Youzan Technology Limited — Capital/Financing Update 2007

Jul 17, 2007

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement.

==> picture [41 x 46] intentionally omitted <==

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 8083)

VERY SUBSTANTIAL DISPOSAL

DEEMED DISPOSAL AND MATERIAL DILUTION OF EQUITY INTEREST IN A MAJOR SUBSIDIARY AND RESUMPTION OF TRADING

On 28 June 2007, the Company, Syscan Manufacturing and Luck Fame entered into the Share Subscription Agreement, pursuant to which the parties have conditionally agreed that Luck Fame shall subscribe for and Syscan Manufacturing shall allot and issue 40,000 new shares of US$1 each in its share capital to Luck Fame at the Consideration of RMB184,000,000 (equivalent to approximately HK$184,000,000).

Syscan Manufacturing is currently an indirect wholly-owned subsidiary of the Company. Upon Completion, Syscan Manufacturing will be held as to 80% and 20% by Luck Fame and Syscan Holdings (a wholly-owned subsidiary of the Company) respectively. Syscan Manufacturing will cease to be a subsidiary and become an associate of the Company upon completion of the Share Subscription. To the best of the Directors’ knowledge, information and belief, and after making all reasonable enquiries, Luck Fame and its ultimate beneficial owners are Independent Third Parties and are not connected persons of the Company as defined under the GEM Listing Rules.

The Share Subscription which involves Luck Fame acquiring interest in Syscan Manufacturing constitutes a deemed disposal of the Company’s equity interests in a subsidiary of the Company under Rule 19.29 of the GEM Listing Rules. As the Share Subscription constitutes a very substantial disposal transaction for the Company under Chapter 19 of the GEM Listing Rules and a material dilution of the Company’s shareholding interest in Syscan Manufacturing, a major subsidiary of the Company, under Rule 17.39(2) of the GEM Listing Rules, the Company will obtain the approval of the Share Subscription by the Shareholders at the SGM.

A circular containing, amongst others, further details of the Share Subscription and the notice of the SGM will be sent to the Shareholders as soon as practicable according to the requirements of the GEM Listing Rules.

* For identification purposes only

– 1 –

At the request of the Company, trading in the Shares was suspended with effect from 9:30 a.m. on 29 June 2007 pending the release of this announcement. An application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 9:30 a.m. on 17 July 2007.

THE SHARE SUBSCRIPTION AGREEMENT

Major terms of the Share Subscription Agreement

Date:

28 June 2007

Parties:

• (i) the Company;

• (ii) Syscan Manufacturing; and

• (iii) Luck Fame.

To the best of the Directors’ knowledge, information and belief, and after making all reasonable enquiries, Luck Fame and its ultimate beneficial owners are Independent Third Parties and are not connected persons of the Company as defined under the GEM Listing Rules.

The Share Subscription

Pursuant to the Share Subscription Agreement, Luck Fame shall subscribe for and Syscan Manufacturing shall allot and issue 40,000 new shares of US$1 each in the share capital of Syscan Manufacturing. As at the date hereof, the issued share capital of Syscan Manufacturing was US$10,000 divided into 10,000 shares of US$1 each and was wholly-owned by the Company through Syscan Holdings. Upon completion of the Share Subscription, the issued share capital of Syscan Manufacturing shall increase from US$10,000 to US$50,000 by the allotment and issuance of 40,000 new shares of US$1 to be subscribed by Luck Fame. Such 40,000 new shares in Syscan Manufacturing will be allotted and issued to Luck Fame by five (5) instalments upon Luck Fame’s payment of Consideration by instalments on the respective due dates as set out in details under the paragraph headed “Consideration” below. Upon the payments of the 1st, 2nd, 3rd, 4th and 5th instalments by Luck Fame, 5,000, 5,000, 10,000, 10,000 and 10,000 new shares of Syscan Manufacturing will be allotted and issued to Luck Fame, respectively. The Company’s shareholding interest in Syscan Manufacturing will decrease from 100% to 20% as a result of the Share Subscription. Syscan Manufacturing will cease to be a subsidiary and become an associate of the Company upon completion of the Share Subscription.

