Tencent Holdings Limited — Proxy Solicitation & Information Statement 2011

May 26, 2011

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in China Zenith Chemical Group Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND

PROPOSED REFRESHMENT OF THE LIMIT OF THE EXISTING SHARE OPTION SCHEME AND PROPOSED SHARE CONSOLIDATION AND PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from an independent committee of the board of the Company (the “ Independent Board Committee ”) is set out on page 21 of this circular. A letter from the independent financial adviser to the Independent Board Committee and the independent shareholders of the Company, is set out on pages 22 to 27 of this circular.

A notice convening the extraordinary general meeting of China Zenith Chemical Group Limited (the “ Company ”) to be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong, on Monday, 20 June 2011 at 4:30 p.m. is set out on pages 28 to 32 of this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon and lodge the same with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish.

26 May 2011

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
**Letter from **	the Board
A.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
B.	Proposed Refreshment of General Mandate to Allot
	and Issue Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
C.	Proposed Refreshment of the Existing Scheme Mandate Limit . . . . . . .	11
D.	Proposed Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
E.	Proposed Increase in Authorised Share Capital . . . . . . . . . . . . . . . . . . .	18
F.	Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
G.	Voting by Way of Poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
H.	Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
I.	Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
J.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
K.	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
**Letter from **	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
**Letter from **	Veda Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		28

– i –

DEFINITIONS

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

• “AGM”

• the annual general meeting of the Company held on 20 December 2010 at which the Shareholders had approved, among other matters, the Current General Mandate;

• “Articles of Association” the articles of association of the Company as amended, modified or otherwise supplemented from time to time;

• “associates” has the meaning as defined in the Listing Rules;

• “Board”

• the board of directors of the Company;

• “business day”

• any day on which the Stock Exchange is open for business of dealing in securities;

• “CCASS”

• the Central Clearing and Settlement System established and operated by HKSCC;

• “Company” China Zenith Chemical Group Limited 中國天化工集 團有限公司, a company incorporated in the Cayman Islands with limited liability, whose Shares are listed on the Stock Exchange;

• “connected person(s)”

• has the meaning as ascribed to it in the Listing Rules;

• “Consolidated Share(s)”

• ordinary share(s) of HK$0.10 each in the share capital of the Company after the Share Consolidation becomes effective;

• “Current General Mandate”

• the general mandate granted to the Directors to allot and issue Shares of up to 20% of the share capital of the Company in issue on the date of passing the relevant ordinary resolution at the AGM, that is, 20 December 2010;

• “Director(s)”

• the director(s) of the Company for the time being;

• “EGM”

the extraordinary general meeting of the Company to be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong on Monday, 20 June 2011 at 4:30 p.m., notice of which is set out on pages 28 to 32 of this circular;

– 1 –

DEFINITIONS

• “Existing Scheme Mandate Limit”

• “Existing Share Option Scheme”

• “Fifth Refreshed Limit”

• “First Refreshed Limit”

• “Fourth Refreshed Limit”

• “Group”

• “HK$”

• “HKSCC”

• “Hong Kong”

• “Independent Board Committee”

• the maximum number of Shares which may be issued upon exercise of all options to be granted under the Existing Share Option Scheme;

• the existing share option scheme of the Company approved by the Shareholders at the extraordinary general meeting held on 18 November 2002;

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 17 December 2009, being 10% of the issued share capital of the Company as at 17 December 2009;

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 2 December 2005, being 10% of the issued share capital of the Company as at 2 December 2005;

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 31 December 2008, being 10% of the issued share capital of the Company as at 31 December 2008;

• the Company and its subsidiaries;

• Hong Kong dollars, the lawful currency of Hong Kong;

• Hong Kong Securities Clearing Company Limited, a wholly owned subsidiary of Hong Kong Exchange and Clearing Limited;

• the Hong Kong Special Administrative Region of the People’s Republic of China;

• an independent committee of the Board, comprising all the independent non-executive directors to advise the Independent Shareholders as to the fairness and reasonableness of the grant of the New General Mandate;

– 2 –

DEFINITIONS

• “Independent Shareholders”

• Shareholder(s) other than the Directors (excluding the independent non-executive Directors) and the chief executive of the Company and their respective associates;

• “Initial Limit”

• the initial scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company at the time of adoption of the Existing Share Option Scheme, being 10% of the issued Share capital of the Company at the time of adoption of the Existing Share Option Scheme;

• “Latest Practicable Date”

• 23 May 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;

• “Listing Rules” the rules governing the listing of securities on the Hong Kong Stock Exchange;

• “New General Mandate”

• the general and unconditional mandate proposed to be granted to the Directors to allot, issue and deal with Shares with an aggregate nominal amount not exceeding 20% of the aggregate nominal amount of the Share capital of the Company in issue as at the date of passing of the relevant resolution approving this issue mandate at the EGM;

• “Placing Agent”

• UOB Kay Hian (Hong Kong) Limited, a licensed corporation to carry out business in type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO;

• “Placing Share(s)”

• Up to 1,200,000,000 Shares owned by the Subscriber to be placed under the Share Placing;

• “PRC”

• the People’s Republic of China;

• “Record Date”

• 16 June 2011;

– 3 –

DEFINITIONS

• “Second Refreshed Limit”

• “SFO”

• “Share Consolidation”

• “Share Placing”

• “Share Placing Agreement”

• “Share Placing Price”

• “Share(s)”

• “Shareholder(s)”

• “Sixth Refreshed Limit”

• “Stock Exchange”

• “Subscriber”

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 28 June 2007, being 10% of the issued Share capital of the Company as at 28 June 2007;

• the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong;

• the proposed consolidation of every ten (10) Shares into one (1) Consolidated Share;

• The placing, on a best effort basis, of up to 1,200,000,000 Placing Shares pursuant to the terms of the Share Placing Agreement;

• the conditional placing agreement dated 12 January 2011 and entered into between the Subscriber, and the Placing Agent and the Company in relation to the Share Placing;

• HK$0.22 per Placing Share;

• ordinary share(s) of HK$0.01 each in the share capital of the Company;

• holder(s) of the Share(s) or the Consolidated Share(s), as the context requires;

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 20 December 2010, being 10% of the issued Share capital of the Company as at 20 December 2010;

The Stock Exchange of Hong Kong Limited;

• Chan Yuen Tung, a Shareholder holding 1,678,785,430 Shares, representing approximately 16.83% of the entire issued share capital of the Company as at the date of the Subscription Agreement, namely, 12 January 2011;

– 4 –

DEFINITIONS

• “Subscription Agreement”

• “Subscription Shares”

• “Takeovers Code”

• “Third Refreshed Limit”

• “Veda Capital”

• “%”

• the conditional subscription agreement dated 12 January 2011 and entered into between the Company and the Subscriber in respect of the Subscription;

