Veson Holdings Limited - Proxy Solicitation & Information Statement 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

If you have sold or transferred all your shares in SCUD Group Limited, you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01399)

DISCLOSEABLE AND CONNECTED TRANSACTION AND

CONTINUING CONNECTED TRANSACTIONS 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 the Board is set out on pages 4 to 18 of this circular and a letter from the Independent Board Committee is set out on pages 19 to 20 of this circular. A letter from Gram Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 38 of this circular.

A notice convening an EGM of SCUD Group Limited to be held at 3:00 p.m. on Wednesday, 23 July 2014 at Empire Room I, Empire Hotel, 33 Hennessy Road, Wanchai, Hong Kong, is set out on pages EGM-1 to EGM-3 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar of SCUD Group Limited in Hong Kong, Tricor Investor Services Limited, located at 22/F Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM, or any adjournment thereof, should you so wish.

8 July 2014

* For identification purposes only

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . .	19
LETTER FROM GRAM CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
APPENDIX I – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	APP I-1
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

DEFINITIONS

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

“Announcement”	the announcement dated 13 June 2014 issued by the Company
“Articles”	the articles of association of the Company adopted pursuant to
	written resolutions of the Shareholders passed on 3 December 2006
“associate(s)”	has the meaning ascribed to it in the Listing Rules
“Battery Agreement”	the framework agreement between the Company, Shenzhen Hongde
	and Shenzhen Nalon dated 13 June 2014 in respect of the
	continuing sale and purchase of lithium-ion bare battery cells
“Board”	the board of Directors
“Company”	SCUD Group Limited, a limited liability company incorporated in
	the Cayman Islands, the shares of which are listed on the main
	board of the Stock Exchange
“connected person”	has the meaning ascribed to it in the Listing Rules
“controlling shareholder”	has the meaning ascribed to it in the Listing Rules
“Director(s)”	director(s) of the Company
“Dongguan Hongde”	東莞市鴻德電池有限公司(Dongguan Hongde Battery Co., Ltd*), a
	directly wholly-owned subsidiary of Shenzhen Hongde
“EGM”	the extraordinary general meeting of the Company to be held at on
	23 July 2014 to seek the approval of the Independent Shareholders
	in respect of the Sale and Purchase Agreement, Ongoing Bank
	Guarantees and the Battery Agreement
“Gram Capital” or “Independent	Gram Capital Limited, a licensed corporation to carry on Type 6
Financial Adviser”	(advising on corporate finance) regulated activity under the
	Securities and Futures Ordinance (Cap 571 of the Laws of Hong
	Kong), being the independent financial adviser appointed to make
	the relevant recommendation to the Independent Board Committee
	and the Independent Shareholders in relation to the transactions
	under the Sale and Purchase Agreement, Ongoing Bank Guarantees
	and the Battery Agreement
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

DEFINITIONS

“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board Committee” the committee of the Company comprising all independent nonexecutive Directors, namely Dr. Loke Yu, Mr. Wang Jing Zhong and Mr. Wang Jian Zhang, established to make recommendation to the Independent Shareholders in relation to the transactions contemplated under the Sale and Purchase Agreement, Ongoing Bank Guarantees and the Battery Agreement
“Independent Shareholders” Shareholders other than Mr. Fang Jin and his associates (as defined in the Listing Rules)
“Individual Agreements” individual agreements, contracts or orders for individual transactions during the term of the Battery Agreement
“Latest Practicable Date” 4 July 2014, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Fang” Mr. Fang Jin, an executive Director and a controlling Shareholder currently holding approximately 48.86% of the issue share capital of the Company as at the Latest Practicable Date
“Notice of EGM” the notice to Shareholders set out in this circular regarding the convening of the EGM and setting out therein the Proposed Resolutions
“Ongoing Bank Guarantees” the existing bank guarantees given by Scud Electronics for the benefit of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde respectively, that shall continue after the completion of the Sale and Purchase Agreement
“percentage ratios” the percentage ratios calculated based on the requirements under Rule 14.07 of the Listing Rules
“PRC”
the People’s Republic of China excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan for the purposes of this circular
“Proposed Resolutions” the proposed ordinary resolutions of the Shareholders, as set out in the Notice of EGM
2 -

DEFINITIONS

“RMB”	Renminbi, the lawful currency of the PRC
“RuiDe Electronic”	深圳市睿德電子實業有限公司(Shenzhen Ruide Electronic
	Industrial Co., Ltd.*)
“Scud Electronics”	飛毛腿（福建）電子有限公司(Scud (Fujian) Electronics Co., Ltd.*),
	a wholly foreign-owned enterprise established in the PRC on 31
	October 1997 and an indirect wholly-owned subsidiary of the
	Company
“Share(s)”	ordinary share(s) in the Company with a nominal value of HK$0.10
	each
“Sale and Purchase Agreement”	the share sale and purchase agreement entered into between Scud
	Electronics as vendor and Mr. Fang as purchaser on 13 June 2014
	whereby Mr. Fang agreed to pay a total consideration of RMB105.0
	million (equivalent to approximately HK$131.9 million) which
	would give Mr. Fang a 70% equity interest in Shenzhen Nalon and
	60% in Shenzhen Hongde after completion of this agreement
“Shareholder(s)”	holder(s) of the Shares
“Shenzhen Hongde”	深圳市鴻德電池有限公司(Shenzhen Hongde Battery Co., Ltd.*), a
	company established under the laws of the PRC
“Shenzhen Hongde Group”	Shenzhen Hongde and its subsidiaries, including Dongguan Hongde
	and 鴻德新能源科技有限公司(Hongde New Energy Technology
	Co., Ltd.*)
“Shenzhen Nalon”	深圳市朗能電池有限公司(Shenzhen Nalon Battery Co., Ltd.*), a
	company established under the laws of the PRC
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiary(ies)”	bears the meaning ascribed to it under the Listing Rules

For the purpose of this circular, unless otherwise indicated, the exchange rate of HK$1=RMB0.79578 has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged at such rate or at all.

* For identification purposes only

LETTER FROM THE BOARD

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SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01399)

Executive Directors:

Mr. Fang Jin (Chairman) Mr. Guo Quan Zeng (Chief Executive Officer) Ms. Huang Yan Mr. Zhang Li

Registered office:

Cricket Square, Hutchins Drive P.O. Box 2681 GT Grand Cayman KY1-1111 Cayman Islands

Independent Non-executive Directors:

Dr. Loke Yu Mr. Wang Jing Zhong Mr. Wang Jian Zhang

Place of business in Hong Kong: Room 5505, 55/F Central Plaza 18 Harbour Road Wanchai Hong Kong 8 July 2014

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference is made to the Announcement whereby the Board announced that Scud Electronics, an indirect wholly-owned subsidiary of the Company as vendor entered into the Sale and Purchase Agreement with Mr. Fang, our Director and controlling Shareholder, as purchaser.

* For identification purposes only

LETTER FROM THE BOARD

The purpose of this circular is to provide Shareholders with, among other things, (i) further details of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement, and the transactions contemplated therein respectively; (ii) recommendations from the Independent Board Committee to the Independent Shareholders; (iii) the advice from Gram Capital to the Independent Board Committee and the Independent Shareholders; and (iv) the enclosed notice of the EGM.

2. SALE AND PURCHASE AGREEMENT

On 13 June 2014, Scud Electronics, an indirect wholly-owned subsidiary of the Company, as vendor entered into the Sale and Purchase Agreement with Mr. Fang, our Director and controlling Shareholder, as purchaser.

Pursuant to the Sale and Purchase Agreement, Scud Electronics agreed to sell and Mr. Fang agreed to purchase 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde for a total consideration of RMB105.0 million (equivalent to approximately HK$131.9 million).

A summary of the specific terms of the Sale and Purchase Agreement are set out as follows:

Date: 13 June 2014 Parties: (i) Scud Electronics, an indirect wholly-owned subsidiary of the Company, as the vendor (ii) Mr. Fang, our Director and controlling Shareholder as to 48.86 % of the Company, as the purchaser Consideration: RMB105.0 million (equivalent to approximately HK$131.9 million) Original equity holders: As at the date of the Sale and Purchase Agreement, the following shareholders are the beneficial owners of the two companies:

(i)	Shenzhen Nalon:
	Shareholder	% equity interest
	Scud Electronics	70
	Mr. Cao Xinggang	30

LETTER FROM THE BOARD

(ii)	Shenzhen Hongde:
	Shareholder	% equity interest
	Scud Electronics	60
	Mr. Hua Wei	13
	Mr. Chen Wei	10
	Mr. Zhang Wei	3
	RuiDe Electronic	6
	Mr. Ji Fulin	3
	Mr. Liu Bai	5

New equity holders immediately Immediately after completion of the Sale and Purchase after completion of the Sale Agreement, the following shareholders will be the beneficial and Purchase Agreement: owners of the two companies:

(i)	Shenzhen Nalon:
	Shareholder	% equity interest
	Mr. Fang	70
	Mr. Cao Xinggang	30
(ii)	Shenzhen Hongde:
	Shareholder	% equity interest
	Mr. Fang	60
	Mr. Hua Wei	13
	Mr. Chen Wei	10
	Mr. Zhang Wei	3
	RuiDe Electronic	6
	Mr. Ji Fulin	3
	Mr. Liu Bai	5

Save for their respective equity holding interests in Shenzhen Nalon and Shenzhen Hongde (which, as at the Latest Practicable Date, are subsidiaries of the Company) as set out above, each of the above equity holders upon completion (other than Mr. Fang) are, and in the case of RuiDe Electronic, its ultimate beneficial owners as well, third parties independent of the Company and connected persons of the Company.

LETTER FROM THE BOARD

Payment:

Pursuant to the terms of the Sale and Purchase Agreement, the total consideration payable by Mr. Fang is RMB105.0 million (approximately HK$131.9 million) whereby:

(i) RMB60.0 million (equivalent to approximately HK$75.4 million) is payable to the vendor within 10 days after the date of the Sale and Purchase Agreement;
(ii) RMB20.0 million (equivalent to approximately HK$25.1 million) is payable to the vendor within 30 days after the date of the Sale and Purchase Agreement; and
(iii) the remaining RMB25.0 million (equivalent to approximately HK$31.4 million) is payable on the date of completion of the Sale and Purchase Agreement, i.e. the date when the transfers of the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde are completed.

