IMPORTANT

If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

IPE GROUP LIMITED IPE 集團有限公司 (incorporated in the Cayman Islands with limited liability)

LISTING ON THE MAIN BOARD OF THE STOCK EXCHANGE OF KONG LIMITED BY WAY OF PLACING AND PUBLIC OFFER

Total number of Offer Shares : 127,500,000 Shares Number of Placing Shares : 114,750,000 Shares (subject to re-allocation) Number of Public Offer Shares : 12,750,000 Shares (subject to re-allocation) Offer Price : Not more than HK$0.81 per Offer Share and not less than HK$0.63 per Offer Share Nominal value: HK$0.10 each Stock code: 929

Sponsor Co-Sponsor

元富證券(香港)有限公司 MasterLink Securities () Partners Capital International Limited Corporation Limited

Lead Manager

Partners Capital International Limited

Co-Lead Manager G.K. Goh Securities (H.K.) Limited

Co-Managers Core Pacific-Yamaichi International (H.K.) Limited UOB Kay Hian (Hong Kong) Limited CAF Securities Company Limited Hantec International Finance Group Limited YF Securities Company Limited

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, 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 prospectus. A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrar of Companies” in Appendix VIII to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance. The SFC and the Registrar of Companies in Hong Kong take no responsibility for the contents of this prospectus or any other documents referred to above. The Offer Price is expected to be fixed by agreement between the Lead Manager (for itself and on behalf of the Underwriters) and the Company on or before 8:00 p.m. on 26th October, 2004. If the Lead Manager (for itself and on behalf of the Underwriters) and the Company are unable to reach agreement on the Offer Price by 8:00 p.m. on 26th October, 2004, the Offer will not become unconditional and will lapse immediately. The Offer Price will be not more than HK$0.81 per Offer Share and not less than HK$0.63 per Offer Share. The Lead Manager (for itself and on behalf of the Underwriters) may, with the consent of the Company, reduce the Offer Price to a price below the indicative Offer Price range stated in this prospectus (being HK$0.63 per Offer Share to HK$0.81 per Offer Share) at any time prior to the morning of the last date for lodging applications under the Public Offer. In such a case, notices of the reduction in the Offer Price to a price below the indicative Offer Price range will be published in The Standard (in English) and the Hong Kong Economic Times (in Chinese) not later than the morning of the day which is the last day for lodging applications under the Public Offer. If applications for Public Offer Shares have been submitted prior to the day which is the last day for lodging applications under the Public Offer, then even if the Offer Price is so reduced, such applications cannot be subsequently withdrawn. Prospective investors of the Offer Shares should note that the Underwriting Agreement contains provisions entitling the Lead Manager (for itself and on behalf of the Underwriters) to terminate the obligations of the Underwriters upon the occurrence of certain events set forth in the paragraph headed “Grounds for termination” under the section headed “Underwriting” in this prospectus at any time prior to 5:00 p.m. (Hong Kong time) on the day immediately preceding the Listing Date. Such events include, without limitation, acts of government, strikes, lock-outs, fire, explosion, flooding, civil commotion, escalation of hostility, acts of war or acts of God. 19th October, 2004 EXPECTED TIMETABLE

2004 (Note 1)

Latest time for lodging PINK application forms ...... 12:00 noon on Saturday, 23rd October

Application lists open (Note 2) ...... 11:45 a.m. on Monday, 25th October

Latest time for lodging WHITE and YELLOW application forms ...... 12:00 noon on Monday, 25th October

Application lists close (Note 2) ...... 12:00 noon on Monday, 25th October

Expected price determination date on or before (Note 3) ...... 8:00 p.m. on Tuesday, 26th October

Announcement of the Offer Price, the level of indication of interests in the Placing, the results of applications and basis of allocation of the Public Offer Shares (with successful applicants’ identification document number, where appropriate) and the number of Shares, if any, re-allocated between the Placing and the Public Offer to be published in The Standard (in English) and the Hong Kong Economic Times (in Chinese) on or before ...... Friday, 29th October

Refund cheques in respect of wholly or partially unsuccessful applications to be posted on or before (Note 4) ...... Friday, 29th October

Despatch of share certificates on or before (Note 4) ...... Friday, 29th October

Dealings in the Shares on the Stock Exchange to commence on ...... Monday, 1st November

Notes:

1. All times refer to Hong Kong local time, except as otherwise stated.

2. If there is a “black” rainstorm warning signal or a tropical cyclone warning signal number 8 or above in force at any time between 9:00 a.m. and 12:00 noon on Monday, 25th October, 2004, the application lists will not open on that day. See the paragraph headed “Effect of bad weather on the opening of the application lists” under the section headed “How to apply for the Public Offer Shares” in this prospectus.

3. The price determination date is expected to be on or before 8:00 p.m. on Tuesday, 26th October, 2004. If, for any reason, the Offer Price is not agreed between the Lead Manager (for itself and on behalf of the Underwriters) and the Company by 8:00 p.m. on Tuesday, 26th October, 2004, the Offer will not proceed.

4. Applicants in respect of applications made on WHITE application forms for 500,000 Public Offer Shares or more who have indicated in their application forms that they wish to collect their share certificates and/or refund cheques, if any, in person, may collect them from the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong from 9:00 a.m. to 1:00 p.m. on Friday, 29th October, 2004. Applicants being individuals who opt for personal collection cannot authorise any other person to make collection on their behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing authorisation letters from their corporations stamped with the corporations’ chops. Both individuals and authorised representatives (where applicable) must produce, at the time of collection, evidence of identity acceptable to Computershare Hong Kong Investor Services Limited.

– i – EXPECTED TIMETABLE

Applicants in respect of applications made on YELLOW application forms for 500,000 Public Offer Shares or more who have indicated in their application forms that they wish to collect refund cheques, if any, in person may do so, but may not elect to collect their share certificates, which will be deposited into CCASS for credit to their designated CCASS participants’ stock accounts or CCASS investor participant stock accounts, as appropriate. The procedures for collection of refund cheques for YELLOW application form applicants are the same as those for WHITE application form applicants.

Uncollected share certificates and/or refund cheques will be despatched by ordinary post at the applicants’ own risk to the addresses specified in the relevant application forms. Part of the applicants’ Hong Kong Identity Card numbers/passport numbers, or, if the application is made by joint applicants, part of the Hong Kong Identity Card number/passport number of the first-named applicant, indicated in the relevant application forms may be printed on the refund cheques, if any. Such data would also be transferred to a third party for refund purpose. Banks may require verification of the applicants’ Hong Kong Identity Card numbers/passport numbers before encashment of the refund cheques. Inaccurate completion of applicants’ Hong Kong Identity Card numbers/passport numbers in the application forms may lead to delay in encashment of or may invalidate the refund cheques. Further information is set out in the paragraph headed “Collection/posting of share certificates/refund cheques and deposit of share certificates into CCASS” under the section headed “How to apply for the Public Offer Shares” in this prospectus.

For applications made on PINK application forms, share certificates and refund cheques (if applications are wholly or partially unsuccessful) will be despatched by ordinary post at the applicants’ own risk to the addresses specified in the relevant application forms on Friday, 29th October, 2004.

For details of the structure of the Offer, including the conditions thereto, see the section headed “Structure of the Offer” in this prospectus.

No temporary documents of title or evidence of title will be issued. Share certificates for the Offer Shares which will be issued on Friday, 29th October, 2004 will only become valid certificates of title provided that (i) the Offer has become unconditional in all respects; and (ii) the Underwriting Agreement has not been terminated in accordance with its terms at or before 5:00 p.m. on Sunday, 31st October, 2004, as further described in the section headed “Underwriting” in this prospectus.

– ii – CONTENTS

You should rely only on the information contained in this prospectus and the application forms to make your investment decision.

The Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus.

Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, the Sponsors, the Lead Manager and all other Underwriters, the directors of any of them, or any other parties involved in the Offer.

Page

Summary of this prospectus ...... 1

Definitions ...... 11

Glossary of technical terms ...... 17

Risk factors ...... 18

Information about this prospectus and the Offer ...... 28

Directors and parties involved in the Offer ...... 30

Corporate information ...... 34

Industry overview ...... 36

Business Overview ...... 40 Competitive advantages ...... 41 History and development ...... 41 Group structure ...... 45 Product range ...... 46 Sales and marketing ...... 53 Raw materials and procurement ...... 57 Production facilities ...... 58 Production process ...... 68 Subcontractors ...... 70 Quality control ...... 71 Research and development ...... 72 Inventory control ...... 73 Achievements and awards ...... 73 Intellectual property rights ...... 74 Insurance coverage ...... 74 Competition ...... 74 Changes in the ownership of Dongguan Koda from 1994 to 2002 ...... 75 Changes in the ownership of a property in the PRC ...... 79 Legal titles and compliance of certain real properties ...... 80

– iii – CONTENTS

Page

Directors, senior management and staff Directors ...... 83 Senior management ...... 86 Audit committee ...... 87 Company secretary and qualified accountant ...... 87 Staff ...... 87 Retirement benefits schemes ...... 88 Share Option Scheme ...... 88

Interest discloseable under the SFO, substantial shareholders and controlling shareholders ...... 89

Share capital ...... 90

Financial information Indebtedness ...... 92 Liquidity, financial resources and capital structure ...... 93 Disclosure under Rules 13.13 to 13.19 of the Listing Rules ...... 93 Trading record ...... 94 Management discussion and analysis of operating results ...... 95 Financial and liquidity position ...... 107 Dividends ...... 111 Property interests ...... 112 Distributable reserves ...... 115 Unaudited proforma adjusted net tangible assets ...... 115 No material adverse change ...... 116

Future plans Future plans and prospects ...... 117 Reasons for the Offer and use of proceeds ...... 119

Underwriting Underwriters ...... 121 Underwriting arrangements and expenses ...... 121

Structure of the Offer Price payable on application ...... 127 Determining the Offer Price ...... 127 Conditions of the Offer ...... 128 The Offer ...... 128 Offer mechanism – basis of allocation of the Offer Shares ...... 129 Preference to employees ...... 130 Re-allocation of Offer Shares between the Placing and the Public Offer ...... 131

– iv – CONTENTS

Page

How to apply for the Public Offer Shares Which application form to use ...... 132 Where to collect the application forms ...... 132 How to complete the application forms ...... 134 How many applications may you make ...... 134 How much are the Public Offer Shares ...... 135 Full-time employees – time for applying for the Public Offer Shares ...... 136 Members of the public – time for applying for the Public Offer Shares ...... 136 Effect of bad weather on the opening of the application lists ...... 136 Circumstances in which you will not be allocated Public Offer Shares ...... 137 Collection/posting of share certificates/ refund cheques and deposit of share certificates into CCASS ...... 137 Commencement of dealings in the Shares ...... 139 Shares will be eligible for admission into CCASS ...... 140

Appendix I – Accountants’ report ...... 141

Appendix II – Additional financial information of Dongguan Koda ...... 189

Appendix III – Unaudited proforma financial information ...... 209

Appendix IV – Property valuation ...... 213

Appendix V – Summary of certain Thai laws relevant to the Group’s business operations ...... 239

Appendix VI – Summary of the constitution of the Company and Cayman Islands company law ...... 243

Appendix VII – Statutory and general information ...... 265

Appendix VIII – Documents delivered and available for inspection ...... 297

– v – SUMMARY OF THIS PROSPECTUS

This summary aims to give you an overview of the information contained in this prospectus. As this is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the Offer Shares.

There are risks associated with any investment. Some of the particular risks in investing in the Offer Shares are set out in the section headed “Risk factors”. You should read that section carefully before you decide to invest in the Offer Shares.

BUSINESS

The Group is principally engaged in the manufacture and sales of precision metal components used in a variety of applications. By utilising specialised CNC machines and maintaining high level of automation in the production lines, the Group is able to manufacture metal parts and components with high degree of precision and quality that are suitable for various kinds of equipment and devices. Currently, the Group’s precision metal components are principally used in HDDs, hydraulic equipment, fiber optic connectors and electronic devices. HDDs are typically used in computers and other devices that require digital storage capabilities whereas pivot cartridges and spindle motors are two of the major components of HDDs. In particular, the Group’s precision metal components for HDDs mainly include (i) pivot shafts and pivot housings which are used for the manufacture of pivot cartridges; and (ii) FDB spindle motor components. For each of the two years ended 31st December, 2002, the Group’s sales volume of pivot cartridge components was approximately 45.6 million and 39.5 million sets (each set composed of one pivot shaft and one pivot housing) respectively. Since each HDD requires one pivot cartridge, the Group’s sales volume of pivot cartridge components represented approximately 23.3% and 18.5% of the global production volume of HDDs of approximately 196 million and 214 million units in 2001 and 2002 respectively as reported by IDC.

