the PGH Group at the beginning of year, rather the PGH Group will prepare an annual budget based on the expected sales volumes for major product categories/ customers. However, the Management have advised that (i)budgeted sales to customers cannot always be reliably assessed as customers are not obligated in any way to continue placing orders with the PGH Group and actual purchase orders from

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

customers may therefore fluctuate from time to time; (ii) there can be no assurance that the PGH Group would be able to obtain new orders from new customers or existing customers on a continuous basis to maintain the Group’s profitability; (iii) the bargaining power relating to the setting of the pricing for Tools products produced by the PGH Group is considered to be low due to the intense competition of the Tools business; (iv) more than 50% of PGH Group’s operations are located in Europe, a geographical region that has experienced sluggish growth potential, and this further dilutes the amounts that the PGH Group can add to Shareholders’ value. Based on the above and given that (i) we have reviewed the annual historical sales of the Tools business for each of the two years ended 30 September 2013 prepared by the PGH Group and the budgeted sales of the Tools business for each of the two years ended 30 September 2013 and noted that there was a shortfall to the budgeted sales of approximately £4.1 million (approximately HK$52.1 million) and approximately £2.6 million (approximately HK$33.0 million); and (ii) the debt crisis in Europe and the sluggish global market which have discouraged spending and weakened demand for the Tools products, we concur with the Management’s view that the financial performance of the PGH Group may or may not be sustainable in the future.

3.6 Diminishing economic benefits received from the PGH Group

According to the interim report of the Company for the six months ended 31 March 2013, receiving cash from the PGH Group, despite its profitability, is very difficult due to the large underfunded pension liability in the UK. The UK Government pension administrator places a high priority on all companies with an underfunded pension liability to get these plans funded on a timely basis. This has created a huge burden on PGH Group to pay an out-sised portion of its cash flow into the Plan. In addition, the Company is responsible to pay a pension levy to the UK government each year as an insurance policy to cover a potential future default of the Plan. The cash constraints imposed by the funding requirements of the Plan will reduce the amount of cash available for strategic initiatives, essential capital expenditure and other investment. It will also restrict the PGH Group from paying upstream dividends to the Company or making inter-company loans to the Company and other group companies outside UK.

3.7 The Remaining Group can operate independently of the Disposal Group upon Completion

The Remaining Group is principally engaged in the design and manufacture of sophisticated consumer electronic and wireless products including infrared/radio frequency cordless headphones and speakers, noise cancellation headphones, hearing enhancers, audio and video baby monitors (the “ Remaining Business ”). These products are not only sold as OEM/ODM products, but also under the Company’s own brand names. It had manufacturing facilities in Guangdong, the PRC, with 200 executive and clerical staff (including the staff at the head office of the Company) and 696 factory workers as at 30 September 2013 (excluding those of the Target Group). According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular, assuming Completion had taken place on 30 September 2013, total assets and net assets of the Remaining Group are estimated to be approximately HK$473.1 million and HK$400.3 million. As stated in the Letter from the Board, as at the Latest Practicable Date, the Directors (i) intend to focus on the Remaining Business and to seek suitable investment opportunities from time to time to diversify its existing business portfolio after the Disposal, and (ii) have no intention to dispose of and/or scale down the Remaining Business.

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The Disposal Group is principally engaged in contract manufacturing, on OEM and EMS bases, of a wide range of power-related and electrical or electronic products and the manufacture, procurement and distribution of (i) a broad line of hand, lawn and garden tools, (ii) magnetic tools and products including the provision of magnetic-based industrial solutions, and (iii) metrology and measurement tools. As advised by the Management, there are no overlapping suppliers, customers, manufacturing equipment and facilities between the Disposal Group and Remaining Group and therefore, upon Completion, the Disposal will not affect the Remaining Group’s manufacturing function in the future.

Given the above, in particular that (i) PHL Group’s products are assembled in the PRC, where the rising wage levels pose a threat to the Group’s ability to maintain its profit margin and control operating costs in the long-run ; (ii) the floating exchange rate regime which may have an adverse effect on the profit margin of the PHL Group; (iii) a potentially significant increase in annual contributions that the Group has to pay into the Plan for a period of 16 years ending on 5 April 2030 which, theoretically, could rise to approximately £8.3 million (equivalent to approximately HK$105.5 million) and approximately £4.7 million (equivalent to approximately HK$59.7 million) as a result of the increases in the estimated Technical Deficit as at 5 April 2013 and 31 August 2013, respectively; (iv) current level of pension contributions will need to increase significantly in order to recover the estimated Technical Deficit as at April 2013 or the estimated Technical Deficit as at 31 August 2013; (v) high uncertainties in the sustainability of the PGH Group’s profitability in the future; (vi) the cash constraints imposed by the funding requirements of the Plan that will reduce the amount of cash available for strategic initiatives, essential capital expenditure and other investment and also restrict the PGH Group from paying upstream dividends to the Company or making inter-company loans to the Company and other group companies outside UK; (vii) The Remaining Group can operate independently of the Disposal Group upon Completion, we consider that the reasons for the Disposal are justifiable and are of the view that the disposal of both the PHL Group and the PGH Group as a package is in the interest of the Company and its Independent Shareholders as a whole.

4. Use of proceeds

As stated in the Letter from the Board, the net proceeds from the Disposal, after deducting expenses attributable to the Disposal of approximately HK$5.0 million, are estimated to be approximately HK$176.1 million, which shall be used to supplement the Remaining Group’s working capital to maintain its normal production and operation and will also form a source of funds to take advantage of suitable investment opportunities in businesses with increased growth potential that will broaden the Group’s source of income and further improve the financial position of the Group.

Furthermore, the executive Directors confirmed that, as at the Latest Practicable Date and to the best of their knowledge, there are no investment opportunities being discussed on negotiated that may use the proceeds from the Disposal as consideration.

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5. Principal terms of the Disposal Agreement

5.1 The Disposal Agreement

Pursuant to the Disposal Agreement, (i) the Purchasers conditionally agreed to acquire and the Company conditionally agreed to dispose the Sale Shares, which represent 100% of the issued share capital the Disposal Group; and (ii) the Company shall assign the Shareholders’ Loans, which represent the net amount due from the Disposal Group to the Remaining Group. As at the date of the Disposal Agreement, the Shareholders’ Loans amounted to approximately HK$82.9 million, comprising the PHL Shareholder’s Loan of approximately HK$13.4 million and the PGH Shareholder’s Loan of approximately HK$69.6 million.

5.2 The Disposal consideration

The Disposal consideration is US$25.0 million (equivalent to approximately HK$194.5 million), comprising US$20.8 million (equivalent to approximately HK$161.8 million) as the consideration for the PHL Sale Shares, approximately US$1.7 million (equivalent to approximately HK$13.4 million) as the consideration for the PHL Shareholders’ Loan, approximately US$2.5 million (equivalent to approximately HK$19.4 million) as the consideration for the PGH Sale Shares and US$1.0 (equivalent to approximately HK$7.8) for the consideration of PGH Shareholder’s Loan. A deposit in the sum of US$1.0 million (equivalent to approximately HK$7.8 million) (the “ Deposit ”) shall be paid by the Purchasers in cash within seven Business Days of the date of the Disposal Agreement and the balance of the consideration in the sum of US$24.0 million (equivalent to approximately HK$186.7 million) shall be satisfied by the Purchasers in cash upon Completion. As at the Latest Practicable Date, the Deposit has been settled.

As stated in the Letter from the Board, the waiver of the PGH Shareholder’s Loan of approximately HK$69.6 million is in respect of the net shareholder’s loan owed by the PGH Group to the Company. It principally relates to funds provided to PGH by the Company in order to finance PGH’s purchase of the Spear & Jackson group (“ S&J ”) in 2006/2007. In the normal course, this balance would have been repaid using dividend income from S&J to its parent, PGH. The size of the actuarial deficit in the Plan places severe restrictions on S&J’s ability to make upstream dividend payments to its parent. Because of the call that the Plan would have on excess cash funds in S&J, in the event of such payments being made, the Plan trustees could assert (potentially via the Pensions Regulator) that these payments have reduced the strength of the principal employer’s financial covenant and require one-time contributions to be made into the Plan of an amount equivalent to any dividend paid. The requirement to make matching such one-time contributions would then place severe pressure on S&J’s available cash resources and prevent S&J to pay dividend. As at result, PGH has had no funds to repay the PGH Shareholder’s Loan and no realistic prospect of having such funds in the future. Under these circumstances, the PGH Shareholder’s Loan has therefore been waived.

Further, as stated in the Letter from the Board, the consideration for the Disposal was determined after arm’s length negotiation between the Company and the Purchasers taking into account, among others, (i) the recent financial performance and position of the Disposal Group; (ii) the European economies in which the Disposal Group has material operations located; (iii) the rising labor and raw

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material costs of the PRC manufacturing businesses of the Disposal Group; (iv) the possible increases in annual contributions to the Plan operated by certain UK-based subsidiaries of the Disposal Group as a result of the worsening deficit; and (v) other commercial reasons and benefits, which are set out in the section headed “Reasons for and benefits of the Disposal” in the Letter from the Board.

5.2.1 Comparable companies

We have considered adopting the price-to-earnings approach (“ P/E Approach ”) and price-to-book approach (“ P/B Approach ”) in evaluation of the consideration of disposal of the PHL Group and the cost approach in evaluation of the consideration of the PGH Group.

(a) PHL Sale Shares and PHL Shareholder’s Loan

P/E Approach : Based on the consideration of the PHL Sale Shares of approximately US$20.8 million (equivalent to approximately HK$161.8 million) and the outstanding indebtedness owing by the PHL Group to the Company of approximately US$1.7 million (equivalent to approximately HK$13.2 million) as at 30 September 2013, the consideration of the PHL Sale Shares is approximately US$22.5 million (equivalent to approximately HK$175.1 million as at 30 September 2013. Based on the unaudited consolidated income statement of the PHL Group, the unaudited net profit for the year ended 30 September 2013 amounted to approximately HK$17.6 million. Accordingly, the price-to-earnings ratio (“ P/E Ratio ”) of the PHL Group implied by the consideration for the PHL Sale Share is approximately 10.0 times.

P/B Approach : Based on the consideration of the PHL Sale Shares of approximately US$20.8 million (equivalent to approximately HK$161.8 million) and the outstanding indebtedness owing by the PHL Group to the Company of approximately US$1.7 million (equivalent to approximately HK$13.2 million) as at 30 September 2013, the consideration of the PHL Sale Shares is approximately US$22.5 million (equivalent to approximately HK$175.1 million as at 30 September 2013. Based on the unaudited management accounts of the PHL Group, the unaudited net assets value of the PHL Group amounted to approximately HK$92.4 million as at 30 September 2013. Accordingly, the price-to-book ratio (“ P/B Ratio ”) of the PHL Group implied by the consideration for the PHL Sale Share is approximately 1.8 times.

In assessing the fairness and reasonableness of the consideration for the PHL Sale Shares, we have compared the P/E Ratio and the P/B Ratio of the PHL Group implied by the consideration for the PHL Sale Shares with those of other comparable companies. For our purpose of comparison, we have shortlisted, to the best of our knowledge, and so far as we are aware of, all companies listed on the Stock Exchange that are involved in the business of the manufacturing and sales of power-related and electrical or electronic products, including tools, charges, LED related consumer electronics, mould maker, PCB, cables, coils and solenoids, being the principal business similar to that of the PHL Group, as industry peers (“ PHL Comparable Companies ”). The selection criteria have provided us with reasonably sufficient samples for comparison purpose. Furthermore, the PHL Comparable Companies operate factories in the PRC and are listed on the Stock Exchange, which is similar to the Company. Based on the above, we are of the view that the PHL Comparable Companies provides a good representation of the industry peers for the PHL Group and form a representative sample.

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Whilst comparable companies analysis for the PHL Group reflect current market sentiment towards the sector and provide guidance on valuation, our analysis does not take into account differences in accounting policies and standards, different interim financial reporting periods as well as differences in business models and/or tax treatments, nor does not it take into account any possible unique characteristic(s) of different companies and no adjustments have been made to account for such differences. We note that the financial information of all PHL Comparable Companies is prepared on the basis of Hong Kong Financial Reporting Standards (“ HKFRS ”) in all material aspects. Financial information of the PHL Group is also prepared in accordance with HKFRS.

We have considered our analysis and identified, to the best of our knowledge, an exhaustive list of 11 PHL Comparable Companies based on the above-mentioned selection criteria that we consider to be the closest comparables (after taking into consideration the factors as set out in our selection criteria) to the PHL Group’s business. We set out in the table below these PHL Comparable Companies and their relevant valuation multiples based on their respective market trading prices. The valuation multiples of the PHL Comparable Companies are based on their respective share prices as at 7 February 2014, being the date of entering into the Disposal Agreement, their respective financial positions of balance sheet items, and the financial information for the 12-month period ended 31 December 2012 for all PHL Comparable Companies.