The total consideration under the Sale and Purchase Agreement was arrived at after arm’s length negotiations between the parties based on the adjusted consolidated net asset value of Shenzhen Nalon and Shenzhen Hongde Group as at 31 December 2013 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde, which is approximately RMB104.4 million (equivalent to approximately HK$131.2 million).

Ongoing Bank Guarantees:

Upon completion of the Sale and Purchase Agreement, preexisting bank guarantees given by Scud Electronics for the benefit of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde, shall continue. However in the event Scud Electronics is called upon to carry out its obligations under such guarantees, Mr. Fang has undertaken to indemnify Scud Electronics for any amount paid by Scud Electronics under such guarantee and any and all expenses and losses as may be incurred or suffered by it. The aggregate amount of such Ongoing Bank Guarantees as at the Latest Practicable Date is RMB111.0 million (equivalent to approximately HK$139.5 million).

LETTER FROM THE BOARD

In the event the Independent Shareholders approves the Sale and Purchase Agreement but not the Ongoing Bank Guarantees, the parties involved will negotiate with the relevant banks for possible release of the guarantees or replacement of guarantor, where possible, and completion of the Sale and Purchase Agreement will, under such circumstances, be delayed accordingly.

Upon completion of the Sale and Purchase Agreement, Shenzhen Nalon and Shenzhen Hongde will cease to be indirect subsidiaries of the Company. Completion is subject to, among other things, Scud Electronics obtaining all consent and approvals (including but not limited to the approval by the Independent Shareholders) on the Sale and Purchase Agreement and the transactions contemplated under it. If the Sale and Purchase Agreement is not completed, Scud Electronics must return all funds received (without interest) to Mr. Fang within 30 days after the confirmation of the termination of the Sale and Purchase Agreement.

Mr. Fang has also undertaken that for so long as he is the controlling shareholder of Shenzhen Nalon and Shenzhen Hongde Group, he will procure that they will not compete with the Group’s business from time to time in PRC. It is not currently anticipated that such competition will arise given that Shenzhen Nalon and Shenzhen Hongde Group are involved in the research and development, manufacture and sales of lithium-ion bare battery cells as a supplier to the Group whereas the Group, after such disposals, would cease the production of bare battery cells and continue to source bare battery cells from independent third party suppliers as well as Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) as a component of their battery modules before selling such battery modules. Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) are not engaged in the sale of battery modules. In the event that a business opportunity arises which may result in Shenzhen Nalon and Shenzhen Hongde Group possibly competing with the Group, Mr. Fang will procure that such opportunity shall be first offered to the Group. Only if the independent non-executive Directors agree that it is not in the interest of the Company to pursue such opportunity would Shenzhen Nalon or Shenzhen Hongde Group be permitted to proceed with or to pursue such business opportunity.

Based on the consideration of RMB105.0 million (equivalent to approximately HK$131.9 million) of which approximately RMB67.9 million (equivalent to approximately HK$85.3 million) is attributable to the consideration of the sale of 60% equity interest in Shenzhen Hongde and approximately RMB37.1 million (equivalent to approximately HK$46.6 million is attributable to the consideration of the sale of 70% of equity interest in Shenzhen Nalon and the unaudited adjusted consolidated net asset value of Shenzhen Nalon of RMB36.1 million (equivalent to approximately HK$45.4 million) and Shenzhen Hongde Group of RMB59.2 million (equivalent to approximately HK$74.4 million) as at 30 April 2014 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde, respectively, the transaction is expected to give rise to a profit attributable to the Company of approximately RMB9.7 million (equivalent to approximately HK$12.2 million), of which approximately RMB8.7 million (equivalent to approximately HK$11.0 million) is attributable to the sale of 60% equity interest in Shenzhen Hongde and approximately RMB1.0 million (equivalent to approximately HK$1.2 million) is attributable to the sale of 70% equity interest in Shenzhen Nalon. The actual gain or loss from the transaction to be recorded by the Company is expected to be different to the above as it will depend on the financial position of Shenzhen Nalon and Shenzhen Hongde Group as at the date of completion of the Sale and Purchase Agreement.

LETTER FROM THE BOARD

The Company intends to use the net proceeds from the completion of the Sale and Purchase Agreement for general working capital purposes.

As stated in the respective accounts of Shenzhen Nalon and Shenzhen Hongde Group prepared in accordance with International Financial Reporting Standards, the profits (losses) before and after tax and extraordinary items for the year ended 31 December 2013 and for the year ended 31 December 2012 are set out below:

	Shenzhen	Nalon	Shenzhen Hongde Group	Shenzhen Hongde Group
	For the year ended	For the year ended	For the year ended	For the year ended
	31 December 2013	31 December 2012	31 December 2013	31 December 2012
Profit (Loss) before tax	RMB(7,235,000)	RMB2,555,000	RMB(2,698,000)	RMB9,768,000
and extraordinary	(approximately	(approximately	(approximately	(approximately
items	HK$(9,092,000))	HK$3,211,000)	HK$(3,390,000))	HK$12,275,000)
Profit (Loss) after tax	RMB(7,332,000)	RMB895,000	RMB(4,840,000)	RMB7,231,000
and extraordinary	(approximately	(approximately	(approximately	(approximately
items	HK$(9,214,000))	HK$1,125,000)	HK$(6,082,000))	HK$9,087,000)

Reasons for and benefits of entering into the Sale and Purchase Agreement

As disclosed in the Group’s 2013 annual report, there had been serious challenges to the Group’s own-brand and bare battery cells businesses in light of changes in the industry. The drop in the Group’s sales of bare battery cells in recent years was attributable to the significant decrease in demand for prismatic liquid lithium-ion bare battery cells typically used in feature mobile phones, in addition to the intensified competition across the industry. Furthermore, the Group had repositioned its target customers to domestic mid to high-end phone manufacturers with its expectation to boost its business in its original design manufacturing (“ODM”) business which has a higher growth potential in terms of volume. There industry environment remains competitive with numerous domestic and overseas enterprises engaged in the manufacturing of lithium-ion bare battery cells, among which are established companies with large-scale operations enjoying significant competitive advantages as compared to our Group. These factors together with Shenzhen Nalon’s and Shenzhen Hongde Group’s loss making status in 2013 contributed to the Group’s decision to dispose of Shenzhen Nalon and Shenzhen Hongde Group. Disposing such companies (which primarily produces lithium-ion bare battery cells used by mobile phones which are positioned differently in the market than those the Group primarily supplies) is expected to allow the Group to focus its resources on other business segments which has a higher growth potential, reduce the Group’s operating losses, thus improving the Group’s operating results and increase its working capital.

The terms of the Sale and Purchase Agreement were arrived at after arm’s length negotiations between the parties. Save for Mr. Fang, who is a party to the Sale and Purchase Agreement and therefore abstained from voting for the Sale and Purchase Agreement at the relevant Board meeting, the Directors (including the independent non-executive Directors having taken into account the recommendation of Gram Capital) are of the view that the terms of the Sale and Purchase Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

3. THE BATTERY AGREEMENT

Background

In anticipation of Shenzhen Nalon and Shenzhen Hongde becoming connected persons of the Company after completion of the Sale and Purchase Agreement, to comply with Rule 14A.35 of the Listing Rules, the Company has on 13 June 2014 entered into the Battery Agreement with Shenzhen Nalon and Shenzhen Hongde whereby Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) shall supply the Group with lithium-ion bare battery cells for the three years ending 31 December 2016. As Shenzhen Nalon and Shenzhen Hongde will become connected persons of the Group upon completion of the Sale and Purchase Agreement, the transactions pursuant to the Battery Agreement is expected to constitute continuing connected transactions of the Group upon completion of the Sale and Purchase Agreement.

The Group, and Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates), will enter into Individual Agreements for individual transactions during the term of the Battery Agreement, which shall contain details of transactions including but not limited to the consideration, requirements of manufacture, payment, delivery and indemnities. The terms of the Individual Agreements shall not conflict with the general principles set out in the Battery Agreement. Should there be any conflict, the parties shall discuss and agree such adjustments to the Individual Agreements so that the general principles in the Battery Agreement should prevail.

Pricing

The parties agreed that the price, fee or any other consideration shall be determined with reference to the relevant market price at the time of placement of the individual orders based on quotations as may be obtained from other suppliers in respect of substantively the same type of lithium-ion bare battery cells, and in general should be no less favourable to the Group than quotations obtained from independent third party suppliers.

Further, prior to agreeing the price for the lithium-ion bare battery cells, the procurement team of the Company is expected to solicit at least three fee quotes from other unrelated third parties for batteries in similar quantities to determine if the price and terms offered by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) are fair and reasonable and comparable to those offered by the unrelated third parties.

Term

The Battery Agreement is conditional upon approval by the Independent Shareholders pursuant to the Listing Rules. Subject to satisfaction of such condition, the Battery Agreement is for a term commencing from the date of the extraordinary general meeting to be convened to approve, amongst other things, the Battery Agreement, and ending on 31 December 2016, both dates inclusive.

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LETTER FROM THE BOARD

The Battery Agreement may be renewed upon expiry subject to the Company’s compliance with the Listing Rules. The Battery Agreement may be terminated by either the Group, Shenzhen Nalon or Shenzhen Hongde by giving prior written notice to the other party three (3) months in advance and the parties should decide on the terms and conditions of such termination by mutual agreement.