For hydraulic equipment, the Group’s products mainly include hydraulic precision metal components used in hydraulic field while the Group also produces precision metal components for fiber optic connectors. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the Group’s turnover for precision metal components used in HDDs, hydraulic equipment, fiber optic connectors and electronic devices is set out as follows:–

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Precision metal components for:– – HDDs 169,765 87.1 148,787 80.8 168,429 80.9 100,479 76.5 – Hydraulic equipment 6,984 3.6 12,502 6.8 18,754 9.0 18,158 13.8 – Fiber optic connectors 6,682 3.4 11,109 6.0 12,633 6.1 5,883 4.5 – Electronic devices 5,579 2.9 8,398 4.6 5,779 2.8 4,762 3.6 – Others (Note) 5,821 3.0 3,405 1.8 2,660 1.2 2,158 1.6

Total 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

Note: Others refers to miscellaneous metal components for general industrial goods.

– 1 – SUMMARY OF THIS PROSPECTUS

Further details of the Group’s products are set out in the section headed “Product range” in this prospectus.

The Group’s products are mainly sold on an OEM basis to customers located in Thailand, Malaysia, the PRC, Hong Kong, Singapore, North America and Europe. The Group has an active client base of over 35 customers comprising HDD component suppliers and manufacturers of hydraulic products, fiber optic devices and electronic devices. The following table illustrates the breakdown of the Group’s turnover by geographical area for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004:–

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Thailand 124,539 63.9 116,629 63.3 130,309 62.6 74,774 56.9 Malaysia 41,648 21.4 42,402 23.0 50,819 24.4 32,148 24.5 PRC and Hong Kong 16,576 8.5 10,894 5.9 9,699 4.7 7,322 5.6 North America 6,535 3.4 2,394 1.3 3,017 1.4 2,537 1.9 Europe 3,141 1.6 8,768 4.8 12,377 5.9 13,731 10.4 Singapore 2,194 1.1 1,650 0.9 137 0.1 429 0.3 Others 198 0.1 1,464 0.8 1,897 0.9 499 0.4

Total 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

The Group’s products are manufactured in its production facilities which include one production plant in Thailand, one production plant in Dongguan City in the PRC and one production plant in Zengcheng City in the PRC, occupying a combined gross floor area of approximately 30,770 sq.m.. As at the Latest Practicable Date, the Group employed a total of 1,915 full-time employees in Thailand and the PRC. The production plant in Dongguan City in the PRC was awarded ISO 9002 on 3rd February, 2000 and ISO 9001 and QS 9000 on 24th October, 2002 by SGS Yarsley International Certification Services Limited while IPE (Thailand) was awarded ISO 9001 by SGS (Thailand) Limited on 25th January, 2002.

Further information on the Group’s production facilities is set out in the paragraph headed “Production facilities” under the section headed “Business” in this prospectus.

– 2 – SUMMARY OF THIS PROSPECTUS

COMPETITIVE ADVANTAGES

The Directors believe that the Group’s experience in the production of HDD precision metal components provides the Group with an excellent foundation to continue expanding its business in the precision metal component industry. With the broadening in the applications of HDDs in various kinds of consumer electronic products such as gaming consoles, mobile phones and MP3 players, the Directors believe that the growth in demand for HDD precision metal components will continue to increase notwithstanding the possible saturation in the personal computer HDD market. However, the Directors also believe that the Group must be vigilant against complacency and leverage on the immense experience it has amassed over the years through continuously exploring new business opportunities and to widen its product range.

The Directors are of the view that the Group has competitive advantages over its competitors for the following reasons:

• its in-depth knowledge of the implications of high precision product quality on the customers’ sophisticated technologies;

• its expertise in machine fabrication enabling it to customise machines to produce precision components strictly in accordance with customers’ requirements;

• its expertise in machine tooling augmentations which increase machine production capacities, thus enhancing cost effectiveness;

• its ability to provide its customers with high quality products at competitive prices on a just-in-time delivery schedule; and

• its commitment in providing high quality after-sales services.

FUTURE PLANS AND PROSPECTS

Future prospects

As the Directors believe that the Group is one of the major manufacturers of pivot cartridge components in the world, they are confident that the ongoing application of HDDs in the computer industry and their increasing applications in various kinds of consumer electronic products will have a positive impact on the performance of the Group. In addition, the Directors believe that the rapid growth in the computer industry in major developing countries, especially in the PRC, will contribute greatly to the growth of the Group.

The Directors also believe that the Group must continue to strive to reduce its industry risks and expand its market horizon by diversifying the product range of the Group. As the machineries currently utilised by the Group can be altered to manufacture precision components for a wide range of applications, the Group has been diversifying its product lines to serve customers from different manufacturing industries including hydraulic equipment and optical device manufacturers.

– 3 – SUMMARY OF THIS PROSPECTUS

With the experience and the customer base that the Group has built up over the years, the Directors believe that the Group can leverage on its expertise and capitalise on the increasing demand for precision metal components used for different applications. As electronic devices and equipment become increasingly sophisticated and refined, high quality precision components will be required in their production. Therefore, in order to strengthen the Group’s future profitability, maintain its market share and diversify its product range, the Group intends to (i) expand the production facilities and increase the overall production capacity; (ii) upgrade the Group’s production capabilities to meet the changing demands of its customers; (iii) diversify the product range; and (iv) develop new overseas and the PRC markets.

Expanding production facilities and increasing production capacity

The Directors estimated that the production facilities of the Group had been operated at an aggregate of approximately 95% of the total production capacity in 2003. In order to cope with future business growth, the Group has initiated the Zengcheng Development Project and Xing Hao, an indirect wholly-owned subsidiary of the Company, was granted the land use rights for a piece of land with site area of approximately 166,534 sq.m. located at Shang Wei Sha He She, Yue Hu Cun, Xian Cun Zhen, Zengcheng City, Guangdong Province, the PRC (the “Acquired Land”) as the location of the Group’s new production base from 增城市國土資源和房屋管理局 (Zengcheng City Land Resources and Buildings Management Bureau) on 23rd May, 2003. The aggregate consideration of the Acquired Land was approximately RMB28.8 million (equivalent to approximately HK$27.2 million) which was comparable to the open market value of nearby properties. As at 30th June, 2004, the Group had already paid approximately RMB13.7 million (equivalent to approximately HK$12.9 million) from the internal resources of the Group for the purchase of the Acquired Land, with the remaining sum of approximately RMB15.1 million (equivalent to approximately HK$14.2 million) payable on or before 30th June, 2005.

The Group has obtained the State-owned Land Use Right Certificate of the Acquired Land for a term of 50 years expiring on 22nd May, 2053. Vigers Appraisal & Consulting Limited, an independent property valuer, has carried out a property valuation and estimated that the open market value of the Acquired Land as at 31st August, 2004 was approximately RMB29 million (equivalent to approximately HK$27.4 million). Details of the property valuation report are set out in Appendix IV (A) to this prospectus.

The Directors currently plan for the Zengcheng Development Project to be carried out in three phases of which the first phase had commenced construction in December 2003. The first phase of the Zengcheng Development Project includes a two-storey production plant and a six- storey staff quarter with an estimated total gross floor area of approximately 23,275 sq.m. and the construction is expected to be completed by the first quarter of 2005. For the second and third phase of the Zengcheng Development Project, the Directors currently expect that it will involve the construction of one production plant, four staff quarters, one office building and other ancillary facilities with a total gross floor area of approximately 44,544 sq.m.. The Group currently plans to commence the construction of the four staff quarters in 2005 but does not have specific schedule for the production plant and office building. The Directors estimate the total cost for the Zengcheng Development Project to be approximately HK$85.9 million.

As at 30th June, 2004, approximately HK$16 million of the cost for the first phase of the development had been paid and was fully financed by internal resources of the Group.

– 4 – SUMMARY OF THIS PROSPECTUS

The Directors expect to apply part of the proceeds from the Offer, amounting to approximately HK$31.6 million, to finance the Zengcheng Development Project. The remaining funding for the Zengcheng Development Project and the balance payment of the acquisition cost of the Acquired Land will be financed by internal resources of the Group and bank borrowings.

After the completion of the first phase of the Zengcheng Development Project, the production capacity of the Group is expected to increase by approximately 30% and the Group will continue to look for expansion opportunities where appropriate.

Upgrading of production capabilities

The Directors have given particular attention to product quality and cost competitiveness which they considered as crucial factors affecting the Group’s ability to compete and maintain its competitive edge. Emphasis has been placed by the Group on improving the efficiency of the production cycle of the Group’s machineries and improving the quality control process. To achieve these, the Group plans to acquire new machineries to ensure that it is geared up to maintain a high level of production capabilities and to meet the market demand.

Diversifying the Group’s product range

The Directors believe it is important and prudent for a company to diversify its product range to ensure that it does not become overly dependent on the success in one particular industry. In addition to increasing efforts in research and development of current products, the Group constantly explores new market segments where its expertise and production capabilities may be successfully applied. Following months of research and development, market surveys and marketing efforts, the Group has identified and begun the production of precision metal components used in actuators of automobiles. The supply of such precision metal components is a major breakthrough for the Group as it represents a move into a new market segment.

Developing new overseas and the PRC markets

Since the establishment of the Group, the Directors have concentrated on the development of overseas markets including Thailand and Malaysia where the majority of the Group’s customers are based in. However, with the rapid economic and technological development in the PRC, the Directors believe that this is the right time for the Group to begin developing the local PRC market before foreign competitors become entrench.

With the PRC joining the WTO in 2001, the Directors believe that the demand for high quality precision metal components from foreign invested production facilities will increase substantially over the next couple of years. To capitalise on the opportunities in the PRC market and aiming at maintaining its global market share and broadening its customer base, the Group will allocate additional resources in developing the domestic PRC market.

In addition, with the Group’s increasing product range, the Group will also need to explore and expand into new overseas markets. The Group will place more emphasis on developing these overseas markets through appointing sale agents or setting up new sales offices.

– 5 – SUMMARY OF THIS PROSPECTUS

TRADING RECORD

The following table summarises the Group’s audited combined turnover and results for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 which are extracted from the accountants’ report, and the text of which is set out in Appendix I to this prospectus.

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 Note HK$’000 HK$’000 HK$’000 HK$’000

Turnover 1 194,831 184,201 208,255 131,440 Cost of sales (132,907) (106,091) (121,898) (85,698)

Gross profit 61,924 78,110 86,357 45,742

Other revenue 18,040 5,347 3,631 2,647 Distribution and selling expenses (10,122) (7,436) (7,688) (3,623) General and administrative expenses (30,102) (21,071) (30,868) (18,169) Other operating expenses (2,009) (1,660) (1,010) (377)

Profit from operations 37,731 53,290 50,422 26,220

Amortisation of negative goodwill – 620 1,487 744

Impairment loss on goodwill – (1,301) – –

Finance costs (4,753) (3,150) (3,942) (2,122)

Profit before tax 32,978 49,459 47,967 24,842

Taxation (4,506) (5,378) (5,397) (1,995)

Profit before minority interests 28,472 44,081 42,570 22,847

Minority interests – (116) (167) 1

Profit attributable to shareholders 28,472 43,965 42,403 22,848

Dividends – 24,559 5,010 6,050

Earnings per share – basic (HK cents) 2 7.6 11.8 11.4 6.1

– 6 – SUMMARY OF THIS PROSPECTUS

Notes:

1. Turnover represents the invoiced value of goods sold, net of trade discounts and returns.

2. The calculation of the basic earnings per Share is based on the profit attributable to Shareholders for each of the relevant periods and on the assumption that 372,500,000 Shares are in issue and issuable, comprising 100,000,000 Shares in issue as at the date of this prospectus and 272,500,000 Shares to be issued pursuant to the Capitalisation Issue.

Further particulars of the Group’s performance for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 are set out in the section headed “Financial information” in this prospectus.

REASONS FOR THE OFFER AND USE OF PROCEEDS

The Directors consider that the proceeds from the Offer will enhance the Group’s financial strength. A public listing status on the Stock Exchange will offer the Group access to capital markets for corporate finance exercises to assist in its future business development, enhance the Group’s corporate profile and strengthen its competitiveness.