Pursuant to the Share Subscription Agreement, the relevant procedures in respect of each subscription of new shares in Syscan Manufacturing shall be completed within five (5) Business Days upon receipt of the relevant instalment of Consideration by the Company.

– 2 –

The following diagrams illustrate the corporate structure of Syscan Manufacturing as at the date of this announcement and immediately after completion of the Share Subscription.

Corporate structure of Syscan Manufacturing as at the date of this announcement:

==> picture [171 x 237] intentionally omitted <==

----- Start of picture text ----- The Company100%Syscan Holdings100%Syscan Manufacturing----- End of picture text -----

Corporate structure of Syscan Manufacturing immediately after the Share Subscription:

==> picture [454 x 277] intentionally omitted <==

----- Start of picture text ----- The Company100%Syscan Holdings Luck Fame20% 80%Syscan Manufacturing----- End of picture text -----

– 3 –

Consideration

Pursuant to the Share Subscription Agreement, Luck Fame agreed to subscribe for 40,000 new shares of US$1 each in the share capital of Syscan Manufacturing at the Consideration of RMB184,000,000 (equivalent to approximately HK$184,000,000) payable by 5 instalments to a bank account designated by the Company in accordance with the following timetable:–

Instalment	Payment Due Date	Amount
1st	28 June 2007	RMB23,000,000
2nd	20 July 2007	RMB11,500,000
3rd	20 August 2007	RMB23,000,000
4th	20 September 2007	RMB34,500,000
5th	Completion Date	RMB92,000,000

The payment method (by five (5) instalments) was agreed by the Company and Luck Fame after arm’s length negotiation which is a commercial decision.

The Consideration of RMB$184,000,000 (equivalent to approximately HK$184,000,000) was determined after arm’s length negotiation between the parties to the Share Subscription Agreement with reference to the audited net asset value of Syscan Optoelectronics (the only subsidiary of Syscan Manufacturing) of approximately RMB46,000,000 (equivalent to approximately HK$46,000,000) for the year ended 31 December 2006. The Consideration attributed to the Company in the amount of RMB40,000,000 (equivalent to approximately HK$40,000,000) (after deducting HK$144,000,000 for repayment of debts owed by Syscan Optoelectronics to banks and non-banking financial institutions) represents approximately 109% premium over 80% of the audited net asset value of Syscan Optoelectronics as at 31 December 2006 in the amount of RMB36,800,000 (equivalent to HK$36,800,000).

Conditions precedent

Completion of the Share Subscription is conditional upon the following conditions being fulfilled or waived on or before the Long stop Date:–

1. approval of the Share Subscription by the Shareholders at the SGM having been obtained in accordance with the GEM Listing Rules; and

2. no event having occurred which suggests that there has been a breach of any of the warranties or other provisions of the Share Subscription Agreement by the Company in any material respect.

Completion

Subject to the fulfillment or waiver (in respect of Condition 2 only) of all the Conditions, the Completion shall take place on the Completion Date, which shall be (i) the fifth (5th) Business Day after all the Conditions shall have been fulfilled or waived by Luck Fame (in respect of Condition 2 only); or (ii) such later date as the parties to the Share Subscription Agreement may agree in writing.

– 4 –

Rights and Obligations of the Company and Luck Fame

The rights and obligations of the Company under the Share Subscription Agreement include but not limited to the following:–

• (1) the Company shall not enter into any new debt arrangement using the name of Syscan Optoelectronics;

• (2) prior to Completion, the Company shall procure Syscan Manufacturing and Syscan Optoelectronics to conduct their businesses in the way as they have been conducted from time to time;

• (3) the Company shall coordinate with Luck Fame in developing the Syscan Industrial Park into a production base of telecommunications terminal products; and

• (4) the Company shall be entitled to the rights and obligations as a shareholder in accordance with its shareholding in Syscan Manufacturing.