Annual Caps

Over the last three financial years ended 31 December 2013 and the five months ended 31 May 2014, the amount of lithium-ion bare battery cells purchased by the Group from Shenzhen Hongde or Shenzhen Nalon are as follows:

				For the
				five months
				ended
	For the year ended 31		December	31 May
	2011	2012	2013	2014
Purchases from Shenzhen
Hongde
(RMB approximately)	47,541,000	55,503,000	48,116,000	31,235,000
Purchases from Shenzhen
Nalon
(RMB approximately)	17,834,000	14,640,000	8,474,000	3,491,000
Sub-total
(RMB approximately)	65,375,000	70,143,000	56,590,000	34,726,000

11 -

LETTER FROM THE BOARD

Under the Battery Agreement, the Group, Shenzhen Nalon and Shenzhen Hongde agreed that the maximum aggregate value of the contract sum in respect of the sale and purchase of lithium-ion bare battery cells for the periods concerned under the Battery Agreement shall not exceed the amounts set out below:

	Total
	value not
Period	exceeding
	(RMB’000)
	(Note)
From the date of approval of the Battery Agreement by the
Independent Shareholders to 31 December 2014	32,000
1 January 2015 – 31 December 2015	79,000
1 January 2016 – 31 December 2016	88,000

Note: These figures represent the estimated maximum cap in respect of the sale and purchase of lithium-ion bare battery cells for the periods concerned under the Battery Agreement. The actual amount of the sale and purchase may be different.

The above annual caps have been determined based on the following:(i) the actual average selling price of the lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the year ended 31 December 2013 multiplied by the growth rate of approximately 24% based on the average selling price of the lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the three years ended 31 December 2013 and 5 months ended 31 May 2014 of RMB6.84 (equivalent to approximately HK$8.60), RMB7.92 (equivalent to approximately HK$9.95), RMB10.33 (equivalent to approximately HK$12.98), and RMB12.97 (equivalent to approximately HK$16.30), respectively; (ii) the actual average volume of the lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the year ended 31 December 2013 multiplied by the growth rate of approximately -9% based on the average volume of lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the three years ended 31 December 2013 and 5 months ended 31 May 2014 of 9,563,989, 8,852,294, 5,479,645 and 2,676,718 pieces, respectively; and (iii) a small percentage of buffer.

Internal control

In general, the Group’s purchasing department will solicit quotations from a pre-approved list of lithium-ion bare battery cells suppliers providing them with the same specifications for lithium-ion bare battery cells and other requirements that may be relevant to the needs of the Group at the relevant time. Given the Group owned and operated both Shenzhen Nalon and Shenzhen Hongde Group for a period of time, the Group is well aware of the standards and qualities of the lithium-ion bare battery cells produced by these companies and the type of customers which would like to source such type of lithium-ion bare battery cells. The Group’s procurement department will review all

12 -

LETTER FROM THE BOARD

prices solicited from relevant suppliers and order will be placed with the party with the most competitive price or other sales terms. The senior management of the Group will also review all the pricing and sales terms solicited to ensure price competitiveness of the materials sourced.

In terms of compliance with the annual cap amount, the Group would adhere to its continuing connected transaction internal control procedures which include, amongst other things, monthly review of transaction volume and value by the Group’s management and internal control teams. Further, the procurement team of the Group will also monitor on an ongoing basis and update, on a monthly basis, the Group’s management team the cumulative continuing connected transaction amount incurred. To the extent the transaction amounts are close to or is expected to exceed the relevant annual cap, the Group will consider compliance with the Listing Rules in advance.

Payment terms

Payments shall be made by the Group to Shenzhen Nalon or Shenzhen Hongde (or their respective subsidiary or associate) on a monthly basis within 60 to 90 days of receipt of invoice from Shenzhen Nalon or Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) by bank draft or other method of bank transfer.

Reasons for and benefits of entering into the Battery Agreement

A stable supply of lithium-ion bare battery cells is important to the Group to maintain its diversity of products and to satisfy a wider market of customer needs. Whilst the Group’s focus is primarily on original design manufacturing and own brand businesses with the “SCUD飛毛腿” brand and “Chaolitong超力通” brand, the Group does receive from time to time customer orders for bare battery cells specifications which matches that produced by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates). Given the manufacturing business with Shenzhen Nalon and Shenzhen Hongde Group has not been profitable but bearing in mind the opportunities still available for products which incorporate such bare battery cells type, the Directors believe that by disposing of Shenzhen Nalon and Shenzhen Hongde Group and entering into the Battery Agreement will allow the Group to optimize its financial performance whilst maintaining a steady and reliable supply of lithium-ion bare battery cells to supply its customers. The Group will have the right but not the obligation to source from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) under the Battery Agreement, and it will allow the Group to secure such bare battery cells at prices no less favourable than those available from other independent third party suppliers.

The terms of the Battery Agreement were arrived at after arm’s length negotiations between the parties. Save for Mr. Fang, whose associates, after the completion of the Share and Purchase Agreement, are parties to the Battery Agreement, and therefore abstained from voting for the Battery Agreement at the relevant Board Meeting, the Directors (including the independent non-executive Directors having taken into account the recommendation of Gram Capital) are of the view that the terms of the Battery Agreement (including the annual caps set out above) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

13 -

LETTER FROM THE BOARD

4. ONGOING BANK GUARANTEES

As at the Latest Practicable Date, the Scud Electronics have given certain ongoing bank guarantees in favour of Shenzhen Nalon, Shenzhen Hongde and Dongguan Hongde for their respective bank loans, a summary of which is set out as follows:

			Maximum
Borrower of		Maturity/Repayment	Exposure Under
Bank Loan	Lender	Date of Bank Loan	the Guarantee
Shenzhen Hongde	China Merchant Bank	20 January 2015	RMB30 million
Shenzhen Hongde	Industrial and Commercial	13 March 2015	RMB31 million
	Bank of China
Dongguan Hongde	DRC Bank (東莞農村商	27 April 2015	RMB30 million
	業銀行)
Shenzhen Nalon	China Merchant Bank	16 January 2015	RMB20 million

Whilst these Ongoing Bank Guarantees are expected to continue after completion of the Sale and Purchase Agreement until maturity or repayment (whichever is later) of the corresponding loans as set out above, Mr. Fang has undertaken in the Sale and Purchase Agreement that he would indemnify Scud Electronics for any amount paid by Scud Electronics under the above guarantees and any and all expense and losses as may be incurred or suffered by it.

These Ongoing Bank Guarantees were given by Scud Electronics at the time when the above companies are subsidiaries of the Company in order to support their respective capital needs for production purposes. The terms of the Ongoing Bank Guarantees were negotiated together with the corresponding commercial loans at the time and were arrived at after arm’s length negotiations between the parties. Save for Mr. Fang who is the indemnifier of Scud Electronics in respect of the Ongoing Bank Guarantees and has abstained from voting at the relevant Board meeting, the Directors (including the independent non-executive Directors having taken into account the recommendation of Gram Capital) are of the view that taking into account the indemnity given by Mr. Fang in favour of Scud Electronics and the supply of lithium-ion bare battery cells the Group may be sourcing from these companies going forward, it would be fair and reasonable and in the interest of the Company and the Shareholders as a whole not to maintain the Ongoing Bank Guarantees until their respective expiry dates.

5. LISTING RULES IMPLICATIONS

Sale and Purchase Agreement

Mr. Fang, as our Director and controlling Shareholder, is a connected person of the Company under the Listing Rules. Therefore the Sale and Purchase Agreement constitutes a connected transaction of the Company. As the relevant applicable percentage ratios in respect of the disposals under the Sale and Purchase Agreement exceed 5% but do not exceed 25%, the disposals under the

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LETTER FROM THE BOARD

Sale and Purchase Agreement also constitute a discloseable transaction under the Listing Rules. The disposals under the Sale and Purchase Agreement are subject to the reporting, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Ongoing bank guarantees

Upon completion of the Sale and Purchase Agreement, Shenzhen Nalon and Shenzhen Hongde will be owned by Mr. Fang as to 70% and 60%, respectively, and as Mr. Fang’s associates, will both be connected persons of the Company. As a result, the pre-existing bank guarantees given by Scud Electronics for the benefit of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde, will also constitute continuing connected transactions of the Company going forward upon completion of the Sale and Purchase Agreement.

As at the Latest Practicable Date, the Company has not been able to change the terms of the Ongoing Bank Guarantees and in the circumstances, an ordinary resolution is proposed to be approved at the EGM in respect of the Ongoing Bank Guarantees and your attention is drawn to the letters from the Independent Board Committee and Gram Capital in respect of the Ongoing Bank Guarantees.

The Battery Agreement

The Battery Agreement will constitute a continuing connected transaction of the Company pursuant to Rule 14A.14 of the Listing Rules upon completion of the Sale and Purchase Agreement as both Shenzhen Nalon and Shenzhen Hongde will become associates of Mr. Fang and hence will become connected persons of the Company. Although the Sale and Purchase Agreement has not yet been completed and there is no requirement for compliance with continuing connected transaction requirements until completion, the Company is voluntarily complying in advance with such requirements.

Mr. Fang and his associates, i.e. Swift Joy Holdings Limited and Right Grand Holdings Limited, will abstain from voting at the EGM to be convened to approve the above transactions.

The Independent Board Committee has been appointed to advise the Independent Shareholders, and Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders, as to whether the terms of the transactions under the Sale and Purchase Agreement, Ongoing Bank Guarantees and the Battery Agreement are fair and reasonable and whether such transactions are in the interests of the Company and its Shareholders as a whole and in respect of the annual caps under the Battery Agreement.

6. INFORMATION ON THE GROUP, SHENZHEN NALON AND SHENZHEN HONGDE GROUP

The Group is a market leader in the sales and marketing of self-manufactured lithium-ion battery modules for mobile phones in the PRC under its own “SCUD飛毛腿” brand. For more information, please visit the Group’s website at www.scudgroup.com.