Based on an indicative Offer Price of HK$0.72 per Offer Share (being the mid-point of the stated price range of the Offer Price between HK$0.63 and HK$0.81 per Offer Share), the net proceeds of the Offer, after deduction of all expenses payable by the Company, are estimated to amount to approximately HK$67.6 million. The Directors at present intend to apply the net proceeds as follows:

– approximately HK$31.6 million will be used as the capital expenditure in relation to the Zengcheng Development Project;

– approximately HK$26 million will be used as the capital expenditure relating to the acquisition of new machineries for upgrading production capabilities;

– approximately HK$3.5 million will be used in the research and development of new product range;

– approximately HK$1.5 million will be used in the expansion of overseas and PRC markets; and

– the balance of approximately HK$5 million as general working capital for the Group.

Should the Offer Price be fixed at HK$0.63 or HK$0.81 per Offer Share, being the lowest and highest point of the indicative Offer Price range as stated in this prospectus, the net proceeds from the Offer, after deduction of all expenses payable by the Company, are estimated to be approximately HK$56.4 million and HK$78.8 million respectively. The Directors presently intend to apply the aforesaid net proceeds in the same manner and in the same proportion as shown above.

To the extent that the net proceeds of the Offer are not immediately used for the above purposes, it is the present intention of the Directors that such net proceeds will be placed in short term deposits with authorised financial institutions or licenced banks in Hong Kong, or be used to purchase money market instruments such as investments in bank deposits, government bonds or treasury bills in Hong Kong which can yield stable and recurring return to the Group and are of

– 7 – SUMMARY OF THIS PROSPECTUS low risk profile in general. As the Directors intend that the placing of any deposits or purchase of money market instruments will be of a short term nature only, when future financial needs arise during the implementation of the Group’s future plans, the Group should have sufficient resources to meet the Group’s financial requirements.

OFFER STATISTICS

Combined net profit attributable to shareholders of the Company for the year ended 31st December, 2003 ...... HK$42.4 million

Unaudited proforma basic earnings per Share for the year ended 31st December, 2003 (Note 1) ...... HK8.5 cents

Based on an Based on an Offer Price of Offer Price of HK$0.63 per HK$0.81 per Offer Share Offer Share

Market capitalisation (Note 2) HK$315 million HK$405 million

Historical price/earnings multiple (Note 3) 7.4 times 9.5 times

Unaudited proforma adjusted net tangible asset value per Share (Note 4) HK$0.55 HK$0.60

Notes:

1. The unaudited proforma basic earnings per Share is calculated by dividing the combined net profit attributable to shareholders of the Company for the year ended 31st December, 2003 by a total of 500,000,000 Shares (assuming that the Shares in issue at the date of this prospectus and those Shares to be issued pursuant to the Offer and the Capitalisation Issue had been listed since 1st January, 2003 and in issue throughout the year but without taking account for any Shares which may fall to be issued upon the exercise of any options which may be granted under the Share Option Scheme).

2. The calculation of the market capitalisation of the Shares is based on 500,000,000 Shares in issue immediately after completion of the Offer and the Capitalisation Issue but does not take into account any Shares which may be issued upon exercise of any options which may be granted under the Share Option Scheme or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares as referred to in the paragraph headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in Appendix VII to this prospectus.

3. The calculation of historical price/earnings multiple on a proforma basis is based on the unaudited proforma basic earnings per Share for the year ended 31st December, 2003 of HK8.5 cents per Share and the respective Offer Price of HK$0.63 and HK$0.81 per Offer Share.

4. The unaudited proforma adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed “Unaudited proforma adjusted net tangible assets” under the section headed “Financial information” in this prospectus and on the basis of 500,000,000 Shares in issue at the respective Offer Price of HK$0.63 and HK$0.81 per Offer Share immediately following the completion of the Offer and the Capitalisation Issue.

– 8 – SUMMARY OF THIS PROSPECTUS

RISK FACTORS

The Directors consider that the Group’s business is subject to a number of risk factors which can be divided into the following categories:

(i) Risks associated with the Group

– Sustainability of turnover and profit margin

– Reduction in unit prices of HDD metal components

– Competition

– Reliance on major customers

– Reliance on major products

– Heavy investment in fixed assets

– Uncertainty on newly developed market

– Reliance on key management

– Right to use properties in the PRC

– Credit risk

– Foreign currency

– Taxation in the PRC

– Other tax issues applicable to the Group

– Consolidation of financial results of Dongguan Koda and Xing Hao

– Dividend policy

(ii) Risk associated with the industry

– Technological advancement

(iii) Risks associated with the country

– PRC political and economic considerations

– PRC legal and other regulatory considerations

– Currency conversion and foreign exchange control in the PRC

– Payment of dividends by companies established in the PRC

– 9 – SUMMARY OF THIS PROSPECTUS

– The PRC’s entry into the WTO

– Thailand political and economic considerations

– Thailand legal and other regulatory considerations

– Currency conversion and foreign exchange in Thailand

– The unstableness of the global political and economic environment

Further details are set out in the section headed “Risk factors” in this prospectus.

– 10 – DEFINITIONS

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

“Anglo Dynamic” Anglo Dynamic Limited, a company incorporated in BVI with limited liability on 22nd August, 2001 and an indirect wholly-owned subsidiary of the Company

“associate(s)” has the meanings ascribed thereto in the Listing Rules

“Best Device” Best Device Group Limited, a company incorporated in BVI with limited liability on 12th February, 2002 and is wholly owned by the Company

“Board” the board of directors of the Company

“Business Day” a day (other than a Saturday or Sunday or public holiday or day on which a typhoon signal 8 or above is hoisted in Hong Kong at 9:00 a.m. and remains hoisted for more than 3 hours) on which banks in Hong Kong are normally open for business

“BVI” the British Virgin Islands

“CCASS” the Central Clearing and Settlement System established and operated by HKSCC

“Capitalisation Issue” the issue of Shares to be made upon the capitalisation of part of the share premium account of the Company referred to in the paragraph headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in Appendix VII to this prospectus

“Companies Law” the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

“Company” IPE Group Limited (IPE集團有限公司), a company incorporated in the Cayman Islands with limited liability on 10th July, 2002

“Cyber Starpower” Cyber Starpower Limited, a company incorporated in BVI with limited liability on 3rd January, 2001 and an indirect wholly-owned subsidiary of the Company

“Director(s)” the director(s) of the Company

– 11 – DEFINITIONS

“Dongguan Koda” 東莞科達五金製品有限公司 (Dongguan Koda Metal Products Co., Ltd.), a wholly foreign-owned enterprise established in the PRC on 6th September, 1994 and an indirect wholly-owned subsidiary of the Company

“Group” the Company and its subsidiaries or, where the context so requires, some or any of them or, where the context so requires, in respect of the period before the Company became the holding company of its present subsidiaries, the present subsidiaries of the Company, and “member of the Group” shall be construed accordingly

“HKGAAP” the Hong Kong Generally Accepted Accounting Principles

“HKSCC” Hong Kong Securities Clearing Company Limited

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Indemnifiers” collectively, Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Tottenhill

“IPE (HK)” Integrated Precision Engineering Company Limited, a company incorporated in Hong Kong with limited liability on 13th September, 1994 and an indirect wholly-owned subsidiary of the Company

“IPE (Europe)” I.P.E. Europe S.p.A., a company incorporated in Italy with limited liability on 22nd July, 1999

“IPE (Japan)” (Integrated Precision Engineering (Japan) Company Limited), a company incorporated in Japan with limited liability on 24th January, 2000 and is indirectly owned as to 90% by the Company and as to 10% by a director of IPE (Japan)

“IPE (Macau)” IPE Macao Commercial Offshore Limited, a company incorporated in Macau with limited liability on 22nd April, 2004 and an indirect wholly-owned subsidiary of the Company

“IPE (Singapore)” Integrated Precision Engineering Pte. Ltd., a company incorporated in Singapore with limited liability on 6th December, 1990 and an indirect wholly-owned subsidiary of the Company

“IPE (Thailand)” Integrated Precision Engineering (Thailand) Co., Ltd., a company incorporated in Thailand with limited liability on 18th September, 1997 and approximately 99.99% of its issued share capital is indirectly owned by the Company

– 12 – DEFINITIONS

“Latest Practicable Date” 12th October, 2004, being the latest practicable date for the purpose of ascertaining certain information contained herein prior to the printing of this prospectus

“Lead Manager” Partners Capital

“Lewiston Group” Lewiston Group Limited, a company incorporated in BVI with limited liability on 22nd August, 2001 and an indirect wholly-owned subsidiary of the Company

“Listing Date” the date on which trading in Shares commences on the Stock Exchange

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

“Macau” the Macao Special Administrative Region of the PRC

“Main Board” the stock market operated by the Stock Exchange prior to the establishment of the of the Stock Exchange (excluding the options market) and which continues to be operated by the Stock Exchange

“MasterLink” MasterLink Securities (Hong Kong) Corporation Limited, a deemed licensed corporation for types 1, 4, 6 and 9 regulated activities under the SFO, being the sponsor of the Company

“Mr. Chui” Mr. Chui Siu On, the Chairman of the Group and the managing Director

“Mr. Ng” Mr. Ng Kin Nam, the Vice Chairman of the Group and an executive Director

“Mr. Ho” Mr. Ho Yu Hoi, an executive Director

“Mr. Lai” Mr. Lai Man Kit, an executive Director

“Mr. Li” Mr. Li Chi Hang, an executive Director

“Offer” the Public Offer and the Placing

“Offer Price” the final offer price per Offer Share (excluding , brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee) at which the Offer Shares are to be subscribed for pursuant to the Offer, to be determined as described in the paragraph headed “Determining the Offer Price” under the section headed “Structure of the Offer” in this prospectus

– 13 – DEFINITIONS

“Offer Shares” the Public Offer Shares and the Placing Shares

“Partners Capital” Partners Capital International Limited, which is a licensed corporation to engage in types 1 and 6 of the regulated activities (as defined in the SFO), being the co-sponsor of the Company and the lead manager of the Offer

“Placing” the conditional placing of the Placing Shares at the Offer Price to professional, institutional and other investors as further described in the section headed “Structure of the Offer” in this prospectus

“Placing Shares” the 114,750,000 new Shares initially being offered for subscription by the Company pursuant to the Placing (subject to re-allocation as described in the paragraph headed “Re-allocation of Offer Shares between the Placing and the Public Offer” under the section headed “Structure of the Offer” in this prospectus)

“Placing Underwriters” the underwriters of the Placing Shares listed in the paragraph headed “Placing Underwriters” under the section headed “Underwriting” in this prospectus

“PRC” the People’s Republic of China, except where the context so requires, references in this prospectus to the PRC do not include Hong Kong, Macau or Taiwan

“Public Offer” the offer for subscription of the Public Offer Shares at the Offer Price payable in full on application, on and subject to the terms and conditions set out in this prospectus and the related application forms

“Public Offer Shares” the 12,750,000 new Shares initially being offered for subscription by the Company pursuant to the Public Offer (subject to re-allocation as described in the paragraph headed “Re-allocation of Offer Shares between the Placing and the Public Offer” under the section headed “Structure of the Offer” in this prospectus)

“Public Offer Underwriters” the underwriters of the Public Offer Shares listed in the paragraph headed “Public Offer Underwriters” under the section headed “Underwriting” in this prospectus

“Reorganisation” the corporate reorganisation of the Group in preparation for the listing of the Shares on the Stock Exchange, details of which are set out in the section headed “Group reorganisation” in Appendix VII to this prospectus

“SFC” The Securities and Futures Commission of Hong Kong

– 14 – DEFINITIONS

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company

“Shareholder(s)” holder(s) of the Shares

“Share Option Scheme” the share option scheme conditionally adopted by the Company on 12th October, 2004, the principal terms of which are summarised in the section headed “Share Option Scheme” in Appendix VII to this prospectus

“Singapore” the Republic of Singapore

“Sponsors” MasterLink and Partners Capital

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Tai Situpa” Tai Situpa Group Limited, a company incorporated in BVI with limited liability on 18th November, 1997 and an indirect wholly-owned subsidiary of the Company

“Thailand” the Kingdom of Thailand

“Tottenhill” Tottenhill Limited, a company incorporated in BVI with limited liability on 22nd August, 2001 and is wholly owned by Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li as to approximately 51.3%, 25%, 13.9%, 6% and 3.8% respectively

“Track Record Period” the financial period for the three years ended 31st December, 2003 and the six months ended 30th June, 2004

“Underwriters” the Public Offer Underwriters and the Placing Underwriters

“Underwriting Agreement” the underwriting and placing agreement dated 18th October, 2004 entered into between, inter alia, the Company, the executive Directors and the Underwriters

“US” the United States of America

“WTO” the World Trade Organisation

“Xing Hao” 廣州市新豪精密五金制品有限公司(Guangzhou Xing Hao Precision Metal Products Co., Ltd.), a wholly foreign-owned enterprise established in the PRC on 19th June, 2002 and an indirect wholly-owned subsidiary of the Company

– 15 – DEFINITIONS

“Zengcheng Development the development project carried out by the Group to Project” construct production facilities with a total gross floor area of approximately 67,819 sq.m. in Zengcheng City, Guangdong Province, the PRC, details of which are set out in the section headed “Future plan” in this prospectus

“Baht” Thai Baht, the lawful currency of Thailand

“Euro” the lawful currency of the European Union

“HK$” and “¢” Hong Kong dollars and cents, respectively, the lawful currency of Hong Kong

“MOP” Patacas, the lawful currency of Macau

“RMB” Renminbi, the lawful currency of the PRC

“S$” Singapore dollars, the lawful currency of Singapore

“US$” US dollars, the lawful currency of US

“Yen” and “¥” the lawful currency of Japan

“sq. ft.” square feet

“sq. m.” square metres

“%” per cent.