Table 1: PHL Comparable Companies

	Stock	Market
Company name	code	capitalisation	Principal business	P/E	P/B
		(Note 1)		(Note 2)	(Note 3)
		(HK$’million)		(times)	(times)
Techtronic Industries Co.	669	35,353	Engaged in the manufacturing	20.4	2.8
Ltd.			and trading of power tools,
			outdoor power equipment, and
			floor care and appliances for
			consumers, professional and
			industrial users.
China Aerospace	31	2,468	Engaged in the manufacturing	4.8	0.6
International Holdings			and distribution of plastic
Limited			products, liquid crystal display,
			printed circuit boards,
			intelligent chargers, polyimide
			films and trading of electronic
			products.
EVA Precision Industrial	838	1,613	Engaged in the design and	28.0	0.8
Holdings Limited			fabrication of metal stamping
			and plastic injection moulds and
			the manufacturing of metal
			stamping and plastic injection
			components and lathing
			components.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Stock	Market
Company name	code	capitalisation	Principal business	P/E	P/B
		(Note 1)		(Note 2)	(Note 3)
		(HK$’million)		(times)	(times)
Lung Kee (Bermuda)	255	1,788	Engaged in the manufacturing	9.1	0.7
Holdings Limited			and sales of mould bases and
			related products.
TK Group (Holdings)	2283	944	Engaged in the design and	6.7	4.8
Limited			fabrication of plastic injection
			moulds and the mechanical
			design and manufacturing of
			plastic components.
Elec & Eltek	1151	2,337	Engaged in the fabrication and	11.6	0.8
International Company			distribution of double-sided,
Limited			multi-layer and high density
			interconnect printed circuit
			boards.
Regent Manner	1997	2,730	Engaged in the manufacturing	6.0	0.9
International Holdings			and sales of TFT-LCD panels
Limited			and various electronics
			products.
Topsearch International	2323	260	Engaged in the manufacturing	2.2	0.4
(Holdings) Limited			and sales of a broad range of
			printed circuit boards.
Hengxin Technology	1085	466	Engaged in the research, design,	6.7	0.4
Limited			development and manufacture
			of telecommunications and
			technological products,
			production of radio frequency
			coaxial cables for mobile
			communications and mobile
			communications systems
			exchange equipment.
Trigiant Group Limited	1300	2,531	Engaged in the manufacturing	6.8	1.7
			and sales of radio frequency
			coaxial cable series and related
			products for mobile
			telecommunications and
			telecommunications equipment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Stock	Market
Company name	code	capitalisation	Principal business	P/E	P/B
		(Note 1)		(Note 2)	(Note 3)
		(HK$’million)		(times)	(times)
Wing Lee Holdings	876	314.	Engaged in the manufacturing	1.9	0.9
Limited			and trading of electronic
			components, such as RCA pin
			jack, phone jack, USB and
			PCMCIA connectors.
			Maximum	28.0	4.8
			Minimum	1.9	0.4
			Average	9.5	1.3
			Median	6.7	0.8
			The PHL Group	10.0	1.8

Source: Bloomberg, the website of the Stock Exchange (www.hkex.com.hk) and company websites

Notes:

(1) The market capitalisation of the PHL Comparable Companies are based on their respective closing price as at 7 February 2014, being the Last Trading Day prior to the Disposal Agreement.
(2) P/E multiples are calculated based on the market capitalisation (using the respective share prices as at the Last Trading Day in case of the PHL Comparable Companies), divided by the respective consolidated profit attributable to shareholders for the 12-month period ended 31 December 2012 unless noted otherwise.
(3) P/B multiples are calculated based on the market capitalisation (using the respective share prices as at the Last Trading Day in case of the PHL Comparable Companies), divided by the respective shareholders’ equity as at 30 June 2013 unless noted otherwise.

As illustrated in the above table, the PHL Comparable Companies are trading at the P/E multiples ranging from approximately 1.9 times to approximately 28.0 times, with an average of approximately 9.5 times and a median of approximately 6.7 times. It is noted that the P/E Ratio of the PHL Group implied by the PHL consideration of approximately 10.0 times falls within the range of the PHL Comparable Companies, higher than the average P/E multiples and the median P/E multiples of the PHL Comparable Companies. In addition, the PHL Comparable Companies are trading at P/B multiples ranging from approximately 0.4 times to approximately 4.8 times, with an average of approximately 1.3 times and a median of approximately 0.8 times. It is noted that the P/B Ratio of the PHL Group implied by the PHL consideration of approximately 1.8 times falls within the range of the PHL Comparable Companies, higher than the average P/B multiples and the median P/E multiples of the PHL Comparable Companies

Based on the P/E multiples and P/B multiples analysis above, we are of the view that the PHL consideration is fair and reasonable.

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(b) PGH Sale Shares and PGH Shareholder’s Loan

Cost approach : The PGH Group consideration is US$2.5 million (equivalent to approximately HK$19.5 million), comprising US$2,499,999 (equivalent to approximately HK$19.4 million) as the consideration for the PGH Sale Shares and US$1 (equivalent to approximately HK$7.8) as the consideration for the PGH Shareholder’s Loan. In considering the fairness of the PGH Group consideration (including US$1 as the consideration for the PGH Shareholder’s Loan), we mainly took into account the historical financial performance, the business outlook and the substantial indebtedness as a result of increased Technical Deficit of the PGH Group. We did not analyse the implied P/E multiple in respect of the consideration for the PGH Group against the P/E multiples of peer companies which are engaged in similar activities as the PGH Group because we consider performing a P/E analysis on the consideration for the PGH Group to be inappropriate due to the constraints imposed on its profits being caused by the large underfunded pension liability in the Plan despite PGH Group being profit-making for the two years ended 30 September 2013. In addition, we did not analyse the implied P/B multiple in respect of the consideration for the PGH Group against the P/B multiples of peer companies which are engaged in similar activities as the PGH Group because performing a P/B analysis on the consideration for the PGH Group was considered to be inappropriate mainly due to the fact that the historical unaudited net asset value of the PGH Group of approximately HK$217.0 million as at 30 September 2013 did not fully reflect the fair value of the Plan’s retirement benefit obligations. Based on the aforesaid, we have adopted the cost approach in evaluation of the consideration of the PGH Group. The cost approach considers the cost to reproduce or replace in new condition the assets and liabilities value in accordance with the current market prices for similar assets.

As discussed under the section headed “3. Background of and reasons for the Disposal” above, assuming the estimated Technical Deficits as at 5 April 2013 and as at 31 August 2013 had existed as at 30 September 2013, the retirement benefit obligations of PGH Group would have increased by approximately HK$1,141.1 million and HK$509.5 million, respectively. Such estimated revaluations of the Technical Deficits would, at the same time, have increased the fair value of the Plan’s retirement benefit obligations by approximately HK$1,141.1 million and HK$509.5 million, respectively. In addition, based on the estimated Technical Deficits as at 5 April 2013 of approximately £104.7 million (equivalent to approximately HK$1,330.7 million), the implied total liabilities of the PGH Group of approximately HK$1,654.3 million exceeds the total assets as adjusted to include the deferred tax impact of including the estimated Technical Deficit, of the PGH Group of approximately HK$958.4 million, resulting in implied net liabilities of approximately HK$695.9 million. Based on the estimated Technical Deficit as at 31 August 2013 of approximately £55.0 million (equivalent to approximately HK$699.1 million), the implied total liabilities of the PGH Group of approximately HK$1,022.7 million exceeds the total assets as adjusted to include the deferred tax impact of including the estimated Technical Deficit, of the PGH Group of approximately HK$832.1 million, resulting in implied net liabilities of approximately HK$190.6 million. As a result, the PGH Group implied in a net liabilities position of approximately HK$695.9 million as at 5 April 2013 and of approximately HK$190.6 million as at 31 August 2013, which are greater than the consideration for the PGH Group of approximately US$2.5 million (equivalent to approximately HK$19.5 million), comprising US$2,499,999 (equivalent to approximately HK$19.4 million) as the consideration for the PGH Sale Shares and US$1 (equivalent to approximately HK$7.8) for PGH Shareholder’s Loan.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the Letter from the Board, the sale of PGH Group as a single, standalone entity is remote given its future business outlook, the global economic landscape and, going forward, the uncertainty concerning amounts to be paid into the Plan. This lack of marketability has been borne out by previous attempts to sell the PGH Group which have either elicited no interest or have produced offers to buy the PGH Group that have carried nominal or zero purchase consideration. As advised by the Directors, they have been trying to look for potential buyers of the PGH Group in the past three years and they are of the view that the terms of the indicative preliminary offers from the independent third parties to the Company in the past were not fair due to, among others, low offer price, until January 2014 when the Company received a formal offer among the Purchasers concerning the disposal of the PHL Group and the PGH Group by the Company. Based on our discussion with the Management, we note that the Company currently cannot foresee any particular change in factors that could potentially stimulate the businesses of the PGH Group, to have significant business growth in the coming years to cover for the substantial indebtedness of the Plan that is weighting on its books.

Given the above basis in determining the disposal consideration of US$2,499,999 (equivalent to approximately HK$19.4 million) for the PGH Sale Shares, and the disposal consideration of US$1 (equivalent to approximately HK$7.8) for the PGH Shareholder’s Loan, in particular that (i) the PGH Group was in a net liabilities position of approximately HK$924.1 million as at 5 April 2013 and of approximately HK$292.5 million 31 August 2013, which are greater than the consideration for the PGH Group of approximately US$2.5 million; (ii) the Company currently cannot foresee any particular change in factors that could potentially stimulate the businesses of the PGH Group, to have significant business growth in the coming years to cover for the substantial indebtedness of the Plan that is weighting on its books; (iii) the PGH Shareholder’s Loan would be assigned from the Company to the Purchasers with a consideration of US$1 (equivalent to approximately HK$7.8) taking into account of the waiver of the PGH Shareholder’s Loan of approximately HK$69.6 million, which is in respect of the net shareholder’s loan owned by the PGH Group to the Company, we, are therefore of the view that the PGH Group’s disposal consideration of US$2.5 million (equivalent to approximately HK$19.5 million), comprising US$2,499,999 (equivalent to approximately HK$19.4 million) as the consideration for the PGH Sale Shares and US$1 (equivalent to approximately HK$7.8) as the consideration for the PGH Shareholder’s Loan is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

5.3 Break fee

Pursuant to the Disposal Agreement, the Company has agreed to pay the Purchasers a sum of US$5.0 million (equivalent to HK$38.9 million) if:

(i) Completion does not occur as a result of non-fulfilment of any of the conditions (i) to (iii) to the Disposal as mentioned in the sub section headed “Conditions” as stated in the Letter from the Board and the Company, within a period of eight months from the date of termination of the Disposal Agreement, disposes of, transfers or sells or enters into any agreement with any third party for the purpose of selling, transferring or otherwise disposing of the Disposal Group or any member of the Disposal Group at a consideration

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(in cash and/or in-kind) equal to or higher than the consideration for the Disposal, provided that in the event that the Company enters into any agreement as aforesaid, such agreement shall have been completed, whether or not such completion occurs within or after the abovementioned eight-month period; or
(ii) the Independent Financial Adviser advises in writing to the Independent Board Committee and/or the Independent Shareholders to recommend the Independent Shareholders to vote against the transactions contemplated under the Disposal Agreement and the Independent Shareholders do not approve the Disposal at the SGM, in connection with any regional or global financial conditions which have an effect on the economic benefits of the transactions contemplated under the Disposal Agreement.

As stated in the Letter from the Board, the background for setting the break fee in condition (ii) above is as follows:

In the event that there is a change in any regional or global financial conditions which have an effect on the economic benefits of the transactions contemplated under the Disposal Agreement (“ Financial Conditions ”) at any time between signing of the Disposal Agreement and Completion which may result in a change of value of the Disposal Group, in particular the value of the PGH Group, in favour of the Company, the Shareholders may no longer find it fair and reasonable to dispose of the Disposal Group at the agreed consideration; in such case the Shareholders may vote against the Disposal at the SGM and therefore the Company will be able to walk away from the Disposal since the Disposal Agreement shall then be terminated without any compensation to the Purchasers if there is no such condition (ii). The existence of condition (ii) is in response to the Purchasers’ request to protect their downside risks that the Company may walk away from the Disposal without compensating the Purchasers in the event of the occurrence of Financial Conditions. The Purchasers consider that should the Financial Conditions change not in favour of the Purchasers, they are obliged to purchase the Disposal Group as the Shareholders will then vote in favour of the Disposal. The parties therefore agreed to provide compensation to the Purchasers as per condition (ii) above. However, it has to be stressed that condition (ii) will only be triggered if a change of Financial Conditions occurs in the limited period between the date of signing the Disposal Agreement and Completion, otherwise, there is no obligation on the part of the Company to pay the break fee under condition (ii). Changes in Financial Conditions refer to changes in regional or global macro-economic environment, including changes in interest rates.

In order to narrow the situations for triggering condition (ii) and to impose an objective criterion that the Financial Conditions have changed before triggering condition(ii), there are two additional conditions that must be fulfilled, (a) the Independent Financial Adviser will advise objectively and independently in writing to the Independent Board Committee and/or the Independent Shareholders to recommend the Independent Shareholders to vote against the Disposal in the event that there is a change in Financial Conditions; and (b) the Independent Shareholders disapproving the Disposal at the SGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Condition (ii) references a potential set of circumstances occurring in the limited period between the signing of the Disposal Agreement and Completion whereby conditions in financial markets improve to such an extent that the actuarial deficit in the Plan reduces significantly or is eliminated altogether. Such movements would then remove one of the key drivers of the consideration that is attributed to the PGH Group.

In such circumstances, if the Company did not then proceed with the Disposal following (i) recommendation not to do so by the Independent Financial Adviser, and also (ii) Independent Shareholders’ disapproval at the SGM, this non-completion of the Disposal resulting from circumstances that are “in favour of the Company” would trigger the break fee.

The Purchasers contend that this clause is reasonable on the basis that the Purchasers cannot “walk away” from the Disposal if financial markets deteriorate and the deficit increases as a result. In these circumstances where Financial Conditions have moved “not in favour of the Purchasers”, the Independent Financial Adviser would recommend and the Independent Shareholders would be most likely vote in favour of the Disposal. This would result from the sales proceeds attributable to the PGH Group being more favourable to the Company as there would be no downward adjustment to reflect the adverse impact of an increased actuarial deficit and the additional cash burden that this would present to the Disposal Group.

In the event that Independent Financial Adviser recommends the Independent Shareholders to vote against the Disposal on the basis that the terms of the Disposal Agreement are not fair and reasonable to the Company, but not on the basis that there is a change in Financial Conditions, the Company will not be obliged to pay the break fee under condition (ii), but may, if the conditions for payment of break fee as set out in condition (i) are fulfilled, be obliged to pay the break fee under condition (i).

Based on our discussion with the Management, we understand that the break fee is an additional security as requested by the Purchasers, which covers exposure to unforeseen Financial Conditions during the period between the signing of the Disposal Agreement and Completion. In addition, as advised by the Management, the payment of a break fee is not unusual in commercial transactions and they have accordingly negotiated with the Purchasers to narrow the situation in which the break fee would be payable and therefore, it would not be unfair to the Company to pay the break fee. In light of the above and taking into account that the break fee was based on normal commercial decision and it was restricted to unforeseeable changes in the general market conditions of which both parties have no control and subject to an independent financial advise from the IFA, we are therefore, of the view that the break fee is fair and reasonable so far as the Independent Shareholders are concerned and in the interest of the Company and the Shareholders as a whole.