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LETTER FROM THE BOARD

As set out in the reasons and benefits of entering into the Sale and Purchase Agreement and the Battery Agreement above, upon disposal of Shenzhen Nalon and Shenzhen Hongde Group, the Group will focus on producing high end lithium-ion battery modules through its ODM business and its own brand “SCUD飛毛腿” targeting users of high-end products and its bare battery cells production business will be discontinued. As battery modules sold under the Group’s ODM and own brand businesses use bare battery cells which comply with more stringent quality and safety requirements (targeting customers which use these battery modules for relatively higher end products), the Group believes that focusing its resources on these segments of the Group’s business will further enhance the image, profit margin and demand for the Company’s products. The ability to source the bare battery cells from Shenzhen Nalon and Shenzhen Hongde (and/or each of the respective subsidiaries and/or associates) would allow the Group to continue seizing relevant business opportunities as and when there is demand from its customers for such battery modules primarily used in products which are positioned differently in the market than those the Group primarily supplies, and at such cost structure which the Group believes is most efficient for the Group.

Scud Electronics is a wholly-owned subsidiary of the Company principally engaged in the manufacturing and sale of lithium-ion battery modules, chargers and related accessories for mobile phones and digital electrical appliances.

Shenzhen Nalon is principally engaged in the research and development, manufacturing and sale of lithium-ion bare battery cells. Currently, Shenzhen Nalon has approximately 560 employees, including approximately 50 technicians. It has an annual production capacity of approximately 30 million pieces bare battery cells as at the Latest Practicable Date. It is one of the relatively famous brands in China in the manufacturing of lithium-ion bare battery cells. As for customers, it mainly provides lithium-ion bare battery cells for rechargeable battery modules manufacturers in China.

Shenzhen Hongde is principally engaged in the research and development, production and sale of lithium-ion bare battery cells. Currently, Shenzhen Hongde has approximately 1,200 employees, including approximately 80 technicians. It has an annual production capacity of approximately 40 million bare battery cells as at the Latest Practicable Date. It is one of the relatively famous brands in China in the manufacturing of lithium-ion bare battery cells. As for customers, it mainly provides lithium-ion bare battery cells for rechargeable battery modules manufacturers in China.

7. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising Dr. Loke Yu, Mr. Wang Jing Zhong and Mr. Wang Jian Zhang, being all the independent non-executive Directors, has been established to advise the Independent Shareholders as to whether the terms of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement are fair and reasonable and whether the aforesaid transactions are in the interests of the Company and the Shareholders as a whole, after taking into account the recommendations of Gram Capital. The Company has appointed Gram Capital as the Independent Financial Adviser to make recommendations to the Independent Board Committee and the Independent Shareholders as to whether the terms of the above transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

8. EXTRAORDINARY GENERAL MEETING AND SHAREHOLDERS WHO ARE REQUIRED TO ABSTAIN FROM VOTING AT THE EGM

The following are the details of the EGM:

Date: 23 July 2014 (Wednesday) Time: 3:00 p.m. Venue: Empire Room I, Empire Hotel, 33 Hennessy Road, Wanchai, Hong Kong

The Notice of EGM is set out on pages EGM-1 to EGM-3 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Investor Services Limited, at 22/F Hopewell Centre, 183 Queen’s Road East, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

The results of the EGM will be announced by the Company in accordance with Rule 13.39(5) of the Listing Rules.

Having made all reasonable enquiries, the Board believes that there are no other Shareholders who are required to abstain from voting at the EGM on the Proposed Resolutions other than Mr. Fang’s whollyowned subsidiaries, Swift Joy Holdings Limited and Right Grand Holdings Limited, holding 402,000,000 Shares and 102,240,000 Shares, respectively, Shares representing approximately 38.95% and 9.91% of the total number of issued Shares as at the Latest Practicable Date. Mr. Fang is a party to the Sale and Purchase Agreement and upon completion of the Sale and Purchase Agreement, Mr. Fang will own a controlling stake in each of Shenzhen Nalon and the Shenzhen Hongde Group (which are parties to the Battery Agreement). As such Mr. Fang (together with his associates) has a material interest in the transactions above and will abstain from voting at the EGM.

9. CLOSURE OF REGISTER OF MEMBERS

Shareholders whose name appear on the Company’s register of member on Wednesday, 23 July 2014, will be eligible for attending and voting at the Company’s EGM. The Company’s register of members and books of transfer will be closed from Monday, 21 July 2014 to Wednesday, 23 July 2014, both days inclusive, during which no transfer of Shares will be registered. In order to be eligible for attending and voting at the EGM, all transfer forms accompanied by the relevant Share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, located at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on Friday, 18 July 2014.

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LETTER FROM THE BOARD

10. RECOMMENDATION

Having noted and considered the reasons as set out in this letter, the Directors (including the independent non-executive Directors whose views have been set out in this circular after taking into consideration the advice of Gram Capital) consider that the terms of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent nonexecutive Directors) recommend the Independent Shareholders to vote in favour of all the resolutions to approve the above.

Your attention is also drawn to the additional information set out in the Letter from the Independent Board Committee, Letter from Gram Capital and the Appendices to this circular and the Notice of EGM.

By order of the Board Fang Jin Chairman

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8 July 2014

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [139 x 62] intentionally omitted <==

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01399)

To the Independent Shareholders

Dear Sirs or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

We refer to the circular to the Shareholders dated 8 July 2014 (the “Circular”), of which this letter forms part. Unless otherwise indicated herein or the context requires otherwise, capitalised terms used in this letter shall have the same meanings as defined in the section headed “Definitions” of the Circular.

We have been appointed as the Independent Board Committee to consider and to advise you as to the fairness and reasonableness of the terms of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement, the transactions contemplated thereunder and to recommend whether or not the Independent Shareholders should approve them. Gram Capital has been appointed as Gram Capital to advise you and us in this regard. Details of the independent advice of Gram Capital, together with the principal factors and reasons Gram Capital has taken into consideration, are set out on pages 21 to 38 of the Circular.

We wish to draw your attention to the letter from the Board set out on pages 19 to 20 of the Circular and the letter of advice from Gram Capital as set out on pages 21 to 38 of the Circular.

Having taken into account principal factors and reasons considered by, and the opinion of, Gram Capital as stated in its letter of advice, we consider the terms of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement to be fair and reasonable so far as the interests of the Independent Shareholders are concerned and to be in the interests of the Company and the Shareholders as a whole.

* For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We therefore recommend the Independent Shareholders to support and to vote in favour of all the resolutions to approve the above transactions.

Yours faithfully,

For and on behalf of INDEPENDENT BOARD COMMITTEE

Dr. Loke Yu Independent Non-Executive Director

Mr. Wang Jing Zhong Independent Non-Executive Director

Mr. Wang Jian Zhang Independent Non-Executive Director

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LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Disposal (as defined below), the Ongoing Bank Guarantees and the Continuing Connected Transaction (as defined below) for the purpose of inclusion in this circular.

==> picture [184 x 42] intentionally omitted <==

Room 1209, 12/F. Nan Fung Tower 173 Des Voeux Road Central Hong Kong

8 July 2014

To: The independent board committee and the independent shareholders of Scud Group Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Disposal (as defined below), the Ongoing Bank Guarantees and the Continuing Connected Transaction (as defined below), details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 8 July 2014 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Disposal and the Ongoing Bank Guarantees

On 13 June 2014, Scud Electronics, an indirect wholly-owned subsidiary of the Company, as vendor entered into the Sale and Purchase Agreement with Mr. Fang, a Director and a controlling shareholder of the Company, as purchaser, pursuant to which Scud Electronics agreed to sell and Mr. Fang agreed to purchase 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde for a total consideration of RMB105 million (equivalent to approximately HK$131.9 million) (the “ Consideration ”) (the “ Disposal ”).

With reference to the Board Letter, the Disposal constitutes a discloseable and connected transaction for the Company under Chapters 14 and 14A of the Listing Rules respectively. As such, the Disposal is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

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LETTER FROM GRAM CAPITAL

In addition, it is a term under the Sale and Purchase Agreement that the pre-existing bank guarantees given by Scud Electronics for the benefit of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde, shall continue until maturity or repayment (whichever is later) of the corresponding bank loans. Upon completion of the Sale and Purchase Agreement, Shenzhen Nalon and Shenzhen Hongde will be owned by Mr. Fang as to 70% and 60%, respectively, and as Mr. Fang's associates, thus becoming connected persons of the Company. As a result, the aforesaid pre-existing bank guarantees given by Scud Electronics will constitute continuing connected transactions for the Company upon completion of the Sale and Purchase Agreement. According to the Board Letter, the Ongoing Bank Guarantees are subject to the Independent Shareholders' approval.

The Continuing Connected Transaction

In anticipation of Shenzhen Nalon and Shenzhen Hongde becoming connected persons of the Company, to comply with Rule 14A.35 of the Listing Rules, the Company has on 13 June 2014 entered into the Battery Agreement with Shenzhen Nalon and Shenzhen Hongde, pursuant to which Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) shall supply the Group with lithium-ion bare battery cells from the date of the EGM to 31 December 2016 (the “ Continuing Connected Transaction ”). As Shenzhen Nalon and Shenzhen Hongde will become connected persons of the Company upon completion of the Sale and Purchase Agreement, the transactions contemplated under the Battery Agreement is expected to constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Dr. Loke Yu, Mr. Wang Jing Zhong and Mr. Wang Jian Zhang (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Disposal with the Ongoing Bank Guarantees and the Continuing Connected Transaction are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Disposal, the Ongoing Bank Guarantees and the Continuing Connected Transaction at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have

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LETTER FROM GRAM CAPITAL

been provided to us. Our opinion is based on the Directors’representation and confirmation that there are no undisclosed private agreements/ arrangements or implied understanding with anyone concerning the Disposal, the Ongoing Bank Guarantees and the Continuing Connected Transaction. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the 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 the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Mr. Fang, Scud Electronics, Shenzhen Hongde, Shenzhen Nalon, Dongguan Hongde or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Disposal, the Ongoing Bank Guarantees and the Continuing Connected Transaction. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Gram Capital is to ensure that such information has been correctly extracted from the relevant sources.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Disposal, the Ongoing Bank Guarantees and the Continuing Connected Transaction, we have taken into consideration the following principal factors and reasons:

(A) THE DISPOSAL AND THE ONGOING BANK GUARANTEES

1. Background of and reasons for the Disposal

Business overview of the Group

As referred to in the Board Letter, the Group is a market leader in the sales and marketing of self-manufactured lithium-ion battery modules for mobile phones in the PRC under its own “SCUD飛毛腿” brand.