In this prospectus, for information purposes only and unless otherwise indicated, amounts quoted in US$, Euro, S$, RMB, Baht and ¥ have been converted into Hong Kong dollars at the following rates:

US$1 = HK$7.79 Euro 1 = HK$9.60 S$1 = HK$4.62 HK$1 = RMB1.06 HK$1 = Baht5.31 HK$1 = ¥14.09

Such exchange rates have been used, where applicable, for purposes of illustration only and do not constitute a representation that any amounts have been, could have been or may be exchanged, at these or any other rates.

– 16 – GLOSSARY OF TECHNICAL TERMS

“CAGR” acronym for compound annual growth rate

“CNC” acronym for computer numerical control, a technology in machining featured with built-in computer aided design/ computer aided manufacturing software program for precision manufacturing process

“FDB” fluid dynamic bearing, a new form of bearing technology used in the production of HDD spindle motors

“GDP” acronym for gross domestic product

“HDD(s)” hard disk drive(s)

“Internet” a global network of interconnected, separately administered public and private computer networks

“ISO” the International Organisation for Standardisation, a worldwide federation of national standardisation bodies

“ISO 9001” or “ISO 9002” the standards under the family of ISO 9000, a series of international standards on quality management and quality assurance developed by the ISO

“MP3” acronym for MPEG audio Layer-3, a format that compresses audio sound into small size file for easy transmission

“MPEG” acronym for Moving Picture Experts Group, the committee that developed international standards for compression, decompression, processing, and coded representation of moving pictures, audio, and their combination, in order to satisfy a wide variety of application

“NRRO” non-repeatable runout, a way to measure the error motion of a rotating precision disk drive spindle

“OEM” original equipment manufacturing, a type of manufacturing under which products are manufactured in whole or in part in accordance with a customer’s specifications and are marked under the customer’s own brand name

“PC(s)” personal computer(s)

“PDA(s)” personal digital assistant(s)

“QS 9000” the ISO standards specialised for suppliers in the automotive industry. This quality management system standard contains all of ISO 9001, along with automotive sector-specific and other major automobile manufacturers’ customer-specific requirements

“µm” micro-meters, equivalent to 0.0001 centimeter

– 17 – RISK FACTORS

In evaluating an investment in the Offer Shares, potential investors should consider carefully all the information contained in this prospectus, including the risk factors set out below.

RISKS ASSOCIATED WITH THE GROUP

Sustainability of turnover and profit margin

For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the turnover achieved by the Group was approximately HK$195 million, HK$184 million, HK$208 million and HK$131 million respectively while the net profit margin for each of the corresponding periods was approximately 14.6%, 23.9%, 20.4% and 17.4% respectively. The drop in turnover from approximately HK$195 million in 2001 to approximately HK$184 million in 2002 was primarily due to the sluggish global economy and weak consumer confidence in Asia. In addition, the drop in average unit selling price of the Group’s HDD metal components by approximately 11.8% from HK$1.7 in 2001 to HK$1.5 in 2002 also contributed to the drop in turnover although sales volume of HDD metal components increased slightly from about 96.7 million units in 2001 to about 97.8 million units in 2002. The rise in the net profit margin in 2002 was mainly attributable to the reduction in material costs and the change in depreciation policy for the Group’s machineries and equipment. The drop in the net profit margin for the year ended 31st December, 2003 and the six months ended 30th June, 2004 was due to a combination of lower selling prices which affected the gross margin, higher staff costs and the absorption of approximately HK$2.1 million pre- operating expenses for the setting up of a new plant in Zengcheng City, the PRC. There is no assurance that the turnover of the Group will re-achieve a growth or the net profit margin can be maintained at a similar level in the future.

Reduction in unit prices of HDD metal components

The Group’s turnover and profit were mainly derived from sales of HDD precision metal components. For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, turnover derived from sales of HDD precision metal components accounted for approximately 87.1%, 80.8%, 80.9% and 76.5% respectively of the total turnover of the Group. However, the selling prices for pivot shafts, pivot housings and FDB spindle motor components had been decreasing continuously since 2001. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the average unit selling price of the Group’s HDD precision metal components was approximately HK$1.7, HK$1.5, HK$1.2 and HK$1.15 respectively. The decrease in selling prices of the Group’s products may lead to the fall in turnover especially when the sales volume could not be increased further as a result of insufficient production capacity or market demand. In the event that the selling prices of HDD metal components or other components produced by the Group continue to decrease in the future, and the Group is unable to mitigate the impact by increasing the sales volume, the Group’s financial performance would be adversely affected.

Competition

So far as the Directors are aware, there are a number of precision metal components manufacturers in the world that are capable of manufacturing pivot cartridge and FDB spindle motor components. Although the Group’s average sales volume of pivot cartridge components represented approximately 23.3% and 18.5% of the global production volume of HDDs for each of the two years ended 31st December, 2002 respectively, there is no assurance that the Group will be able to maintain its market share in the future.

– 18 – RISK FACTORS

In addition, although the Group maintains close relationships with its customers, there is no assurance that the Group will be able to compete successfully against its competitors in the future. In the event that the Group fails to retain its customers or remain competitive, the Group’s profitability will be adversely affected.

Reliance on major customers

During each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, sales to the five largest customers of the Group, who are independent third parties, accounted for approximately 89.9%, 84.0%, 83.6% and 83.0% respectively of the Group’s total turnover. During the same period, the largest customer of the Group accounted for approximately 63.3%, 45.8%, 29.7% and 27.3% respectively of the Group’s total turnover. The turnover contribution from the largest customer of the Group continued to decrease during the Track Record Period as the Group diversified customer risk by placing less reliance on a particular customer. At the same time, demand for FDB spindle motor components surged in 2002 as a new customer started to place orders for this product with the Group and sales to this customer amounted to approximately HK$28.0 million, representing approximately 15.2% of the total turnover for 2002. As a result, the turnover contribution from the largest customer of the Group, which primarily purchased HDD pivot cartridge components, decreased from 63.3% in 2001 to 45.8% in 2002. For the year ended 31st December, 2003 and the six months ended 30th June, 2004, sales contribution from the aforesaid customer for FDB spindle motor components even increased to approximately 29.7% and 27.3% respectively of the total turnover and it became the largest customer of the Group for the above periods. However, the Group has not entered into any long-term contracts with its major customers but rather operates on an order-by-order basis.

Whilst the Directors believe that the Group has established good business relationships with its major customers, in the absence of long-term sales contracts, there is no assurance that these customers will continue to place their purchase orders with the Group in the future. In the event that any of these customers ceases to purchase products from the Group, the Group’s business and profitability may be adversely affected.

Reliance on major products

The turnover of the Group primarily relied on the sales of precision metal components used in HDDs. For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the sales of precision metal components used in HDDs accounted for approximately 87.1%, 80.8%, 80.9% and 76.5% of the turnover of the Group respectively. Therefore, any decline in the demand for the precision metal components used in HDDs may have a negative impact on the Group’s profitability.

Heavy investment in fixed assets

The Group’s business is, to a significant extent, capital intensive and therefore the Group has a large proportion of its fixed assets relative to its total assets. As at 30th June, 2004, the Group’s fixed assets accounted for approximately 70.8% of its total assets and the net book value of the Group’s plant and machinery amounted to approximately HK$208.5 million, representing approximately 46.8% of the total assets. The Group’s capital expenditure was primarily financed by short-term and long-term bank borrowings, finance leases and profit generated from operations. As at 31st December, 2001, 2002 and 2003 and 30th June, 2004, the aggregate of the Group’s short-term borrowings, current portion of long-term borrowings and current portion of obligations under finance leases were approximately HK$49.6 million, HK$33.9 million, HK$59.1 million and HK$86.2 million respectively while the cash and bank balances amounted to approximately HK$49.7 – 19 – RISK FACTORS million, HK$32.2 million, HK$15.8 million and HK$28.1 million respectively. Substantial financial resources of the Group had been utilised for the purchase of fixed assets which amounted to approximately HK$23.6 million, HK$39.6 million, HK$39.1 million and HK$25.2 million respectively for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004.

Should the Group fail to generate sufficient cash flows from its operations in the future, it may need to raise additional funds through debts or other forms of financing to repay its debts and/ or finance its operations.

In the event that the Group is unable to raise additional funds, its operations and financial results would be adversely affected. The Group may need to meet its funding requirement through equity financing, which may in turn dilute the interest of the Shareholders. If the Group is unable to serve or repay its debts, and to the extent that the debts are secured by assets of the Group and/ or guarantees from the Company, the relevant creditors may choose to enforce the security and liquidate the pledged assets and/or demand repayment by the Company as guarantor. Any enforcement by creditors could adversely affect the operations and financial results of the Group. In addition, if the Group needs to raise additional funds through debts and the interest rates rise significantly, the Group’s interest expenses will also increase and adversely affect the Group’s profitability.

Uncertainty on newly developed market

As part of the Group’s expansion plan, it intends to further diversify its product lines by increasing the Group’s manufacturing capacity and allocating a larger portion of the capacity to, and placing more effort in, the production of precision metal components used in automobile parts. Notwithstanding that the general production process of precision metal components for automobile parts are similar to that for HDDs components, the manufacture and sale of this kind of product is still relatively unproven for the Group. The success of this line of business depends on a number of factors including the success in securing orders from customers in these sectors, the effectiveness of the Group’s marketing efforts and market demand for the end products. There is no assurance that the Group will gain market acceptance to carry on the new product line. In such event, the Group may not be able to recoup the related investment and marketing costs and its profitability may be adversely affected.

Reliance on key management

To a significant extent, the Group’s success depends on the experience, expertise and the continuous services of the executive Directors including Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li. The Group’s performance also depends on its ability to retain and motivate its key officers and employees as named in the paragraph headed “Senior management” under the section headed “Directors, senior management and staff” in this prospectus. The Group has not entered into any long-term employment contracts with any of its officers and employees other than service agreements with each of the executive Directors for an initial term of three years commencing from 1st January, 2004 and shall continue thereafter until terminated by either party by giving to the other not less than six calendar months’ notice in writing expiring not earlier than the last day of the initial term of three years.

However, there is no assurance that the Group will be able to retain the continuing services of the executive Directors and the members of the senior management and the operations of the Group may be adversely affected, if for any reason, replacement cannot be found on a timely and commercially viable manner. – 20 – RISK FACTORS

Right to use properties in the PRC

As at the Latest Practicable Date, the Group has not obtained the relevant State-owned Land Use Right Certificates for two parcels of land (“Land B and Land C”) with a total site area of approximately 10,317 sq.m. and the relevant Real Property Ownership Certificates for eight items of ancillary structures with a total gross floor area of approximately 2,382.33 sq.m. located at Huang Si Wei Guan Li Qu, Dongguan City, Guangdong Province, the PRC (property numbered 2 in the property valuation report contained in Appendix IV (A) to this prospectus).

