Shanghai Henlius Biotech, Inc. — Proxy Solicitation & Information Statement 2003

Feb 12, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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BYD COMPANY LIMITED

(a joint stock company incorporated in the PRC with limited liability)

DISCLOSEABLE TRANSACTION

* For identification only

12th February, 2003

BYD COMPANY LIMITED

CONTENTS

	Page	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
**Letter **	from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
2.	Acquisition Agreements dated 22nd January, 2003 . . . . . . . . . . . . . . . . . . . . . .	3
3.	Information on Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
4.	Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
5.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
6.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10

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BYD COMPANY LIMITED

DEFINITIONS

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

• “Acquisition”

the acquisition by the Company of interests in Auto on the terms and subject to the conditions set out in the Acquisition Agreements

• “Acquisition Agreements”

the Acquisition Agreement I and the Acquisition Agreement II

• “Acquisition Agreement I” the acquisition agreement dated 22nd January, 2003 entered into between the Company and Shaanxi Group in relation to the Acquisition

• “Acquisition Agreement II” the acquisition agreement dated 22nd January, 2003 entered into between the Company and ZC Machinery in relation to the Acquisition

• “Aggregate Consideration” the aggregate consideration of RMB269,500,000 payable by the Company under the Acquisition Agreements

• “associate(s)” has the meanings ascribed to it under the Listing Rules “Auto” (Xian Qin Chuan Automobile Limited Liability Company), a limited liability company incorporated in the PRC

• “Board” the board of Directors “China Ammunition Group” , a state-owned enterprise incorporated in the PRC

• “Company” BYD Company Limited, a joint stock company incorporated in the PRC with limited liability, the H Shares of which are listed on the Stock Exchange

• “Completion” completion of the Acquisition Agreements “Directors” directors of the Company “Domestic Shares” ordinary shares issued by the Company, with a Renminbi-denominated par value of RMB1.00 each, which are subscribed for and paid up in Renminbi

• “Group” the Company and its subsidiaries (as defined in the Companies Ordinance, Chapter 32 of the Laws of Hong Kong)

“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong

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BYD COMPANY LIMITED

DEFINITIONS

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||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Hong|Kong”|the|Hong|Kong|Special Administrative|Region|of|the|PRC|
|“H|Shares”|overseas|listed|foreign|invested|shares|in|the|share|
|capital|of|the|Company,|with|a|Renminbi-denominated|
|par|value|of|RMB1.00|each,|and|which|are|subscribed|for|
|and|traded|in|Hong|Kong|dollars|
|“IPO|Proceeds”|the|proceeds|from|the|listing|of|the|H|Shares|of|the|
|Company|on|the|Stock|Exchange|
|“Latest|Practicable|Date”|6th|February,|2003|being|the|latest|practicable|date|
|before|the|printing|of|this|circular|for|ascertaining|certain|
|information|contained|in|it|
|“Listing|Rules”|the|Rules|Governing|the|Listing|of|Securities|on|the|
|Stock|Exchange|
|“PRC”|the|People’s|Republic|of|China|
|“PRC|GAAP”|the|Generally Accepted Accounting|Principles|of|the|PRC|
|“Prospectus”|the|prospectus|issued|by|the|Company|dated|22nd|July,|
|2002|in|relation|to|the|listing|of|the|H|Shares|on|the|Stock|
|Exchange|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|
|“SDI|Ordinance”|the|Securities|(Disclosure|of|Interests)|Ordinance|
|(Chapter|396|of|the|Laws|of|Hong|Kong)|as|amended|
|from|time|to|time|
|“Shaanxi|Car”|(Shaanxi|Qin|Chuan|Car|Rental|
|Limited|Liability|Company),|a|limited|liability|company|
|incorporated|in|the|PRC|
|“Shaanxi|Group”|(Shaanxi|Province|Investment|
|Group|(Limited)|Company),|a|state|wholly-owned|limited|
|liability|company|incorporated|in|the|PRC|
|“Shareholders”|holders|of|the|H|Shares|of|the|Company|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“Supervisors”|member(s)|of|the|supervisory|committee|of|the|Company|
|“ZC|Machinery”|(Xian|Northern|Qin|Chuan|
|Machinery|Industries|Company|Limited),|a|state|wholly-|
|owned|limited|liability|company|incorporated|in|the|PRC|

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Note: For information purpose only, the translation of RMB to HK$ in this circular is based on the exchange rate of RMB106: HK$100.