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LETTER FROM GRAM CAPITAL

Set out below are the audited consolidated financial results of the Group for the two years ended 31 December 2013, as extracted from the Company’s 2013 annual report (the “ 2013 Annual Report ”):

	For the year	For the year	Year on
	ended 31	ended 31	year change
	December	December	from 2012
	2013	2012	to 2013
	RMB‘000	RMB‘000	%
Turnover	2,392,490	1,821,620	31.3
– Own-brand business	630,679	722,285	(12.7)
– Original design manufacturer
(“ODM”) business	1,574,515	820,356	91.9
– Bare battery cell business	174,565	273,595	(36.2)
– Others	12,731	5,384	136.5
Profit/(Loss) for the year	27,474	(192,606)	N/A

For the year ended 31 December 2013, the total revenue from the own-brand business accounted for approximately 26.4% of the Group’s consolidated turnover and the total revenue from the ODM business accounted for approximately 65.8% of the Group’s consolidated turnover. Approximately 7.3% of the Group’s total turnover was generated from the bare battery cell business.

As depicted by the above table, the Group recorded an increase in turnover of approximately 31.3% from approximately RMB1,821.6 million for the year ended 31 December 2012 to approximately RMB2,392.5 million for the year ended 31 December 2013. In particular, revenue from the ODM business recorded a significant jump of more than 90% as compared to the previous year. As disclosed in the 2013 Annual Report, such significant jump in revenue of the ODM business was mainly attributable to the rapid growth of large telecommunications equipment manufacturers which in turn brought significant growth in the sales and turnover of original mobile phone batteries and original power banks.

On the other hand, the Group’s bare battery cell business recorded a decrease in revenue of approximately 36.2% from approximately RMB273.6 million for the year ended 31 December 2012 to approximately RMB174.6 million for the year ended 31 December 2013. As extracted from the 2013 Annual Report, the Group’s bare battery cell business suffered from a net loss of approximately RMB10.5 million (as compared to a net profit of approximately RMB8.0 million in 2012) and the sales volume of bare battery cells also dropped from approximately 33.2 million pieces in 2012 to approximately 20.8 million pieces in 2013. The decrease in revenue of the Group’s bare battery cells business was largely due to the significantly decreased demand for prismatic liquid lithium-ion bare battery cells typically used in feature mobile phones in recent years, in addition to the intensified competition across the industry. As further advised by the Directors, there are numerous domestic and overseas enterprises engaging in the manufacturing of lithium-ion bare battery cells, among which are established companies with large-scale operations enjoying significant competitive advantages.

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LETTER FROM GRAM CAPITAL

Currently, the domestic lithium-ion bare battery cell manufacturers mainly supply their products to budget and third and fourth-tier branded mobile phone manufacturers in the PRC, as there is still a gap in production process and technologies between domestic and imported lithium-ion bare battery cells.

Going forward, the Directors are of the view that the development direction of the mobile phone accessories industry will continue to be led by smartphone development. With this being the case, the Group will align its development strategy with market changes and maintain its focus on the research and development, production and retailing of mobile phone and digital lithium-ion battery module. Moreover, additional resources will be devoted to the research and development as well as the production of lithium-ion battery module products with high cost performance.

Information on Shenzhen Nalon

As referred to in the Board Letter, Shenzhen Nalon is principally engaged in the research and development, manufacturing and sale of lithium-ion bare battery cells. Currently, Shenzhen Nalon has around 560 employees, including around 50 technicians. It has an annual production capacity of approximately 30 million pieces bare battery cells and is one of the relatively famous brands in the PRC in the manufacturing of lithium-ion bare battery cells. As for customers, Shenzhen Nalon mainly provides lithium-ion bare battery cells for rechargeable battery modules manufacturers in the PRC.

Information on the Shenzhen Hongde Group

As referred to in the Board Letter, Shenzhen Hongde is principally engaged in the research and development, manufacturing and sale of lithium-ion bare battery cells. Currently, Shenzhen Hongde has around 1,200 employees, including around 80 technicians. It has an annual production capacity of approximately 40 million pieces bare battery cells and is one of the relatively famous brands in the PRC in the manufacturing of lithium-ion bare battery cells. As for customers, Shenzhen Hongde mainly provides lithium-ion bare battery cells for rechargeable battery modules manufacturers in the PRC.

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LETTER FROM GRAM CAPITAL

As stated in the respective accounts of Shenzhen Nalon and the Shenzhen Hongde Group prepared in accordance with the International Financial Reporting Standardss of the PRC, their respective turnover and profits/(losses) before and after tax and extraordinary items for the two years ended 31 December 2013 are set out as follows:

	Shenzhen	Nalon		Shenzhen Hongde Group	Shenzhen Hongde Group
	For the year	For the year		For the year	For the year
	ended		ended	ended	ended
	31 December	31 December		31 December	31 December
	2013		2012	2013	2012
	RMB’000	RMB’000		RMB’000	RMB’000
Turnover	97,445		99,077	211,498	248,679
Profit/(Loss) before tax and
extraordinary items	(7,235)		2,555	(2,698)	9,768
Profit/(Loss) after tax and
extraordinary items	(7,332)		895	(4,840)	7,231

As depicted by the above table, both Shenzhen Nalon and the Shenzhen Hongde Group recorded reducing turnover from 2012 to 2013 and suffered from loss for the year ended 31 December 2013. As mentioned under the sub-section “Business overview of the Group” above, the decrease in revenue of the Group’s bare battery cells business was largely due to the significantly decreased demand for prismatic liquid lithium-ion bare battery cells typically used in feature mobile phones in recent years, in addition to the intensified competition across the industry.

Reasons for the Disposal

As disclosed in the 2013 Annual Report, there had been serious challenges to the Group’s own-brand and bare battery cells businesses in light of changes in the industry. The drop in the Group’s sales of bare battery cells in recent years was as mentioned largely due to the significant decrease in demand for prismatic liquid lithium-ion bare battery cells typically used in feature mobile phones, in addition to the intensified competition across the industry. Furthermore, the Group had repositioned its target customers to domestic mid to high-end phone manufacturers with the expectation to boost its more profitable ODM business which has a higher growth potential in terms of volume. The industry environment remains competitive with numerous domestic and overseas enterprises engaged in the manufacturing of lithium-ion bare battery cells, which are established companies with large-scale operations enjoying significant competitive advantages as compared to the Group. These factors together with Shenzhen Nalon’s and the Shenzhen Hongde Group’s loss making status in 2013 contributed to the Group’s decision to dispose of Shenzhen Nalon and the Shenzhen Hongde Group. Disposing such companies (which primarily produce lithium-ion bare battery cells used by mobile phones which are positioned differently in the market from those the Group primarily supplies) is expected to allow the Group to focus its resources on other business segments which have a higher growth potential, reduce the Group’s operating losses thus improving its operating results, and increase its working capital. In this regard, as battery

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LETTER FROM GRAM CAPITAL

modules sold under the Group’s ODM and own brand businesses use bare battery cells which comply with more stringent quality and safety requirements (targeting customers which use these battery modules for relatively higher end products), the Group believes that focusing its resources on these business segments will further enhance the image, profit margin and demand for the Company’s products.

In light of the above reasons for the Disposal, we concur with the Directors that the Disposal is in the interests of the Company and the Shareholders as a whole even though it is not conducted in the ordinary and usual course of business of the Group.

2. Principal terms of the Sale and Purchase Agreement

According to the Directors, the terms of the Sale and Purchase Agreement were arrived at after arm’s length negotiations between the parties thereto. The Directors are of the view that the terms of the Sale and Purchase Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Highlighted below are the principal terms of the Sale and Purchase Agreement:

Date

13 June 2014

Parties

Scud Electronics (as vendor) and Mr. Fang (as purchaser)

Subject

70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde

The Consideration

RMB105 million (equivalent to approximately HK$131.9 million). The Consideration was arrived at after arm’s length negotiations between the parties based on the adjusted consolidated net asset value of Shenzhen Nalon and the Shenzhen Hongde Group as at 31 December 2013 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde which is approximately RMB104.4 million (equivalent to approximately HK$131.2 million).

The Consideration is payable by Mr. Fang in cash in the following manner:

(i) RMB60.0 million (equivalent to approximately HK$75.4 million) is payable to the vendor within ten days after the date of the Sale and Purchase Agreement;
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LETTER FROM GRAM CAPITAL

(ii) RMB20.0 million (equivalent to approximately HK$25.1 million) is payable to the vendor within 30 days after the date of the Sale and Purchase Agreement; and
(iii) the remaining RMB25.0 million (equivalent to approximately HK$31.4 million) is payable to the vendor on the date of completion of the Sale and Purchase Agreement, i.e. the date when the transfers of the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde are completed.

As advised by the Directors, the Company intends to use the net proceeds from the completion of the Sale and Purchase Agreement for general working capital purpose.

Trading multiples analysis for the Consideration

For the purpose of assessing the fairness and reasonableness of the Consideration, we have performed a trading multiples analysis which only includes the price to book ratio (“ PBR ”) since Shenzhen Nalon and the Shenzhen Hongde Group had been loss making during their latest full financial year. We have searched for companies listed in Hong Kong which are engaged in similar lines of business as Shenzhen Nalon and the Shenzhen Hongde Group, being the research and development, manufacturing and sale of lithium-ion bare battery cells, and derive a majority of their turnover from such business for comparison. Nevertheless, based on our research, there is only one listed company which purely focuses on the manufacturing and sale of lithium-ion bare battery cells. As such, we have extended our search to companies which are engaged in the manufacture of batteries and derive a majority of their turnover from such business. To the best of our knowledge and endeavour, we found five Hong Kong listed companies which met the said criteria (the “ Comparables ”). It should be noted that the operations and prospects of Shenzhen Nalon and the Shenzhen Hongde Group are not exactly the same as the Comparables although the Comparables are engaged in similar lines of business as Shenzhen Nalon and the Shenzhen Hongde Group and we have not conducted any in-depth investigation into the businesses and operations of the Comparables.