5.4 Undertakings from the Purchasers

As stated in the Letter from the Board, as advised by the Company’s UK legal advisers on pension matters in its legal opinion, the Pensions Regulator has the power, for a period of 2 years (the “ Look Back Period ”) after completion of the Disposal, to demand the Remaining Group to make contributions to the Plan by way of issue of a financial support direction (“ FSD ”) with a potential maximum amount equal to the Plan deficit measured on a “buy-out” basis. A FSD will require the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

recipient to put in place financial arrangements to support a pension plan which is insufficiently resourced. The buy-out deficit represents the difference between the value of a pension plan’s investments and its liabilities calculated by reference to the cost of buying annuities in the open market that would provide benefits to members that would be equal to those accrued to date under the terms of the existing defined benefit pension plan. The UK legal advisers further advised in its legal opinion that, other than the potential claim from the Pensions Regulator, there are no grounds on which the Remaining Group could legitimately be exposed to other liabilities in relation to the Plan at any time, whether during the Look Back Period or after.

In view of the above mentioned potential liability, the Purchasers have undertaken, for a period of two years from Completion, to make good the Company and its subsidiaries for any statutory penalty, compensation or contribution solely or directly paid by the Company and/or its subsidiaries in relation to the Plan (the “ Undertaking ”). Each of the Purchasers has also undertaken not to sell, transfer or dispose of the share capital of any member of the Disposal Group (“ Subsequent Sale ”) for a period of two years from Completion, unless an undertaking having the same effect as the Undertaking is provided by the purchaser in the Subsequent Sale for the remainder of the abovementioned two-year period. Any breach of the above undertakings by the Purchasers will amount to a breach of the Disposal Agreement under which the Company is entitled to claim for damages.

Taking into account the Undertaking is able to indemnify the Remaining Group against losses during the Look Back Period and at the same time, the Purchasers have undertaken for a period of two years from Completion, to make good the Company and its subsidiaries for any statutory penalty, compensation or contribution solely or directly paid by the Company and/or its subsidiaries in relation to the Plan, we consider that the Undertaking given pursuant to the Disposal Agreement is adequate.

5.5 Undertakings from the Company

According to the Letter from the Board, the Company has undertaken to the Purchasers not to (a) between the date of the Disposal Agreement and the earlier to occur of Completion or date of termination of the Disposal Agreement, and (b) in the event that Completion does not occur as a result of non-fulfillment of any of the conditions (i) to (iii) to the Disposal as set out in the sub-section headed “Conditions” under the section headed “The Disposal Agreement” in the “Letter from the Board”, within a period of eight months from the date of termination of the Disposal Agreement, solicit any offer from, discuss or negotiate with any third party for the purpose of selling, transferring or otherwise disposing of the Disposal Group or any member of the Disposal Group. We understand from the Management that such term is crucial to protect the interest of the Purchasers and we note that such undertakings as given by the companies were commonly found in other disposal transactions. As such, we are of the view that the undertakings from the Company, as set out in the Disposal Agreement, are on normal commercial terms and are fair and reasonable.

We have also reviewed the terms of the Disposal Agreement and are not aware of any terms which are uncommon to normal market practice. Based on our own experiences and the study of other disposal agreements of our previous works, the remaining terms of the Disposal Agreement (including

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

conditions, completion, warranties and pre-completion undertakings, etc) are the standard terms of normal sale and purchase agreements which we have reviewed before. Accordingly, we consider that the terms of the Disposal Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

6. Potential financial effects of the Disposal

6.1 Net assets

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix II to the Circular, the unaudited net assets of the Remaining Group would decrease by 44.5% from approximately HK$455.9 million as at 30 September 2013 to approximately HK$253.1 million, assuming the Disposal had taken place on 30 September 2013. Such decrease was attributable to the elimination of the net asset of the PGH Group and PHL Group of approximately HK$309.4 million, adjusted for the settlement of waiver of the Shareholder’s Loans of approximately HK$82.9 million and partly offset by the cash consideration receivable from the Disposal of approximately HK$189.5 million.

6.2 Liquidity

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix II to the Circular, the current ratio, in terms of current assets over current liabilities, would increase from approximately 2.2 times as at 30 September 2013 to approximately 4.4 times, assuming the Disposal had taken place on 30 September 2013.

6.3 Earnings

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix II to the Circular, the audited profit after taxation of the Remaining Group would change from approximately HK$73.1 million for the year ended 30 September 2013 to a loss after taxation of approximately HK$184.8 million, representing a loss of approximately HK$257.9 million, assuming the Disposal had taken place on 1 October 2012. Such loss after taxation was attributable to the elimination of the audited profit after taxation of the PGH Group and PHL Group of approximately HK$63.7 million, adjusted for the loss on sale of the Disposal Group as at 1 October 2012 upon the Disposal of approximately HK$184.0 million, the reversal of management fee charged by the Company to the Disposal Group and interest income charged by the Disposal Group to the Remaining Group during the year ended 30 September 2013 of approximately HK$10.2 million.

6.4 Gearing ratio

Based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix II to the Circular, the gearing ratio of the Remaining Group, in terms of the sum of bank borrowings and obligations under finance leases less cash and bank balances and divided by total equity would remain zero, assuming the Disposal had taken place on 30 September 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Despite that based on the unaudited pro forma financial information of the Remaining Group as set out in the Appendix II to the Circular, the earnings of the Remaining Group would decrease as a result of assuming that the Disposal had taken place on 1 October 2012 and the net assets of the Remaining Group would decrease assuming the Disposal had taken place on 30 September 2013, having considered (i) the liquidity and the gearing ratio of the Remaining Group would improve assuming the Disposal had taken place on 30 September 2013; and (ii) the reasons for the Disposal as set out in the section headed “3. Background of and reasons for the Disposal” above, we considered that the financial effects of the Disposal on the Remaining Group are acceptable.

7. Recommendations

Having taken into account the above principal factors and reasons, we consider that the respective terms of the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement, while not in the ordinary and usual course of business of the Company because of their “once off” nature, is nevertheless 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 resolutions to approve the Acquisition Agreement, the Subscription Agreement and the Disposal Agreement at the SGM.

Your faithfully, For and on behalf of

ChangJiang Corporate Finance (HK) Limited

Ivan Chan Irene Poon Managing Director Vice President

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the published financial information of the Group for each of the three years ended 30 September 2011, 2012 and 2013 are disclosed in the annual reports of the Company for the year ended 30 September 2011, 2012 and 2013 respectively. Details of these financial statements have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (www.irasia.com/listco/hk/upi):

annual report of the Company for the year ended 30 September 2011 published on 21 December 2011 (pages 42 to 141);
annual report of the Company for the year ended 30 September 2012 published on 27 December 2012 (pages 44 to 141); and
annual report of the Company for the year ended 30 September 2013 published on 13 December 2013 (pages 46 to 145).

2. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 31 January 2014, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had secured bank and other borrowings of approximately HK$79,338,000 and HK$10,759,000 respectively as detailed below:

	Secured by:	Secured by:
	Mortgages or	Corporate
	pledges of	guarantees
	assets	(note (d))
	HK$’000	HK$’000
Bank overdrafts (note (a))	18,784	4,048
Export invoices/loan financing	—	29,258
Invoices discounting (note(b))	25,648	—
HKSAR Government-backed bank loans	—	1,600
Total bank borrowings	44,432	34,906
Finance lease payables (note(c))	10,759	—
	55,191	34,906

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) The bank overdraft facility is secured by fixed and floating charges on the assets and undertakings of the UK subsidiaries of Spear & Jackson Limited and Bowers Group Limited (the “UK Group”) and by a fixed charge on the Group’s freehold properties in the UK. The net book value of the freehold premises as at 31 January 2014 was approximately HK$107,797,000, over which there is a first fixed charge of approximately HK$63,081,000.
(b) The bank confidential invoice discounting facility is secured against trade debts of the same amount in the applicable UK subsidiaries.
(c) The finance lease payables are secured by the lessors’ charge over the leased assets.
(d) The bank borrowings are secured by corporate guarantees executed by the Company and cross guarantees provided by the Company and certain Hong Kong and PRC trading subsidiaries.
(e) Foreign currency amounts have been translated into Hong Kong dollars at the rate of exchange prevailing at the close of business on 31 January 2014.

Other pledge of assets

During the year ended 30 September 2008, in accordance with UK pension regulatory requirements, a pension contribution schedule was agreed between the Group and the Trustees of the James Neill Pension Plan (the “Plan”) covering contributions payable to the Plan. As part of this agreement, the Group executed a second charge in favour of the Plan representing 50% (approximately HK$44,716,000) of the book value of certain of the Group’s UK freehold land and buildings as at 31 January 2014.

In addition, as at 31 January 2014, there are bank deposits of approximately HK$5,210,000 placed with banks in Mainland China for bills payable and custom’s guarantees.

Contingent liabilities

The Group is, from time to time, subject to legal proceedings and claims arising from the conduct of its business operations, including litigation related to personal injury claims, customer contract matters, employment claims and environmental matters.

While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Directors believe that the aggregate amount of such liabilities, if any, in excess of amounts accrued, will not have a material adverse effect on the consolidated financial position or results of operations of the Group.

— I-2 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, the Group did not have any debt securities issued and outstanding, or authorized or otherwise created but unissued, any term loans (secured, unsecured, guaranteed or not), any other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments (whether secured or unsecured, guaranteed or not), any mortgages or charges, or other material contingent liabilities or guarantees at the close of business on 31 January 2014.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the financial resources available to the Remaining Group, including its internally generated funds, the available banking facilities of HK$25 million and the net proceeds to be received from the Disposal, the Remaining Group has sufficient working capital for its present requirement for at least the next twelve months from the date of this circular.

4. MATERIAL ADVSERSE 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 30 September 2013, being the date to which the latest published audited financial statements of the Company were made up.

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

After Completion, the Group will exit its contract manufacturing business as well as its business divisions engaged in the manufacture and distribution of hand, lawn and garden tools, magnetic tools and products and metrology and measurement tools, and the Remaining Group will be principally engaged in the design and manufacture of sophisticated consumer electronic and wireless products including infrared/radio frequency cordless headphones and speakers, noise cancellation headphones, hearing enhancers, audio and video baby monitors. Through the Disposal, the Group is able to significantly scale down its business presence in Europe which is a slow growth area and to eliminate the cash flow strains associated with the significant underfunded pension liability of the PGH Group.

As disclosed in the 2013 annual report of the Company, it is expected that competition in the consumer electronics industry will increase and margin pressures will continue to persist as a result of labor rate increases, manpower shortages and general cost increases, coupled with a slowing of orders. The Remaining Group must therefore implement strict cost control to minimise labor and overhead costs to retain its leading manufacturer role in the baby monitor field. In addition, product range expansion in the pet monitor and pet training system markets are seen by the Directors as routes for further sales expansion in the coming year and as a means to maintain current profitability levels.

— I-3 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

While the Directors intend to focus on the consumer electronics business, in view of the uncertainty as to the economies of the U.S. and the Europe which are important markets for the Remaining Group, the Directors will seek suitable investment opportunities from time to time to diversify its existing business portfolio into businesses with growth potential that will expand its geographical reach, broaden its sources of income and further improve the financial position of the Remaining Group.

6. MANAGEMENT DISCUSSION AND ANALYSIS

Set out below is the management discussion and analysis on the Remaining Group (i.e. the Group excluding the PHL Group and the PGH Group as at the Latest Practicable Date) for the three years ended 30 September 2011, 2012 and 2013:

(a) For the year ended 30 September 2013

Operating results

Revenue increased by approximately 13.5% to approximately HK$226.3 million for the year ended 30 September 2013. Net profit amounted to approximately HK$9.3 million for the year ended 30 September 2013, representing an increase of approximately 213.0% as compared to the previous year.

Business review

During the year under review, material costs were relatively stable, except that several key components rose in price due to market shortages. Both labor costs and manufacturing overhead in China continued to rise, which made both the recruitment and retention of workers one of the major operational issues. Despite all these challenges, management has continued to mitigate cost pressure by further automation, product optimisation and process improvement.

The increase in sales has been regarded by management as exceptional as increasingly competitive markets have seen overall demand remain flat year on year. Baby monitors continued to represent the largest portion of revenue of the Remaining Group with a majority being exported to the U.S. and Canada. The sales network was further expanded into South America, the Middle East and other Asian countries during the year under review. However, North America is expected to remain as the principal export market of the Remaining Group.

The principal product range of baby monitors was supplemented and expanded by the launch of a pet monitoring series in July 2013. A range of new baby monitors, designed specifically for the Chinese and Japanese markets, was also launched during the year under review.

It is expected that competition in the baby monitor market will increase and pricing pressures will intensify. To support the current profitability level, management will implement strict cost control to minimise labor and overhead costs as well as boosting the sales through product range expansion in the pet monitor and pet training system markets.

— I-4 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

As at 30 September 2013, the Remaining Group had cash and cash equivalents of approximately HK$42.7 million and had net current assets of approximately HK$141.5 million. Interest-bearing bank borrowings and obligations under finance leases amounted to approximately HK$6.1 million as at 30 September 2013, which would be substantially settled within one year.

Gearing ratio

The gearing ratio, being the sum of interest-bearing bank borrowings and obligations under finance leases less cash and cash equivalents and divided by total equity, of the Remaining Group was zero as at 30 September 2013.

Capital structure

As at 30 September 2013, the Company had authorised share capital of 1,500,000,000 ordinary shares of HK$0.10 each, of which 1,007,443,153 shares were issued and fully paid, and the Remaining Group’s total equity amounted to approximately HK$146.5 million.

(b) For the year ended 30 September 2012

Operating results

For the year ended 30 September 2012, revenue increased by approximately 150.5% to approximately HK$199.4 million, as compared to the previous year. Net profit amounted to approximately HK$3.0 million for the year ended 30 September 2012, as compared to net loss of approximately HK$18.4 million in the previous year. Such increase in revenue and profit was principally attributable to substantially improved baby monitor sales in North America.

Business review

During the year under review, market competition in the consumer electronics sector was fierce and price wars were initiated by competitors to secure market share in a shrinking market. End customers were extremely price sensitive, resulting in price pressure ultimately resting on the manufacturer.

