Yip's Chemical Holdings Limited — Proxy Solicitation & Information Statement 2007

Jul 13, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt about this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitors, professional accountant or other professional adviser.

If you have sold or transferred all your Shares in YIP’S CHEMICAL HOLDINGS LIMITED (the “Company”), you should at once hand this circular to the purchaser or to the bank or stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 408)

DISCLOSEABLE TRANSACTION ACQUISITION OF A PRC COMPANY

16 July 2007

CONTENTS

	_Page _	No.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE CHAIRMAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
1.	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	SHARE TRANSFER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	FINANCIAL EFFECT OF THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . .	8
4.	REASONS FOR AND BENEFITS OF THE ACQUISITION . . . . . . . . . . . . . .	9
5.	INFORMATION OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
6.	ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10

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DEFINITIONS

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

• “Acquisition” the acquisition of the Target Company by the Purchasers from the Vendors pursuant to the Share Transfer Agreement

• “Board” the board of Directors

• “Business Day” means a day, other than a Saturday or Sunday or Public Holiday, on which banks in both Hong Kong and the PRC are open for ordinary banking business

• “Company” Yip’s Chemical Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the main board of the Stock Exchange

• “Completion” completion of the Acquisition in accordance with the terms and conditions of the Share Transfer Agreement

• “Completion Accounts” the unaudited accounts of the Target Company as at the Completion Date

• “Completion Date”

• the third Business Day after all the conditions precedent to Completion set out in the Share Transfer Agreement have been fulfilled or waived

• “Consideration”

• the consideration to be paid by the Purchasers to the Vendors pursuant to the Share Transfer Agreement for the Acquisition

• “Directors” the directors of the Company

• “Group”

• the Company and its subsidiaries

• “Hang Sing” Hang Sing Chemical Trading Company Limited , a company incorporated in Hong

• Kong with limited liability

• “Heng Feng”

• Heng Feng Industrial Group Limited , a company established in the

• PRC with limited liability

• “HK$”

• Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC

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DEFINITIONS

• “Independent Third Party(ies)” (an) independent third party(ies) not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates as defined in the Listing Rules

• “Jiangmen Handsome” Jiangmen Handsome Chemical Development Ltd., a company established in the PRC and an indirect 75% owned subsidiary of the Company

• “Latest Practicable Date” 13 July 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

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

• “Net Asset Value” the net asset value of the Target Company

• “PRC”

• The People’s Republic of China, and for the purpose of this announcement, excluding Hong Kong and the Macau Special Administrative Regions and Taiwan

• “Purchasers” Jiangmen Handsome and Yip’s Industrial

• “RMB” Renminbi, the lawful currency of the PRC

• “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (as amended from time to time)

• “Share Transfer Agreement” the share transfer agreement dated 27 June 2007 entered into between the Vendors, the Purchasers and the Target Company pursuant to which the Vendors agree to sell and the Purchasers agree to purchase the entire issued equity interests of the Target Company

• “Shares(s)”

• ordinary share(s) of HK$0.1 each in the issued capital of the Company

• “Shareholder(s)”

• holder(s) of the existing ordinary share(s) of HK$0.1 each in the share capital of the Company

• “Stock Exchange”

• The Stock Exchange of Hong Kong Limited

• “Target Company”

• , a sino-foreign equity joint venture

• company established in the PRC, currently owned as to 60% by Heng Feng and 40% by Hang Sing

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	DEFINITIONS
“US$”	US Dollar, the lawful currency of the United	States of
	America
“Vendors”	Heng Feng and Hang Sing
“Yip’s Industrial”	Yip’s Industrial Holdings Limited, a	company
	incorporated in Hong Kong with limited liability and
	an indirect 75% owned subsidiary of the Company

In this circular, unless otherwise indicated, the exchange rate of HK$1.03 = RMB1.00 has been used, where applicable, for purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged at such a rate or at any other rates.