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LETTER FROM GRAM CAPITAL

Set out below are the PBRs of the Comparables based on their closing prices as at 13 June 2014, being the date of the Sale and Purchase Agreement, and their latest published financial information:

Company name
(Stock code)	Principal business	PBR
		(times)
Chaowei Power Holdings	Production and sales of lead-acid motive battery	1.30
Limited (951)	for electric bike markets in the PRC.
Coslight Technology	Manufacture and sale of sealed lead acid batteries	1.05
International Group	and related accessories; lithium-ion batteries;
Limited (1043)	nickel batteries; signal strength systems, electric
	and automation system, motor vehicle,
	pharmaceutical products and mining.
Leoch International	Manufacture, development and sale of lead-acid	0.66
Technology Limited	batteries.
(842)
FDG Electric Vehicles	Research and development, production, distribution	4.88
Limited (formerly	and sale of lithium-ion batteries and related
known as Sinopoly	products.
Battery Limited) (729)
Tianneng Power	Production of motive batteries.	0.84
International Limited
(819)
Maximum		4.88
Minimum		0.66
Median		1.05
The Disposal		1.01
		(Note)

Source: the Stock Exchange’s website (www.hkex.com.hk)

Note: The implied PBR for the Disposal of approximately 1.01 times was calculated based on the Consideration and the adjusted consolidated net asset value of Shenzhen Nalon and the Shenzhen Hongde Group as at 31 December 2013 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde.

We noticed from the above table that the PBRs of the Comparables ranged from approximately 0.66 times to 4.88 times, with a median of approximately 1.05 times. If the PBR of FDG Electric Vehicles Limited (formerly known as Sinopoly Battery Limited) is excluded,

29 -

LETTER FROM GRAM CAPITAL

the range and median of the Comparables will become approximately 0.66 times to 1.30 times and 0.95 times, respectively. Given that the implied PBR of the Consideration is approximately 1.01 times, the implied PBR of the Consideration is within the said PBR ranges and is close to the said medians of the Comparables.

In view of (i) that the Consideration represents a slight premium over the adjusted consolidated net asset value of Shenzhen Nalon and the Shenzhen Hongde Group as at 31 December 2013 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde; (ii) that Shenzhen Nalon and the Shenzhen Hongde Group recorded reducing turnover and were loss making during their latest full financial year; and (iii) the results of the market comparison above, we consider that the Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

The Ongoing Bank Guarantees

Upon completion of the Sale and Purchase Agreement, the pre-existing bank guarantees given by Scud Electronics for the benefit of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde, shall continue until maturity or repayment (whichever is later) of the corresponding bank loans as set out below. However, in the event that Scud Electronics is called upon to carry out its obligations under such guarantees, Mr. Fang has undertaken to indemnify Scud Electronics for any amounts paid by Scud Electronics under such guarantees and any and all expenses and losses as may be incurred or suffered by it.

As confirmed by the Directors, in the event that the Independent Shareholders approve the Sale and Purchase Agreement but not the Ongoing Bank Guarantees, the parties involved will negotiate with the relevant banks for possible release of the guarantees or replacement of guarantor, where possible, and completion of the Sale and Purchase Agreement will, under such circumstances, be delayed accordingly.

As extracted from the Board Letter, the table below sets out a summary of the corresponding bank loans of the Ongoing Bank Guarantees as at the Latest Practicable Date:

		Maturity/	Maximum
Borrower of		Repayment date	exposure under
bank loan	Lender	of the bank loan	the guarantee
Shenzhen Hongde	China Merchant Bank	20 January 2015	RMB30 million
Shenzhen Hongde	Industrial and Commercial	13 March 2015	RMB31 million
	Bank of China
Dongguan Hongde	DRC Bank	27 April 2015	RMB30 million
	(東莞農村商業銀行)
Shenzhen Nalon	China Merchant Bank	16 January 2015	RMB20 million

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LETTER FROM GRAM CAPITAL

We have requested the Company to provide us with a copy of each of the relevant agreements for the aforementioned bank guarantees. Upon our enquiry with the Directors, we understand that the Ongoing Bank Guarantees were given by Scud Electronics at the time when the above companies are subsidiaries of the Company in order to support their respective capital needs for production purposes, The maturity/repayment dates of the relevant bank loans are rather short-term. As advised by the Directors, the Company has not been able to change the terms of the Ongoing Bank Guarantees and the continuation of such guarantees given by Scud Electronics could minimise the administration work and costs which are likely to be involved due to any change in terms of those guarantees.

Given the above, together with the fact that (i) Mr. Fang has undertaken to indemnify Scud Electronics for any amounts paid by Scud Electronics under the bank guarantees and any and all expenses and losses as may be incurred or suffered by it; and (ii) the Group may still be sourcing lithium-ion bare battery cells from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) going forward, we concur with the Directors that it would be fair and reasonable to maintain the Ongoing Bank Guarantees until their respective maturity or repayment dates (whichever is later).

Non-competition undertaking by Mr. Fang

Mr. Fang has undertaken that for so long as he is the controlling shareholder of Shenzhen Nalon and the Shenzhen Hongde Group, he will procure that both of Shenzhen Nalon and the Shenzhen Hongde Group will not compete with the Group’s business from time to time in the PRC. In the event that a business opportunity arises which may result in Shenzhen Nalon and the Shenzhen Hongde Group possibly competing with the Group, Mr. Fang will procure that such opportunity shall be first offered to the Group. Only if the independent non-executive Directors agree that it is not in the interest of the Company to procure such opportunity would Shenzhen Nalon or the Shenzhen Hongde Group be permitted to proceed with or pursue such business opportunity.

We are of the opinion that the above arrangements are favourable to the Group.

Having considered the above principal terms of the Sale and Purchase Agreement, we consider that the terms of the Sale and Purchase Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. Possible financial effects of the Disposal

Upon completion of the Sale and Purchase Agreement, Shenzhen Nalon and Shenzhen Hongde will cease to be indirect subsidiaries of the Company.

As advised by the Directors, based on the Consideration of RMB105 million (equivalent to approximately HK$131.9 million) of which approximately RMB37.1 million (equivalent to approximately HK$46.6 million) is attributable to the consideration of the sale of 70% equity interest in Shenzhen Nalon and approximately RMB67.9 million (equivalent to approximately HK$85.3 million) is attributable to the consideration of the sale of 60% equity interest in Shenzhen

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LETTER FROM GRAM CAPITAL

Hongde, and the unaudited adjusted consolidated net asset value of Shenzhen Nalon of approximately RMB36.1 million (equivalent to approximately HK$45.4 million) and the Shenzhen Hongde Group of approximately RMB59.2 million (equivalent to approximately HK$74.4 million) as at 30 April 2014 attributable to the 70% equity interest in Shenzhen Nalon and 60% equity interest in Shenzhen Hongde respectively, the Disposal is expected to give rise to a profit attributable to the Company of approximately RMB9.7 million (equivalent to approximately HK$12.2 million) (subject to final audit), of which approximately RMB1 million (equivalent to approximately HK$1.2 million) is attributable to the sale of 70% equity interest in Shenzhen Nalon and approximately RMB8.7 million (equivalent to approximately HK$11.0 million) is attributable to the sale of 60% equity interest in Shenzhen Hongde. The actual gain or loss from the Disposal to be recorded by the Company is expected to be different from the above as it will depend on the financial position of Shenzhen Nalon and the Shenzhen Hongde Group as at the date of completion of the Sale and Purchase Agreement.

In addition, the Directors confirmed that the Disposal would lead to a decrease in the net asset value of the Group. Given that the Company intends to apply the net proceeds from the Disposal for general working capital purpose, it is also expected that the working capital position of the Group would improve after completion of the Sale and Purchase Agreement.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position of the Group will be upon completion of the Sale and Purchase Agreement.

RECOMMENDATION ON THE DISPOSAL AND THE ONGOING BANK GUARANTEES

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Sale and Purchase Agreement and the Ongoing Bank Guarantees are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Disposal with the Ongoing Bank Guarantees is in the interests of the Company and the Shareholders as a whole even though it is not conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the Disposal and the Ongoing Bank Guarantees, and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

(B) THE CONTINUING CONNECTED TRANSACTION

1. Background of and reasons for the Continuing Connected Transaction

Background of the Continuing Connected Transaction

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LETTER FROM GRAM CAPITAL

Reasons for the Continuing Connected Transaction

With reference to the Board Letter, a stable supply of lithium-ion bare battery cells is important to the Group to maintain its diversity of products and to satisfy a wider market of customer needs. While the Group’s focus is primarily on the ODM and own brand businesses with the “SCUD飛毛腿” brand and “Chaolitong超力通” brand, the Group does receive from time to time customer orders for bare battery cells specifications which match that produced by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates). Given that the manufacturing business with Shenzhen Nalon and the Shenzhen Hongde Group has not been profitable but bearing in mind the opportunities still available for products which incorporate such bare battery cells type, the Directors believe that by disposing of Shenzhen Nalon and the Shenzhen Hongde Group and entering into the Battery Agreement will allow the Group to optimise its financial performance whilst maintaining a steady and reliable supply of lithium-ion bare battery cells to sell to its customers. The Group will have the right but not the obligation to source from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) under the Battery Agreement, and it will allow the Group to secure such bare battery cells at prices no less favourable than those available from other independent third party suppliers.

The Directors consider that the ability to source bare battery cells from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) would allow the Group to continue seizing relevant business opportunities as and when there is demand from its customers for such battery modules primarily used in products which are positioned differently in the market from those the Group primarily supplies, and at such cost structure which the Group believes is most efficient for the Group.

In light of the above reasons for the Continuing Connected Transaction, we concur with the Directors that the Continuing Connected Transaction is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group.