North America (the U.S. and Canada) was still the prime market of the Remaining Group and baby monitors were its core product category. Despite improved market sentiment in North America, customer price sensitivity and the threat of competition continued to exert pressure on the margin of the Remaining Group.

A number of new products were launched during the year under review, including two new baby monitors and a keychain speaker for use on mobile devices and personal computers.

— I-5 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Although the macro-economic environment remained uncertain, management expected that the U.S. market would continue to recover at a slow pace. The Remaining Group would continue to be positioned as one of the key players in the baby monitor manufacturing market.

Liquidity and financial resources

As at 30 September 2012, the Remaining Group had cash and cash equivalents of approximately HK$50.2 million and had net current assets of approximately HK$141.3 million. Interest-bearing bank borrowings and obligations under finance leases amounted to approximately HK$7.8 million as at 30 September 2012, of which approximately HK$5.3 million was due within one year.

Gearing ratio

The gearing ratio of the Remaining Group was zero as at 30 September 2012.

Capital structure

As at 30 September 2012, the Company had authorised share capital of 1,500,000,000 ordinary shares of HK$0.10 each, of which 993,376,993 shares were issued and fully paid, and the Remaining Group’s total equity amounted to approximately HK$146.0 million.

(c) For the year ended 30 September 2011

Operating results

Revenue decreased by approximately 32.0% to approximately HK$79.6 million for the year ended 30 September 2011 due to the transition from the older analog to newer digital versions of the baby monitor range as well as declining sales to a major customer. The Remaining Group suffered a net loss of approximately HK$18.4 million for the year ended 30 September 2011.

Business review

The Remaining Group was adversely affected by declining sales of its analog baby monitors and by delays in the transition to a digital version. RMB appreciation, coupled with increases in labor and raw material costs, gave rise to gross margin erosion. With the significant fall in revenue in the first half of 2011, the overall profitability of the Remaining Group was seriously affected. Revenue improved in the fourth quarter of the year as deliveries of the digital replacement to a major new customer came on stream in June 2011.

Digital baby monitors and North America (the U.S. and Canada) would represent the Remaining Group’s key products and major export region, respectively. Market sentiment in North America was weak during the year under review and this was reflected in end customers becoming very price sensitive and adopting a cautious purchasing attitude. In the face of intensifying competition, the Remaining Group implemented strict cost control measures in all areas of the business in order to maintain competitive pricing.

— I-6 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

As at 30 September 2011, the Remaining Group had cash and cash equivalents of approximately HK$49.7 million and had net current assets of approximately HK$140.7 million. Interest-bearing bank borrowings and obligations under finance leases amounted to approximately HK$14.3 million as at 30 September 2011, of which approximately HK$4.7 million was due within one year.

Gearing ratio

The gearing ratio of the Remaining Group was zero as at 30 September 2011.

Capital structure

As at 30 September 2011, the Company had authorised share capital of 1,500,000,000 ordinary shares of HK$0.10 each, of which 991,852,107 shares was issued and fully paid, and the Remaining Group’s total equity amounted to approximately HK$137.5 million.

(d) For the three years ended 30 September 2011, 2012 and 2013

Foreign currency risk and treasury management

The Remaining Group operates mainly from the PRC but regularly transacts in currencies other than its functional currency with regard to the selling and purchase of products. As a consequence of the various trading activities, certain trade receivables of the Remaining Group are denominated in foreign currencies. While the Remaining Group has no formal hedging policy, it does seek to manage its foreign currency exposures by constructing natural hedges as well as entering into certain forward foreign exchange contracts to minimise any currency exposure risks. In addition, the Remaining Group endeavored to match the currencies of sales with those of purchases in order to neutralise the effect of currency exposure.

For the three years ended 30 September 2011, 2012 and 2013, there was no material change in the Remaining Group’s funding and treasury policy. The Remaining Group had a sufficient level of cash and banking facilities for the conduct of its trade in the normal course of business.

Contingent liabilities

As at 30 September 2011, 2012 and 2013, the Remaining Group did not have any material contingent liabilities which would have a material adverse effect on the consolidated financial position or results of operations of the Remaining Group.

Pledge of assets

The Remaining Group’s finance lease payables amounted to HK$17,000 as at 30 September 2013 (2012: HK$41,000 and 2011: HK$69,000), which were secured by the lessor’s charge over the leased assets.

— I-7 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employee information

As at 30 September 2011, 2012 and 2013, the Remaining Group had 615, 736 and 896 employees respectively. The remuneration of the employees is determined by the overall guideline within the industry. The Remaining Group has also adopted certain bonus programs, share option schemes, medical and personal accident insurance and other employee welfare and benefit programs for its employees. Awards, under award programs, are determined annually based on certain criteria which relate to the performance of employees, individually, or to the business performance as a whole. The Remaining Group also organises training sessions in many disciplines for the benefit of its employees to upgrade their skills.

Significant investments, material acquisitions and disposals

On 31 December 2010, the Company and Rokko Holdings Ltd (“ Rokko ”), a company listed on the Singapore Stock Exchange, entered into a sale and purchase agreement, pursuant to which the Company agreed to sell and Rokko agreed to purchase the entire issue share capital of Jade Precision Engineering Pte Ltd (“ JPE ”), a group subsidiary company, at a total cash consideration of S$8 million (approximately HK$47.2 million) (the “ Disposal of JPE ”). JPE is a Singapore-based manufacturer of high-precision stamped, etched and plated integrated circuit lead frames for the semi-conductor industry. Completion of the Disposal of JPE took place on 28 February 2011.

Save as aforesaid, there were no significant investments and material acquisitions and disposals for the three years ended 30 September 2011, 2012 and 2013.

Future plans for material investment and acquisition of capital assets

As at 30 September 2011, 2012 and 2013, there was no specific plan for material investment and acquisitions of capital assets.

— I-8 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The accompanying unaudited pro forma financial information of the Remaining Group has been prepared in accordance with paragraph 4.29 of the Listing Rules to illustrate (a) the financial position of the Remaining Group as if the Acquisition and the Disposal had been completed on 30 September 2013; and (b) the financial performance and cash flows of the Remaining Group for the year ended 30 September 2013 as if the Acquisition and the Disposal had been completed on 1 October 2012.

For the purpose of the unaudited pro forma financial information, New Taiwan dollars (“TWD”) and United States dollar (“USD”) amounts have been translated into Hong Kong dollars (“HK$”) amounts at the closing rate of TWD1.00 to HK$0.2618 and US$1.0 to HK$7.78 respectively for the unaudited pro forma consolidated statement of financial position as at 30 September 2013 and at the average rate of TWD1.00 to HK$0.2615 and US$1.0 to HK$7.78 respectively for the unaudited pro forma consolidated statement of comprehensive income and statement of cash flows for the year ended 30 September 2013.

1. Unaudited Pro Forma Consolidated Statement of Financial Position of the Remaining Group

The unaudited pro forma consolidated statement of financial position of the Remaining Group is based on the audited consolidated statement of financial position as at 30 September 2013 of the Group as extracted from the Company’s published annual report for the year ended 30 September 2013, and after making pro forma adjustments relating to the Acquisition and the Disposal, that are (i) directly attributable to the transaction concerned and not relating to future events or decisions; (ii) factually supportable; and (iii) considered to be integral to the Acquisition and the Disposal. The unaudited pro forma consolidated statement of financial position of the Remaining Group is based on a number of assumptions, estimates and uncertainties, accordingly, the unaudited pro forma consolidated statement of financial position of the Remaining Group does not purport to describe the actual financial position of the Remaining Group that would have attained had the Acquisition and the Disposal been completed on 30 September 2013.

The unaudited pro forma consolidated statement of financial position of the Remaining Group has been prepared by the directors of the Company for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Remaining Group had the Acquisition and the Disposal been completed on 30 September 2013 or at any future date.

— II-1 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Financial Position As at 30 September 2013

Non-current assets Property, plant and equipment Prepaid land lease payments under operating leases Goodwill Other intangible assets Interests in an associate Available-for-sale financial assets Deferred tax assets Current assets Inventories Trade and other receivables Net amounts due from the Disposal Group Cash and bank balances Current liabilities Trade and other payables Bank borrowings Obligations under finance leases Provisions Derivative financial instruments Tax payable Net current assets Total assets less current liabilities Non-current liabilities Obligations under finance leases Retirement benefit obligations Deferred tax liabilities Net assets Equity Share capital Reserves Total equity attributable to owners of the Company	The Group HK$’000 177,694 459 2,419 75 10,052 1,921 48,005 240,625 289,815 295,593 — 187,565 772,973 266,297 63,020 6,112 3,860 351 13,478 353,118 419,855 660,480 4,847 189,627 10,140 204,614 455,866 100,744 355,122 455,866	Pro forma adjustment HK$’000 note (a)(i) (153,341) — (2,419) (75) (10,052) (727) (48,005) (214,619) (234,348) (172,706) 68,641 (80,751) (419,164) (159,210) (38,643) (6,104) (3,560) (351) (4,337) (212,205) (206,959) (421,578) (4,838) (189,627) (10,140) (204,605) (216,973) — — —	Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 note (b)(i) note (c) note (d) note (f) note (g) note (l) (20,610) (459) — — — 134,494 18,009 — — (21,069) (28,257) (64,242) 17,210 (85,851) (64,151) 189,500 2,919 (5,000) (260) (139,440) (44,224) (18,288) 134,494 (134,494) — (300) — (5,269) (68,081) (71,359) (92,428) — (92,428) — — — 15,163 — (202,833) (5,000) 119,071 18,009 —	The Remaining Group HK$’000 3,743 — — — 152,503 1,194 —
				157,440
				27,210 58,645 — 229,822
				315,677
				62,863 6,089 8 — — 3,872
				72,832
				242,845
				400,285
				9 — —
				9
				400,276
				115,907 284,369
				400,276

— II-2 —

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Comprehensive Income and Statement of Cash Flows of the Remaining Group

The unaudited pro forma consolidated statement of comprehensive income and statement of cash flows of the Remaining Group are based on the audited consolidated statement of comprehensive income and statement of cash flows of the Group as extracted from the Company’s published annual report for the year ended 30 September 2013, and after making pro forma adjustments relating to the Acquisition and the Disposal, that are (i) directly attributable to the transaction concerned and not relating to future events or decisions; (ii) factually supportable; and (iii) considered to be integral to the Acquisition and the Disposal. The unaudited pro forma consolidated statement of comprehensive income and statement of cash flows of the Remaining Group are prepared for illustrative purposes only and because of their hypothetical nature, may not give a true picture of the results and cash flows of the Remaining Group for the year ended 30 September 2013 or for any future period.

— II-3 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Comprehensive Income For the year ended 30 September 2013

Revenue Cost of sales Gross profit Other income Interest income Selling and distribution costs Administrative costs Restructuring costs Finance costs Share of results of an associate Realised exchange differences on the liquidation of a subsidiary undertaking recycled from other comprehensive income Cash flow hedge recycled from other comprehensive income Legal and professional fee for the Acquisition Loss on sale of the Disposal Group Profit before tax Income tax charge Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss: Recognition of actuarial gains on defined benefit pension plan, net of tax Items that may be reclassified subsequently to profit or loss: Exchange differences arising on the translation of foreign operations Cash flow hedge loss recognised in equity Cash flow hedge recycled to the income statement Deficit on revaluation of available-for-sale financial assets Reclassification adjustment of release of exchange reserve on sale of Disposal Group Realised exchange differences on the liquidation of a subsidiary undertaking recycled to the income statement Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the Owners of the Company	The Group Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 note (a)(ii) note (b)(ii) note (e) note (f) note (h) note (k) note (m) 1,480,767 (929,240) (325,245) (1,039,831) 576,099 268,660 440,936 7,530 (5,619) (1,208) 12,395 (12,606) (453) 786 (226,918) 208,161 8,821 (133,383) 97,855 26,675 (10,938) (3,916) 3,375 541 (3,345) 2,272 448 6,922 (6,922) 13,719 10,752 1,186 (1,186) (839) 839 — (5,000) — (183,966) 100,568 (27,518) 19,643 5,345 73,050 15,917 (15,917) (2,759) 5,842 (1,742) (351) 351 839 (839) (681) — 54,587 (1,186) 1,186 11,779 84,829	The Remaining Group HK$’000 226,282 (195,072)
		31,210 703 122 (9,936) (19,791) — (625) 24,471 — — (5,000) (183,966)
		(162,812) (2,530)
		(165,342)
		— 1,341 — — (681) 54,587 —
		55,247
		(110,095)

— II-4 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Unaudited Pro Forma Consolidated Statement of Cash Flows For the year ended 30 September 2013

Cash flows from operating activities Profit before tax Adjustment for: Interest income Interest on interest-bearing bank borrowings and overdrafts Interest on obligations under finance leases Interest credit on retirement benefit obligations Loss on sale of the Disposal Group Legal and professional fee for acquisition of Target Company Retirement benefit plan expense Share of results of an associate Amortisation of other intangible assets Depreciation of property, plant and equipment Amortisation of prepaid land lease payments under operating leases Impairment loss on trade receivables Impairment loss on inventories Cash flow hedge recycled to the income statement Share-based compensation expenses Realised exchange differences on the liquidation of a subsidiary undertaking recycled to the income statement Restructuring costs charged to the income statement Operating cash flow before movements in working capital Increase in inventories Increase in trade and other receivables Increase in trade and other payables Restructuring costs paid Employer contributions to the defined benefit pension plan Increase in group balances Net cash generated from/(used in) operations Income tax paid Net cash generated from/(used in) operating activities	The Group Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 note (a)(ii) note (b)(ii) note (d) note (e) note (f) note (g) note (h) note (i) note (j) note (k) note (m) 100,568 (65,786) (22,947) (183,966) (5,000) 13,719 (10,152) 10,752 (1,432) 1,643 453 2,655 (1,584) (448) 690 (688) (10,963) 10,963 — — 183,966 — — 5,000 3,497 (3,497) (6,922) 6,922 (13,719) (10,752) 165 (165) 20,609 (15,989) (2,199) 35 — (35) (597) (402) 1,009 3,304 (2,727) (1,897) 839 (839) 384 (1,186) 1,186 3,916 (3,375) (541) 115,562 (24,534) 15,203 (76) (18,363) 5,084 (4,510) 16,124 (4,375) 2,863 (4,328) 4,088 240 (19,112) 19,112 — 3,186 (6,758) 65,349 (8,161) 4,464 3,697 57,188	The Remaining Group HK$’000 (162,812) 664 623 2 — 183,966 5,000 (24,471) — 2,421 — 10 (1,320) — 384 — —
		4,467 (9,407) (17,789) 14,612 — — (3,572)
		(11,689) —
		(11,689)