The rights and obligations of Luck Fame under the Share Subscription Agreement include but not limited to the following:–

• (1) upon payment of the 1st instalment of the Consideration in the amount of RMB23,000,000, Luck Fame shall be entitled to put forward a development proposal of the Syscan Industrial Park provided that the floor area ratio shall not be less than 2.5. With the consent of the Company, Luck Fame shall be entitled to appoint the developer to plan, design, increase the floor area ratio and to construct the premises in accordance with the proposal agreed between the Company and Luck Fame;

• (2) upon payment of the 1st instalment of the Consideration in the amount of RMB23,000,000, Luck Fame shall be entitled to use certain premises in the Syscan Industrial Park at no cost;

• (3) upon obtaining 80% of the shareholding in Syscan Manufacturing, Luck Fame shall be entitled to 80% of the ownership right and exploration and usage rights of the unexplored land of the Syscan Industrial Park and the property constructed thereon owned by Syscan Manufacturing; and

• (4) Luck Fame shall be entitled to the rights and obligations as a shareholder in accordance with its shareholding in Syscan Manufacturing.

Termination

Unless all the Conditions are fulfilled or waived by Luck Fame (in respect of Condition 2 only) on or before the Long Stop Date, the Share Subscription Agreement shall be automatically terminated. In the event that Luck Fame shall fail to pay the relevant instalment of Consideration according to the timetable as set out in the paragraph headed “Consideration” in this announcement within thirty (30) days upon receipt of a demand notice from the Company, the Company shall have the options to either (i) terminate the Share Subscription Agreement, retain all Consideration already paid by Luck Fame and cancel the shares of Syscan Manufacturing issued to Luck Fame; or (ii) demand payment of the unpaid amount of Consideration plus a default interest of 0.05% per day on all unpaid amount of the Consideration by Luck Fame.

– 5 –

PROCEEDS FROM THE SHARE SUBSCRIPTION

The proceeds from the Share Subscription of approximately RMB144,000,000 (equivalent to approximately HK$144,000,000) will be used by the Group to repay the debts owed by Syscan Optoelectronics to banks and non-banking financial institutions. The balance of the proceeds from the Share Subscription, after deduction of expenses, is currently estimated to be approximately RMB40,000,000 (equivalent to approximately HK$40,000,000) will be used to further reduce the debts and liabilities of the Group due from Syscan Optoelectronics.

REASONS FOR AND BENEFITS OF THE SHARE SUBSCRIPTION

Syscan Optoelectronics, an indirect wholly-owned subsidiary of the Company, is currently indebted to banks and non-banking financial institutions. The Company is acting as a guarantor to the indebtedness of Syscan Optoelectronics in the sum of RMB144,020,000 (equivalent to approximately HK$144,020,000). The Directors confirm that the disposal is advantageous to the Company and the Shareholders as a whole, in that a) it releases the Group-guaranteed loans owed by Syscan Optoelectronics to banks and nonbanking financial institutions; b) it eases the Group’s financial burden as a result of the reduction of the Group’s debts and liabilities due from Syscan Optoelectronics; and c) it introduces a strategic partner for the better development of Syscan Industrial Park, from which the Group will further benefit.

The Board confirms that the terms of the Share Subscription Agreement are negotiated on arm’s length basis, fair and reasonable and in the interests of the Shareholders as a whole.

INFORMATION ABOUT THE GROUP

The Company is an investment holding company and its subsidiaries are principally engaged in the design, research, development, manufacturing and distribution of optical image capturing devices and related components. The geographical segments of the abovementioned businesses are mainly located in the United States of America and the PRC.

The audited turnover of the Group for the two years ended 31 December 2005 and 31 December 2006 were approximately HK$66,555,000 and HK$92,690,000 respectively.

The audited net loss of the Group for the two years ended 31 December 2005 and 31 December 2006 were approximately HK$99,435,000 and HK$11,600,000 respectively.

The audited net asset value of the Group for the two years ended 31 December 2005 and 31 December 2006 were approximately HK$18,501,000 and HK$15,535,000 respectively.