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

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BYD COMPANY LIMITED

(a joint stock company incorporated in the PRC with limited liability)

Executive Directors: Wang Chuan-fu Xia Zuo-quan

Non-executive Director: Lu Xiang-yang

Registered Address: Yan An Road Kuichong Longgang District Shenzhen Guangdong Province The PRC

Independent non-executive Directors:

Li Guo-xun Kang Dian

12th February, 2003

To the Shareholders of the Company

DISCLOSEABLE TRANSACTION

1. INTRODUCTION

The Board announced on 22nd January, 2003 that the Company entered into the Acquisition Agreements with each of Shaanix Group and ZC Machinery, pursuant to which the Company will effectively acquire an aggregate of 77% equity interest in Auto for an aggregate consideration of RMB269,500,000 (about HK$254 million).

The Acquisition constitutes a discloseable transaction for the Company under the Listing Rules. The purpose of this circular is to give you further information on the Acquisition.

2. ACQUISITION AGREEMENTS DATED 22ND JANUARY, 2003

Parties

Acquisition Agreement I

Purchaser: the Company

* For identification only

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

Vendor: Shaanxi Group, an independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates. Shaanxi Group is a PRC state wholly-owned limited liability company under the direct administration of the Provincial Government of Shaanxi.

Acquisition Agreement II

Purchaser: the Company

Vendor: ZC Machinery, an independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates. ZC Machinery is a PRC state wholly-owned limited liability company under the control and supervision of China Ammunition Group.

Assets to be acquired

An aggregate of 77% equity interest in Auto comprising:

• 1) 57% equity interest in Auto in respect of the Acquisition Agreement I; and

• 2) 20% equity interest in Auto in respect of the Acquisition Agreement II.

Consideration

The Aggregate Consideration is RMB269,500,000 (about HK$254 million) with breakdown as follows:

Acquisition Agreement I

RMB199,500,000 (about HK$188 million) (“Consideration I”), which will be paid by cash within 30 business days after the grant of approval from the Provincial Government of Shaanxi with respect to the Acquisition Agreement I.

Acquisition Agreement II

RMB70,000,000 (about HK$66 million) (“Consideration II”), which will be paid by cash within 30 business days after the grant of approval from China Ammunition Group with respect to the Acquisition Agreement II.

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

The terms of the Acquisition Agreements were negotiated on an arm’s length basis and the Aggregate Consideration of RMB269,500,000 (about HK$254 million) represents a premium of about 6.4% to an estimated valuation of the net assets value of the 77% equity interest in Auto amounting to about RMB253,300,000 (about HK$239 million) as at 30th November, 2002. Such valuation was confirmed by an independent valuer. The final valuation report is required to be filed with the Provincial state owned assets administration authority. The Group will satisfy the Aggregate Consideration by its operating cash flow. None of the IPO Proceeds will be applied to satisfy payment of any of the Aggregate Consideration.

Conditions

Acquisition Agreement I

The Acquisition Agreement I is conditional upon the following conditions being fulfilled:

• (i) the approval from the Provincial Government of Shaanxi having been obtained; and

• (ii) payment to the Shaanxi Group of the Consideration I amounting to RMB199,500,000 (about HK$188 million).

Acquisition Agreement II

The Acquisition Agreement II is conditional upon the following conditions being fulfilled:

• (i) the approval from China Ammunition Group having been obtained; and

• (ii) payment to ZC Machinery of the Consideration II amounting to RMB70,000,000 (about HK$66 million).