— II-5 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Cash flows from investing activities Purchase of property, plant and equipment Interest received Dividend received from an associate Deferred contingent consideration paid for the acquisition of a subsidiary Net cash inflows from sale of Disposal Group Repayment from the Disposal Group upon completion of the Disposal Expense allocated to the acquisition of the Target Company Release of pledged bank deposits Acquisition of the Target Company Purchase of intangible assets Net cash generated from/(used in) investing activities Cash flows from financing activities Principal repayment of obligations under finance leases Interest paid on interest-bearing bank borrowings and bank overdrafts Proceeds from the Share Subscription Shares issue expenses Interest paid on obligations under finance leases Net cash inflow in trust receipts and export loans Addition in bank borrowings for Acquisition Repayment of bank borrowings Dividends paid Proceeds from exercise of share options Increase in invoice discounting facility Sale of treasury shares Net cash (used in)/generated from financing activities Net increase in cash and cash equivalents Effect of foreign exchange rates Cash and cash equivalents at 1 October Cash and cash equivalents at 30 September Cash and bank balances Bank overdrafts	The Group Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 note (a)(ii) note (b)(ii) note (d) note (e) note (f) note (g) note (h) note (i) note (j) note (k) note (m) (7,787) 4,948 1,958 1,440 (857) (453) 3,737 (3,737) (1,101) 1,101 — 88,171 — 2,919 13,367 — (5,000) 5,000 (5,000) (134,494) (84) 84 1,205 (8,467) 8,443 (2,977) 1,906 448 134,494 — (260) (690) 688 1,227 (459) — 134,494 (2,400) (134,494) (14,777) 7,500 (7,500) 3,089 2,791 (2,791) 437 (21,767) 36,626 (1,760) 3,777 (1,211) 138,139 (55,022) (32,940) 87,962 173,005 187,565 (80,751) (64,151) 2,919 189,500 (5,000) (260) (7,500) (10,152) (14,560) 10,529 4,031 173,005	The Remaining Group HK$’000 (881) 130 — — 88,171 16,286 (5,000) — (134,494) —
		(35,788)
		(24) (623) 134,494 (260) (2) 768 134,494 (136,894) (14,777) 3,089 — 437
		120,702
		73,225 806 138,139
		212,170
		212,170 —
		212,170

— II-6 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes to the pro forma financial information

(a) The adjustment represents the following:
(i) The elimination of the assets and liabilities of the PGH Group which are extracted from the unaudited financial information of the PGH Group as at 30 September 2013 as set out in Appendix IV to this circular, assuming the Disposal had taken place on 30 September 2013.
(ii) To exclude the results and cash flows of the PGH Group for the year ended 30 September 2013 which are extracted from the unaudited financial information of the PGH Group for the year ended 30 September 2013 as set out in Appendix IV to this circular, assuming the Disposal had taken place on 1 October 2012.
(b) The adjustment represents the following:
(i) The elimination of the assets and liabilities of the PHL Group which are extracted from the unaudited financial information of the PHL Group as at 30 September 2013 as set out in Appendix III to this circular, assuming the Disposal had taken place on 30 September 2013.
(ii) To exclude the results and cash flows of the PHL Group for the year ended 30 September 2013 which are extracted from the unaudited financial information of the PHL Group for the year ended 30 September 2013 as set out in Appendix III to this circular, assuming the Disposal had taken place on 1 October 2012.
(c) These adjustments represent (i) the cash consideration receivable of HK$181,133,000 by the Group from the sale of shares in PHL and PGH; (ii) the cash consideration receivable of HK$13,367,000 by the Group from the sale of shareholder’s loan in PHL and PGH; (iii) estimated expense allocated to the Disposal of HK$5,000,000 settled by cash; (iv) the resulting estimated loss on the Disposal as if the Disposal had taken place on 30 September 2013.

The estimated net cash inflow from the Disposal is as follows:

Sale of shares in PHL Sale of shares in PGH Sale of PHL Shareholder’s Loan Sale of PGH Shareholder’s Loan Total cash inflow from the Disposal Estimated expenses allocated to the Disposal Net cash inflow from the Disposal	US$ 20,781,877 2,499,999 23,281,876 1,718,123 1 1,718,124 25,000,000	HK$’000 161,683 19,450
		181,133
		13,367 —
		13,367
		194,500
		(5,000)
		189,500

— II-7 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The estimated pro forma loss on sale of the Disposal Group as if the Disposal had taken place on 30 September 2013 is calculated as follow:

Total cash consideration for the disposal of the shares in PGH and PHL Net assets disposed of at 30 September 2013 PGH Group PHL Group Waiver of PGH Shareholder’s Loan Loss on sale of the Disposal Group before related expenses Estimated expenses allocated to the Disposal Loss on sale of the Disposal Group after related expenses Release of exchange reserve of the Disposal Group as at 30 September 2013 upon the completion of the Disposal PGH Group PHL Group Loss on sale of the Disposal Group after release of reserves of the Disposal Group as at 30 September 2013 upon the Disposal Reclassification adjustments relating to release of reserves of the Disposal Group upon the completion of the Disposal recognised in other comprehensive income Loss on sale of the Disposal Group recognised in total comprehensive income	HK$’000 (216,973) (92,428) (57,319) (2,577)	HK$’000 181,133 (309,401) (69,565)
		(197,833) (5,000)
		(202,833) (59,896)
		(262,729) 59,896
		(202,833)

The net assets of the PGH Group and PHL Group as at 30 September 2013 are extracted from the unaudited financial information of the PGH Group and PHL Group as set out in Appendices IV and III respectively to this circular.

The final loss on the Disposal may be different from the amount described above and will be subject to the assets and liabilities of the PGH Group and the PHL Group on the date of Completion.

(d) The adjustment represents the settlement of balances among the Disposal Group and the Remaining Group as set out under a clause in the Disposal Agreement such that on or before completion of the Disposal, no debt is owed between the Disposal Group and the Remaining Group.

The net balances of PGH Shareholder’s Loan and PHL Shareholder’s Loan of approximately HK$68,641,000 and HK$17,210,000 respectively as at 30 September 2013 will be settled as follows:

PGH Shareholder’s Loan PHL Shareholder’s Loan Sale proceeds of PHL Shareholder’s Loan and PGH Shareholder’s Loan Waiver of PGH Shareholder’s Loan Amount settled on 30 September 2013	HK$’000 68,641 17,210
	85,851 (13,367)
	72,484 (69,565)
	2,919

— II-8 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(e) These adjustments represent (i) the cash consideration receivable of HK$181,133,000 by the Group from the sale of shares in PHL and PGH; (ii) the cash consideration receivable of HK$13,367,000 by the Group from the sale of shareholder’s loan in PHL and PGH; (iii) estimated expense allocated to the Disposal of HK$5,000,000 settled by cash; (iv) the resulting estimated loss on the Disposal as if the Disposal had taken place on 1 October 2012.

The estimated net cash inflow from the Disposal is as follows:

Sale of shares in PHL Sale of shares in PGH Sale of PHL Shareholder’s Loan Sale of PGH Shareholder’s Loan Total cash inflow from the Disposal Estimated expenses allocated to the Disposal Net cash inflow from the Disposal	US$ 20,781,877 2,499,999 23,281,876 1,718,123 1 1,718,124 25,000,000	HK$’000 161,683 19,450
		181,133
		13,367 —
		13,367
		194,500 (5,000)
		189,500

The estimated pro forma loss on sale of the Disposal Group as if the Disposal had taken place on 1 October 2012 is calculated as follow:

Total cash consideration for the disposal of the shares in PGH and PHL Net assets disposed of at 1 October 2012 PGH Group PHL Group Waiver of PGH Shareholder’s Loan Loss on sale of the Disposal Group before related expenses Estimated expenses allocated to the Disposal Loss on sale of the Disposal Group after related expenses Release of exchange reserve of the Disposal Group as at 1 October 2012 upon the completion of the Disposal PGH Group PHL Group Loss on sale of the Disposal Group after release of reserves of the Disposal Group as at 1 October 2012 upon the Disposal Reclassification adjustments relating to release of reserves of the Disposal Group upon the completion of the Disposal recognised in other comprehensive income Loss on sale of the Disposal Group recognised in total comprehensive income	HK$’000 (160,267) (75,680) (51,455) (3,132)	HK$’000 181,133 (235,947) (69,565)
		(124,379) (5,000)
		(129,379) (54,587)
		(183,966) 54,587
		(129,379)

— II-9 —

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The net assets of the PGH Group and PHL Group as at 1 October 2012 are extracted from the unaudited financial information of the PGH Group and PHL Group as set out in Appendices IV and III respectively to this circular.

(f) The adjustment represents (i) the acquisition of the Target Company at a cash consideration of TWD513,728,077 (equivalent to approximately HK$134,494,000); (ii) the Bridge Loan with the draw down amount identical to the cash consideration; and (iii) the estimated legal and professional fees allocated to the Acquisition of approximately HK$5,000,000 which have been charged to profit or loss directly. In substance, the Company has issued its own shares to the Vendors in exchange of the interests in the Target Company, the actual cost of investment in the Target Company will be based on the fair market value of Subscription Shares as at the date of Completion.

The Reporting Accountant and Directors assessed that as at 1 October 2012 and 30 September 2013 there is no indicator of impairment of the interest in the Target Company and Target Group respectively using the indicators of impairment as set out in paragraph 12 of HKSA 36 Impairment of Assets. Accordingly, no impairment on the interest in the Target Company and the Target Group as at 1 October 2012 and 30 September 2013 respectively is considered necessary. The Company’s auditor (also the Reporting Accountant) will use the same criteria as previously adopted by the Directors in assessing whether any impairment on the Group’s interest in associate (Target Group) is required in the first set of audited financial statements of the Group after Completion.

(g) The adjustment represents the share capital and share premium arising on the Share Subscription with the number of Subscription Shares determined on the basis of the Subscription Price of HK$0.887 as disclosed in the Company’s announcement dated 12 February 2014. The related expense of the Share Subscription of approximately HK$260,000 has been charged against reserves. The Bridge Loan obtained in note (f) will be settled by proceeds from the Share Subscription, while the shortfall amount of approximately HK$260,000 will be settled by the internal resources of the Company. The actual number of Subscription Shares will be determined at the date of Completion.
(h) The adjustment represents the share of profits of the Target Group being 28.84% of the profit of the Target Group of TWD181,882,947 based on the management accounts of the Target Group for the year ended 30 September 2013 and translated at the average exchange rate of TWD1 to HK$0.2615 during the year ended 30 September 2013.
(i) The adjustment represents the net cash inflow amounting to approximately HK$88,171,000 resulting from the Disposal on 1 October 2012, as if the Disposal had taken place on 1 October 2012, which is calculated as the total cash consideration on disposal of shares in PGH and PHL of approximately HK$181,133,000 less cash and cash equivalents of the Disposal Group on 1 October 2012 amounting to approximately HK$87,962,000 and the estimated legal and professional fees relating to the Disposal of approximately HK$5,000,000.
(j) The adjustment represents the reversal of dividends paid by the PHL Group to the Company amounted to HK$7,500,000 during the year ended 30 September 2013 as such dividend would not have been paid by PHL Group had the Disposal been completed on 1 October 2012.
(k) The adjustment represents the reversal of management fee of approximately HK$10,938,000 charged by the Company to the Disposal Group and interest income of approximately HK$786,000 charged by the Disposal Group to the Remaining Group during the year ended 30 September 2013 which would not have been charged had the Disposal been completed on 1 October 2012.
(l) The adjustment represents the excess of the Group’s share of the net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013 over the cost of acquisition of the Target Company of TWD513,728,077 (equivalent to approximately HK$134,494,000). The excess is based on the independent professional valuation report and management accounts of the Target Group as at 30 September 2013 as if the Acquisition had taken place on 30 September 2013. The valuation was performed by an independent professional valuer in Taiwan (China Intangible Asset Appraisement Co., Ltd.), using the International Valuation Standards published by the International

— II-10 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Valuation Standards Council, for the purpose of determining the fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013. The actual amount of such excess can only be determined at the date of Completion and the cost of acquisition of the Target Group would be based on the market value of the Subscription Shares at the date of Completion.

The excess of the Group’s share of the net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities as at 30 September 2013 over the cost of acquisition is calculated as follows:

	Fair value
	TWD’000
Property, plant and equipment	62,523
Columbarium units and cemetery plots for resale*	2,278,783
Trade receivables	4,749
Other receivables	5,702
Prepayments	540
Amounts due from related parties	9,707
Other financial assets	20,079
Cash and bank balances	35,741
Trade payables	(94,453)
Accruals	(4,949)
Receipt in advance	(22,335)
Other payables	(82,940)
Bank borrowings	(88,000)
Tax payable	(25,502)
Non-controlling interests	(63,633)
Deferred tax liabilities#	(16,212)
Net fair value of the Target Group’s identifiable assets, liabilities and contingent liabilities	2,019,800
	HK$’000
Translated at the exchange rate of TWD1 to HK$0.2618	528,784
The Group’s share thereof	152,503
Less: consideration paid	(134,494)
Excess of the Group’s share of the net fair value of the Target Group’s identifiable assets,
liabilities and contingent liabilities as at 30 September 2013 over the cost of acquisition	18,009

The valuer has not included the fair value of a plot of land for the use of cemetery plots and known as Jinshan Cemetery with book carrying value of approximately TWD2.38 million as at 30 September 2013 in view of the insignificant amount involved and the Target Company has not yet obtained the operating right of the land in Jinshan Cemetery.

This is calculated as the excess of the fair value of net assets over its book carrying amount of approximately TWD95,367,000 per valuation report multiplied by the Taiwan Corporate Income Tax rate of 17%.