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LETTER FROM THE CHAIRMAN

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 408)

Executive Directors: Ip Chi Shing, Tony (Chairman and Managing Director) Ip Fung Kuen (Deputy Chairman) Yip Tsz Hin, Stephen (Deputy Chairman) Ng Siu Ping, George Ting Hon Yam Wong Kam Yim, Kenny (Deputy Chief Executive Officer) Young Man Kim, Robert

Non-Executive Director: Tong Wui Tung, Ronald

Registered office: PO Box 309GT Ugland House South Church Street, George Town Grand Cayman Cayman Islands

Head Office and Principal Place of Business in Hong Kong Yip’s Chemical Building 13 Yip Cheong Street, On Lok Tsuen Fanling New Territories Hong Kong

Independent non-executive Directors:

Wong Kong Chi Au-Yeung Tsan Pong, Davie Li Chak Man, Chuck

16 July 2007

To: the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION ACQUISITION OF A PRC COMPANY

1. INTRODUCTION

The Company announced on 27 June 2007 that the Vendors, the Purchasers and the Target Company had entered into the Share Transfer Agreement, pursuant to which the Purchasers would acquire the entire equity interest in the Target Company from the Vendors at a Consideration of RMB71,626,109 (equivalent to approximately HK$73,774,892), subject to adjustment.

The Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

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LETTER FROM THE CHAIRMAN

The purpose of this circular is to provide Shareholders with further information in relation to the Acquisition and other information in compliance with the requirements of the Listing Rules.

2. SHARE TRANSFER AGREEMENT

Date: 27 June 2007

Parties:

• (1) Jiangmen Handsome

• (2) Yip’s Industrial (collectively with Jiangmen Handsome the “Purchasers”)

• (3) Heng Feng

• (4) Hang Sing (collectively with Heng Feng the “Vendors”)

• (5) the Target Company

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the Vendors and their respective ultimate beneficial owners are Independent Third Parties.

Information of the Target Company:

The Target Company is a sino-foreign equity joint venture company incorporated in the PRC. The Target Company is now owned as to 60% by Heng Feng and 40% by Hang Sing. The principal activity of the Target Company is the manufacture and sales of butyl acetate, a solvent used in the wood coating and other coating industries which is more environmentally friendly compared to aromatic solvents and ketone type solvents.

The unaudited Net Asset Value of the Target Company as at 30 April 2007 was RMB19,419,035 (equivalent to approximately HK$20,001,606) while the audited Net Asset Value as at 31 December 2006 was RMB18,920,924 (equivalent to approximately HK$19,488,552). For the two years ended 31 December 2005 and 31 December 2006, the audited net profits attributable to the shareholders of the Target Company before taxation and extraordinary items are RMB972,320 (equivalent to approximately HK$1,001,490) and RMB2,412,071 (equivalent to approximately HK$2,484,433) respectively, while the audited net profits attributable to the shareholders of the Target Company after taxation and extraordinary items are RMB972,320 (equivalent to approximately HK$1,001,490) and RMB2,122,119 (equivalent to approximately HK$2,185,783) respectively. The above figures are computed under PRC GAAP.

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LETTER FROM THE CHAIRMAN

The shareholding structure of the Target Company before and after Completion is depicted below:

Before Completion

==> picture [276 x 74] intentionally omitted <==

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

Heng Feng Hang Sing
60% 40%
Target Company
----- End of picture text -----

==> picture [79 x 10] intentionally omitted <==

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

After Completion
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==> picture [287 x 128] intentionally omitted <==

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

The Company
indirectly
75% 75%
Jiangmen Handsome Yip’s Industrial
60% 40%
Target Company
----- End of picture text -----

Upon Completion, the Target Company will become an indirect 75% owned subsidiary of the Company.

Conditions Precedent:

Completion is conditional upon fulfillment or waiver of, among other things, the following:

1. from the date of the Share Transfer Agreement until Completion, there are no material adverse changes in the Target Company’s business, operation, assets, liabilities, etc.;

2. all approvals and registrations in respect of the Acquisition have been obtained and completed; and

3. the transfer of the equity interest in the Target Company by Heng Feng and Hang Sing shall be completed at the same time.

If the conditions precedent are not fulfilled or waived within ninety days of the execution of the Share Transfer Agreement, the Purchasers may choose to extend such period or notify the Vendors to terminate the Share Transfer Agreement. Within five Business Days of the termination of the Share Transfer Agreement, the Vendors shall fully refund to the Purchasers the Consideration already paid by the Purchasers.

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LETTER FROM THE CHAIRMAN

As at the Latest Practicable Date, none of the conditions precedent was fulfilled or waived. Completion is expected to take place in about July 2007.

Consideration:

The Consideration is RMB71,626,109 (equivalent to approximately HK$73,774,892), subject to adjustment such that if the Net Asset Value as shown in the Completion Accounts (after deduction of certain payables and receivables as agreed between the parties) is lower or higher than RMB26,626,109 (equivalent to approximately HK$27,424,892), the difference thereof shall be subtracted from or added to (as the case may be) the Consideration accordingly.