• Up to 1,200,000,000 new Shares to be allotted and issued to the Subscriber pursuant to the terms of the Subscription Agreement;

• the Hong Kong Code on Takeovers and Mergers;

• the scheme mandate limit under the Existing Share Option Scheme which sets out the maximum number of share options to be granted by the Company refreshed by the Shareholders on 6 December 2007, being 10% of the issued Share capital of the Company as at 6 December 2007;

• Veda Capital Limited, a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders; and

• Percentage

– 5 –

EXPECTED TIMETABLE

The expected timetable for the Share Consolidation is as follows:

EGM to approve the proposed Share Consolidation . . . . . . . . . . . . . . . . . . . 20 June 2011	EGM to approve the proposed Share Consolidation . . . . . . . . . . . . . . . . . . . 20 June 2011
Publication of announcement of the result of the EGM
in respect of the approval of the Share Consolidation	. . . . . . . . . . . . . . . . 20 June 2011
Effective date of the Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 June 2011
First day for free exchange of existing Share certificates
for new Share certificates for consolidated Shares . . . . . . . . . . . . . . . . . . . 21 June 2011
Dealing in the consolidated Shares commences . . . . .	. . . . . . . . . 9 a.m. on 21 June 2011
Original counter for trading in the existing Shares
in board lots of 10,000 Shares temporarily closes . . .	. . . . . . . . . 9 a.m. on 21 June 2011
Temporary counter for trading in the consolidated
Shares in board lots of 1,000 consolidated Shares
(in the form of the existing Share certificates) opens	. . . . . . . . . 9 a.m. on 21 June 2011
Original counter for trading in consolidated Shares
in board lots of 10,000 consolidated Shares (in the form of
new Share certificates for consolidated Shares) re-opens . . . . . . . 9 a.m. on 6 July 2011
Parallel trading commences . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . 9 a.m. on 6 July 2011
Odd lot arrangement (if applicable) . . . . . . . . . . . . . .	. . . . . . 6 July 2011 to 26 July 2011
Temporary counter for trading in consolidated
Shares in board lots of 1,000 Shares
(in the form of the existing Share certificates) closes	. . . . . . . . . 4 p.m. on 26 July 2011
Parallel trading in consolidated Shares ends . . . . . . . .	. . . . . . . . . 4 p.m. on 26 July 2011
Last day for free exchange of the existing
Share certificates for new Share certificates
for the Consolidated Shares . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . 28 July 2011

– 6 –

LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

Executive Directors: Chan Yuen Tung Chan Yuk Foebe Chiau Che Kong Peng Zhanrong Wu Jianwei

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Independent non-executive Directors: Ma Wing Yun Bryan Tam Ching Ho Wong Sin Just Wong Sin Lai

Principal Place of Business: Unit 1101–12 Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong 26 May 2011

To the Shareholders of the Company

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES AND

PROPOSED REFRESHMENT OF THE LIMIT OF THE EXISTING SHARE OPTION SCHEME AND PROPOSED SHARE CONSOLIDATION AND PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

Reference is made to the announcement of the Company dated 26 May 2011 in relation to the proposed Share Consolidation.

– 7 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, information relating to (i) the proposed grant of the New General Mandate; (ii) the proposed refreshment of the Existing Scheme Mandate Limit; (iii) the proposed Share Consolidation; (iv) the proposed increase in the authorised share capital of the Company; (v) the recommendation from the Independent Board Committee to the Independent Shareholders on the proposed grant of New General Mandate; (vi) the recommendation from Veda Capital to the Independent Board Committee and the Independent Shareholders, on the proposed grant of the New General Mandate; and (vii) the notice of EGM, at which, among other things, the necessary resolutions will be proposed to the Independent Shareholders to consider and, if thought fit, approve the New General Mandate by way of poll.

B. PROPOSED REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

(i) Current General Mandate

By a resolution of the Shareholders passed at the AGM, the Company granted a general mandate to the Directors to allot and issue up to 1,251,266,347 Shares, being 20% of the aggregate nominal amount of the share capital of the Company in issue, namely 6,256,331,736 Shares, as at 20 December 2010.

As set out in the announcement of the Company dated 12 January 2011, the Company and Placing Agent entered into the Share Placing Agreement pursuant to which the Placing Agent agree to place, on a best effort basis, the Placing Shares of up to 1,200,000,000 existing Shares owned by the Subscriber at the Share Placing Price of HK$0.22 per Placing Share to the Share Placees, who and whose ultimate beneficial owners are Independent Third Parties. On the same date, the Company and the Subscriber entered into the Subscription Agreement with the Company pursuant to which the Subscriber had conditionally agreed to subscribe for the Subscription Shares, and such Subscription Shares would be issued pursuant to the Current General Mandate.

Accordingly, during the period from the grant of the Current General Mandate to the Latest Practicable Date, the Current General Mandate had been utilized as to approximately 95.90%. As at the Latest Practicable Date, the Company had an aggregate of 7,456,331,736 Shares in issue and only 51,266,347 Shares remain outstanding under the Current General Mandate, represented only approximately 0.69% of the issued share capital of the Company as at the Latest Practicable Date.

Since the AGM and except for the proposed grant of the New General Mandate herein, the Company has not refreshed its general mandate granted at the AGM.

– 8 –

LETTER FROM THE BOARD

(ii) Fund-Raising Exercise by the Company in the past twelve months

Sets out below are the equity fund-raising activities conducted by the Company in the past twelve months prior to the Latest Practicable Date:

		Net proceeds
	Fund raising	raised	Intended use of the	Actual use of
Date of announcement	activity	(approximately)	net proceeds	the net proceeds
16 December 2009 and	Proposed spin-off	To be	To finance the	Not applicable
30 March 2010	and separate	determined	operation and	as the
	listing of China		expansion of the	proposed
	Zenith		Company’s	spin-off has
	Construction		polyvinyl-chloride	not yet taken
	Materials Limited		and its related	place
			calcium carbide
			business
28 September 2010 and	Proposed issue of	Nil	Not applicable	The application
4 November 2010	Taiwan Depositary			for the
	Receipt (“TDR”)			proposed
				listing of TDR
				on the Taiwan
				Stock
				Exchange has
				since been
				withdrawn, no
				proceeds have
				been raised
12 January 2011	Top-up placing of	HK$260 million	As general working	Utilised as
	Shares		capital of the	intended
			Group

(iii) Proposed Grant of New General Mandate

At the EGM to be held on Monday, 20 June 2011, it will be proposed to the Independent Shareholders, by way of ordinary resolution, that:

• (i) the Director be granted the New General Mandate to allot, issue and deal with Shares with an aggregate nominal amount not exceeding 20% of the aggregate nominal amount of the Share capital of the Company in issue as at the date of passing of such resolution; and

– 9 –

LETTER FROM THE BOARD

• (ii) the New General Mandate be extended to Shares repurchased by the Company pursuant to the repurchase mandate granted to the Directors at the AGM.