2. Principal terms of the Battery Agreement

According to the Directors, the terms of the Battery Agreement were arrived at after arm’s length negotiations between the parties thereto. The Directors are of the view that the terms of the Battery Agreement (including the annual caps set out therein (the “ Annual Caps ”)) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM GRAM CAPITAL

Highlighted below are the principal terms of the Battery Agreement:

Pricing:

Furthermore, prior to agreeing the price for the lithium-ion bare battery cells, the procurement team of the Company is expected to solicit at least three fee quotes from other unrelated third parties for batteries in similar quantities to determine if the price and terms offered by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) are fair and reasonable and comparable to those offered by the unrelated third parties.

Term:

Commencing from the date of the extraordinary general meeting to be convened to approve, among other things, the Battery Agreement, and ending on 31 December 2016, both dates inclusive.

The Battery Agreement may be renewed upon expiry subject to the Company’s compliance with the Listing Rules. The Battery Agreement may be terminated by either the Group, Shenzhen Nalon or Shenzhen Hongde by giving prior written notice to the other party three months in advance and the parties should decide on the terms and conditions of such termination by mutual agreement.

Payment terms:

Payment shall be made by the Group to Shenzhen Nalon or Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) on a monthly basis within 60 to 90 days of receipt of invoice from Shenzhen Nalon or Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) by bank draft or other method of bank transfer.

The Battery Agreement is a framework agreement that set out the general principles for the Group’s purchase of lithium-ion bare battery cells from Shenzhen Nalon and Shenzhen Hongde (and/ or each of their respective subsidiaries and/or associates). Therefore, for our due diligence purpose, we have reviewed the past individual agreements entered into (a) between the Group (as purchaser) and independent third parties (as supplier) and (b) between the Group (as purchaser) and Shenzhen Nalon and Shenzhen Hongde (as the case may be as supplier), in relation to the purchase of lithiumion bare battery cells. We noted that the major terms (including payment terms, delivery terms and quality clauses) offered by the independent third parties to the Group are similar to those offered by Shenzhen Nalon and Shenzhen Hongde to the Group previously.

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LETTER FROM GRAM CAPITAL

In light of that (i) it is stipulated under the Battery Agreement that (a) the price, fee or any other consideration shall be determined with reference to the relevant market price based on quotations as may be obtained from other suppliers in respect of substantively the same type of lithium-ion bare battery cells, and in general should be no less favourable to the Group as quotations obtained from independent third party suppliers and (b) prior to agreeing the price for the lithium-ion bare battery cells, the procurement team of the Company is expected to solicit at least three fee quotes from other unrelated third parties for batteries in similar quantities to determine if the price and terms offered by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) are fair and reasonable and comparable to those offered by the unrelated third parties; and (ii) the Company shall adopt thorough internal control procedures as being detailed below to monitor the future Continuing Connected Transaction under the Battery Agreement, we concur with the Directors that the terms of the Battery Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. The Annual Caps

Pursuant to the Battery Agreement, the Group, Shenzhen Nalon and Shenzhen Hongde agreed that the maximum aggregate value of the contract sum in respect of the sale and purchase of lithiumion bare battery cells for the periods concerned under the Battery Agreement shall not exceed the amounts as listed below:

	The Annual
Period	Caps
	(RMB’000)
From the date of approval of the Battery Agreement by the Independent
Shareholders to 31 December 2014	32,000
1 January 2015 – 31 December 2015	79,000
1 January 2016 – 31 December 2016	88,000

According to the Board Letter, the Annual Caps have been determined based on the followings: (i) the actual average selling price of the lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the year ended 31 December 2013 multiplied by the growth rate of approximately 24% based on the average selling price of the lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the three years ended 31 December 2013 and the five months ended 31 May 2014 of approximately RMB6.84 (equivalent to approximately HK$8.60), RMB7.92 (equivalent to approximately HK$9.95), RMB10.33 (equivalent to approximately HK$12.98), and RMB12.97 (equivalent to approximately HK$16.30), respectively; (ii) the actual average volume of the lithiumion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) for the year ended 31 December 2013 multiplied by the rate of change of approximately (9)% based on the average volume of lithium-ion bare battery cells the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/or each of their

35 -

LETTER FROM GRAM CAPITAL

respective subsidiaries and/or associates) for the three years ended 31 December 2013 and the five months ended 31 May 2014 of 9,563,989, 8,852,294, 5,479,645 and 2,676,718 pieces, respectively; and (iii) a small percentage of buffer.

To access the fairness and reasonableness of the Annual Caps, we have requested and obtained the historical average selling price per unit as well as the historical actual annual volume of lithiumion bare battery cells which the Group purchased from Shenzhen Nalon and Shenzhen Hongde (and/ or each of their respective subsidiaries and/or associates) for each of the three years ended 31 December 2013 and the five months ended 31 May 2014, as well as the calculations for the Annual Caps. The Directors consider that it is reasonable and prudent to determine the annual cap for 2014 based on (i) the average selling price and the actual annual volume of the Group’s purchase of lithium-ion bare battery cells from the said parties in 2013; (ii) the growth rate of the average selling price per unit and the rate of change of the average annual volume of lithium-ion bare battery cells the Group purchased from the said parties from 2011 up to 31 May 2014; and (iii) a buffer of 10%. The Directors have further deducted the actual volume of lithium-ion bare battery cells purchased by the Group for the five months ended 31 May 2014 to estimate the Annual Cap for the relevant period in 2014. Except for the deduction of the actual volume purchased, similar logics were applied by the Directors when determining the Annual Caps for each of the two years ending 31 December 2016. After our discussion with the Directors, we understand that while the Group is focusing primarily on the ODM and own brand businesses, the Group receives from time to time customer orders for bare battery cells specifications which match that produced by Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates). Hence, we concur with the Directors that the above basis (taking into account the upside or downside change of the average selling price and the actual annual volume of the Group’s purchase of lithium-ion bare battery cells from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates)) for determination of the Annual Caps is rational and acceptable.

We noticed that the Company has also disclosed the historical actual purchases of lithium-ion bare battery cells by the Group from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates) under the sub-section headed “Annual Caps” of the Board Letter, and the total purchase of the Group was around RMB65 million in average per year the three years ended 31 December 2013 and the five months ended 31 May 2014 (if annualised). As such, the Annual Caps do not show any material deviation which is unreasonable taking into account the amount of the historical actual purchases of lithium-ion bare battery cells by the Group from Shenzhen Nalon and Shenzhen Hongde (and/or each of their respective subsidiaries and/or associates).

In view of the foregoing, we consider that the Annual Caps for the periods concerned under the Battery Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

4. Listing Rules implication and internal control of the Group

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.37 to 14A.41 of the Listing Rules pursuant to which (i) the values of the Continuing Connected Transaction must be restricted by the Annual Caps for the periods concerned under the Battery Agreement; (ii) the terms of the Battery Agreement (together with the Annual Caps) must be

36 -

LETTER FROM GRAM CAPITAL

reviewed by the independent non-executive Directors annually; (iii) details of independent nonexecutive Directors’ annual review on the terms of the Battery Agreement (together with the Annual Caps) must be included in the Company’s subsequent published annual reports and financial accounts. Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, that the Continuing Connected Transaction is carried out in accordance with the pricing policies of the Company, and the Annual Caps are not being exceeded. In the event that the total amounts of the Continuing Connected Transaction exceed the Annual Caps, or that there is any material amendment to the terms of the Battery Agreement, the Company, as confirmed by the Directors, shall comply with the applicable provisions of the Listing Rules governing continuing connected transactions.

Moreover, we understand that the Company shall adopt certain internal control procedures to govern the future Continuing Connected Transaction under the Battery Agreement. We have requested the Company to provide us with the relevant internal control manual and discussed with the Directors as to how the procedures are expected to be implemented in the future. In this relation, the Directors advised us that in general, the Group’s purchasing department will solicit quotations from a pre-approved list of lithium-ion bare battery cells suppliers providing them with the same specifications for lithium-ion bare battery cells and other requirements which may be relevant to the needs of the Group at the relevant time. Given that the Group has owned and operated both Shenzhen Nalon and the Shenzhen Hongde Group for a period of time, the Group is well aware of the standards and qualities of the lithium-ion bare battery cells manufactured by them and the type of customers which would like to source such type of lithium-ion bare battery cells. The Group’s procurement department will review all prices solicited from relevant suppliers and order will be placed with the party with the most competitive price or other sales terms. The senior management of the Group will also review all the pricing and sales terms solicited to ensure price competitiveness of the materials sourced.

In terms of compliance with the Annual Caps, the Group would adhere to its continuing connected transaction internal control procedures which include, among other things, monthly review of transaction volume and value by the Group’s management and internal control teams. The procurement team of the Group will also monitor on an ongoing basis and update, on a monthly basis, the Group’s management team the cumulative Continuing Connected Transaction amounts incurred. To the extent the transaction amounts are close to or are expected to exceed the relevant Annual Cap, the Group will consider compliance with the Listing Rules in advance.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules and the internal control procedures to be adopted by the Company, we are of the view that there are adequate measures in place to monitor the Continuing Connected Transaction (together with the proposed Annual Caps) and thus the interest of the Independent Shareholders would be safeguarded.

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LETTER FROM GRAM CAPITAL

RECOMMENDATION ON THE CONTINUING CONNECTED TRANSACTION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Battery Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Continuing Connected Transaction is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the Continuing Connected Transaction and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam

Managing Director

38 -

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. INTERESTS AND SHORT POSITIONS IN THE SECURITIES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

Interests and short positions of the Directors and chief executives in the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executives of the Company, including their respective associates in the equity or equity securities of the Company or its associated corporations (within the meanings of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under the provisions of the SFO); (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies had been notified to the Company and the Stock Exchange were as follows:

Interests in Shares:

			Percentage of the
		Number of issued	issued share
		ordinary shares	capital of the
Name of Director	Capacity	held	Company
Fang Jin	Corporate interest	504,240,000	48.86%
	(Note 1)
Guo Quan Zeng	Corporate interest	18,000,000	1.74%
	(Note 2)

Notes:

(1) This figure represents (i) 402,000,000 shares directly held by Swift Joy Holdings Limited and (ii) 102,240,000 shares directly held by Right Grand Holdings Limited, both of which are companies with their entire issued share capital held by Fang Jin.
(2) These shares are directly held by Cheer View Holdings Limited, whose entire issued share capital is held by Guo Quan Zeng.
APP I-1 -

APPENDIX I

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any interests or short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of the SFO); (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange.