The Purchasers shall pay the Consideration by installment in the following manner:

1. RMB10 million (equivalent to approximately HK$10.3 million) has been paid on the date of the Share Transfer Agreement;

2. RMB48,626,109 (equivalent to approximately HK$50,084,892) adjusted in the manner stated above shall be paid within three Business Days after the Completion Date;

3. RMB10 million (equivalent to approximately HK$10.3 million) shall be paid within three Business Days upon the Vendors providing the originals of certain additional licenses and permits for the Target Company which are obtained within six months from the date of the Share Transfer Agreement (if the Vendors cannot fulfill this obligation, the Purchasers may retain or forfeit this installment); and

4. balance of RMB3 million (equivalent to approximately HK$3.09 million) shall be paid on the second anniversary of the Completion Date if the Vendors have successfully obtained the construction land planning permit for certain specified area, after deducting any tax, administrative fees or accounts payable of hidden liabilities incurred before the Completion but subsequently borne by the Purchasers or the Target Company.

The Consideration was determined after arm’s length negotiations between the Vendors and the Purchasers and was determined after taking into account the assets and earning potential of the Target Company. The Consideration represents a premium of RMB45 million (equivalent to approximately HK$46.35 million) to the Net Asset Value (after deduction of certain payables and receivables as agreed between the parties) as at the Completion Date in the sum of RMB26,626,109 (equivalent to approximately HK$27,424,892). The Directors consider such premium is reasonable in view of the goodwill developed by the Vendors in respect of the Target Company and the non-competition covenant given by the Vendors as described in the paragraph headed “Non-Competition Covenant” herein below. The Consideration is to be paid in cash and funded by the working capital of the Group.

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LETTER FROM THE CHAIRMAN

Other Financial Covenants:

If the accounts receivable of the Target Company incurred up to the Completion Date exceeds RMB39,886,395 (equivalent to approximately HK$41,082,987), the surplus shall be kept by the Vendors. If the accounts payable of the Target Company incurred up to the Completion Date exceeds RMB47,093,469 (equivalent to approximately HK$48,506,273), the excess shall be borne by the Vendors. The Target Company agrees, after fully deducting the accounts receivable and offsetting the accounts payable, to return to the Vendors the excess accounts receivable within five Business Days from the date of actual receipt.

Non-Competition Covenant:

For five years after the Acquisition, the Vendors shall ensure that one of the minority ultimate shareholders of Heng Feng (the “Minority Shareholder”) shall not within the PRC directly or indirectly establish any enterprise to produce acetate products. Further, for ten years after the Acquisition, the Vendors and their respective ultimate shareholders (save for the Minority Shareholder) shall not within the PRC directly or indirectly establish any enterprise to produce or trade acetate products. Otherwise, all the rights and benefits arising therefrom shall belong to the Purchasers, and the Vendors shall further pay the Purchasers RMB45 million (equivalent to approximately HK$46.35 million) as compensation, i.e. the premium paid by the Purchasers as part of the Consideration.

Guarantee:

• The ultimate major shareholders of each of Heng Feng and Hang Sing (the

• “Guarantors”) have executed a guarantee in favour of the Purchasers to guarantee, among other things, the following: 1. the Minority Shareholder’s and the Vendors’ obligations pursuant to the non-competition covenant described above (for details, please refer to the paragraph headed “Non-Competition Covenant”); and

• the land in use by the Target Company can be legally used by the Target Company.

3. FINANCIAL EFFECT OF THE ACQUISITION

Upon Completion, the results of the Target Company will be consolidated into the income statement of the Group for the financial periods ending after the Completion Date. As stated in the section headed “Information of the Target Company”, for the two years ended 31 December 2005 and 31 December 2006, the audited net profits attributable to the shareholders of the Target Company after taxation and extraordinary items are RMB972,320 (equivalent to approximately HK$1,001,490) and RMB2,122,119 (equivalent to approximately HK$2,185,783) respectively. Therefore, it is expected that the Acquisition can enhance the earnings of the Group.

The Acquisition is expected to increase the assets and liabilities of the Group by about HK$31,779,242 and HK$4,354,350 respectively.