The Company has not refreshed the Current General Mandate since the AGM.

As at the Latest Practicable Date, the Company had an aggregate of 7,456,331,736 Shares in issue. Subject to the passing of the proposed ordinary resolution at the EGM for the approval of granting the New General Mandate to the Directors and on the basis that no Shares would be issued and/or repurchased by the Company from the Latest Practicable Date up to the date of the EGM, the New General Mandate would allow the Directors to allot and issue up to a maximum of 1,491,266,347 Shares, representing 20% of the aggregate nominal amount of the Share capital of the Company in issue as at the date of the EGM.

(iv) Reasons for the New General Mandate

Having considered that (i) debt financing may incur interest burden to the Group; (ii) rights issue or open offer may take a longer time to complete while fund raising exercise pursuant to general mandate provides the Company a simpler and less lead time process than other types of fund raising exercise and avoids the uncertainties in such circumstances that specific mandate may not be obtained in a timely manner; and (iii) the refreshment of the Current General Mandate will provide the Company with an additional alternative, the Directors consider that it is reasonable for the Company to have the flexibility in deciding the financing methods for its future investment and/or development, including equity issuance.

To give the Directors greater flexibility in issuing new Shares when it is in the interests of the Group and the Shareholders as a whole, the Directors propose to the Independent Shareholders a resolution to grant the New General Mandate such that the Directors can exercise the power of the Company to issue new Shares of up to 20% of the issued share capital of the Company as at the date of the EGM. The Company currently does not have any concrete plan regarding the utilization of the New General Mandate to be granted. In addition, the New General Mandate offers an opportunity for the Directors to capture a favourable equity market condition to raise funds by issuing new Shares.

In view of the foregoing, the Directors consider the grant of the New General Mandate, which may or may not be utilized, is in the best interests of the Company and the Shareholders as a whole.

Any issue of new Shares in the Company is subject to approval from the Stock Exchange for the listing of and permission to deal in such new Shares.

– 10 –

LETTER FROM THE BOARD

C. PROPOSED REFRESHMENT OF THE EXISTING SCHEME MANDATE LIMIT

The Existing Share Option Scheme was adopted by the resolution passed by the Shareholders at the extraordinary general meeting of the Company held on 18 November 2002. The purpose of the Existing Share Option Scheme is to enable the Company to provide incentives or rewards to the Eligible Participants for their contribution to the Group.

Under the Existing Share Option Scheme, the Directors were authorized to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of options granted under the Existing Share Option Scheme. The Company may grant options of up to the Initial Limit, i.e. 10% (equivalent to 87,300,000 Shares) of the issued share capital of the Company as at the date of adoption of the Existing Share Option Scheme. Under the Initial Limit, options carrying the rights to subscribe for 20,000,000 Shares were granted and 13,000,000 of which were exercised (representing approximately 0.21% of the issued Share capital of the Company as at the Latest Practicable Date) and 7,000,000 share options granted under the Initial Limit of the Existing Share Options Scheme were lapsed during the year ended 30 June 2006.

At the annual general meeting of the Company held on 2 December 2005, the Initial Limit was refreshed and the First Refreshed Limit was approved by the Shareholders. Pursuant to the First Refreshed Limit, the Company may grant options under the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at 2 December 2005, i.e. not exceeding 166,441,000 Shares. Up to the Latest Practicable Date, options carrying the rights to subscribe for 166,100,000 Shares have been granted under the First Refreshed Limit and 98,330,000 of which were exercised during the year ended 30 June 2006.

The Company completed an open offer on 9 January 2007. The open offer offered 1,050,770,000 offer Shares on the basis of one offer Share for every two existing Shares held by the qualifying shareholders on the record date at a price of HK$0.30 per offer share. With effect from the completion of the open offer, the remaining outstanding and unexercised options granted under the First Refreshed Limit of 67,770,000 were adjusted to 72,610,714 and the exercise prices of these outstanding options have been adjusted. The auditor of the Company has reviewed such adjustments and confirmed in writing that such adjustments satisfy the requirements pursuant to Rule 17.03(13) of the Listing Rules.

– 11 –

LETTER FROM THE BOARD

Further details of the adjustments are as follows:

Date of grant 3 January 2006 4 May 2006	Before the open offer Number of Shares to be allotted upon the exercise of the outstanding options Exercise price of options 13,770,000 0.363 54,000,000 0.552 67,770,000	After the open offer Number of Shares to be allotted upon the exercise of the outstanding options Exercise price of options 14,753,571 0.339 57,857,143 0.515 72,610,714

Up to the Latest Practicable Date, options carrying the rights to subscribe for 72,610,714 Shares have been granted under the First Refreshed Limit (as adjusted subsequent to the open offer) and 72,590,000 of which were exercised and 20,714 were cancelled during the year ended 30 June 2007.

At the extraordinary general meeting of the Company held on 28 June 2007, the First Refreshed Limit was refreshed and the Second Refreshed Limit was approved by the Shareholders. Pursuant to the Second Refreshed Limit, the Company may grant options under the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at 28 June 2007, i.e. not exceeding 337,782,907 Shares. Up to the Latest Practicable Date, options carrying the rights to subscribe for 337,000,000 Shares have been granted under the Second Refreshed Limit and 116,100,000 of which were exercised during the year ended 30 June 2008.

At the annual general meeting of the Company held on 6 December 2007, the Second Refreshed Limit was refreshed and the Third Refreshed Limit was approved by the Shareholders. Pursuant to the Third Refreshed Limit, the Company may grant options under the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at 6 December 2007, i.e. not exceeding 363,507,732 Shares. Up to the Latest Practicable Date, options carrying the rights to subscribe for 72,000,000 Shares have been granted under the Third Refreshed Limit and all of which were exercised during the year ended 30 June 2008.

At the annual general meeting of the Company held on 31 December 2008, the Third Refreshed Limit was refreshed and the Fourth Refreshed Limit was approved by the Shareholders. Pursuant to the Fourth Refreshed Limit, the Company may grant options under the Existing Share Option Scheme up to 10% of the issued share capital of the Company as at 31 December 2008, i.e. not exceeding 374,088,782 Shares. Up to the Latest Practicable Date, options carrying the rights to subscribe for 205,000,000 Shares have been granted under the Fourth Refreshed Limit. Up to the Latest Practicable Date, options carrying the rights to subscribe for 205,000,000 Shares have been granted under the Fourth

– 12 –

LETTER FROM THE BOARD

Refreshed Limit. Up to the Latest Practicable Date, options carrying the rights to subscribe for 205,000,000 Shares have been granted under the Fourth Refreshed Limit and all of which had been exercised as at the Latest Practicable Date.