Disclosure of interests of substantial Shareholders

As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of the SFO and, so far as is known to the Directors, the persons or entities who had an interest or a short position in the Shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company, or of any other company which is a member of the Group, or in any options in respect of such share capital were as follows:

Interest in Shares:

			Percentage to
			issued share
		Number of issued	capital of the
		ordinary shares/	Company as at
		underlying	the Latest
Name of shareholder	Capacity	shares held	Practicable Date
Swift Joy Holdings	Beneficial owner	402,000,000	38.95%
Limited
Right Grand Holdings	Beneficial owner	102,240,000	9.91%
Limited

Notes:

(1) Mr. Fang is a director of Swift Joy Holdings Limited and Right Grand Holdings Limited.

Save as disclosed herein, so far as is known to the Directors, as at the Latest Practicable Date, no person had an interest or a short position in the Shares or the underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company, or of any other company which is a member of the Group, or any options in respect of such share capital.

APP I-2 -

GENERAL INFORMATION

APPENDIX I

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Group or any other member of the Group save for those expiring or determinable by the relevant employer within one year without payment of any compensation (other than statutory compensation).

4. INTERESTS IN ASSETS AND CONTRACTS AND COMPETING INTERESTS

None of the Directors was materially interested in any subsisting contract or arrangement which is significant in relation to the business of the Group, and none of the Directors is interested in any assets which have been acquired or disposed of by or leased to (or are proposed to be acquired or disposed of by or leased to) any member of the Group since the date of the latest published accounts of the Company.

To the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries since 31 December 2013, being the date of the latest published accounts of the Company, none of the Directors and their respective associates were considered to have any interests in businesses which competed or were likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Group.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, the date to which the latest published audited accounts of the Group were made up.

6. QUALIFICATION AND CONSENT OF EXPERTS

The following is the qualification of the expert who has given advice, letter or opinion for incorporation and as contained in this circular:

Name Qualifications Gram Capital Limited a licensed corporation to carry on Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong)

As at the Latest Practicable Date, Gram Capital has no shareholding, direct or indirect, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Gram Capital has no direct or indirect interests in any assets which have been, since 31 December 2013 (the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

APP I-3 -

GENERAL INFORMATION

APPENDIX I

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.

7. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during the normal business hours from 9:00 a.m. to 5:30 p.m. (save for Saturday and public holidays) at the head office and principal place of business of the Company in Hong Kong at Room 5505, 55/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the EGM:

(1) the letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 21 to 38 of this circular;
(2) the letter from the Independent Board Committee, the text of which is set out on pages 19 and 20 of this circular;
(3) the written consent given by Gram Capital, as referred to in the paragraph 6 of this appendix;
(4) the guarantee contracts in respect of the Ongoing Bank Guarantees;
(5) the Sale and Purchase Agreement and the Battery Agreement; and
(6) this circular.
APP I-4 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [139 x 62] intentionally omitted <==

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01399)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (“ EGM ”) of SCUD Group Limited (the “ Company ”) will be held on 23 July 2014 (Wednesday) at 3:00 p.m. at Empire Room I, Empire Hotel, 33 Hennessy Road Wanchai, Hong Kong for the following purposes:

As ordinary business, to consider and if thought fit, pass the following ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT the conditional sale and purchase agreement dated 13 June 2014 (the “ Sale and Purchase Agreement ”, a copy of which has been produced to the Meeting marked “A” and signed by the chairman of the Meeting for the purposes of identification), entered into between 飛毛腿（福建）電子有限公司(Scud (Fujian) Electronics Co., Ltd.) as the vendor and Mr. Fang Jin as the purchaser whereby Mr. Fang Jin agreed to pay a total consideration of RMB105.0 million (equivalent to approximately HK$131.9 million) for the 70% equity interest in深圳市朗能電池有限公司(Shenzhen Nalon Battery Co., Ltd.) and 60% in深圳市鴻德電池有限公司 (Shenzhen Hongde Battery Co., Ltd.*) be approved, confirmed and ratified, as the case may be.”
“ THAT subject to resolution number 1 set out in this Notice being passed, the ongoing bank guarantees (the “ Ongoing Bank Guarantees ”, a copy of which has been produced to the Meeting marked “B” and signed by the chairman of the Meeting for the purposes of identification), given by Scud Electronics for the benefits of bank loans taken out by Shenzhen Nalon, Shenzhen Hongde and its subsidiary, Dongguan Hongde, be approved, confirmed and ratified, as the case may be.”
“ THAT subject to resolution number 1 set out in this Notice being passed, the battery framework agreement dated 13 June 2014 (the “ Battery Agreement ”, a copy of which has been produced to the Meeting marked “C” and signed by the chairman of the Meeting for the purposes of identification), entered into between the Company, 深圳市鴻德電池有限公司 (Shenzhen Hongde Battery Co., Ltd.) and深圳市朗能電池有限公司(Shenzhen Nalon Battery Co., Ltd.) in respect of the continuing sale and purchase of lithium-ion bare battery cells be approved, confirmed and ratified, as the case may be.”

* For identification purposes only

EGM-1 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

“ THAT any one director of the Company be authorised, for and on behalf of the Company and any member of its subsidiaries, to take all steps necessary or expedient in his opinion to give effect to and implement the Sale and Purchase Agreement, the Ongoing Bank Guarantees and the Battery Agreement and the respective transactions contemplated thereunder.”

By order of the Board Fang Jin Chairman

Hong Kong, 8 July 2014

Principal Place of Business in Hong Kong: Room 5505, 55/F Central Plaza 18 Harbour Road Wanchai, Hong Kong

Registered Office:

Codan Trust Company (Cayman) Limited Cricket Square Hutchins Drive P.O. Box 2681 GT Grand Cayman KY1-1111 Cayman Islands

Notes:

A form of proxy for the meeting is enclosed.
Any member of the Company entitled to attend and vote at the meeting shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company. A proxy need not be a member. In addition, a proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorised to sign the same.
The instrument appointing a proxy and (if required by the board of directors of the Company) the power of attorney or other authority (if any), under which it is signed or a certified copy of such power or authority shall be delivered to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, located at 22/F Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting at which the person named in the instrument proposes to vote.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
EGM-2 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

Where there are joint holders of any share, any one of such joint holder may vote either in person or by proxy in respect of such share as if he/she were solely entitled thereto; but if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding.
Shareholders whose name appear on the Company’s register of member on Wednesday, 23 July 2014, will be eligible for attending and voting at the Company’s extraordinary general meeting (“EGM”). The Company’s register of members will be closed from Monday, 21 July 2014 to Wednesday, 23 July 2014, both days inclusive, during which no transfer of Shares will be registered. In order to be eligible for attending and voting at the EGM, all transfer forms accompanied by the relevant Share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, located at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on Friday, 18 July 2014.
EGM-3 -

AI assistant

Veson Holdings Limited — Proxy Solicitation & Information Statement 2014

49899_rns_2014-07-07_18bd221c-b05d-41dc-bcda-8f3578badf05.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

SCUD GROUP LIMITED 飛毛腿集團有限公司 [*]

DISCLOSEABLE AND CONNECTED TRANSACTION AND

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SCUD GROUP LIMITED 飛毛腿集團有限公司 [*]

(Stock Code: 01399)

DISCLOSEABLE AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

2. SALE AND PURCHASE AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for and benefits of entering into the Sale and Purchase Agreement

3. THE BATTERY AGREEMENT

Background

Pricing

Term

LETTER FROM THE BOARD

Annual Caps

LETTER FROM THE BOARD

Internal control

LETTER FROM THE BOARD

Payment terms

Reasons for and benefits of entering into the Battery Agreement

4. ONGOING BANK GUARANTEES

5. LISTING RULES IMPLICATIONS

Sale and Purchase Agreement

Ongoing bank guarantees

The Battery Agreement

6. INFORMATION ON THE GROUP, SHENZHEN NALON AND SHENZHEN HONGDE GROUP

LETTER FROM THE BOARD

7. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

9. CLOSURE OF REGISTER OF MEMBERS

LETTER FROM THE BOARD

10. RECOMMENDATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

SCUD GROUP LIMITED 飛毛腿集團有限公司 [*]

DISCLOSEABLE AND CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

For and on behalf of INDEPENDENT BOARD COMMITTEE

LETTER FROM GRAM CAPITAL

DISCLOSEABLE AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

The Disposal and the Ongoing Bank Guarantees

LETTER FROM GRAM CAPITAL

The Continuing Connected Transaction

BASIS OF OUR OPINION

LETTER FROM GRAM CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

(A) THE DISPOSAL AND THE ONGOING BANK GUARANTEES

1. Background of and reasons for the Disposal

Business overview of the Group

LETTER FROM GRAM CAPITAL

LETTER FROM GRAM CAPITAL

Information on Shenzhen Nalon

Information on the Shenzhen Hongde Group

LETTER FROM GRAM CAPITAL

Reasons for the Disposal

2. Principal terms of the Sale and Purchase Agreement

Date

Parties

Subject

The Consideration

LETTER FROM GRAM CAPITAL

Trading multiples analysis for the Consideration

LETTER FROM GRAM CAPITAL

The Ongoing Bank Guarantees

LETTER FROM GRAM CAPITAL

Non-competition undertaking by Mr. Fang

3. Possible financial effects of the Disposal

LETTER FROM GRAM CAPITAL

RECOMMENDATION ON THE DISPOSAL AND THE ONGOING BANK GUARANTEES

Veson Holdings Limited Proxy Solicitation & Information Statement 2014

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**

SCUD GROUP LIMITED 飛毛腿集團有限公司 **[*]**