Under the Acquisition Agreements, Shaanxi Group or ZC Machinery (as the case may be) shall refund to the Company in full the Consideration I or Consideration II (as the case may be) if the necessary registration, authorizations and other legal formalities for the implementation of the relevant Acquisition Agreement cannot be obtained or completed within three months after payment of the Consideration I or Consideration II (as the case may be). In such an event, it is intended that the relevant Acquisition Agreement shall lapse except that if the failure to obtain or complete the aforesaid registration, authorizations and/or other legal formalities (as applicable) was due to the default or negligence of Shaanxi Group or ZC Machinery (as the case may be), Shaanxi Group or ZC Machinery shall be liable for the damage suffered by the Company. The Acquisition Agreements are not inter-conditional. The Company may be bound to complete either of the Acquisition Agreements even if the other one does not proceed.

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

3. INFORMATION ON AUTO

Auto was established on 21st March, 1997 in the PRC as a limited liability company. Its registered capital is RMB500,000,000 (about HK$471 million), RMB487,001,339 (about HK$459 million) of which was paid up. Set out below are the shareholding structures of Auto as at the Latest Practicable Date and immediately after Completion:

As at the Latest Practicable Date

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Shaanxi Group ZC Machinery
67% 33%
Auto
60%
Shaanxi Car
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Immediately after Completion

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The Company Shaanxi Group ZC Machinery
77% 10% 13%
Auto
60%
Shaanxi Car
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Auto is a state-owned mini-car producer in the PRC whose principal activities are the development, production and sale of mini-cars. Auto’s key products are 800cc mini-cars sold under the “Flyer ( )” brand (“Flyer Mini”).

Flyer Mini is designed by Auto itself. With imported equipment and machinery mainly from Germany and Spain, mass production of Flyer Mini began in September 2001 and its maximum production capacity is about 50,000 units. In 2002, Auto sold about 17,000 units and was ranked the sixth among the 800 cc mini-cars manufacturers in the PRC.

Auto has already established its own nationwide sales network comprising about 20 auto shops and about 150 sales agencies.

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

As at 31st December, 2002, Auto has a staff team of about 700 members including 88 middle ranked or above engineers and technicians and 28 salesmen.

The unaudited consolidated net tangible asset value of Auto in accordance with the PRC GAAP as at 31st December, 2002 was about RMB401,273,000 (about HK$379 million). The table below sets out a summary of the unaudited consolidated results of Auto for the two years ended 31st December, 2002 prepared in accordance with the PRC GAAP:

	Year Ended	Year Ended
	31st December,	31st December,
	2001	2002
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Turnover	230,969	621,749
Profit/(loss) before tax	(9,961)	726
Income tax	Nil	Nil
Profit/(loss) after tax	(9,961)	726
Profit/(loss) attributable to the
77% equity interest in Auto	(7,670)	559

Auto’s inability to fully utilise its production capacity has been the major reason for its unsatisfactory financial performance in 2001.

4. REASONS FOR THE ACQUISITION

The Group is a leading player in the global rechargeable battery market and is principally engaged in the research, development, manufacturing and sale of Li-ion batteries, NiCd batteries and NiMH batteries.

The Directors would like to reiterate that the Group will continue its long-term strategy to focus on rechargeable battery business after the Acquisition. Further, the Company will continue to follow the business development plans as stated in the Prospectus.

Taking into consideration the following factors, the Directors believe that the Acquisition will provide the Group with a better platform to expedite its development and production of rechargeable power batteries for electric motor vehicles and at the same time to capture the huge market potential of the automobile industry:

• (i) As stated in the Prospectus, the Group has the intention to develop batteries for electric motor vehicle to expand its revenue base. Owing to the limited oil resources and increasing environmental protection consciousness, the Directors believe that there will be a growing need for alternative energy powered vehicles. As electric

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

motor vehicles effectively reduce fuel consumption, there exists growth potential for electric motor vehicles, hybrid motor vehicles and their power batteries. The Group and Auto have started cooperation discussions for the development of batteries for electric motor vehicles.