The Company completed an open offer on 19 August 2009. The open offer offered 1,870,443,912 offer Shares on the basis of one offer Share for every two existing Shares held by the qualifying Shareholders on the record date at a price of HK$0.11 per offer share. With effect from the completion of the open offer, the remaining outstanding and unexercised options granted under the Second Refreshed Limit of 220,900,000 were adjusted to 265,300,900 and the exercise prices of these outstanding options have been adjusted. The auditor of the Company has reviewed such adjustments and confirmed in writing that such adjustments satisfy the requirements pursuant to Rule 17.03(13) of the Listing Rules.

Date of grant 20 July 2007 22 August 2007	Before the open offer Number of Shares to be allotted upon the exercise of the outstanding options Exercise price of options 86,100,000 0.582 134,800,000 0.420 220,900,000	After the open offer Number of Shares to be allotted upon the exercise of the outstanding options Exercise price of options 103,406,100 0.485 161,894,800 0.350 265,300,900

The aforementioned 103,406,100 share options and 161,894,800 share options granted under the Second Refreshed Limit of the Existing Share Options Scheme were lapsed on 23 July 2010 and 23 August 2010, respectively.

At the annual general meeting of the Company held on 17 December 2009, the Fourth Refreshed Limit was refreshed and the Fifth Refreshed Limit was approved by the Shareholders. Pursuant to the Fifth Refreshed Limit, the Company may grant options under the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at 17 December 2009, i.e. not exceeding 561,133,173 Shares. Up to the Latest Practicable Date, no options have been granted under the Fifth Refreshed Limit.

At the annual general meeting of the Company held on 20 December 2010, the Fifth Refreshed Limit was refreshed and the Sixth Refreshed Limit was approved by Shareholders. Pursuant to the Sixth Refreshed Limit, the Company may grant option under the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at 20 December 2010, i.e. not exceeding 625,633,173 Shares. Up to the Latest Practicable Date, options carrying the rights to subscribe for 187,500,000 Shares have been granted under the Sixth Refreshed Limit and no options has been exercised as at the Latest Practicable Date.

– 13 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, there were 187,500,000 share options outstanding and unexercised under the Existing Share Option Scheme. If the Company does not seek the Shareholders’ approval to refresh the Existing Scheme Mandate Limit (which is currently the Sixth Refreshed Limit) at the EGM or in the event that such refreshment of the Existing Scheme Mandate Limit is not approved by the Shareholders at the EGM, it may further grant share options carrying the rights to subscribe for 438,133,173 Shares pursuant to the Sixth Refreshed Limit.

Apart from the Existing Share Option Scheme, the Company has no other share option scheme currently in force. The Directors consider that the Company should refresh the Existing Scheme Mandate Limit so that the Company could have more flexibility to provide incentives to those Eligible Participants of the Existing Share Option Scheme by way of granting share options to them. If the refreshment of the Existing Scheme Mandate Limit is approved at the EGM, based on the 7,456,331,736 Shares in issue as at the Latest Practicable Date and assuming no further Shares will be allotted and issued and no Shares will be repurchased after the Latest Practicable Date and up to the date of the EGM, the Company will be allowed to grant options under the Existing Share Option Scheme for subscription of up to a total of 745,633,173 Shares, representing 10% of the issued share capital of the Company as at the date of the EGM.

The following table shows the details of the share options granted/exercised/lapsed/cancelled/outstanding under the Existing Share Option Scheme up to the Latest Practicable Date:

			Under	Under	Under			Total As of
	Under	Under First	Second	Third	Fourth	Under Fifth	Under Sixth	the Latest
	Initial	Refreshed	Refreshed	Refreshed	Refreshed	Refreshed	Refreshed	Practicable
	Limit	Limit	Limit	Limit	Limit	Limit	Limit	Date
Maximum number of Shares to be
subscribed for if maximum								Not
options are granted	87,300,000	166,441,000	337,782,907	363,507,732	374,088,782	561,133,173	625,633,173	applicable
No. of options granted	20,000,000	166,100,000	337,000,000	72,000,000	205,000,000	–	187,500,000	987,600,000
No. of options exercised	13,000,000	170,920,000	116,100,000	72,000,000	205,000,000	–	–	577,020,000
Adjusted upon the completion of
the open offer on 9 January 2007	–	4,840,714	–	–	–	–	–	4,840,714
Adjusted upon the completion of
the open offer on 19 August
2009	–	–	44,400,900	–	–	–	–	44,400,900
No. of options lapsed/cancelled	7,000,000	20,714	265,300,900	–	–	–	–	272,321,614
No. of outstanding options	–	–	–	–	–	–	187,500,000	187,500,000

So far as the Company is aware, there is no grantee under the Existing Share Option Scheme be granted with options which exceed the limit of 1% of the issued Share capital of the Company in the 12-month period up to and including the date of grant as set out in Rule 17.03(4) of the Listing Rules.

The maximum number of Shares to be issued upon exercise of all outstanding options granted and yet to be exercised under the Existing Share Option Scheme and any other share option scheme of the Group must not in aggregate exceed 30% of the issued Share capital of the Company from time to time. The Directors consider that the refreshment of the Existing Scheme Mandate Limit is in the interests of the Group and the

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LETTER FROM THE BOARD

Shareholders as a whole because it enables the Company to reward and motivate the Eligible Participants under the Existing Share Option Scheme.

The refreshment of the Existing Scheme Mandate Limit is conditional upon:

• (i) the passing of the ordinary resolution at the EGM to approve the refreshment of the Existing Scheme Mandate Limit; and

• (ii) the Stock Exchange granting the listing of, and permission to deal in any new Shares which may fall to be allotted and issued upon the exercise of the subscription rights attaching to the options that may be granted under the refreshed limit of the Existing Share Option Scheme up to 10% of the issued Share capital of the Company as at the date of passing of the ordinary resolution at the EGM.

Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Shares to be issued under the refreshed Existing Scheme Mandate Limit.

The documents of the Existing Share Option Scheme are available for public inspection at the principal place of business of the Company in Hong Kong at Unit 1101-12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong during normal business hours on any weekday, except public holiday, for the period from the date of this circular, i.e. 26 May 2011 to 14 days thereafter, i.e. 9 June 2011.

D. PROPOSED SHARE CONSOLIDATION

The Board proposes that every ten (10) issued and unissued Shares of HK$0.01 each in the share capital of the Company be consolidated into one (1) Consolidated Share of HK$0.10 in the share capital of the Company, subject to the fulfillment of the conditions set out in paragraph D (iii) below.