INFORMATION ABOUT SYSCAN MANUFACTURING AND SYSCAN OPTOELECTRONICS

Syscan Manufacturing is an investment holding company incorporated in the British Virgin Islands with limited liability and is wholly owned by the Company through Syscan Holdings (a wholly owned subsidiary of the Company). As at the date of this announcement, the registered share capital of Syscan Manufacturing is US$10,000 of US$1 each.

Syscan Manufacturing has not carried on any business activities since its incorporation and has no material assets other than holding of the entire issued share capital of Syscan Optoelectronics. Syscan Optoelectronics is a wholly foreign owned enterprise established in the PRC with limited liability and is a property holding company. Syscan Optoelectronics currently holds the land use right certificate (土地

– 6 –

使用權證 ) of the Syscan Industrial Park for a validity period of 50 years from July 2001. As stated in the Share Subscription Agreement, the group comprising 中國衛星通信集團公司 (China Satellite Communications Corporation) (“China Satcom”) (a state-owned enterprise established in the PRC in 2001) and its subsidiaries (the “China Satcom Group”), intends to invest US$500,000,000 in the Syscan Industrial Park and develops the same into a production base for the China Satcom Group’s telecommunications terminal products. The China Satcom Group is one of the leading telecommunication operators in the PRC.

As at 31 December 2006, Syscan Manufacturing and Syscan Optoelectronics had a consolidated net liabilities of RMB70,277,081 (equivalent to approximately HK$70,277,081). The following table shows certain financial information of Syscan Manufacturing and Syscan Optoelectronics for the two years ended 31 December 2006:

	For the year ended	For the year ended
	31 December 2005	31 December 2006
Net profit/(loss)
(after taxation and extraordinary items)	HK$(18,608,598)	HK$(45,990,057)
Net profit/(loss)
(before taxation and extraordinary items)	HK$(18,608,598)	HK$(45,990,057)

It is estimated that, upon Completion, the Group will record a loss from the Share Subscription of approximately HK$86,300,000 which will be recorded in the consolidated profit and loss accounts of the Group for the year ending 31 December 2007. The loss on the Share Subscription is calculated based on (i) the net proceeds of the Share Subscription of approximately HK$184,000,000; and (ii) the cost of assets deemed to be disposed by the Group and the liabilities to be borne by the Group (including indebtedness owned by Syscan Manufacturing to banks and other non-banking financial institutions, accounts payable and inter-company liabilities) less the relevant part of reserves released on deemed disposal and the remaining 20% share owned by the Group in Syscan Manufacturing Completion, in the amount of approximately HK$270,300,000.

Upon Completion, Syscan Manufacturing will cease to be a subsidiary and become an associate of the Company. The Group’s investment in Syscan Manufacturing will then be reclassified to investment in associate and will be accounted for under the equity method whereby the Group will take up its share of profit or loss of Syscan Manufacturing and Syscan Optoelectronics pursuant to its 20% shareholding in Syscan Manufacturing.

SUFFICIENCY OF OPERATIONS

Syscan Manufacturing is an investment holding company and Syscan Optoelectronics (the only subsidiary of Syscan Manufacturing) is a property holding company with no actual operations. The Group recorded an audited turnover and gross profit of approximately HK$92,690,000 and HK$24,977,000 respectively for the year ended 31 December 2006. During the same year, both Syscan Manufacturing and Syscan Optoelectronics recorded no turnover or profit. The consolidated net liabilities of Syscan Manufacturing and Syscan Optoelectronics was approximately HK$70,277,000 for the year ended 31 December 2006 when compared with the Group’s net assets of HK$15,535,000 during the same year. For the year ended 31 December 2006, the Group had 325 employees, 4 of whom were employed by Syscan Manufacturing and Syscan Optoelectronics. Upon Completion, Syscan Manufacturing and Syscan Optoelectronics will become indirect associates of the Company and will be beneficially owned by the Company as to 20%. As confirmed by the Directors, Syscan Manufacturing and Syscan Optoelectronics have not carried out