— II-11 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The acquisition of the Target Group results in a gain because the consideration of the acquisition of the Target Group is based, inter alia, on 28.84% of the audited net asset value of the Target Company as at 31 December 2012 and the Target Group has been profit making since 1 January 2013 and the fair value of the columbarium units and cemetery plots for resale (the “Property”) of the Target Group is in excess of its book carrying value as at the valuation date of 30 September 2013.

The valuer adopted the cost approach (often referred to as the replacement cost approach) as defined in Appendix A of HKFRS 13 Fair Value Measurement in estimating the fair value of the Property as it is considered that the cost approach best reflects the price that would be received to sell the Property in an orderly transaction between market participants at the measurement date. The cost approach adopted also maximises the use of observable inputs as the key inputs which are recent transaction prices of comparable land close to the measurement date to arrive at the replacement cost of the land portion of the Property, local construction cost of buildings and building cost indices to arrive at the replacement cost of the building portion of the Property are all observable inputs. The cost approach is also a preferred valuation technique under paragraph 61 of HKFRS 13 as this approach maximises the use of relevant observable inputs.

(m) The adjustment represents the recognition of the excess of the Group’s share of the net fair value of the Target Company’s identifiable assets, liabilities and contingent liabilities as at 1 October 2012 over the cost of acquisition of the Target Company of TWD513,728,077 (equivalent to approximately HK$134,494,000). The excess is based on the independent professional valuation report and management accounts of the Target Company as at 30 September 2012 as if the Acquisition had taken place on 1 October 2012. The valuation was performed by an independent professional valuer in Taiwan (China Intangible Asset Appraisement Co., Ltd.), using the International Valuation Standards published by the International Valuation Standards Council, for the purpose of determining the fair value of the Target Company’s identifiable assets, liabilities and contingent liabilities as at 1 October 2012. The valuation results in TWD have been translated into HK$ at the exchange rate of TWD1 to HK$0.26419 being the exchange rate as at 1 October 2012. The actual amount of such excess can only be determined at the date of Completion and the cost of acquisition of the Target Company would be based on the market value of the Subscription Shares at the date of Completion.

The adjustment also includes the consequential downward adjustment of approximately HK$178,000 to the share of profits of the Target Company as set out in (h) above resulting from fair value adjustments to the carrying value of assets in the determination of the “bargain purchase” amount.

The excess of the Group’s share of the net fair value of the Target Company’s identifiable assets, liabilities and contingent liabilities as at 1 October 2012 over the cost of acquisition is calculated as follows:

	Fair value
	TWD’000
Property, plant and equipment	43,363
Columbarium units and cemetery plots for resale*	2,068,451
Trade receivables	55
Other receivables	12,298
Prepayments	1,233
Amounts due from related parties	13,515
Cash and bank balances	19,868
Trade payables	(187,810)
Accruals	(14,623)
Receipt in advance	(6,715)
Other payables	(1,172)
Tax payable	(9,500)

— II-12 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

	Fair value
	TWD’000
Deferred tax liabilities#	(30,325)
Net fair value of the Target Company’s identifiable assets, liabilities and contingent
liabilities	1,908,638
	HK$’000
Translated at the exchange rate of TWD1 to HK$0.26419	504,243
The Group’s share thereof	145,424
Less: consideration paid	(134,494)
Excess of the Group’s share of the net fair value of the Target Company’s identifiable
assets, liabilities and contingent liabilities as at 1 October 2012 over the cost of
acquisition	10,930

The valuer has not included the fair value of a plot of land for the use of cemetery plots and known as Jinshan Cemetery with book carrying value of approximately TWD2.38 million as at 30 September 2012 in view of the insignificant amount involved and the Target Company has not yet obtained the operating right of the land in Jinshan Cemetery.

This is calculated as the excess of the fair value of net assets over its book carrying amount of approximately TWD178,383,000 per valuation report multiplied by the Taiwan Corporate Income Tax rate of 17%.

The acquisition of the Target Company results in a gain because the consideration of the acquisition of the Target Company is based, inter alia, on 28.84% of the audited net asset value of the Target Company as at 31 December 2012 and the fair value of the columbarium units and cemetery plots for resale (the “Property”) of the Target Company as at the valuation date of 30 September 2012 is in excess of its book carrying value as at 1 October 2012.

(n) The pro forma adjustments other than (h) and (m) in respect of the consolidated statement of comprehensive income and statement of cash flows of the Remaining Group for the year ended 30 September 2013 are not expected to have a recurring effect on the Company.

— II-13 —

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

B. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

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The Board of Directors United Pacific Industries Limited Unit 1903-05, 19/F Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong

Dear Sirs

We have completed our assurance engagement to report on the compilation of pro forma financial information of United Pacific Industries Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors for illustrative purposes only. The pro forma financial information consists of the pro forma consolidated statement of financial position as at 30 September 2013, the pro forma consolidated statement of comprehensive income for the year ended 30 September 2013, the pro forma consolidated statement of cash flows for the year ended 30 September 2013, and related notes as set out in the section headed “Unaudited Pro Forma Financial Information of the Remaining Group” in Appendix II of the circular issued by the Company dated 17 March 2014 (the “Circular”). The applicable criteria on the basis of which the directors have compiled the pro forma financial information are also described in section headed “Unaudited Pro Forma Financial Information of the Remaining Group” in Appendix II of the circular.

The pro forma financial information has been compiled by the directors to illustrate the impact of the proposed acquisition of the 28.84% shareholding in 宇錡建設股份有限公司 (Yuji Development Corporation) (the “Target Company”, which in turn holds approximately 77.75% shareholding in 龍富事業股份有限公司 (Long Fu Enterprise Corporation) as at the Latest Practicable Date) (the “Acquisition”) and the disposal of the entire issued share capital of Pantronics Holdings Limited (“PHL”) and Pantene Global Holdings Limited (“PGH”) (together the “Disposal Group”) (the “Disposal”) on the Group’s financial position as at 30 September 2013 and the Group’s financial performance and cash flows for the year ended 30 September 2013 as if the Acquisition and the Disposal had taken place at 30 September 2013 and 1 October 2012 respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the directors from the Group’s audited financial statements for the year ended 30 September 2013 on which an audit report has been published.

* For identification purpose only

— II-14 —

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Directors’ Responsibility for the Pro Forma Financial Information

The directors are responsible for compiling the pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus, issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Acquisition and the Disposal at 30 September 2013 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

— II-15 —

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the pro forma financial information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully

BDO Limited

Certified Public Accountants Hong Kong

17 March 2014

— II-16 —

APPENDIX III

FINANCIAL INFORMATION OF THE PHL GROUP

Set out below is the financial information of the PHL Group comprising the unaudited consolidated statements of financial position of the PHL Group as at 30 September 2011, 2012 and 2013 and the unaudited consolidated statements of comprehensive income, unaudited consolidated statements of changes in equity and unaudited consolidated statements of cash flows of the PHL Group for each of the three years ended 30 September 2013 and certain explanatory note (the “Unaudited Consolidated Financial Information”). The Unaudited Consolidated Financial Information has been reviewed by the independent auditor of the Company, BDO Limited, in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” and with reference to Practice Note 750 “Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Based on their review, nothing has come to their attention that causes them to believe that the Unaudited Consolidated Financial Information of the PHL Group is not prepared, in all material respects, in accordance with accounting policies used in the preparation of the consolidated financial statements of the Group as set out in the annual report of the Company for the year ended 30 September 2013, and the basis of preparation set out in note 1 to the Unaudited Consolidated Financial Information of the PHL Group.

— III-1 —

FINANCIAL INFORMATION OF THE PHL GROUP

APPENDIX III

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF THE PHL GROUP

Revenue
Cost of sales
Gross profit
Other income
Interest income
Selling and distribution costs
Administrative costs
Restructuring costs
Finance costs
Realised exchange differences on the liquidation of
a subsidiary undertaking recycled from other
comprehensive income
Profit before tax
Income tax charge
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss:
Exchange differences arising on the translation of
foreign operations
Realised exchange differences on the liquidation
of a subsidiary undertaking recycled to the
income statement
Other comprehensive income for the year, net of
tax
Total comprehensive income for the year
attributable to the Owners of the Company

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
332,792
355,404
325,245
(282,929)
(290,395)
(268,660)
49,863
65,009
56,585
1,193
69
1,208
755
187
453
(7,842)
(8,315)
(8,821)
(22,613)
(25,421)
(26,675)
(54)
—
(541)
(2,198)
(428)
(448)
—
—
1,186
19,104
31,101
22,947
(614)
(5,297)
(5,345)
18,490
25,804
17,602
3,776
169
1,742
—
—
(1,186)
3,776
169
556
22,266
25,973
18,158

— III-2 —

FINANCIAL INFORMATION OF THE PHL GROUP

APPENDIX III

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION OF THE PHL GROUP

Non-current assets Property, plant and equipment Prepaid land lease payments under operating leases Other financial assets Current assets Inventories Trade and other receivables Amounts due from the Remaining Group Pledged bank deposits Cash and bank balances Current liabilities Trade and other payables Amounts due to the Remaining Group Bank borrowings Provisions Tax payable Net current assets Total assets less current liabilities Non-current liabilities Bank borrowings Net assets Capital and reserves Share capital Reserves Total equity attributable to Owners of the Company	As at 30 September 2011 2012 2013 HK$’000 HK$’000 HK$’000 18,359 20,364 20,610 529 494 459 — 6,090 — 18,888 26,948 21,069 39,325 30,230 28,257 64,491 67,682 64,242 122,296 101,990 100,850 5,000 5,000 — 32,534 37,727 64,151 263,646 242,629 257,500 53,990 47,024 44,224 127,447 118,577 118,060 32,561 18,585 18,288 — — 300 682 3,621 5,269 214,680 187,807 186,141 48,966 54,822 71,359 67,854 81,770 92,428 2,057 — — 65,797 81,770 92,428 2 2 2 65,795 81,768 92,426 65,797 81,770 92,428	As at 30 September 2011 2012 2013 HK$’000 HK$’000 HK$’000 18,359 20,364 20,610 529 494 459 — 6,090 — 18,888 26,948 21,069 39,325 30,230 28,257 64,491 67,682 64,242 122,296 101,990 100,850 5,000 5,000 — 32,534 37,727 64,151 263,646 242,629 257,500 53,990 47,024 44,224 127,447 118,577 118,060 32,561 18,585 18,288 — — 300 682 3,621 5,269 214,680 187,807 186,141 48,966 54,822 71,359 67,854 81,770 92,428 2,057 — — 65,797 81,770 92,428 2 2 2 65,795 81,768 92,426 65,797 81,770 92,428
		21,069
		28,257 64,242 100,850 — 64,151
		257,500
		44,224 118,060 18,288 300 5,269
		186,141
		71,359
		92,428
		—
		92,428
		2 92,426
		92,428

— III-3 —

FINANCIAL INFORMATION OF THE PHL GROUP

APPENDIX III

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OF THE PHL GROUP

At 1 October 2010 Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Total comprehensive income for the year At 30 September 2011 and 1 October 2011 Dividend paid Transaction with owners Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Total comprehensive income for the year At 30 September 2012 and 1 October 2012 Dividend paid Transaction with owners Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Realised exchange differences on the liquidation of a subsidiary undertaking recycled to the income statement Total comprehensive income for the year At 30 September 2013	Share capital Translation reserve Accumulated profit HK$’000 HK$’000 HK$’000 2 (7,077) 50,606 — — 18,490 — 3,776 — — 3,776 18,490 2 (3,301) 69,096 — — (10,000) — — (10,000) — — 25,804 — 169 — — 169 25,804 2 (3,132) 84,900 — — (7,500) — — (7,500) — — 17,602 — 1,742 — — (1,186) — — 556 17,602 2 (2,576) 95,002	Total HK$’000 43,531 18,490 3,776 22,266 65,797 (10,000) (10,000) 25,804 169 25,973 81,770 (7,500) (7,500) 17,602 1,742 (1,186) 18,158 92,428

— III-4 —

APPENDIX III

FINANCIAL INFORMATION OF THE PHL GROUP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE PHL GROUP

Cash flows from operating activities:
Profit before tax
Adjustments for:
Interest income
Interest on interest-bearing bank borrowings and
overdrafts
Interest on obligations under finance leases
Amortisation of prepaid land lease payments under
operating leases
Depreciation of property, plant and equipment
Loss/(gain) on sale of property, plant and
equipment
Impairment loss/(reversal of impairment loss) on
trade receivables
Impairment loss on inventories
Realised exchange differences on the liquidation of
a subsidiary undertaking recycled to the income
statement
Restructuring costs charged to the income statement
Operating cash flows before movements in
working capital
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Increase in group balances
Restructuring costs paid
Net cash generated from operations
Income tax paid
Net cash generated from operating activities

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
19,104
31,101
22,947
(755)
(187)
(453)
2,195
428
448
3
—
—
52
35
35
4,871
2,776
2,199
62
(34)
—
567
202
(1,009)
1,141
86
1,897
—
—
(1,186)
54
—
541
27,294
34,407
25,419
(9,171)
9,008
76
(711)
(3,409)
4,510
(3,264)
(6,878)
(2,863)
13,745
5,267
6,758
(54)
—
(240)
27,839
38,395
33,660
(124)
(2,366)
(3,697)
27,715
36,029
29,963

— III-5 —

APPENDIX III

FINANCIAL INFORMATION OF THE PHL GROUP

Cash flows from investing activities
Purchase of property, plant and equipment
Interest received
Release of pledged bank deposits
Proceeds from disposal of property, plant and
equipment
Net cash (used in)/generated from investing
activities
Cash flows from financing activities:
Principal repayment of obligations under finance
leases
Interest paid on interest-bearing bank borrowings
and bank overdrafts
Interest paid on obligations under finance leases
Net cash (outflow)/inflow in trust receipts and
export loans
Repayment of bank borrowings
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Effect of foreign exchange rates
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
Analysis of cash and cash equivalents:
Cash and bank balances
Bank overdrafts

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
(768)
(4,629)
(1,958)
28
29
453
—
—
5,000
35
34
—
(705)
(4,566)
3,495
(185)
—
—
(2,195)
(428)
(448)
(3)
—
—
(13,796)
(6,478)
459
(8,107)
(7,943)
—
—
(10,000)
(7,500)
(24,286)
(24,849)
(7,489)
2,724
6,614
25,969
2,794
192
1,211
20,616
26,134
32,940
26,134
32,940
60,120
32,534
37,727
64,151
(6,400)
(4,787)
(4,031)
26,134
32,940
60,120

— III-6 —

FINANCIAL INFORMATION OF THE PHL GROUP

APPENDIX III

NOTE TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

The unaudited financial information has been prepared in accordance with paragraph 68(2)(a)(i) of Chapter 14 of the Listing Rules, and solely for the purposes of inclusion in the circular to be issued by the Company in connection with the disposal of the PHL Group.