(i) Status of the Consolidated Shares

Upon the Share Consolidation becoming effective, the Consolidated Shares shall rank pari passu in all respects with each other in accordance with the Articles of Association.

(ii) Fractional Consolidated Shares

Fractional Consolidated Shares will be disregarded and not issued to the Shareholders, but all such fractional Consolidated Shares will be aggregated and, if possible, sold for the benefit of the Company. Fractional Consolidated Shares will only arise in respect of the entire shareholding of a holder of the Shares regardless of the number of share certificates held by such holder.

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LETTER FROM THE BOARD

(iii) Conditions of the Share Consolidation

The Share Consolidation is conditional, inter alia , upon:

• (a) the passing of an ordinary resolution by the Shareholders to approve the Share Consolidation at the EGM; and

• (b) the Listing Division of the Stock Exchange granting the listing of, and permission to deal in, the Consolidated Shares in issue and to be issued upon the Share Consolidation becoming effective.

(iv) Reasons for the Share Consolidation

Pursuant to Rule 13.64 of the Listing Rules, where the market price of the securities of the issuer approaches the extremities of HK$0.01 or HK$9,995.00, the Stock Exchange reserves the right to require the issuer either to change the trading method or to proceed with a consolidation or splitting its securities. In view of the recent trading price of the Shares, the Board proposes to implement the Share Consolidation to enable the Company to comply with the trading requirements of the Listing Rules, It is expected that the Share Consolidation would bring about a corresponding upward adjustment in the trading price of the Consolidated Shares. Accordingly, the Directors consider that the Share Consolidation is in the interests of the Company and the Shareholders as a whole.

(v) Effects of the Share Consolidation on the shareholding

As at the Latest Practicable Date, the authorised share capital of the Company is HK$100,000,000 divided into 10,000,000,000 Shares of HK$0.01 each, of which 7,456,331,736 Shares have been allotted and issued as fully paid or credited as fully paid. Upon the Share Consolidation becoming effective and on the basis that there are no other changes in the share capital structure of the Company prior thereto, the authorised share capital of the Company shall become HK$100,000,000 divided into 1,000,000,000 Consolidated Shares of HK$0.10 each, of which approximately 745,633,173 Consolidated Shares will be in issue.

As at the Latest Practicable Date, save for an aggregate of 187,500,000 options granted on 4 April 2011 and 12 May 2011 under the Existing Share Option Scheme, the Company had no outstanding convertible securities or options in issue or other similar rights which confer any rights to convert into or subscribe for the Shares.

Other than the expenses, including professional fees and printing charges, to be incurred in relation to the Share Consolidation, the implementation of the Share Consolidation will not alter the underlying assets, business operations, management or financial position of the Company or result in any change in the rights of the Shareholders, save for any fractional Consolidated Shares to which the Shareholders may be entitled.

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LETTER FROM THE BOARD

(vi) Listing and Dealings

An application will be made by the Company to the Listing Division of the Stock Exchange for the listing of, and the permission to deal in, the Consolidated Shares in issue and to be issued upon the Share Consolidation becoming effective. The Consolidated Shares are not a new Class of securities to be listed and accordingly no arrangements are required to be made to enable the Consolidated Shares to be admitted into CCASS.

The Shares are not listed or dealt in on any stock exchange other than the Stock Exchange. The Directors do not intend to apply for listing of, or permission to deal in, the Consolidated Shares on any stock exchange other than the Stock Exchange.

(vii) Odd lot arrangements

In order to facilitate the trading of odd lots (if any) of Shares after the Share Consolidation, the Company has appointed VC Brokerage Limited as an agent to provide a matching service, on a “best effort” basis, to those Shareholders who wish to acquire or dispose of their holding of odd lots of the Consolidated Shares.

Shareholders who wish to take advantage of this facility should contact Ms. Karen Yau or Mr. Henry Tsang of VC Brokerage Limited of 28/F., The Centrium, 60 Wyndham Street, Central, Hong Kong by phone at (852) 2913-6239 or (852) 3150-2677 or by fax at (852) 3162-8368 during office hours. Shareholders should note that successful matching of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed. Please refer to the section headed “Expected timetable” on page 6 of this circular for the period during which the Company will provide matching service for the sale and purchase of odd lots of the Consolidated Shares.

(viii) Exchange of share certificates

Should the Share Consolidation become effective, Shareholders may, during the period from Tuesday, 21 June 2011 to Thursday, 28 July 2011 (both days inclusive), submit existing Share certificates to the Company’s branch Share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, for exchange, at the expense of the Company, for new certificates for the Consolidated Shares. Thereafter, the existing certificates for the Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) for each new share certificate issued for the Consolidated Shares. The existing Share certificates will cease to be valid for delivery, trading and settlement purpose but will continue to be good evidence of legal title and may be exchanged for certificates for the Consolidated Shares at any time at the expense of the Shareholders.

The new Share certificates will be issued in blue colour to distinguish from the existing share certificates, which are in pink colour.

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LETTER FROM THE BOARD

E. PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company is HK$100,000,000 divided into 10,000,000,000 ordinary Shares of HK$0.01 each, of which 7,456,331,736 Shares have been allotted, issued and fully paid. Upon the Share Consolidation becoming effective and on the basis that there are no other changes in the share capital structure of the Company prior thereto, the authorised share capital of the Company shall become HK$100,000,000 divided into 1,000,000,000 Consolidated Shares of HK$0.10 each, of which approximately 745,633,173 Consolidated Shares will be in issue. Subject to the completion of the Share Consolidation, the Company proposes to increase the authorised share capital of the Company to HK$200,000,000 divided into 2,000,000,000 shares of HK$0.10 each.

The Directors have no current intention to issue any part of the enlarged authorised share capital of the Company upon the approval of the proposed increase in the authorised share capital of the Company at the EGM.

The proposed increase in the authorised share capital of the Company is subject to and conditional upon the passing of an ordinary resolution by the Shareholders at the EGM.

F. EXTRAORDINARY GENERAL MEETING

Pursuant to Rule 13.36(4)(a) of the Listing Rules, the New General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates or, where there are no controlling Shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolutions. As at the Latest Practicable Date, since the Company has no controlling Shareholders, Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, Mr. Chiau Che Kong, Mr. Peng Zhanrong and Mr. Wu Jianwei, all being executive Directors, and their respective associates shall abstain from voting in favour of the relevant resolutions at the EGM. As at the Latest Practicable Date, Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, and Mr. Chiau Che Kong are interested in 1,759,575,430, 22,125,000 and 131,310,000 Shares, representing approximately 23.60%, 0.30% and 1.76% of the issued share capital of the Company respectively.

Any vote of the Independent Shareholders at the EGM will be taken by poll for resolutions in relation to the granting and extension of the New General Mandate.