• (ii) Over the past decade, the PRC has been one of the fastest growing economies worldwide. The growth of the PRC economy has resulted in an improvement in the living standards in the PRC. The economic growth as well as the improvement in the living standards, among other things, has led to the huge market potential in the automobile industry in the PRC, especially in recent years. The Directors expect that the growth potential of the automobile industry in the PRC will remain robust in the foreseeable future. Besides, the Directors believe that Auto has a strategic location in the PRC since Auto is one of the automobile producers in the northwestern part of the PRC.

• (iii) The Company will introduce its flexible operating mechanism into Auto. The Directors believe that the Company’s expertise in cost and quality control will help Auto to achieve cost efficiency and, in turn, enhance its competitiveness by providing quality products at competitive price. Besides, the Directors believe that the Company’s marketing expertise will also assist Auto to increase its sales. Therefore, the Directors expect that the production and sales volume of Flyer Mini will increase constantly and a favourable utilization rate will be achieved.

• (iv) Taking the above factors into consideration, the Directors believe that the Company can enhance the profitability of Auto in the future while it can successfully obtain an important platform for the research and development activities of its batteries for electric motor vehicles.

• (v) The Acquisition represents the Company’s initial move to implement its strategy of developing batteries for electric motor vehicles. It will provide a solid platform for the Company to develop rechargeable batteries for electric motor vehicles and the total consideration of the Acquisition is considered to be immaterial on the overall financial position of the Group. The Directors believe that the earning base of the Group will be strengthened following completion of the Acquisition.

It is the Company’s intention to retain a majority of the current management of Auto following Completion. Further, the Company will take control of the board of directors of Auto in which the Company will nominate 4 out of a total of 7.

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BYD COMPANY LIMITED

LETTER FROM THE BOARD

5. GENERAL

Following Completion, Auto will become a subsidiary of the Company; and Shaanxi Group and ZC Machinery will continue to be substantial shareholders of Auto. As such, certain existing transactions of Auto and its subsidiaries with Shaanxi Group, ZC Machinery and/or their respective associates would constitute ongoing connected transactions under the Listing Rules. The Company will issue a separate announcement in relation to such ongoing connected transactions and comply with the applicable requirements under the Listing Rules as and when appropriate.

As the Acquisition may or may not proceed (depending on the fulfillment of the conditions of the Acquisition Agreements), Shareholders and investors are reminded to exercise caution when dealing in the shares of the Company.

6. ADDITIONAL INFORMATION

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

By order of the Board BYD Company Limited Wang Chuan-fu Chairman

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BYD COMPANY LIMITED

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, the Directors and the Supervisors had the following interests in the share capital of the Company or any of its associated corporations (within the meaning of the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they were taken or deemed to have under Section 31 of or Part I of the Schedule to the SDI Ordinance) or which were required to be kept by the Company in the register referred to in Section 29 of the SDI Ordinance or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by directors of listed companies:

Name of	Corporate	Personal	Family	Other	Total
Director/Supervisor	Interests	Interests	Interests	Interests	Interests
	(%)	(%)	(%)	(%)	(%)
	(Note 1)	(Note 1)	(Note 1)	(Note 1)	(Note 1)
Mr. Wang Chuan-fu	N/A	27.835	N/A	N/A	27.835
Mr. Lu Xiang-yang	8.304	11.669	N/A	N/A	19.973
	(Note 2)
Mr. Xia Zuo-quan	N/A	6.096	N/A	N/A	6.096

Notes:

1. The above percentages are calculated on the basis of the total issued share capital of the Company as at the Latest Practicable Date, which is RMB539,500,000 divided into 390,000,000 Domestic Shares and 149,500,000 H Shares.

2. The 8.304% equity interest in the Company is held by Guangzhou Rongjie Investment Company Limited, a company owned as to 84% by Mr. Lu Xiang-yang.