The Group has applied for the State-owned Land Use Right Certificates for Land B and Land C and pursuant to a Notarial Certificate dated 10th February, 2004 issued by 東莞市國土資 源局石碣分局 (Dongguan Land Resources Bureau Shi Xie Branch), the application is currently being processed by the relevant PRC government authority.

The eight items of ancillary structures without the Real Property Ownership Certificates include three staff quarters, two guardrooms, a canteen, a warehouse and an electricity distribution room. The Directors consider that all of these structures are ancillary in nature and not material to the Group’s business activities.

In addition, the Group has not obtained the Real Property Ownership Certificates for certain ancillary facilities of Xing Hao with a total gross floor area of approximately 560 sq.m. located at Jiao Keng, Lan Tian She Shui Men Tou (Tu Ming), Xian Lian Cun Xian Cun Town, Zengcheng City, Guangdong Province, the PRC (property numbered 3 in the property valuation report contained in Appendix IV (A) to this prospectus). The applications for the relevant Real Property Ownership Certificates are under process. In respect of the Zengcheng Development Project, construction of a staff quarter building was commenced in December 2003 but at that time the Group had not yet obtained the Construction Commencement Permit. The commencement of the construction work for the staff quarter building was therefore not in compliance with the relevant PRC laws and regulations. In May 2004, all the required construction permits in respect of the Zengcheng Development Project were obtained by the Group.

In any event, if the Group cannot obtain the relevant title certificates in relation to the above-mentioned properties, the Group may suffer losses and may have to incur costs and expenses in relocating and/or demolishing the ancillary structures on the properties. The Group may also be subject to payment of fine for its non-compliance in obtaining the relevant Construction Commencement Permit before the construction work in respect of the Zengcheng Development Project began. If the above stated events should occur, the Group’s business, operating results and financial condition may be adversely affected.

Credit risk

A substantial portion of the Group’s sales to its customers is made on credit terms ranging from 30 days to 120 days. For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the trade debtors’ turnover days of the Group were 87 days, 79 days, 111 days and 90 days respectively. The increase in the trade debtors’ turnover days for the year 2003 was due to the fact that credit terms for two major customers were extended to 90 days and 120 days respectively in 2003. In addition, as at each of 31st December, 2001, 2002 and 2003, trade receivables of the Group overdue for more than 120 days amounted to approximately HK$3.4 million, HK$2.6 million and HK$6.5 million respectively, representing approximately 7.4%, 6.5% and 10.3% of the total trade receivable balances. However, all the outstanding debtors as at each of 31st December, 2001, 2002 and 2003 were either subsequently settled or fully provided for. As at

– 21 – RISK FACTORS

30th June, 2004, trade receivables of the Group overdue for more than 120 days only amounted to approximately HK$67,000, representing approximately 0.1% of the total trade receivables, and such amount was also subsequently settled. Bad debts experienced by the Group during the three years ended 31st December, 2003 were insignificant which merely represented approximately 0.2%, 0.05% and 0.03% respectively of the Group’s total turnover. For the six months ended 30th June, 2004, the Group did not have bad debts written off.

Although the Directors consider that the Group’s credit control policies and collection actions are carried out effectively and efficiently, there is no assurance that the Group will not encounter material difficulties in collecting trade receivables in the future, and in such case, the Group may be exposed to the risk of significant amount of bad and doubtful debts and the business and financial results of the Group may be adversely affected.

Foreign currency

The Group is subject to foreign currency exposure since its purchases are mainly settled in US dollars, HK dollars and Yen, which accounted for approximately 11.2%, 11.7% and 66.6% respectively of the Group’s total purchases for the year ended 31st December, 2003 and approximately 11.2%, 13.6% and 62.9% respectively for the six months ended 30th June, 2004. Revenue derived from sales of precision metal components are, however, mainly denominated in US dollars, which accounted for over 90% of the Group’s turnover during the above periods. The Group has not previously adopted any policy to hedge against its currency risk. However, the Group is planning to buy currency forward contracts to hedge the potential currency risk against the Group starting from the second half of 2004. Nevertheless, there is no assurance that any movement in the exchange rates between the currencies in which the Group’s purchases are denominated and those in which the Group’s revenue is denominated may not have adverse impact on the Group’s business and profitability.

Taxation in the PRC

The Group currently has two wholly-foreign owned enterprises in the PRC, Dongguan Koda and Xing Hao, details of which are summarised in the paragraph headed “Information about the Group’s wholly-foreign owned enterprises in the PRC” under the section headed “Further information about the business of the Group” in Appendix VII to this prospectus. Under the PRC Income Tax Law, both Dongguan Koda and Xing Hao are entitled to exemption from PRC Enterprise Income Tax for two years starting from their first profit-making year, following by 50% relief for the three years thereafter. As Dongguan Koda became profitable during the financial year ended 31st December, 1999, it was exempted from PRC Enterprise Income Tax for the years ended 31st December, 1999 and 2000 and subject to 50% relief on the then prevailing tax rate for the following three years ended 31st December, 2003. Thereafter Dongguan Koda is supposed to be subject to the full PRC Enterprise Income Tax.

However, Dongguan Koda was appraised as 高新技術企業 (New and High Technology Enterprise) in June 2003 and is entitled to preferential Enterprise Income Tax rate under the applicable PRC regulations. On 16th September, 2003, Dongguan Koda successfully obtained approval from the Dongguan Taxation Bureau and was subject to preferential income tax rate of 7.5% for the financial year ended 31st December, 2003. On 13th November, 2003, Dongguan Koda obtained another approval from the Dongguan Taxation Bureau and it is now subject to a tax rate of 10% for the following three years ending 31st December, 2006. However, if Dongguan Koda ceases to be a New and High Technology Enterprise, such preferential tax treatment will be terminated.

– 22 – RISK FACTORS

Xing Hao had started production in July 2003 and recorded a net operating loss for the year ended 31st December, 2003. It will only be subject to 50% PRC Enterprise Income Tax after two years of first profit-making year and full tax rate three years thereafter.

As such, the Group is exposed to changes in the PRC taxation system which may result from, among other factors, changes in the taxation policies adopted by the PRC government. Should there be changes to the above policies in the future or the Company is unable to benefit from the preferential taxation policy, the tax burden of the Group will increase and may materially affect the Group’s profit.

Other tax issues applicable to the Group

The Group has business and manufacturing establishments in various countries and territories other than the PRC such as Thailand and Japan. The Directors consider that the operations of such establishments were properly carried out during the Track Record Period and all the local tax requirements in which the establishments resided were properly complied with according to the relevant tax authorities or available tax arrangements. In particular, IPE (Thailand) is principally subject to income tax at the rate of 30% on the estimated assessable profits arising in or derived from Thailand. However, under the applicable Thailand tax laws and regulations, IPE (Thailand) is entitled to exemption from income tax for a period of three years from the approved date on which income was first derived from the production facilities constructed in Thailand. The Phase I production facilities of IPE (Thailand) was completed in May 2000 and therefore the Board of Investment in Thailand offered IPE (Thailand) under the Investment Promotion Act B.E. 2542 income tax exemption for a period of three years effective from 2nd June, 2000 to 1st June, 2003 for any estimated assessable profits arising from Phase I production facilities of IPE (Thailand). Also, the Phase II production facilities of IPE (Thailand) was completed in December 2002 and the Board of Investment in Thailand further granted IPE (Thailand) under the Investment Promotion Act B.E. 2545 an income tax exemption period from 3rd January, 2003 to 2nd January, 2006 for any estimated assessable profits arising from Phase II production facilities of IPE (Thailand). Further details of tax incentives enjoyed by the Group’s companies are set out in the paragraph headed “Taxation” under the section headed “Financial information” in this prospectus.

The Group’s tax holidays in Thailand for the Phase I production facilities of IPE (Thailand) expired on 1st June, 2003 and the tax holidays for the Phase II production facilities will expire on 2nd January, 2006. Upon expiration of the above tax holidays, IPE (Thailand) is expected to be subject to a full income tax rate of 30% and the Group’s tax charges will increase accordingly. In addition, in the event that there is any change in the interpretation or enforcement of the applicable tax rules in the jurisdictions where the Group has operations, the tax liability of the Group will increase, thereby affecting the profitability of the Group.

Consolidation of financial results of Dongguan Koda and Xing Hao

In accordance with the《中外合資經營企業合營各方出資若干規定的補充規定》 (Capital Contributions by the Parties to Sino-foreign Equity Joint Ventures Several Provisions – Supplementary Provisions) (the “Capital Contribution Provisions”) issued by 中國對外貿易經濟 合作部 (Ministry of Foreign Trade and Economic Co-operation) (or currently known as 中國商務 部 (Ministry of Commerce)) and 國家工商行政管理局 (State Administration for Industry and Commerce) on 29th September, 1997, the financial results of Dongguan Koda and Xing Hao are not permitted to be consolidated into the audited consolidated accounts of the Group before their registered capital is fully paid up. However, the Company’s auditors and reporting accountants have confirmed that in accordance with HKGAAP, the financial results of Dongguan Koda and Xing Hao must be consolidated into the audited consolidated accounts of the Group. – 23 – RISK FACTORS

Pursuant to the Listing Rules, the accountants’ reports contained in the listing documents must be prepared in conformity with either the Hong Kong Financial Reporting Standards (or previously HKGAAP) or the International Financial Reporting Standards. The Company opted for HKGAAP as the basis for its accountants’ report and pursuant to which a holding company beneficially interested in over 50% of the equity interest or controlling the majority of the board of directors of a subsidiary should consolidate the subsidiary’s financial results. On this basis, the accounts of Dongguan Koda and Xing Hao are both eligible for consolidation into the Group’s consolidated accounts under HKGAAP.

The Group’s PRC legal advisers advised that as the relevant PRC authorities had approved the subsequent increases and contribution by installments in the registered capital of Dongguan Koda and Xing Hao, the fact that their registered capital was not fully paid up was permitted and it would not be in breach of the articles of association or the approval documents of Dongguan Koda and Xing Hao. Further, the continuing legal existence of Dongguan Koda and Xing Hao and the Company’s decision making power, control of the voting rights and ownership over them would not be affected and the legal person status of Dongguan Koda and Xing Hao would not be revoked as a result of the consolidation action. To protect the interest of the Group, however, each of the Indemnifiers have jointly and severally undertaken to indemnify Dongguan Koda and Xing Hao, and their respective direct or indirect holding companies within the Group, against all claims, fines, penalties, expenses or losses whatsoever which may be incurred, suffered by, made against or become payable by any of them as a result of or otherwise in connection with the breach of the Capital Contribution Provisions.

However, there is possibility that the relevant PRC authorities may impose sanction on Dongguan Koda or Xing Hao as a result of the breach by the Company of the Capital Contribution Provisions. In such event, the Group’s operations could be adversely affected.

Dividend policy

For each of the two years ended 31st December, 2003 and the six months ended 30th June, 2004, the Group declared dividends of approximately HK$24.6 million, HK$5.0 million and HK$6.1 million respectively to its then shareholders. There is no assurance that dividend distributions will continue in the future. The amount of dividends to be declared is subject to, among others, the discretion of the Directors, the Group’s earnings, financial conditions, cash requirements and availability and other relevant factors. The past dividend distribution record as mentioned above should not be used as a reference or basis to determine the amount of future dividends.

RISK ASSOCIATED WITH THE INDUSTRY

Technological advancement

The Group’s primary products are precision metal components used in HDDs and its major customers are generally HDD component suppliers. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the revenue derived from sales of HDD metal components accounted for approximately 87.1%, 80.8%, 80.9% and 76.5% of the Group’s total turnover respectively.

The data storage industry is however rapidly developing and the technology used is constantly advancing. If the Group cannot adapt to changes in customers’ requirements or do not keep pace with the emergence of new technological advancement in the data storage industry, the Group may not be able to produce the required components or produce them at competitive prices. The failure to manufacture the components or manufacture them at competitive prices will result in a loss of the Group’s market share and will have an adverse effect on the turnover and profitability of the Group.

– 24 – RISK FACTORS

RISKS ASSOCIATED WITH THE COUNTRY

PRC political and economic considerations

The development of the Group’s business is dependent on, among other factors, the prevailing political and economic conditions in the PRC.

The PRC has had a long history of running a planned economy. In spite of the fact that the PRC government has undergone a series of economic reforms to transform the PRC economy into a market economy with socialist characteristics, a large part of the PRC economy is still operated under the five-year plans and annual state plans. Through these plans and the current political system, the PRC government exerts considerable direct and indirect influences on the country’s economy by establishing economic measures, such as control on foreign exchange, taxation and restrictions on the import and distribution of goods.