A notice of the EGM is set out on pages 28 to 32 of this circular. A form of proxy for use at the EGM is enclosed with this circular. To be valid, the form of proxy must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or other authority, must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before

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LETTER FROM THE BOARD

the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude Shareholders from attending and voting at the EGM or any adjournment thereof if they so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

To the best knowledge and belief of the Company, no Shareholder would be required to abstain from voting at the EGM in relation to the resolution to be proposed in respect of the proposed Share Consolidation.

G. VOTING BY WAY OF POLL

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 meeting will therefore demand a poll for every resolution put to vote at the EGM in accordance with the Articles of Association. An announcement on the poll vote results will be made by the Company after the EGM in the manner prescribed under Rule 13.39(5).

H. RESPONSIBILITY STATEMENT

This circular, for which the Directors, including the independent non-executive 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 in this circular misleading.

I. INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprises Mr. Ma Wing Yun Bryan, Mr. Tam Ching Ho, Dato’ Wong Sin Just and Mr. Wong Sin Lai, all being independent non-executive Directors. It has been established to advise the Independent Shareholders on the grant and extension of the New General Mandate.

Veda Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders in respect of the grant and extension of the New General Mandate.

J. RECOMMENDATIONS

The Directors consider the granting of the New General Mandate is in the interests of the Company and the Shareholders as a whole and accordingly recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM for approving the grant and extension of the New General Mandate.

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LETTER FROM THE BOARD

The Directors also consider that the proposed refreshment of the Existing Scheme Mandate Limit, the proposed Share Consolidation and the proposed increase in the authorised share capital of the Company, are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

K. GENERAL INFORMATION

Your attention is drawn to the letter of advice from Veda Capital set out on pages 22 to 27 to this circular which contains its advice on the grant and extension of the New General Mandate to the Independent Board Committee and the Independent Shareholders, and the letter from the Independent Board Committee set out on page 21 of this circular which contains its recommendation to the Independent Shareholders in relation to the grant of the New General Mandate.

Yours faithfully, For and on behalf of the Board China Zenith Chemical Group Limited Chan Yuk Foebe Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the proposed refreshment of the New General Mandate:

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

26 May 2011

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

We have been appointed as the Independent Board Committee to consider and advise you on in connection with the proposed refreshment of the New General Mandate, details of which are set out in the circular dated 26 May 2011 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms defined in the Circular will have the same meanings when used herein unless the context otherwise requires.

We wish to draw your attention to the letter from the Board and the letter of advice from Veda Capital Limited set out on pages 7 to 20 and pages 22 to 27 of the Circular respectively.

Having taken into account the principal factors and reasons considered by Veda Capital Limited, its conclusion and advice, we concur with the view of Veda Capital Limited and consider the terms of the refreshment of the Current General Mandate are fair and reasonable so far as the Independent Shareholders are concerned and the New General Mandate is in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the refreshment of the Current General Mandate.

Yours faithfully,

Mr. Ma Wing Yun Bryan Mr. Tam Ching Ho Dato’ Wong Sin Just Mr. Wong Sin Lai Independent Board Committee

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LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders in respect of the proposed refreshment of Current General Mandate prepared for the purpose of inclusion in this circular:

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Veda Capital Limited Suite 3214, 32/F COSCO Tower 183 Queen’s Road Central Hong Kong

26 May 2011

• To the Independent Board Committee and the Independent Shareholders of China Zenith Chemical Group Limited

Dear Sirs,

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ALLOT AND ISSUE SHARES

INTRODUCTION

We refer to the circular dated 26 May 2011 issued by the Company to the Shareholders of which this letter forms part (the “ Circular ”) and our appointment as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of, among other things, the proposed refreshment of the Current General Mandate, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the Circular. Capitalised terms used in this letter, unless the context otherwise requires, shall have the same meanings ascribed to them in the Circular.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, the grant of New General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates or, where there are no controlling Shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolutions. As at the Latest Practicable Date, the Company has no controlling Shareholders. Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, Mr. Chiau Che Kong, Mr. Peng Zhanrong and Mr. Wu Jianwei, all being executive Directors, and their respective associates shall abstain from voting in favour of the relevant resolutions at the EGM. As at the Latest Practicable Date, Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe and Mr. Chiau Che Kong are interested in 1,759,575,430, 22,125,000 and 131,310,000 Shares, representing approximately 23.60%, approximately 0.30% and approximately 1.76% of the issued share capital of the Company respectively.

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LETTER FROM VEDA CAPITAL

The Independent Board Committee comprises Mr. Ma Wing Yun Bryan, Dato’ Wong Sin Just, Mr. Wong Sin Lai, and Mr. Tam Ching Ho who is interested in 2,880,000 Shares, representing approximately 0.04% of the issued share capital of the Company as at the Latest Practicable Date, all being independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the refreshment of Current General Mandate. We have been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders as to whether the New General Mandate is in the interests of the Company and the Independent Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned.

BASIS OF OUR ADVICE

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, Directors and management of the Company. We have no reason to believe that any information and 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 information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true at the date of this circular.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed in the Circular, having made all reasonable enquiries, which to the best of their knowledge, there are no other facts the omission of which would make any statement in the Circular misleading. We have not, however, conducted any independent in-depth investigation into the business affairs, financial position or future prospects of the Group, nor have we carried out any independent verification of the information provided by the Directors and management of the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and our recommendation with regard to the refreshment of Current General Mandate, we have taken into account the following principal factors and reasons:

Background and Reasons of the refreshment of Current General Mandate

At the AGM held on 20 December 2010, an ordinary resolution was approved to grant to the Directors the Current General Mandate to issue, allot and deal with up to 1,251,266,347 Shares, being 20% of the aggregate nominal amount of the issued share capital of the Company as at the date of passing such resolution.

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LETTER FROM VEDA CAPITAL

As set out in the announcement of the Company dated 12 January 2011, the Company and Placing Agent entered into the Share Placing Agreement pursuant to which the Placing Agent agreed to place, on a best effort basis, the Placing Shares of up to 1,200,000,000 existing Shares owned by the Subscriber at the Share Placing Price of HK$0.22 per Placing Share to the placees who and whose ultimate beneficial owners are Independent Third Parties. On the same date, the Company and the Subscriber entered into the Subscription Agreement with the Company pursuant to which the Subscriber had conditionally agreed to subscribe for the Subscription Shares, and such Subscription Shares would be issued pursuant to the Current General Mandate. As advised by the Company, the Share Placing and the subscription of the Subscription Shares have been completed on 20 January 2011.

Accordingly, during the period from the grant of the Current General Mandate to the Latest Practicable Date, the Current General Mandate had been utilized as to approximately 95.90%. As at the Latest Practicable Date, the Company had an aggregate of 7,456,331,736 Shares in issue and only 51,266,347 Shares remain outstanding under the Current General Mandate, representing only approximately 0.69% of the issued share capital of the Company as at the Latest Practicable Date.