– 7 –

any business activities other than property holding (in respect of Syscan Optoelectronics only) since their incorporation. In this regard, the Share Subscription and the Deemed Disposal will not have any negative impact on the continuous operations of the Group. The remaining Group will continue to carry on the existing business activities, that is, design, research, development, manufacturing and distribution of optical image capturing devices and related components after the Share Subscription and the Deemed Disposal. The remaining Group will carry out a sufficient level of operations to warrant the continued listing of the Company’s shares after the Share Subscription and the Deemed Disposal. It is estimated that (i) the profitability of the Group will be improved as Syscan Manufacturing and Syscan Optoelectronics have been making losses for the two years ended 31 December 2006; and (ii) the cash inflow as a result of the Shares Subscription to be used for the repayment of the indebtedness owed by Syscan Optoelectronics can release the Company’s obligations as a guarantor and as a result reducing the risk exposed by the Group.

In short, save that the Group’s ownership in the Syscan Industrial Park will be reduced from 100% to 20% as a result of the Share Subscription and the Deemed Disposal, there will not be any significant change in overall business operations of the Group after Completionl. The Directors believe that the existing level of the Group’s operation, which includes design, research, development, manufacturing and distribution of optical image capturing devices and related components, is sufficient for the purpose of Rule 17.26 of the GEM Listing Rules. As confirmed by the Directors, the remaining Group will, upon Completion, continue carrying on the aforesaid business activities, actively develop new products and seek for strategic partners in order to bring in new revenue for the Group. The Directors also confirm that the Group may continue to use the premises in the Syscan Industrial Park at no cost.

INFORMATION ABOUT LUCK FAME

Luck Fame is a company incorporated in Hong Kong with limited liability and is an investment holding company. To the best of the Directors’ knowledge, information and belief, and after making all reasonable enquiries, Luck Fame and its ultimate beneficial owners are Independent Third Parties and are not connected persons of the Company as defined under the GEM Listing Rules

GENERAL

The Share Subscription is a deemed disposal in respect of an indirect wholly-owned subsidiary of the Company and constitutes a very substantial disposal transaction for the Company under Chapter 19 of the GEM Listing Rules. According to Rule 19.49 of the GEM Listing Rules, the Share Subscription is conditional upon the approval by the Shareholders at the SGM to be convened. To the best of the Directors’ knowledge, information and belief, and after making all reasonable enquiries, Luck Fame and its ultimate beneficial owners are Independent Third Parties and are not connected persons of the Company as defined under the GEM Listing Rules and none of the Shareholders has any material interest in the Share Subscription other than through their interest in the Company. No Shareholder will be required to abstain from voting in respect of the proposed resolution to approve the Share Subscription at the SGM.

A circular containing, amongst other things, details of the Share Subscription, together with a notice to the SGM, will be despatched to the Shareholders as soon as practicable in accordance with the relevant requirements of the GEM Listing Rules.

– 8 –

SUSPENSION AND RESUMPTION OF TRADING OF THE SECURITIES

At the request of the Company, trading in securities of the Company on the GEM was suspended with effect from 9:30 a.m. on 29 June 2007 pending the release of this announcement. Application has been made by the Company to resume the trading of the securities of the Company with effect from 9:30 a.m. on 17 July 2007.

DEFINITIONS

• “associate(s)” has the meaning ascribed to it under the GEM Listing Rules; “Business Day” a day (excluding Saturday) on which licensed banks in Hong Kong are open for business;

• “Company” SYSCAN Technology Holdings Limited, a company incorporated in Bermuda with limited liability, whose shares are listed on the GEM;

• “Completion” the completion of the Share Subscription contemplated under the Share Subscription Agreement;

• “Completion Date” the date of completion of the Share Subscription, which shall be (i) the fifth (5th) Business Day after all the Conditions shall have been fulfilled or waived by Luck Fame (in respect of Condition 2 only); or (ii) such later date as the parties to the Share Subscription Agreement may agree in writing.