With the PRC government undertaking a series of administrative and structural reform to its economic planning and political system, there is no assurance that any adjustment or refinement made to the reform policy will not have any material adverse effect on the Group’s business and operation.

PRC legal and other regulatory considerations

The PRC legal system is a civil law system which is based on written statutes and in which decided legal cases have little precedential value. Although since 1979, many laws and regulations governing economic and business practices have been promulgated, the PRC legal system is still considered to be underdeveloped in comparison with the legal systems of some western countries. The interpretation of the PRC law may be inconsistent and somehow influenced by policy changes reflecting domestic political and social changes. In addition, the enforcement of existing laws can be uncertain and unpredictable.

Significant progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations laws could have negative impacts on the business and prospects of the Group’s business.

Currency conversion and foreign exchange control in the PRC

RMB is not freely convertible to other currencies, except under certain circumstances. Pursuant to《外㶅管理條例》 (the “Foreign Exchange Control Regulations”) and 《結㶅、售㶅及 付㶅管理規定》 (the “Regulations on the Foreign Exchange Settlement, Sale and Payments”), subject to the provision to the banks which are authorised to engage in foreign exchange business of all the required documents under the relevant PRC laws, foreign investment enterprises are permitted to remit their profit or dividends in foreign currencies overseas or repatriate such profit or dividends after converting the same from RMB to foreign currencies through banks which are authorised to engage in foreign exchange business. Foreign investment enterprises are permitted to convert Renminbi to foreign currencies for items in current account (including, for example, dividend payments to foreign investors). Control over conversion of Renminbi to foreign currencies for items in capital account (including, for example, direct investment, loan and investment in securities) is more stringent.

– 25 – RISK FACTORS

The Group’s business operations are, to a significant extent, undertaken by wholly foreign- owned enterprises established in the PRC, which are subject to the above regulations. There is no assurance that the Group will obtain sufficient foreign exchange for payment of dividends or other settlements in foreign exchange.

Payment of dividends by companies established in the PRC

Under the PRC laws, dividends may be paid only out of distributable profits. Distributable profits of the Company’s two indirect wholly-owned subsidiaries established in the PRC, Dongguan Koda and Xing Hao, are represented by their respective after-tax profits as determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”), and deduct any recovery of accumulated losses and allocations to statutory funds that they are required to make. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years.

The calculation of distributable profits under PRC GAAP differs in many respects from that under HKGAAP. As a result, Dongguan Koda and Xing Hao may not be able to pay any dividend in a given year to the Company if they do not have distributable profits as determined under PRC GAAP (even if they have profits for that year as determined under HKGAAP). Since the Group derives a majority of its profits from Dongguan Koda and Xing Hao, the Group may not have sufficient distributable profits to pay dividends to the Shareholders, in the event that they do not have distributable profits as determined under PRC GAAP.

The PRC’s entry into the WTO

On 11th November, 2001, the PRC signed an accord to join the WTO. Gradual liberalisation and economic transformation will draw the attention of foreign investors, particularly from the US. In addition, after the PRC’s entry into the WTO, foreign manufacturers will face intensified competition from goods made by PRC enterprises in the international market. The pace for local enterprises in the PRC to catch up with foreign enterprises in terms of product quality and competitiveness has hastened as a result of expected liberalisation and increased investment in product research after the PRC’s WTO accession.

The PRC’s entry into the WTO may lead to intensification of direct competition with other foreign investors which are to establish manufacturing facilities in the PRC. This trend may have adverse effect on the performance and operations of the Group.

Thailand political and economic considerations

The Group has business operations in Thailand where the political environment differs from those prevailing in other countries in that the political system in Thailand is less transparent and the economic condition in Thailand is less developed. Accordingly, certain of the Group’s major customers in Thailand and thus the Group’s operating results may be influenced by the political situation in Thailand. Any possible future political instability in Thailand could have an adverse effect on the Group’s business and operations.

The Group’s performance is also partially dependent on the development of the Thai economy. From 1997 to 1998, Thailand’s GDP recorded negative growth rate and the country went into a recession. According to the National Economic and Social Development Board, the Thai economy began to recover in 1999 and Thailand’s GDP grew by 4.4% in 1999, 4.6% in 2000, 1.9% in 2001, 5.4% in 2002 and 6.7% in 2003. There is no assurance that the Thai economy will continue to

– 26 – RISK FACTORS improve in the future and any downturn in the Thai economy may have a material adverse effect on the Group’s results of operations and financial conditions. In addition, the Group’s business, financial conditions and results of operations could be materially adversely affected if there were any changes in government policies in Thailand involving exchange controls, tax policies and other matters.

Thailand legal and other regulatory considerations

IPE (Thailand) is an entity established under the laws of Thailand and is subject to the requirements set out in the Foreign Business Act B.E. 2542 (A.D. 1999) which restricts any Thai company with the majority of its shares held by foreign individuals from operating certain businesses in Thailand. Currently, the business operated by IPE (Thailand) is not restricted under the aforesaid restrictions. However, any subsequent change in the prevailing laws and regulations in Thailand that may prohibit the Group from operating its existing business in Thailand may have material adverse impact on the Group’s overall operations.

Currency conversion and foreign exchange in Thailand

Baht is freely convertible to other currencies but historically the exchange rates of Baht to other currencies are highly volatile. Even though substantially all of the Group’s revenue are denominated in US dollars, any significant unfavourable movement in the value of Baht against US dollars or Hong Kong dollars may have an adverse effect on the operating costs of IPE (Thailand), which may have an overall adverse effect on the Group’s profitability.

Under the foreign exchange regulations in Thailand, outward remittance from Thailand of dividends may be made without exchange control permission from the Bank of Thailand if it is satisfied that the supporting documents provided are in order. However, as the Bank of Thailand has a policy of disallowing any person to bring Baht currency out of Thailand, dividends paid to a non-Thai resident should be converted into foreign currency prior to the outward remittance from Thailand. The Group is currently free to convert Baht into foreign currency through commercial banks and certain other entities which are authorised to engage in foreign exchange business. However, there is no assurance that the relevant rules and regulations would not be changed in the future and any foreign exchange control policies enacted by the Thai government may prevent the Group from repatriating profits from its business operations in Thailand.

The unstableness of the global political and economic environment

The Directors consider that the business performance and financial position of the Group is subject to the general economic conditions in the world. Following the terrorist attacks in New York and Washington, the US on 11th September, 2001, the US economy suffered material damage and the global business environment was also affected by the uncertain political and economic conditions in the US.

In addition, the war in Afghanistan launched by the US, the Arab-Israeli conflict and the unstable environment of post-Iraq War in the Middle East have brought economic uncertainty and have affected the global financial markets. It is generally believed that if the economic uncertainty persists, this may have an adverse effect on the performance and operations of the Group.

– 27 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFER

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

This prospectus includes particulars given in compliance with the Companies Ordinance, the Securities and Futures (Stock Market Listing) Rules (Subsidiary Legislation V of Chapter 571 of the Laws of Hong Kong) and the Listing Rules for the purposes of giving information to the public with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this prospectus 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 in this prospectus misleading.

THE OFFER

The Company is offering a total of 127,500,000 new Shares for subscription under the Public Offer and the Placing (subject to re-allocation), in each case at the Offer Price.

This prospectus and the related application forms set out the terms and conditions of the Offer.

FULLY UNDERWRITTEN

Listing of the Shares on the Main Board is sponsored by MasterLink and Partners Capital and the Offer is managed by the Lead Manager. Subject to the terms of the Underwriting Agreement, the Placing Shares are fully underwritten by the Placing Underwriters and the Public Offer Shares are fully underwritten by the Public Offer Underwriters. For further information about the underwriting arrangements, see the section headed “Underwriting” in this prospectus.

OFFER SHARES OFFERED IN HONG KONG ONLY

No action has been taken in any jurisdiction other than Hong Kong to permit the offering of the Offer Shares or the distribution of this prospectus in any jurisdiction other than Hong Kong. This prospectus is not an offer or invitation, nor is it calculated to invite or solicit offers in any jurisdiction in which it is not authorised, and is not an offer or invitation to any person to whom it is unlawful to make an unauthorised offer or invitation.

The Offer Shares are offered solely on the basis of the information contained and the representations made in this prospectus and the related application forms. No person is authorised in connection with the Offer to give any information or to make any representation not contained in this prospectus and any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsors, the Lead Manager and all other Underwriters, their respective directors or any other parties involved in the Offer.

DETERMINATION OF THE OFFER PRICE

The Offer Shares are being offered at the Offer Price which is expected to be determined by agreement between the Lead Manager (for itself and on behalf of the Underwriters) and the Company on or before 8:00 p.m. on 26th October, 2004. If the Lead Manager (for itself and on behalf of the Underwriters) and the Company are unable to reach agreement on the Offer Price by 8:00 p.m. on 26th October, 2004, the Offer will not proceed.

– 28 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFER

APPLICATION FOR LISTING ON THE STOCK EXCHANGE

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus, and any Shares to be issued pursuant to the exercise of options that may be granted under the Share Option Scheme.

No part of the Company’s share or loan capital is listed or dealt in on any other stock exchange. At present, the Company is not seeking or proposing to seek listing of or permission to deal in its securities on any other stock exchange.

PROFESSIONAL TAX ADVICE RECOMMENDED

If you are unsure about the taxation implications of subscribing for the Public Offer Shares, or about purchasing, holding or disposing of or dealing in, the Offer Shares, you should consult an expert.

The Company, the Sponsors, the Lead Manager and all other Underwriters, their respective directors and any other parties involved in the Offer do not accept responsibility for any tax effects on, or liability of, any person resulting from subscribing for, or holding or disposing of or dealing in, the Offer Shares.

SHARE REGISTRARS AND STAMP DUTY

All Shares to be issued and/or offered pursuant to the Offer will be registered on the Company’s branch register of members to be maintained by Computershare Hong Kong Investor Services Limited in Hong Kong. The Company’s principal register of members will be maintained in the Cayman Islands. Only Shares registered on the Company’s branch register of members maintained in Hong Kong may be traded on the Stock Exchange.

Dealings in the Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

PROCEDURE FOR APPLICATION FOR THE PUBLIC OFFER SHARES

The procedure for application for the Public Offer Shares is set out in the section headed “How to apply for the Public Offer Shares” in this prospectus and on the related application forms.

STRUCTURE OF THE OFFER

Details of the structure of the Offer, including the conditions to which the Offer is subject, are set out in the section headed “Structure of the Offer” in this prospectus.