As set out in the Board Letter, the Company has not refreshed its Current General Mandate since the AGM. In order to give the Directors greater flexibility in issuing new Shares when it is in the interests of the Group and the Shareholders as a whole, the Directors propose to the Independent Shareholders a resolution to grant the New General Mandate such that the Directors can exercise the power of the Company to issue new Shares of up to 20% of the issued share capital of the Company as at the date of the EGM. In addition, the New General Mandate offers an opportunity for the Directors to capture a favourable equity market condition to raise funds by issuing new Shares. The Company currently does not have any concrete plan regarding the utilization of the New General Mandate to be granted.

In view of the foregoing, the Directors consider the grant of the New General Mandate, which may or may not be utilized, is in the best interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, the Company had an aggregate of 7,456,331,736 Shares in issue. Subject to the passing of the ordinary resolutions for the approval of granting the New General Mandate and on the basis that no further Shares are issued and/or repurchased by the Company between the Latest Practicable Date and the date of the EGM, the Company would be allowed under the New General Mandate to allot and issue up to 1,491,266,347 Shares, being 20% of the total number of Shares in issue as at the Latest Practicable Date.

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LETTER FROM VEDA CAPITAL

We noted from the Board Letter that the net proceeds from the Share Placing and the subscription of the Subscription Shares was approximately HK$260.0 million. The net proceeds of approximately HK$260.0 million has been used as general working capital of the Group. As set out in the announcement of the Company dated 4 April 2011 and 12 May 2011, the Company has granted 125,000,000 share options and 62,500,000 share options (the “ Options ”) to individuals (the “ Grantees ”) respectively under the Company’s share option scheme adopted on 18 November 2002. The Options shall entitle the Grantees to subscribe for a total of 125,000,000 new Shares and 62,500,000 new Shares at the exercise price of HK$0.153 per Share and HK$0.154 per Share respectively. As advised by the Company, no Options has been exercised as at the Latest Practicable Date.

We noted from the interim report of the Group for the six months ended 31 December 2010 (the “ IR 2010 ”) that the Group has recorded bank and cash balances of approximately HK$32.41 million and bank loans of approximately HK$334.38 million as at 31 December 2010. We also noted from the IR 2010 that, to pursue continuous growth, the Group will make every effort to diversify its product mix, as well as enhance its capability in developing high value-added products and new production techniques through in-house research and development and the Group will also perform to its best endeavors to capture market opportunities followed from the favorable government policies and to exhibit the Group’s growth potential through suitable economy of scale in its production by expansion through vertical integration in the Northeastern region of the PRC.

Having considered that (i) the Current General Mandate has been utilized as to approximately 95.90%; (ii) the New General Mandate would provide the Group with financial flexibility to raise equity capital for the Company in a timely manner for potential expansion and/or investment plans in the future and issue new Shares when it is in the interests of the Group and the Shareholders as a whole given the liquidity position of the Company as at 31 December 2010; and (iii) the New General Mandate would strengthen the capital base and financial position of the Company, we concur with the Directors that the refreshment of Current General Mandate is in the interests of the Company and the Independent Shareholders as a whole.

Other financing alternatives

As debt financing may incur interest burden to the Group, equity financing such as issuance of new Shares for cash or equity swaps may be an appropriate mean to provide funding for the future investment and/or development of the Group, given the Group’s financial position, capital structure, cost of funding and the then financial market condition. Other financing methods such as debt financing or internal cash resources to fund future business development of the Company shall be taken into consideration in appropriate circumstances.

Having considered that (i) debt financing may incur interest burden to the Group; (ii) rights issue or open offer may take a longer time to complete while fund raising exercise pursuant to general mandate provides the Company a simpler and less lead time process than other types of fund raising exercise and avoids the uncertainties in such circumstances that specific mandate may not be obtained in a timely manner; and (iii) the refreshment of Current General Mandate will provide the Company with an additional

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LETTER FROM VEDA CAPITAL

alternative and it is reasonable for the Company to have the flexibility in deciding the financing methods for its future investment and/or development, including equity issuance, we are of the view that the refreshment of Current General Mandate is in the interests of the Company and the Independent Shareholders as a whole.

Potential dilution effect on the shareholding structure

The table below sets out the shareholding structure of the Company as at the Latest Practicable Date and, for illustrative purpose, the potential dilution effect on the shareholdings of Independent Shareholders upon full utilization of the New General Mandate, assuming no Shares are issued or repurchased by the Company during the period between the Latest Practicable Date and the date of the EGM:

	Shareholders Executive Directors:	As at the Latest Practicable Date Number of Shares Approx. %	As at the Latest Practicable Date Number of Shares Approx. %	Upon full utilization of the New General Mandate Number of Shares Approx. % 1,759,575,430 19.67 131,310,000 1.47 22,125,000 0.25 1,913,010,430 21.39 5,543,321,306 61.94 1,491,266,347 16.67 8,947,598,083 100.00	Upon full utilization of the New General Mandate Number of Shares Approx. % 1,759,575,430 19.67 131,310,000 1.47 22,125,000 0.25 1,913,010,430 21.39 5,543,321,306 61.94 1,491,266,347 16.67 8,947,598,083 100.00
	Chan Yuen Tung Chiau Che Kong Chan Yuk Foebe	1,759,575,430 131,310,000 22,125,000	23.60 1.76 0.30	1,759,575,430 131,310,000 22,125,000	19.67 1.47 0.25
	Subtotal Independent Shareholders Additional Shareholders upon full utilization of the New General Mandate	1,913,010,430 5,543,321,306 –	25.66 74.34 –	1,913,010,430 5,543,321,306 1,491,266,347	21.39 61.94 16.67
	Total	7,456,331,736	100.00	8,947,598,083

As illustrated in the table above, the existing aggregate shareholding of the Independent Shareholders will decrease from approximately 74.34% as at the Latest Practicable Date to approximately 61.94% upon full utilization of the New General Mandate. Taking into account that the New General Mandate (i) will provide an alternative to increase the amount of capital which may be raised under the New General Mandate; (ii) provides more options of financing to the Group for further development of its business as well as in other potential future investment and/or acquisitions as and when such opportunities arise; and (iii) the fact that the shareholdings of all Shareholders will be diluted proportionately to their respective shareholding upon any utilization of the New General Mandate, we consider such dilution or potential dilution to shareholdings of the Independent Shareholders to be justifiable.

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LETTER FROM VEDA CAPITAL

RECOMMENDATION

Having considered the factors and reasons as stated above, we are of the view that the refreshment of Current General Mandate is in the interests of the Company and Independent Shareholders as a whole, and is fair and reasonable. Accordingly, we recommend the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution in relation to the refreshment of Current General Mandate to be proposed at the EGM. Independent Shareholders are however advised to take note of the possible dilution effect on their shareholding interests in the Company when and if the New General Mandate is utilized.