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LETTER FROM THE CHAIRMAN

4. REASONS FOR AND BENEFITS OF THE ACQUISITION

The Target Company is a competitor of the Group in the acetate solvent business in Guangdong. The Directors believe that the Acquisition will enable the Group to further improve its competitive position through the elimination of a key competitor and at the same time enhance its geographical coverage and reduce logistics costs through the acquisition of production facilities on the eastern side of the Pearl River estuary. Moreover, from an investment point of view, the Acquisition is expected to provide a satisfactory return to the Shareholders.

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

5. INFORMATION OF THE PARTIES

Heng Feng is an investment holding company incorporated in the PRC and the principal activities of its subsidiaries are electronics, transportation and storage. Hang Sing is an investment holding company incorporated in Hong Kong and the principal activities of its subsidiaries are transportation and chemical.

Jiangmen Handsome is a 75% owned subsidiary of the Company incorporated in the PRC and its principal activity is manufacture and trading of acetate solvents. Yip’s Industrial is a 75% owned subsidiary of the Company incorporated in Hong Kong and its principal activity is investment holding. The Company is an investment holding company incorporated in the Cayman Islands and the activities of its subsidiaries include the manufacture and trading of solvents, coatings and lubricants.

6. ADDITIONAL INFORMATION

Your attention is also drawn to the appendix to this circular.

By order of the Board Ip Chi Shing Chairman

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GENERAL INFORMATION

APPENDIX

(1) RESPONSIBILITY STATEMENT

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

(2) DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which he was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules were as follows:

(a) Long positions in the Shares of the Company

					Percentage
					of issued
					share capital
	Personal	Family	Other		of the
Directors	Interests	Interests	Interests	Total	Company
Ip Chi Shing, Tony	189,623,932	–	–	189,623,932	39.06%
Ip Fung Kuen	58,000,000	–	–	58,000,000	11.95%
Yip Tsz Hin, Stephen	36,340,000	20,000,000(a)	–	56,340,000	11.60%
Ng Siu Ping, George	1,632,000	50,000(b)	–	1,682,000	0.35%
Ting Hon Yam	500,000	–	–	500,000	0.10%
Wong Kam Yim,
Kenny	208,000	–	–	208,000	0.04%
Young Man Kim,
Robert	2,102,000	–	–	2,102,000	0.43%
Tong Wui Tung,
Ronald	–	500,000(c)	–	500,000	0.10%
Wong Kong Chi	–	100,000(d)	–	100,000	0.02%
Au-Yeung Tsan Pong,
Davie	–	–	–	–	–
Li Chak Man, Chuck	150,000(e)	150,000	−	150,000	0.03%

Notes:

(a) These shares are held by Madam Tso Ka Lai, the wife of Mr. Yip Tsz Hin, Stephen.

(b) These shares are held by Madam Siu Oi Li, Maicy, the wife of Mr. Ng Siu Ping, George.

• (c) These shares are held by Madam Lau Mui Sum, the wife of Mr. Tong Wui Tung, Ronald.

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GENERAL INFORMATION

APPENDIX

• (d) These shares are held by Madam Jim Siu Wai, the wife of Mr. Wong Kong Chi.

• (e) These shares are jointly held with Madam Cheng Yee Ha, the wife of Mr. Li Chak Man, Chuck.

(b) Long positions in underlying Shares of the Company

	Number of
	Share Options
Directors	Outstanding
Ip Fung Kuen	200,000
Ng Siu Ping, George	1,200,000
Ting Hon Yam	400,000
Wong Kam Yim, Kenny	1,200,000

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 or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which he was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

(3) SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, there was no person other than a Director who had an interest or short position in the Shares and 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, who was, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

(4) DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any of its subsidiaries which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

(5) LITIGATION

As at the Latest Practicable Date, no member of the Group is engaged in any litigation or claim of material importance and, so far as the Directors are aware, no litigation or claim of material importance is pending or threatened against any member of the Group.

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GENERAL INFORMATION

APPENDIX

(6) COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates was interested in any business which competes or is likely to compete, whether directly or indirectly, with the business of the Company.

(7) MISCELLANEOUS

• (a) The company secretary and qualified accountant of the Company is Mr. Ng Siu Ping, George, who is a fellow member of the Association of Chartered Certified Accountants and a certified public accountant of the Hong Kong Institute of Certified Public Accountants.

• (b) The registered office of the Company is at PO Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands and its principal place of business of the Company in Hong Kong is at Yip’s Chemical Building, 13 Yip Cheong Street, On Lok Tsuen, Fanling, New Territories, Hong Kong.

• (c) The Hong Kong branch share registrar of the Company is Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

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

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