– 29 – DIRECTORS AND PARTIES INVOLVED IN THE OFFER

DIRECTORS

Name Address Nationality

Executive Directors:

Mr. CHUI Siu On Flat H, 37th Floor Chinese Tower 8 Vista Paradiso Ma On Shan New Territories Hong Kong

Mr. NG Kin Nam House 2 Chinese The Beachfront No. 7 Belleview Drive Repulse Bay Hong Kong

Mr. HO Yu Hoi 125 Meyer Road Singaporean The Makena #28-04 Singapore 437936

Mr. LAI Man Kit Flat C, 27th Floor Chinese Tower 6 Bayshore Towers Ma On Shan New Territories Hong Kong

Mr. LI Chi HangFlat 11 Chinese 24th Floor Block B Mei Shing Court Shatin New Territories Hong Kong

– 30 – DIRECTORS AND PARTIES INVOLVED IN THE OFFER

Independent non-executive Directors:

Mr. CHENG Ngok Flat 6B, Block II Belgian Parc Vesailles I Tai Po New Territories Hong Kong

Mr. CHOI Hon Ting, Derek Flat 1, 3rd Floor Chinese (formerly Choi Kwan Wai, Derek) Summit Court, Block B 144 -158 Tin Hau Temple Road North Point Hong Kong

Mr. WU Karl Kwok 2nd Floor, House 35, Pik Uk Tsuen United States Clearwater Bay Road, Sai Kung New Territories Hong Kong

SPONSOR MasterLink Securities (Hong Kong) Corporation Limited Unit 2603, 26th Floor The Center 99 Queen’s Road Central Hong Kong

CO-SPONSOR AND Partners Capital International Limited LEAD MANAGER Room 1305, 13th Floor 9 Queen’s Road Central Hong Kong

CO-LEAD MANAGER G.K. Goh Securities (H.K.) Limited Suite 1808, Alexandra House 16-20 Chater Road Central Hong Kong

CO-MANAGERS Core Pacific-Yamaichi International (H.K.) Limited 36th Floor, Cosco Tower Grand Millennium Plaza 183 Queen’s Road Central Hong Kong

UOB Kay Hian (Hong Kong) Limited 15th Floor, Aon China Building 29 Queen’s Road Central Hong Kong

– 31 – DIRECTORS AND PARTIES INVOLVED IN THE OFFER

CAF Securities Company Limited 13th Floor, Fairmont House 8 Cotton Tree Drive Central Hong Kong

Hantec International Finance Group Limited 45th Floor, Cosco Tower 183 Queen’s Road Central Hong Kong

YF Securities Company Limited 11th Floor, CMA Building 64-66 Connaught Road Central Hong Kong

LEGAL ADVISERS TO THE As to Hong Kong law COMPANY So Keung Yip & Sin 17th Floor Standard Chartered Bank Building 4 Des Voeux Road Central Hong Kong

As to PRC law King & Wood 4708-4715, Shun Hing Square Di Wang Commercial Centre 5002 Shennan Road East 518008 Shenzhen PRC

As to Cayman Islands law Conyers Dill & Pearman, Cayman Century Yard Cricket Square Hutchins Drive George Town Grand Cayman British West Indies

As to Thai law Baker & McKenzie Limited 25th Floor Abdulrahim Place 990 Rama IV Road Silom, Bangrak Bangkok 10500 Thailand

– 32 – DIRECTORS AND PARTIES INVOLVED IN THE OFFER

LEGAL ADVISERS TO THE Heller Ehrman White & McAuliffe SPONSORS AND THE 35th Floor UNDERWRITERS One Exchange Square 8 Connaught Place Central Hong Kong

AUDITORS AND REPORTING CCIF CPA Limited ACCOUNTANTS Certified Public Accountants 37th Floor Hennessy Centre 500 Hennessy Road Causeway Bay Hong Kong

PROPERTY VALUERS Vigers Appraisal & Consulting Limited 10th Floor, The Grande Building 398 Kwun Tong Road Kwun Tong Kowloon Hong Kong

Thai Property Appraisal Lynn Phillips Co., Ltd. 11th Floor 121/47-48 RS Tower Building Rachadaphisek Road Dindaeng, 10320 Bangkok Thailand

RECEIVING BANKER Bank of China (Hong Kong) Limited 1 Garden Road Hong Kong

– 33 – CORPORATE INFORMATION

REGISTERED OFFICE Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

HEAD OFFICE AND PRINCIPAL 11th Floor, Block E1 PLACE OF BUSINESS Hoi Bun Industrial Building No. 6 Wing Yip Street Kwun Tong Kowloon Hong Kong

COMPANY SECRETARY AND Mr. Wan Tak Wing, Gary (FCPA) QUALIFIED ACCOUNTANT

AUTHORISED REPRESENTATIVES Mr. Chui Siu On/Mr. Wan Tak Wing, Gary 11th Floor, Block E1 Hoi Bun Industrial Building No. 6, Wing Yip Street Kwun Tong Kowloon Hong Kong

AUDIT COMMITTEE Mr. Cheng Ngok (Chairman) Mr. Choi Hon Ting, Derek Mr. Wu Karl Kwok

PRINCIPAL BANKERS Bank of China (Hong Kong) Limited 1 Garden Road Central Hong Kong

Dah Sing Bank, Limited Dah Sing Financial Centre 108 Gloucester Road Hong Kong

DBS Bank (Hong Kong) Limited Ground Floor, The Center 99 Queen’s Road Central Hong Kong

Bangkok Bank Public Co., Ltd 333 Silom Road, Bangrak Bangkok 10500

– 34 – CORPORATE INFORMATION

PRINCIPAL SHARE REGISTRAR Bank of Butterfield International AND TRANSFER OFFICE (Cayman) Ltd. Butterfield House 68 Fort Street P.O. Box 705 George Town Grand Cayman British West Indies

HONG KONG BRANCH SHARE Computershare Hong Kong Investor REGISTRAR AND Services Limited TRANSFER OFFICE 46th Floor Hopewell Centre 183 Queen’s Road East Hong Kong

– 35 – INDUSTRY OVERVIEW

INTRODUCTION

The precision metal components manufactured by the Group are generally used in HDDs, hydraulic equipment, fiber optic connectors and electronic devices. However, the principal precision components manufactured by the Group include pivot shafts and pivot housings that are used in the manufacture of pivot cartridges and FDB spindle motors for HDDs.

The pivot cartridge and FDB spindle motor components manufactured by the Group form integral parts of a HDD and therefore the Directors believe that the fluctuation in the computer industry, especially in the production of computer hardware, will have a direct impact on the performance of the Group. Such correlation is demonstrated by the ups and downs of the Group’s turnover which was in line with the technology bubble and its subsequent burst in the years 2000 to 2002.

HDD METAL COMPONENTS

Increase in worldwide PC shipment

Based on the data released by International Data Corporation (the “IDC”), a worldwide research company in the field of information technologies, worldwide PC shipment will increase from approximately 140.2 million units in 2000 to approximately 191.4 million units in 2005, representing a CAGR of approximately 6.4%. The following chart shows the actual and projected worldwide PC shipment (both private and commercial sectors) for the period from 2000 to 2005.

Worldwide PC Shipment

200 180 160 140 120 100 80 60 Units (million) 40 20 0 2000 2001 2002 2003 2004 2005

Commercial Private

Source: International Data Corporation, 2003, 2004

According to Computer Industry Almanac Inc. (the “CIAI”), a research organisation of the computer industry, the worldwide number of PCs-in-use was over approximately 600 million units in 2001 and is projected to nearly double to over approximately 1,150 million units by the end of 2007 for a CAGR of approximately 11.5%. It is also predicted by CIAI that the worldwide PC market will not approach saturation until 2015 or later when PCs-in-use will reach approximately 1.7 billion units.

– 36 – INDUSTRY OVERVIEW

Number of PCs-In-Use 400 350 300 250 200 150 Units (million) 100 50 0 1995 2000 2001 2007 USA Asia-Pacific Western Europe Rest of the World

Source: Computer Industry Almanac Inc., 2001-2002

Although the growth of the PC market in some developed countries may have slowed down as the market becomes increasingly saturated, worldwide PC shipment volume is expected to continue to grow as the use of computer is still not accessible by the general public in certain developing countries such as the PRC, India and Brazil, etc.. While the growth of the PC market in developed countries, such as the US and Western European countries, is largely fueled by the replacement of systems due to the rapidly evolving computer technologies, the high growth in the PC industry in developing countries such as the PRC are generally driven by their moves towards improving efficiency and effectiveness through the use of computers and their associated technologies.

Increase in worldwide HDD consumption

According to IDC, the worldwide consumption of HDDs is expected to increase from approximately 200 million units in 2000 to approximately 352 million units in 2006, representing a CAGR of approximately 9.9%, and the value of such consumption is estimated to be approximately US$25 billion in 2006. The following chart shows the actual and projected worldwide consumption of HDDs for the period from 2000 to 2006:–

Worldwide HDD Consumption

400 350 300 250 200 150 Units (million) 100 50 0 2000 2001 2002 2003 2004 2005 2006

Source: International Data Corporation, 2002

– 37 – INDUSTRY OVERVIEW

Based on reports published by IDC, demand for HDDs is expected to steadily recover and continue to grow following a slight decline in 2001, primarily due to an expected strong demand for notebook PCs and non-traditional applications such as digital video devices and PDAs. With the projected CAGR from 2001 to 2006 of approximately 14% and 75% respectively, the HDD revenue derived from the notebook PCs and non-traditional applications sectors are expected to reach approximately US$4 billion and US$5 billion in 2006 respectively.

In particular, amid non-traditional applications, the rapid development of digital video devices, set-top boxes and information appliances has greatly contributed to the demand for HDDs in non- traditional applications. Projections from IDC show that the worldwide HDD shipment for digital video devices, set-top boxes and information appliances is expected to increase from approximately 0.6 million units in 2000 to approximately 67 million units in 2006, with revenue reaching approximately US$3.7 billion in 2006. The following chart shows the actual and projected worldwide HDD shipment for digital video devices, set-top boxes and information appliances for the period from 2000 to 2006:–

Worldwide HDD Shipment for Digital Video Devices, Set-top Box and Information Appliances

70

60

50

40

30 Units (million) 20

10

0 2000 2001 2002 2003 2004 2005 2006

Source: International Data Corporation, 2002

Therefore, as the Directors believe that the Group is one of the major manufacturers of pivot cartridge components and FDB spindle motor components, which are essential parts of a HDD, the Directors expect that the Group will benefit from the growth in the aforesaid sectors.

FIBER OPTIC CONNECTOR COMPONENTS

Technology breakthrough in telecommunication has made it possible for communication signals to be transmitted in the form of light rays through fiber optic cables. The invention of fiber optic has enhanced the rapid development of global communication networking, multi-media communication and mass information transmission. ElectronicCast Inc. predicts that the global production of fiber optic components will expand at an average rate of over approximately 17% per year, and over the next decade, to reach over approximately US$75 billion by 2010.

Based on the statistics published by ElectronicCast Inc., the consumption of global fiber optic connectors is expected to surge from below approximately 100 million units in 1997 to over approximately 1,100 million units by 2007. In addition, the Directors believe that the increasing shift towards using fiber optic technology for the transmission of signals for cable television and the Internet will provide the Group with opportunities to benefit from the rise in demand for fiber optic connector components.

– 38 – INDUSTRY OVERVIEW

The following charts show the historical and projected growth in the global fiber optic connector industry for the period from 1997 to 2007:

Global Fiber Optic Connectors Consumption (in terms of sales volume) 1,200

1,000

800

600 Units (million) 400

200

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Global Fiber Optic Connectors Consumption (in terms of market value) 4,000 3,500 3,000 2,500 2,000 US$ (million) 1,500 1,000 500 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: ElectronicCast Inc., 1999

– 39 – BUSINESS

OVERVIEW

The Group is principally engaged in the manufacture and sales of precision metal components used in a variety of applications. By utilising specialised CNC machines and maintaining high level of automation in the production lines, the Group is able to manufacture metal parts and components with high degree of precision and quality that are suitable for various kinds of equipment and devices. Currently, the Group’s precision metal components are principally used in HDDs, hydraulic equipment, fiber optic connectors and electronic devices. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, sales of HDD metal components represented approximately 87.1%, 80.8%, 80.9% and 76.5% of the Group’s total turnover respectively.

HDDs are typically used in computers and other devices that require digital storage capabilities whereas pivot cartridges and spindle motors are two of the major components of HDDs. In particular, the Group’s precision metal components for HDDs mainly include (i) pivot shafts and pivot housings which are used for the manufacture of pivot cartridges; and (ii) FDB spindle motor components. Each complete pivot cartridge in a HDD comprises one pivot shaft and one pivot housing. The Group sold approximately 45.6 million shafts and 47.7 million housings in 2001, 42.3 million shafts and 39.5 million housings in 2002 and 53.2 million shafts and 48.6 million housings in 2003. Taking the lower number of the sales volume of shafts or housings in each year, the Group therefore effectively supplied pivot cartridge components of approximately 45.6 million, 39.5 million and 48.6 million sets to be used in HDDs in 2001, 2002 and 2003 respectively.

Based on the above sales figures and the total global estimated HDD production volume of approximately 196 million units and 214 million units for 2001 and 2002 respectively as reported by IDC, the Directors estimated that the Group’s sales volume of pivot cartridge components represented approximately 23.3% and 18.5% of the global production volume of HDDs in 2001 and 2002 respectively.

The Group’s products are mainly sold to customers located in Thailand, Malaysia, the PRC, Hong Kong, Singapore, North America and Europe. The Group has an active client base of over 35 customers comprising HDD component suppliers and manufacturers of hydraulic products, fiber optic devices and electronic devices.

The Group manufactures its products on an OEM basis. However, the Group is actively involved in providing technical assistance to its customers in the enhancement of product quality and reduction in production costs. As the Group’s products form integral parts of various kinds of equipment and devices, the Directors believe that it is imperative for the Group to work in tandem with its customers to ensure optimal efficiency and product quality.