The unaudited financial information of the PHL Group for each of the three years ended 30 September 2013 has been prepared using the same accounting policies the Company used in the preparation of the consolidated financial statements of the Group for the year ended 30 September 2013, which conform with the Hong Kong Financial Reporting Standards issued by the HKICPA.

The unaudited financial information of the PHL Group does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) “Presentation of Financial Statements” issued by the HKICPA or a set of condensed financial statements as defined in Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the HKICPA.

— III-7 —

APPENDIX IV

FINANCIAL INFORMATION OF THE PGH GROUP

Set out below is the financial information of the PGH Group comprising the unaudited consolidated statements of financial position of the PGH Group as at 30 September 2011, 2012 and 2013 and the unaudited consolidated statements of comprehensive income, unaudited consolidated statements of changes in equity and unaudited consolidated statements of cash flows of the PGH Group for each of the three years ended 30 September 2013 and certain explanatory notes (the “Unaudited Consolidated Financial Information”). The Unaudited Consolidated Financial Information has been reviewed by the independent auditor of the Company, BDO Limited, in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” and with reference to Practice Note 750 “Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Based on their review, nothing has come to their attention that causes them to believe that the Unaudited Consolidated Financial Information of the PGH Group is not prepared, in all material respects, in accordance with accounting policies used in the preparation of the consolidated financial statements of the Group as set out in the annual report of the Company for the year ended 30 September 2013, and the basis of preparation set out in note 1 to the Unaudited Consolidated Financial Information of the PGH Group.

— IV-1 —

FINANCIAL INFORMATION OF THE PGH GROUP

APPENDIX IV

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF THE PGH GROUP

Continuing operations
Revenue
Cost of sales
Gross profit
Other income
Interest income
Selling and distribution costs
Administrative costs
Restructuring costs
Finance costs
Share of results of an associate
Cash flow hedge recycled from other
comprehensive income
Realised exchange differences on the liquidation of
a subsidiary undertaking recycled from other
comprehensive income
Profit before tax
Income tax charge
Profit for the year from continuing operations
Discontinued operation — Note 2
Net results from discontinued operation
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently
to profit or loss:
Recognition of actuarial gains/(losses) on defined
benefit pension plan, net of tax
Items that may be reclassified subsequently to
profit or loss:
Exchange differences arising on the translation of
foreign operations
Cash flow hedge gain/(loss) recognised in equity
Cash flow hedge recycled to the income
statement
Realised exchange differences on the disposal of
a subsidiary undertaking recycled to the income
statement — Note 2
Realised exchange differences on the liquidation
of a subsidiary undertaking recycled to the
income statement
Other comprehensive income for the year, net of
tax
Total comprehensive income for the year
attributable to the Owners of the Company

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
864,565
913,834
929,240
(533,390)
(570,049)
(576,099)
331,175
343,785
353,141
4,517
3,929
5,619
12,979
12,445
12,606
(211,195)
(208,961)
(208,161)
(68,684)
(101,732)
(97,855)
(11,080)
(3,284)
(3,375)
(2,302)
(2,628)
(2,272)
2,848
4,452
6,922
(2,076)
1,361
(839)
—
600
—
56,182
49,967
65,786
(18,572)
(18,170)
(19,643)
37,610
31,797
46,143
(17,473)
(6,984)
—
20,137
24,813
46,143
25,088
(99,724)
15,917
(2,445)
9,712
(5,842)
1,361
(839)
(351)
2,076
(1,361)
839
—
(1,427)
—
—
(600)
—
26,080
(94,239)
10,563
46,217
(69,426)
56,706

— IV-2 —

FINANCIAL INFORMATION OF THE PGH GROUP

APPENDIX IV

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION OF THE PGH GROUP

	As at 30 September	As at 30 September	As at 30 September
	2011	2012	2013
	HK$’000	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	167,205	162,251	153,341
Goodwill	2,345	2,432	2,419
Other intangible assets	561	164	75
Interest in an associate	5,504	7,007	10,052
Available-for-sale financial assets	704	718	727
Deferred tax assets	52,434	72,203	48,005
	228,753	244,775	214,619
Current assets
Inventories	234,884	226,022	234,348
Trade and other receivables	185,995	173,367	172,706
Amounts due from the Remaining Group	55,302	27,504	27,764
Tax recoverable	1,723	—	—
Derivative financial instruments	1,932	—	—
Cash and bank balances	66,427	63,453	80,751
	546,263	490,346	515,569
Current liabilities
Trade and other payables	184,254	157,210	159,210
Amounts due to the Remaining Group	111,586	99,014	96,405
Bank borrowings	47,323	33,196	38,643
Obligations under finance leases	6,391	8,104	6,104
Provisions	2,102	4,121	3,560
Derivative financial instruments	—	2,874	351
Tax payable	3,062	4,058	4,337
	354,718	308,577	308,610
Net current assets	191,545	181,769	206,959
Total assets less current liabilities	420,298	426,544	421,578
Non-current liabilities
Bank borrowings	9,614	—	—
Obligations under finance leases	8,623	9,087	4,838
Retirement benefit obligations	132,220	245,217	189,627
Deferred tax liabilities	13,148	11,973	10,140
	163,605	266,277	204,605
Net assets	256,693	160,267	216,973
Capital and reserves
Share capital	5,000	5,000	5,000
Reserves	251,693	155,267	211,973
Total equity attributable to Owners of the Company	256,693	160,267	216,973

— IV-3 —

APPENDIX IV

FINANCIAL INFORMATION OF THE PGH GROUP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OF THE PGH GROUP

At 1 October 2010 Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Cash flow hedges - changes in the fair value recognised in the year Cash flow hedges recycled to the income statement Recognition of actuarial gains on the defined benefit pension plan, net of tax Total comprehensive income for the year At 30 September 2011 and 1 October 2011 Repurchase of shares in a subsidiary undertaking Transaction with owners Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Realised exchange differences on the liquidation of a subsidiary undertaking recycled to the income statement Exchange differences on the disposal of a subsidiary undertaking recycled to the income statement — Note 2 Cash flow hedges - changes in the fair value recognised in the year Cash flow hedges recycled to the income statement Recognition of actuarial losses on the defined benefit pension plan, net of tax Total comprehensive income for the year At 30 September 2012 and 1 October 2012 Profit for the year Other comprehensive income Exchange differences arising on the translation of foreign operations Cash flow hedges - changes in the fair value recognised in the year Cash flow hedges recycled to the income statement Recognition of actuarial gains on the defined benefit pension plan, net of tax Total comprehensive income for the year At 30 September 2013	Share capital Translation reserve HK$’000 HK$’000 5,000 (56,695) — — — (2,445) — — — — — — — (2,445) 5,000 (59,140) — — — — — — — 9,712 — (600) — (1,427) — — — — — — — 7,685 5,000 (51,455) — — — (5,842) — — — — — — — (5,842) 5,000 (57,297)	Hedging reserve Accumulated profits HK$’000 HK$’000 (2,076) 264,247 — 20,137 — — 1,361 — 2,076 — — 25,088 3,437 45,225 1,361 309,472 — (27,000) — (27,000) — 24,813 — — — — — — (839) — (1,361) — — (99,724) (2,200) (74,911) (839) 207,561 — 46,143 — — (351) — 839 — — 15,917 488 62,060 (351) 269,621	Total HK$’000 210,476
			20,137 (2,445) 1,361 2,076 25,088
			46,217
			256,693
			(27,000)
			(27,000)
			24,813 9,712 (600) (1,427) (839) (1,361) (99,724)
			(69,426)
			160,267
			46,143 (5,842) (351) 839 15,917
			56,706
			216,973

— IV-4 —

FINANCIAL INFORMATION OF THE PGH GROUP

APPENDIX IV

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE PGH GROUP

Cash flows from operating activities:
Profit before tax
Continuing operations
Discontinued operation
Adjustments for:
Interest income
Interest on interest-bearing bank borrowings and
overdrafts
Interest on obligations under finance leases
Interest credit on retirement benefit obligations
Retirement benefit plan expenses
Share of results of an associate
Amortisation of other intangible assets
Depreciation of property, plant and equipment
Gain on sale of property, plant and equipment
Impairment loss/(reversal of impairment loss) on trade
receivables
Impairment loss on inventories
Cash flow hedge recycled to the income statement
Loss on disposal of subsidiary undertaking — Note 2
Realised exchange differences on the liquidation of a
subsidiary undertaking recycled to the income
statement
Restructuring costs charged to the income statement
Operating cash flows before movements in working
capital
Increase in inventories
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Increase/(decrease) in group balances
Restructuring costs paid
Employer contribution to the defined benefit pension
plan
Net cash generated from operations
Income tax paid
Net cash generated from operating activities

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
56,182
49,967
65,786
(19,187)
(5,644)
—
36,995
44,323
65,786
(3,928)
(2,229)
(1,643)
2,693
2,592
1,584
681
799
688
(10,124)
(10,839)
(10,963)
3,600
2,940
3,497
(2,848)
(4,452)
(6,922)
532
390
165
15,901
17,533
15,989
(123)
—
—
4,908
(41)
402
3,365
157
2,727
2,076
(1,361)
839
—
13,751
—
—
(600)
—
11,080
3,284
3,375
64,808
66,247
75,524
(13,435)
(1,288)
(15,203)
430
(23,144)
(5,084)
15,056
18,547
4,375
10,231
9,770
(3,186)
(33,059)
(3,654)
(4,088)
(10,191)
(12,218)
(19,112)
33,840
54,260
33,226
(7,450)
(4,883)
(4,464)
26,390
49,377
28,762

— IV-5 —

APPENDIX IV

FINANCIAL INFORMATION OF THE PGH GROUP

Cash flows from investing activities
Purchase of property, plant and equipment
Interest received
Proceeds from disposal of property, plant and equipment
Net cash inflow from disposal of a subsidiary
undertaking — Note 2
Dividend received from an associate
Deferred contingent consideration paid for the
acquisition of a subsidiary
Purchase of intangible assets
Proceeds from disposal of available-for-sale financial
assets
Net cash (used in)/generated from investing activities
Cash flows from financing activities:
Principal repayment of obligations under finance leases
Interest paid on interest-bearing bank borrowings and
bank overdrafts
Interest paid on obligations under finance leases
New bank borrowings raised
Repayment of bank borrowings
Increase/(decrease) in invoice discounting facility
Repurchase of shares
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rates
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
Analysis of cash and cash equivalents:
Cash and bank balances
Bank overdrafts

Year ended 30 September
2011
2012
2013
HK$’000
HK$’000
HK$’000
(13,703)
(3,417)
(4,948)
2,005
816
857
—
10
—
—
3,679
—
2,306
2,737
3,737
(1,547)
(1,503)
(1,101)
—
—
(84)
172
—
—
(10,767)
2,322
(1,539)
(7,042)
(7,803)
(8,443)
(2,693)
(2,592)
(1,906)
(681)
(799)
(688)
21,637
21,288
—
(35,902)
(30,850)
—
5,218
(8,054)
2,791
—
(27,000)
—
(19,463)
(55,810)
(8,246)
(3,840)
(4,111)
18,977
713
713
(3,777)
61,547
58,420
55,022
58,420
55,022
70,222
66,427
63,453
80,751
(8,007)
(8,431)
(10,529)
58,420
55,022
70,222

— IV-6 —

FINANCIAL INFORMATION OF THE PGH GROUP

APPENDIX IV

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

The unaudited financial information of the PGH Group for each of the three years ended 30 September 2013 has been prepared using the same accounting policies the Company used in the preparation of the consolidated financial statements of the Group for the year ended 30 September 2013, which conform with the Hong Kong Financial Reporting Standards issued by the HKICPA.

The unaudited financial information of the PGH Group does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) “Presentation of Financial Statements” issued by the HKICPA or a set of condensed financial statements as defined in Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the HKICPA.

2. DISCONTINUED OPERATION

On 17 September 2012, PGH disposed of its entire equity interest in Alford Industries Limited, an indirectly owned subsidiary of PGH Group, to a fellow subsidiary of PGH, as part of a Group reorganisation. The results of the remaining members of the PGH Group are reported under “Continuing operations”, and the results of the disposed subsidiary are reported under “Discontinued operation”.