Yours faithfully, For and on behalf of Veda Capital Limited Hans Wong Julisa Fong Chairman Managing Director

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 362)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting of China Zenith Chemical Group Limited (the “ Company ”) will be held at Unit 1101–12, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong on Monday, 20 June 2011 at 4:30 p.m. for the following purposes:

As special business, to consider and, if thought fit, pass with or without amendments, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT, subject to and conditional upon (i) the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of and permission to deal in the Consolidated Shares (as defined below) in issue and to be issued upon the Share Consolidation (as defined below) becoming effective:

2. (a) every ten (10) existing issued and unissued shares of par value HK$0.01 each in the share capital of the Company be consolidated into one (1) share of par value of HK$0.10 (the “ Consolidated Share ”) in the share capital of the Company (the “ Share Consolidation ”) with effect from the business day immediately following the date on which this resolution is passed, such Consolidated Shares shall rank pari passu in all respects with each other, and any fractional entitlements be aggregated to the then issued Consolidated Shares resulting from the Share Consolidation and the sale in the form of Consolidated Shares for the benefit of the Company in such manner and on such terms as the directors of the Company (the “ Directors ”) may think fit be and are hereby approved; and

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NOTICE OF EXTRAORDINARY GENERAL MEETING

• (b) any one executive director of the Company be and is hereby authorised to do all such acts and things and execute all documents, including under the seal of the Company, and make such arrangement as he may determine to be appropriate, necessary or desirable to give effect to or to implement the Share Consolidation.”

• (A) “ THAT , to the extent not already exercised, the mandate to allot, issue and deal with the shares of the Company given to the directors of the Company (the “ Directors ”) at the annual general meeting of the Company held on 20 December 2010 (the “ AGM ”) be and is hereby revoked and replaced by the mandate THAT:

  • (a) subject to paragraph (c) below, the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares of HK$0.01 each (or HK$0.10 each after the Share Consolidation) in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers be and is hereby generally and unconditionally approved;

  • (b) the approval in paragraph (a) above shall authorize the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers, after the end of the Relevant Period;

  • (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue (as defined below); or (ii) the exercise of any options granted under the existing share option scheme of the Company; or (iii) any scrip dividend or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the articles of association of the Company; or (iv) any issue of Shares upon the exercise of rights of subscription or conversion under the terms of any warrants of the Company or any securities which are convertible into Shares, shall not exceed the aggregate of:

    • (i) 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of this resolution; and

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NOTICE OF EXTRAORDINARY GENERAL MEETING

• (ii) (if the Directors are so authorised by a separate ordinary resolution of the shareholders of the Company) the nominal amount of any share capital of the Company repurchased by the Company subsequent to the passing of this resolution (up to a maximum equivalent to 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of the passing of such resolution),

and the authority pursuant to paragraph (a) of this resolution shall be limited accordingly; and

• (d) for the purpose of this resolution:

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

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law to be held; or

• (iii) the revocation or variation of the authority given under this resolution by an ordinary resolution of the shareholders in general meeting;

“Rights Issue” means an offer of Shares, or offer or issue of warrants, options or other securities giving rights to subscribe for Shares open for a period fixed by the Directors to holders of Shares on the register of a fixed record date in proportion to their then holdings of Shares (subject to such exclusion or other arrangements as to the Directors may deem necessary or expedient in relation to fractional entitlements, or having regard to any restrictions or obligations under the laws of, or the requirements of, or the expense or delay which may be involved in determining the existence or extent of any restrictions or obligations under the laws of, or the requirements of, any jurisdiction outside Hong Kong or any recognized regulatory body or any stock exchange outside Hong Kong).”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

• (B) “ THAT conditional upon the passing of resolution no. 2.(A) above, the mandate granted to the Directors at the AGM to extend the general mandate to allot and issue Shares to Shares repurchased by the Company be and is hereby revoked and replaced by the mandate THAT the Directors be and they are hereby authorised to exercise the authority referred to in paragraph (a) of resolution no. 2.(A) above in respect of the share capital of the Company referred to in sub-paragraph (ii) of paragraph (c) of such resolution.”

• (C) “ THAT the existing scheme mandate limit under the share option scheme adopted by a resolution of the shareholders of the Company on 18 November 2002 (“ Share Option Scheme ”) be refreshed so that the aggregate nominal amount of the shares of the Company to be allotted and issued pursuant to the grant or exercise of the options under the Share Option Scheme (excluding options previously granted, outstanding, cancelled, lapsed or exercised under the Share Option Scheme) shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of this resolution (“ Refreshed Scheme Limit ”) and that the Directors be and are hereby authorized, subject to compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (as amended from time to time), to grant options under the Share Option Scheme up to the Refreshed Scheme Limit and to exercise all the powers of the Company to allot, issue and deal with shares of the Company pursuant to the exercise of such options.”

• “ THAT subject to the passing of resolution 1 above and the Share Consolidation becoming effective, the authorised share capital of the Company be and is hereby increased from HK$100,000,000 divided into 1,000,000,000 ordinary shares of HK$0.10 each to HK$200,000,000 divided into 2,000,000,000 ordinary shares of HK$0.10 each.”

By Order of the Board China Zenith Chemical Group Limited Chan Yuk Foebe Chief Executive Officer

Hong Kong, 26 May 2011

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NOTICE OF EXTRAORDINARY GENERAL MEETING

As at the date hereof, Mr. Chan Yuen Tung, Ms. Chan Yuk Foebe, Mr. Chiau Che Kong, Mr. Peng Zhanrong and Mr. Wu Jianwei are the executive Directors and Mr. Ma Wing Yun Bryan, Mr. Tam Ching Ho, Dato’ Wong Sin Just and Wong Sin Lai are the independent non-executive Directors.

Notes:

• (1) Members of the Company whose names appear on the register of members maintained by the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong at 4:30 p.m., Thursday on 16 June 2011 shall qualify for attending and voting at the extraordinary general meeting. The register of members of the Company will be closed from Friday, 17 June 2011 to Monday, 20 June 2011 (both days inclusive), during which period no share transfer will be registered. In order to qualify to attend and vote on the proposed resolution set out in this notice, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Thursday, 16 June 2011.

• (2) A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies (if he is a holder of more than one share), to attend and vote on his behalf. A proxy needs not be a member of the Company.

• (3) The instrument appointing a proxy and the power of attorney or other, if any, under which it is signed, or a notarially certified copy of such power of attorney or other authorisation document(s), must be lodged with the Company’s branch Share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or at any adjournment thereof.

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