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BYD COMPANY LIMITED

GENERAL INFORMATION

APPENDIX

• (b) Save as disclosed herein, as at the Latest Practicable Date, no Director or Supervisor of the Company was interested beneficially in the share capital of the Company or any associated corporations (within the meaning of the SDI Ordinance) which are required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which he is taken or deemed to have under Section 31 of or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein or which are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by directors of listed companies.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, the following persons were directly or indirectly interested in 10% or more of the nominal value of Domestic Shares carrying rights to vote at general meetings of the Company and the amount of each of such person’s interest in such securities was:

		Approximate	Approximate
		percentage of	percentage of
		holding relative	holding relative to
	Number of	to the total	the total issued
	Domestic	number of issued	share capital
Name	Shares held	Domestic Shares	of the Company
		(%)	(%)
		(Note 1)	(Note 2)
Mr. Wang Chuan-fu	150,169,100	38.505	27.835
Mr. Lu Xiang-yang	107,755,600	27.630	19.973
	(Note 3)

Notes:

1. The total number of Domestic Shares issued as at the Latest Practicable Date is 390,000,000.

2. The total issued share capital of the Company as at the Latest Practicable Date is RMB539,500,000, divided into 390,000,000 Domestic Shares and 149,500,000 H Shares, all fully paid up.

3. Mr. Lu Xiang-yang is deemed, pursuant to the SDI Ordinance, to be interested in 44,800,700 Domestic Shares representing about 11.487% and about 8.304% of, respectively, the total number of issued Domestic Shares and the then issued share capital of the Company. Such number of Domestic Shares are held by Guangzhou Rongjie Investment Company Limited, a company owned as to 84% by Mr. Lu Xiang-yang.

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BYD COMPANY LIMITED

GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, the following persons were directly or indirectly interested in 10% or more of the nominal value of H Shares carrying rights to vote at general meetings of the Company and the amount of each of such person’s interest in such securities was:

			Approximate
		Approximate	percentage of
		percentage of	holding relative
		holding relative	to the total
		to the total	issued share
	Number of	number of issued	capital of the
Name	H Shares held	H Shares	Company
		(%)	(%)
			(Note)
The Capital Group
Companies, Inc.	25,895,500	17.321	4.800

Note: The total issued share capital of the Company as at the Latest Practicable Date is RMB539,500,000, divided into 390,000,000 Domestic Shares and 149,500,000 H Shares, all fully paid up.

Save as disclosed herein, as at the Latest Practicable Date, so far as is known to the Directors, no other person were interested, either directly or indirectly, in 10% or more of the nominal value of any class of the share capital attaching rights to vote at general meetings of any member of the Group.

4. SERVICE CONTRACTS

No service contract (excluding contract expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation)) is entered into between the Directors, the Supervisors, and the Company or any of its subsidiaries.

5. LITIGATION

The Group is currently involved in a litigation proceeding in the United States of America in relation to the alleged infringement of two patent registrations relating to lithium secondary battery and cell which secures the reliability of a protective circuit. The complainant alleged to be the exclusive licensee of the aforesaid patents and is seeking remedies against the Company and BYD America Corporation, a subsidiary of the Company, details of which were disclosed in the announcements of the Company dated 3rd October, 2002 and 25th September, 2002. Due to the fact that such proceeding is still at an initial stage, it is impracticable and premature for the Directors to assess the impact of such proceeding on the Group and its operation. The Directors believe that the Group has not committed the alleged infringements. The Group would vigorously defend against all claims made under the proceeding.

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BYD COMPANY LIMITED

GENERAL INFORMATION

APPENDIX

Subject to the above, no material litigation or claims are threatened or pending against the Company or any of its subsidiaries and the Directors, having made all reasonable enquiries, are not aware that any such material litigation or claims are pending or threatened against the Company or any of its subsidiaries.

6. GENERAL

• (a) The joint company secretaries of the Company are Wu Jing-sheng, who has obtained qualifications as a lawyer and a registered accountant in the PRC and Mr Deng Guo-rui, who has a master degree in management from Qing Hua University.

• (b) The registered address of the Company is at Yan An Road, Kuichong, Longgang District, Shenzhen, Guangdong Province, the PRC.

• (c) The H Share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

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

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BYD COMPANY LIMITED