The loss for the year from the discontinued operation is analysed as follows:

Revenue Cost of sales Gross (loss)/profit Other income Interest income Selling and distribution costs Administrative costs Finance costs (Loss)/profit before tax Income tax credit/(charge) (Loss)/profit for the year Loss on disposal of subsidiary Loss for the year from discontinued operation Operating cash flows Investing cash flows Financing cash flows Total cash outflows	Year ended 30 September 2011 2012 HK$’000 HK$’000 79,605 199,371 (89,845) (170,549) (10,240) 28,822 1,359 127 1,073 623 — (6,258) (10,307) (14,444) (1,072) (763) (19,187) 8,107 1,714 (1,340) (17,473) 6,767 — (13,751) (17,473) (6,984) 6,104 20,161 (1,158) (24,153) (6,511) (7,344) (1,565) (11,336)	Year ended 30 September 2011 2012 HK$’000 HK$’000 79,605 199,371 (89,845) (170,549) (10,240) 28,822 1,359 127 1,073 623 — (6,258) (10,307) (14,444) (1,072) (763) (19,187) 8,107 1,714 (1,340) (17,473) 6,767 — (13,751) (17,473) (6,984) 6,104 20,161 (1,158) (24,153) (6,511) (7,344) (1,565) (11,336)
		28,822 127 623 (6,258) (14,444) (763)
		8,107 (1,340)
		6,767 (13,751)
		(6,984)
		20,161 (24,153) (7,344)
		(11,336)

— IV-7 —

APPENDIX IV

FINANCIAL INFORMATION OF THE PGH GROUP

Loss on disposal of subsidiary is analysed as follows:

	Year ended
	30 September
	2012
	HK$’000
Net assets disposed of:
Property, plant and equipment	4,862
Inventories	16,482
Trade and other receivables	40,260
Amounts due from the Remaining Group	13,207
Cash and bank balances	23,321
Trade and other payables	(40,852)
Bank borrowings	(7,721)
Obligations under finance leases	(40)
Tax payable	(1,341)
Net assets of disposed subsidiary	48,178
Release of translation reserve upon disposal of subsidiary	(1,427)
	46,751
Less: loss on disposal of subsidiary	(13,751)
Total consideration	33,000
Satisfied by:
Cash	27,000
Amounts due from the Remaining Group	6,000
	33,000
An analysis of net inflow of cash and cash equivalents in respect of the disposal
of subsidiary is as follows:
Cash consideration received	27,000
Cash and bank balances disposed of	(23,321)
	3,679

— IV-8 —

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

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

(i) Authorised	share capital:	HK$
1,500,000,000	Shares	150,000,000
(ii) Issued and	fully paid or credited as fully paid	HK$
1,007,443,153	Shares	100,744,315

3. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (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 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under provisions of the SFO), or which were required to be entered in the register kept by the Company pursuant to

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APPENDIX V

GENERAL INFORMATION

Section 352 of the SFO or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

(i) Long positions in the underlying shares of the Company

			Approximate
			percentage of the
			total issued share
	Capacity in which	Number of	capital of the
Name of Directors	interests are held	Shares held	Company
Mr. Anthony Lee	Beneficial owner	281,313,309	27.92%
Mr. David Howard Clarke	Interest in a controlled	10,853,200	1.08%
	corporation (Note)
Mr. Simon Hsu Nai-Cheng	Beneficial owner	11,397,606	1.13%
Mr. Patrick John Dyson	Beneficial owner	2,028,191	0.20%
Mr. Henry Woon-Hoe Lim	Beneficial owner	1,026,000	0.10%

Note:

These shares are held by GSB Holdings, Inc. (“ GSBH ”). Mr. David Howard Clarke has a controlling 61.4% equity interest in Great South Beach Improvement Co. which has a beneficial interest in the entire issued share capital of GSBH.

(ii) Long positions in the underlying shares of the Company attached to the share options granted by the Company

			Approximate
			percentage of the
		Number of	total issued share
	Capacity in which	underlying	capital of the
Name of Directors	interests are held	Shares held	Company
Mr. David Howard Clarke	Beneficial owner	6,000,000	0.60%
Mr. Simon Hsu Nai-Cheng	Beneficial owner	4,500,000	0.45%
Mr. Henry Woon-Hoe Lim	Beneficial owner	3,000,000	0.30%

Note:

The above share options were granted pursuant to the Company’s share option scheme adopted on 30 August 2004. Upon exercise of the share options in accordance with such share option scheme, Shares are issuable to the Director(s) who exercise(s) the rights.

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GENERAL INFORMATION

APPENDIX V

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the Directors are not aware of any persons (other than a Director or chief executive of the Company whose interests are disclosed above) who had, or were deemed or taken to have interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, which were required to be entered in the register kept by the Company under Section 336 of the SFO or who were 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 any member of the Group as at the Latest Practicable Date.

5. DISCLOSURE OF OTHER INTERESTS

(i) Interests in contract or arrangement

Save and except Mr. Hsu who is the ultimate beneficial owner of the Purchasers under the Disposal Agreement and except Mr. Anthony Lee who is a substantial shareholder of the Company, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as the Latest Practicable Date and which was significant in relation to the business of the Group.

(ii) Interests in assets

Save and except (a) Mr. Hsu who is the ultimate beneficial owner of the Purchasers under the Disposal Agreement; (b) those Directors who have indirect interest in the Disposal Group through their respective direct or indirect shareholdings in the Company; and (c) Mr. Anthony Lee and Ms. Kelly Lee who have indirect interests in the shareholdings of Lung Yen, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 30 September 2013, being the date to which the latest published audited accounts of the Group were made up.

(iii) Interests in competing business

As at the Latest Practicable Date, none of the Directors and their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

6. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposed to enter, into a service contract with any member of the Group which is not expiring or may not be terminated by the Group within one year without payment of compensation (other than statutory compensation).

— V-3 —

GENERAL INFORMATION

APPENDIX V

7. MATERIAL CONTRACTS

Set out below are the contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date which were or might be material:

(a) Framework deed dated 8 February 2014 and entered into by, among others, the Company, the Buyer and the Vendors;
(b) Acquisition Agreement;
(c) Subscription Agreement;
(d) Disposal Agreement; and
(e) Escrow agreement dated 8 February 2013 and entered into by, among others, the escrow agent, the Vendors and the Buyer.

8. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and, so far as the Directors were aware, there was no litigation or claims of material importance pending or threatened by or against any member of the Group, other than those accrued in the financial statements of the Group.

9. EXPERTS AND CONSENT

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualifications

Changjiang Corporate a corporation licensed to conduct Type 6 (advising on Finance (HK) Limited corporate finance) regulated activities under the SFO BDO Limited Certified Public Accountants Lee, Kuo & Associate Taiwan legal advisers

As at the Latest Practicable Date, none of the above experts had any direct or indirect shareholdings in any member of the Group, or any right to subscribe for or to nominate persons to subscribe for shares in any members of the Group, or any direct or indirect interests in any assets which have been acquired or disposed of by or leased to or which are proposed to be acquired or disposed of by or leased to the Company or any of their respective subsidiaries since 30 September 2013, the date to which the latest published audited financial statements of the Group were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters or reports and references to its name in the form and context in which they appear.

— V-4 —

GENERAL INFORMATION

APPENDIX V

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on Business Days at the office of the Company at Unit 1903-05, 19/F, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong from the date of this circular up to and including the date of the SGM:

(i) The bye-laws of the Company;
(ii) the annual reports of the Company for each of the two years ended 30 September 2012 and 2013;
(iii) the letter from the Independent Board Committee, the text of which is set out on pages 42 to 43 of this circular;
(iv) the letter of advice from the Independent Financial Adviser, the text of which is set out on pages 44 to 96 of this circular;
(v) the unaudited pro forma financial information of the Remaining Group as set out in Appendix II to this circular;
(vi) the financial information of the Disposal Group for each of the three years ended 30 September 2011, 2012 and 2013 as set out in Appendices III and IV to this circular;
(vii) the material contracts referred to in the section headed “Material contracts” in this appendix;
(viii) the written consents of the experts referred to in the section headed “Experts and consents” in this appendix; and
(ix) this circular.

11. MISCELLANEOUS

(i) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM11, Bermuda and its principal place of business in Hong Kong is at Unit 1903-05, 19/F, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong.
(ii) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(iii) The company secretary of the Company is Mr. Som Wai Tong, Ivan, who is a member of Hong Kong Institute of Certified Public Accountants.
(iv) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

— V-5 —

NOTICE OF SGM

==> picture [134 x 43] intentionally omitted <==

Website: www.upi.com.hk, www.irasia.com/listco/hk/upi

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the special general meeting (the “ SGM ”) of United Pacific Industries Limited (the “ Company ” and with its subsidiaries, the “ Group ”) will be held at Plaza 3, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 1 April 2014 at 9:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT

(a) the framework deed (the “ Framework Deed ”) dated 8 February 2014 and entered into amongst others, the Company, Rise Up International Limited, a wholly owned subsidiary of the Company, and 40 independent third parties, to govern the flow of funds in relation to the payment for purchase price under the Acquisition Agreement (as defined in (b) below) and the payment for subscription price under the Subscription Agreement (as defined in (c) below) and to ensure that closing of the acquisition under the Acquisition Agreement and under the Subscription Agreement shall occur simultaneously (a copy of the Framework Deed has been produced to the SGM marked “A” and signed by the chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified in all respects;
(b) the conditional acquisition agreement (the “ Acquisition Agreement ”) dated 8 February 2014 and entered into among Rise Up International Limited, a wholly-owned subsidiary of the Company as purchaser and 40 independent third parties (the “ Vendors ”) as sellers in relation to the sale and purchase of approximately 28.84% of the total issued share capital in 宇錡建設股份有限公司 (Yuji Development Corporation) at a consideration of TWD513,728,077 (equivalent to approximately HK$132.3 million) (a copy of the Acquisition Agreement has been produced to the SGM marked “B” and signed by the chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified in all respects;
(c) the subscription agreement (the “ Subscription Agreement ”) dated 8 February 2014 and entered into among the Company as issuer and the Vendors as subscriber in relation to the subscription of new ordinary shares of HK$0.10 each in the share capital of the Company (each a “ Subscription Share ”, collectively, the “ Subscription Shares ”) at the price of

— N-1 —

NOTICE OF SGM

approximately HK$0.887 per Subscription Share (a copy of the Acquisition Agreement has been produced to the SGM marked “C” and signed by the chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified in all respects;

(d) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the Subscription Shares, the allotment and issue of the Subscription Shares to the Vendors pursuant to the Subscription Agreement (the “ Specific Mandate ”) be and is hereby approved and confirmed and the Specific Mandate is in addition to, and shall not prejudice nor revoke the existing general mandate granted to the directors of the Company (the “ Directors ”) by the shareholders of the Company in the annual general meeting of the Company held on 12 February 2014; and
(e) any one of the Directors (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) be and is hereby authorised to do all such acts and things and execute and where the affixing of the common seal of the Company is required, any two of the Directors (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) or any Director (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) and the company secretary of the Company be and are hereby authorised to affix the common seal of the Company on all such documents which he/they consider(s) necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Framework Deed, the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Subscription Shares.”
“ THAT
(a) the conditional disposal agreement (the “ Disposal Agreement ”) dated 8 February 2014 and entered into among the Company as seller and New Wave Capital Limited and Kings Victory Limited as purchasers in relation to the sale and purchase of (i) 200 shares in the issued share capital of Pantronics Holdings Limited (“PHL” and with its subsidiaries, the “ PHL Group ”); (ii) 5,000,000 shares in the issued share capital of Pantene Global Holdings Limited (“ PGH ” and with its subsidiaries, the “ PGH Group ”); (iii) the net amount due from the PHL Group to the Group (excluding the PHL Group and the PGH Group) as at completion of the Disposal Agreement; and (iv) the net amount due from the PGH Group to the Group (excluding the PHL Group and the PGH Group) as at completion of the Disposal Agreement, at a total consideration of US$25 million (equivalent to approximately HK$194.5 million) (a copy of the Disposal Agreement has been produced to the SGM marked “D” and signed by the chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified in all respects; and
(b) any one of the Directors (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) be and is hereby authorised to do all such acts and things and execute and where the affixing of the common seal of the Company is required, any two of the Directors (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) or any Director (other than Mr. Hsu, Ms. Kelly Lee and Mr. Anthony Lee) and the company secretary of the Company be and are hereby

— N-2 —

NOTICE OF SGM

authorised to affix the common seal of the Company on all such documents which he/they consider(s) necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Disposal Agreement and the transactions contemplated thereunder.”

Your faithfully For and on behalf of the Board United Pacific Industries Limited David Howard Clarke Chairman

Hong Kong, 17 March, 2014

Notes:

A form of proxy for use at the meeting is enclosed herewith.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer, attorney or other person authorised to sign the same.
Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him/her. A proxy need not be a member of the Company.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be lodged at the office of the Company’s Hong Kong branch share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case may be).
Completion and return of the form of proxy will not preclude members from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the form of proxy shall be deemed to be revoked.
Where there are joint registered holders of any Share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the meeting, whether in person or by proxy, the joint registered holder present whose name stands first on the register of members in respect of the shares shall be accepted to the exclusion of the votes of the other registered holders.
As required under Rule 13.39 of the Listing Rules, the ordinary resolutions will be decided by way of poll.

— N-3 —

AI assistant

Richly Field China Development Limited — Proxy Solicitation & Information Statement 2014

49117_rns_2014-03-16_9fd38794-f79a-4215-94df-738587433405.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(I) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO

(II) SUBSCRIPTION OF SHARES UNDER SPECIFIC MANDATE AND

(III) VERY SUBSTANTIAL DISPOSAL AND

LETTER FROM THE BOARD

INTRODUCTION

I. THE ACQUISITION AND THE SHARE SUBSCRIPTION

ACQUISITION AGREEMENT

Date:

Parties:

Target to be acquired:

Consideration:

LETTER FROM THE BOARD

Conditions

LETTER FROM THE BOARD

Completion

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

INFORMATION ON THE TARGET COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

DEVELOPMENT AFTER SIGNING OF THE ACQUISITION AGREEMENT

Notification from the Vendors

Implication

LETTER FROM THE BOARD

Directors’ assessments and conclusion

Consideration for the Acquisition

Conclusion

LETTER FROM THE BOARD

DUE DILIGENCE REVIEW ON THE TARGET GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE SUBSCRIPTION AGREEMENT

Date:

Parties:

Subscription Price

Subscription Shares

LETTER FROM THE BOARD

Conditions

LETTER FROM THE BOARD

Completion

GRANT OF SPECIFIC MANDATE

REASONS FOR THE SHARE SUBSCRIPTION AND USE OF PROCEEDS

LETTER FROM THE BOARD

EFFECTS ON THE SHAREHOLDING STRUCTURE OF THE COMPANY AS A RESULT OF THE ISSUE OF THE SUBSCRIPTION SHARES

LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

II. THE DISPOSAL

THE DISPOSAL AGREEMENT

Date:

Parties:

Assets to be disposed:

Consideration:

LETTER FROM THE BOARD

Conditions

Completion

Break fee

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Undertakings from the Purchasers

Undertaking from the Company

REASONS FOR AND BENEFITS OF THE DISPOSAL

Background to the Disposal

LETTER FROM THE BOARD

LETTER FROM THE BOARD

The James Neill Pension Plan and its implication for the PGH Group

Background

Accounting treatment of the Plan

LETTER FROM THE BOARD

Richly Field China Development Limited Proxy Solicitation & Information Statement 2014