• “Conditions” the conditions precedent to the Share Subscription Agreement, details of which are set out in the paragraph headed “Conditions precedent” in this announcement, and “Condition” refers to any one of them;

• “Consideration” RMB184,000,000 (equivalent to approximately HK$184,000,000), being the cash consideration payable by Luck Fame by instalments in accordance with the time-table as set out in the paragraph under “Consideration” of this announcement;

• “Deemed Disposal” the deemed disposal of 80% shareholding in Syscan Manufacturing as a result of the Share Subscription pursuant to Rule 19.29 of the GEM Listing Rules;

• “Directors” the directors of the Company, including the independent non-executive directors;

• “Divested Assets” the assets in the Syscan Industrial Park currently owned by the Group including but not limited to equipments and accounts payable/receivable (details of which are set out in the annexure to the Share Subscription Agreement) that will remain as the assets of the Group upon Completion and will be divested from Syscan Optoelectronics on or before 31 December 2007;

• “GEM” the Growth Enterprise Market operated by the Stock Exchange;

– 9 –

“GEM Listing Rules”

the Rules Governing the Listing of Securities on the GEM;

“Group” the Company and its subsidiaries; “HK$” Hong Kong dollar, the lawful currency of the Hong Kong Special Administrative Region of the PRC; “Independent Third Party” to the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, any person who is not connected to any director, supervisor, chief executive, promoter, substantial shareholder or management shareholder (both as defined in the GEM Listing Rules) of the Company or its subsidiaries or any of their respective associates (as defined in the GEM Listing Rules), nor a connected person (as defined in the GEM Listing Rules); “Long Stop Date” 20 October 2007 or such later as agreed among all parties to the Share Subscription Agreement in writing; “Luck Fame” Luck Fame International Investment Holdings Limited (瑞興國際投 資集團有限公司 ), a company incorporated in Hong Kong with limited liability, an Independent Third Party; “PRC” the People’s Republic of China; “RMB” Renminbi, the lawful currency of the PRC; “SGM” the special general meeting of the Company to be held for the purpose of approving, amongst other things, the Share Subscription; “Shareholders” the shareholders of the Company; “Share Subscription” the proposed subscription of 40,000 new shares of US$1 each in Syscan Manufacturing by Luck Fame subject to the terms and condition of the Share Subscription Agreement; “Share Subscription the share subscription agreement (股份認購協議書 ) dated 28 June Agreement” 2007 entered into among the Company, Syscan Manufacturing and Luck Fame, the major terms of which and the transactions contemplated thereunder are set out in the paragraph headed “The Share Subscription Agreement” in this announcement; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Syscan Holdings” Syscan Holdings Limited, a wholly-owned subsidiary of the Company incorporated in the British Virgin Islands with limited liability; “Syscan Industrial Park” the industrial park with an area of 252,338.56 square metres located at 中國深圳市寶安區石岩鎮水田村 owned by Syscan Optoelectronics, all assets on which (other than the Divested Assets) are currently and will remain as the assets of Syscan Optoelectronics before and after Completion;

– 10 –

“Syscan Manufacturing”

Syscan Manufacturing Limited (矽感數碼科技製作有限公司 ), an indirect wholly-owned subsidiary of the Company incorporated in the British virgin Islands with limited liability; and

“Syscan Optoelectronics”

深圳矽感光電有限公司 (Syscan Optoelectronics Technology (Shenzhen) Co., Ltd.*), a wholly foreign owned company established in the PRC with limited liability and wholly owned by the Company indirectly through Syscan Holdings and Syscan Manufacturing;

“%”

percentage.

By Order of the Board SYSCAN TECHNOLOGY HOLDINGS LIMITED Cheung Wai Chairman

Hong Kong, 16 July 2007

As at the date of this announcement, the Board comprises Mr. Cheung Wai and Mr. Zhang Ming as executive directors, and Mr. Lo Wai Ming, Mr. Fong Chi Wan, Mr. Jin Qingjun and Mr. Wang Ruiping as independent non-executive Director.

This announcement, for which the directors of Syscan Technology Holdings Limited collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to Syscan Technology Holdings Limited. The directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:– (1) the information contained in this announcement is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this announcement misleading; and (3) all opinions expressed in this announcement have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

This announcement will remain on the “Latest Company Announcements” page on the GEM website for at least 7 days from the day of its posting and on the Company’s website at www.syscangroup.com.

– 11 –