The Group’s products are manufactured in the Group’s production facilities which include one production plant in Thailand, one production plant in Dongguan City in the PRC and one production plant in Zengcheng City in the PRC, occupying a combined gross floor area of approximately 30,770 sq.m.. As at the Latest Practicable Date, the Group employed a total of 1,915 full-time employees in Thailand and the PRC. The Group’s production plant in Thailand was awarded ISO 9001 certification by SGS (Thailand) Limited on 25th January, 2002 while the production plant in Dongguan Koda in the PRC was awarded ISO 9002 on 3rd February, 2000 and ISO 9001 and QS 9000 on 24th October, 2002 by SGS Yarsley International Certification Services Limited.

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COMPETITIVE ADVANTAGES

The Directors believe that the Group’s experience in the production of HDD precision metal components provides the Group with an excellent foundation to continue expanding its business in the precision metal component industry. With the broadening in the applications of HDDs in various kinds of consumer electronic products such as gaming consoles, mobile phones and MP3 players, the Directors believe that the growth in demand for HDD precision metal components will continue to increase notwithstanding the possible saturation in the personal computer HDD market. However, the Directors also believe that the Group must be vigilant against complacency and leverage on the immense experience it has amassed over the years through continuously exploring new business opportunities and to widen its product range.

The Directors are of the view that the Group has competitive advantages over its competitors for the following reasons:

• its in-depth knowledge of the implications of high precision product quality on the customers’ sophisticated technologies;

• its expertise in machine fabrication enabling it to customise machines to produce precision components strictly in accordance with customers’ requirements;

• its expertise in machine tooling augmentations which increase machine production capacities, thus enhancing cost effectiveness;

• its ability to provide its customers with high quality products at competitive prices on a just-in-time delivery schedule; and

• its commitment in providing high quality after-sales services.

HISTORY AND DEVELOPMENT

The Group was established in December 1990 when IPE (Singapore) was incorporated in Singapore on 6th December, 1990. At the time of incorporation, IPE (Singapore) was owned as to 50% by Mr. Chui, an executive Director, and 50% by an independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (the “First Shareholder”). At that time, Mr. Chui was the managing director of IPE (Singapore) and was responsible for its daily operations. The then principal business of IPE (Singapore) was the production of precision metal components for the electronics industry. The Group began operations in Singapore as the founders believed the production base of the Group should be close to the production facilities of its customers, mainly in Singapore and Malaysia.

In February 1992, the First Shareholder sold 40% out of his 50% equity interests in IPE (Singapore) to Mr. Chui who subsequently sold, in September 1992, 20% to another independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (the “Second Shareholder”). Since then until February 1995, Mr. Chui, the First Shareholder and the Second Shareholder had held 70%, 10% and 20% equity interests in IPE (Singapore) respectively.

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From 1990 to 1993, IPE (Singapore) concentrated on expanding the Group’s customer base, improving product quality and increasing production capacity. With the emergence of the PRC as a low cost production base and the increasing number of tax incentive schemes offered by the PRC government, IPE (Singapore) and Randford Limited, a company beneficially owned as to 50% by the Second Shareholder, established Dongguan Koda and IPE (HK) on 6th September, 1994 and 13th September, 1994 as the Group’s PRC production base and regional sales office respectively. IPE (HK) was equally owned by IPE (Singapore) and Randford Limited at the time of establishment while Dongguan Koda was equally owned by IPE (HK) (being the beneficial owner with the legal title held by IPE (Singapore)) and Randford Limited. During this period of rapid expansion, the Group’s customer network has extended to customers based in Singapore and Japan.

In February 1995, the First Shareholder and the Second Shareholder left IPE (Singapore) and disposed of their respective 10% and 20% equity interest in IPE (Singapore) to Mr. Ho and Mr. Ng at considerations of S$39,850 (equivalent to approximately HK$184,107) and S$60,000 (equivalent to approximately HK$277,200) respectively which were determined with reference to the par value of each share of S$1 of IPE (Singapore). In May 1995, Mr. Ho, Mr. Ng, Mr. Lai and Mr. Li acquired 3.9%, 5%, 6% and 3.8% equity interest respectively in IPE (Singapore) from Mr. Chui who originally held 70% equity interest since September 1992. Following such reorganisation exercises, IPE (Singapore) was owned as to 51.3%, 25%, 13.9%, 6.0% and 3.8% by Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li respectively and the shareholding of IPE (Singapore) has remained unchanged since then.

In addition, Randford Limited, after being approved by the relevant PRC authority, transferred its entire 50% equity interest in Dongguan Koda to IPE (HK) (the legal title of such equity interest was also held by IPE (Singapore)) in February 1995 without consideration given that the initial registered capital of Dongguan Koda was solely contributed by IPE (HK). Randford Limited also transferred its entire equity interest in IPE (HK) as to approximately 99.99% to IPE (Singapore) and approximately 0.01% to Mr. Chui at the consideration of HK$1,499,999 and HK$1 respectively. At the same time, Mr. Chui, Mr. Ng, Mr. Ho and Mr. Li were appointed as the directors of IPE (HK). In June 1996, in order to simplify the accounting treatment of consolidating the results of IPE (HK) by IPE (Singapore), the then shareholders of IPE (Singapore) established IPE Holdings Pte. Ltd., the shareholding of which was the same as that of IPE (Singapore), as a holding company of IPE (HK). For such purpose, IPE (Singapore) transferred its entire interest of approximately 99.99% in IPE (HK) to IPE Holdings Pte. Ltd. at its book value.

With the continued rapid expansion in the production capacity of the production facilities in Singapore and the growth in turnover of the Group, the Group encountered difficulties during 1996 in funding the expansion of the Singapore and PRC operations simultaneously. The establishment of Dongguan Koda required substantial capital expenditures that the Group was unable to finance and therefore in December 1996, Dongguan Koda was disposed of to Mr. Chui at a consideration of approximately HK$27,778,399 which was based on the gross value of all the plant and machineries invested and cash injected by IPE (HK) into Dongguan Koda from 1994 to 1996. No gain or loss was recognised by IPE (HK) for the disposal as the consideration was equivalent to the book value of its investment in Dongguan Koda. The details of the disposal of Dongguan Koda to Mr. Chui are set out in the paragraph headed “Changes in the ownership of Dongguan Koda from 1994 to 2002” in this section.

Following the disposal of Dongguan Koda, the Group continued to engage Dongguan Koda to manufacture precision metal components for the Group and all of the products manufactured by Dongguan Koda were sold to the Group. The Directors considered that the disposal of Dongguan

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Koda enabled the Group to continue to enjoy the benefits of the increase in the production capacity of Dongguan Koda without over-stretching the financial capabilities of the Group as the funding for the expansion was provided by Mr. Chui.

From 1997, demand for the Group’s products began to continually outstrip the Group’s production capacity as the increasing Internet fervor in the US and Europe stoked demand for HDDs. However, the constant tight labour market and property prices in Singapore affected the Group’s ability to increase its production capacity to match the demand. The high capital investment and operational costs of expansion in Singapore caused the Directors to consider relocating its production facilities elsewhere. In view of the fact that an increasing number of the Group’s customers had gradually begun shifting their manufacturing base to Thailand and Malaysia, and as Thailand offered numerous tax incentive schemes to lure high-tech manufacturers to set up production bases in Thailand, the Directors decided to establish its new production base in Thailand with a view of eventually moving its production facilities in Singapore to Thailand. As a result, IPE (Thailand) was established on 18th September, 1997 to plan and construct a production plant there to serve customers in Thailand. At the time of incorporation, the total issued share capital of IPE (Thailand) amounted to Baht 1 million (equivalent to approximately HK$188,324) and it was owned as to 51.3% by Mr. Chui, 25% by Mr. Ng, 11.9% by Mr. Ho, 6% by Mr. Lai, 3.8% by Mr. Li, 1% by Mr. Lee Kian Heng, a director of IPE (Thailand), and 1% by Mr. Koitabashi, a director of IPE (Japan).

In July 1999, IPE (Europe) was established in Italy as one of the Group’s sales offices to serve clients in Europe. At the time of incorporation, it was owned by two directors of IPE (Europe) as to 61% and 39% respectively. Pursuant to the Reorganisation, the Group acquired 61% of the equity interest in IPE (Europe) at a consideration of Euro 61,000 (equivalent to approximately HK$585,600) based on the par value of each share of Euro 1 each (equivalent to approximately HK$9.60). The remaining 39% equity interest continued to be held by the aforesaid two directors of IPE (Europe).

In August 1999, the total issued capital of IPE (Thailand) increased to Baht 75 million (equivalent to approximately HK$14 million) and the additional capital was contributed in accordance with the shareholding of the original shareholders. In November 1999, IPE (Thailand) acquired a parcel of land with a site area of approximately 33,120 sq.m. located in Phra Nakhon Si Ayutthaya Province, Thailand for the purpose of constructing a production plant at a consideration of Baht7,956,000 (equivalent to approximately HK$1,498,305).

In January 2000, IPE (Japan) was established to serve as a sales office of the Group. At the time of incorporation, it was wholly owned by a director of IPE (Japan). Pursuant to the Reorganisation, the Group acquired 90% of the issued share capital of IPE (Japan) for a total consideration of ¥2.7 million (equivalent to approximately HK$191,625) and IPE (Japan) was then owned as to 90% by the Group and 10% by the director of IPE (Japan). The basis of the consideration was based on the par value of the shares of IPE (Japan) of ¥10,000 (equivalent to approximately HK$710) each.

In February 2000, the original seven shareholders of IPE (Thailand) transferred 99.3% equity interest in IPE (Thailand) to IPE (Singapore) and continued to hold the remaining 0.7% equity interest. In May 2000, IPE (Thailand) completed the construction of the production plant and commenced operations during the same year. In March 2001, the issued share capital of IPE (Thailand) further increased to Baht 150 million (equivalent to approximately HK$28.2 million). Following the completion of the Reorganisation, the Group currently holds approximately 99.99% equity interest in IPE (Thailand) while the remaining approximately 0.01% equity interests is held by six of the original shareholders of IPE (Thailand). – 43 – BUSINESS

The burst of the Internet bubble in 2000 affected the performance of the Group in 2001 and accelerated the Group’s plan to shift the Group’s Singapore production base to Thailand so as to further reduce the overhead costs of the Group. In addition, the slack in demand following the terrorist attack in New York and Washington, the US in September 2001 offered the right timing for the Group to commence the shifting of the production facilities from Singapore to Thailand. The move began during the first quarter of 2000 and was completed in October 2003. During this period, the Group had also expanded the production facilities in Thailand to accommodate the machineries relocated from IPE (Singapore). The expansion of the Phase II production facilities in Thailand was completed in December 2002 while IPE (Singapore) completed the relocation of all of its production operations to IPE (Thailand) in October 2003. IPE (Singapore) has remained dormant since then.

In January 2002, the Group’s production facilities in Thailand was awarded ISO 9001 certification by SGS (Thailand) Limited.

Following the terrorist attack in the US in September 2001, the Group experienced a downturn in orders received. However, the Directors at that time expected that an upswing in orders for the Group’s products would occur in the second half of 2002. In order to enhance the Group’s production capabilities and to improve cost efficiency and economy of scale, the Group established Xing Hao in June 2002 with an initial registered capital of HK$30 million for the purpose of setting up production facilities in Zengcheng City, Guangdong Province, the PRC. Xing Hao started production in July 2003.

The Group further expanded its production facilities in the PRC by entering into a sale and purchase agreement which became effective as of 1st August, 2002 with Mr. Chui for the acquisition of Dongguan Koda. Further details on the acquisition of Dongguan Koda are set out in the paragraph headed “Changes in the ownership of Dongguan Koda from 1994 to 2002” in this section.

In November 2003, the Group disposed of its entire 61% equity interest in IPE (Europe) to a director of IPE (Europe) at a consideration of Euro 61,000 (equivalent to approximately HK$585,600) in order to streamline its corporate structure and for cost efficiency purposes. Following the disposal, the Group’s clients in Europe will be served directly by sales and marketing staff in Hong Kong and Thailand.

In order to cope with the Group’s future business growth, the Group has initiated the Zengcheng Development Project and was granted the land use rights of a parcel of land with site area of approximately 166,534 sq.m. in Zengcheng City, Guangdong Province, the PRC as the location of the Group’s new production base by 增城市國土資源和房屋管理局 (Zengcheng City Land Resources and Buildings Management Bureau) on 23rd May, 2003. The aggregate consideration of the Acquired Land was approximately RMB28.8 million (equivalent to approximately HK$27.2 million) which was comparable to the open market value of the nearby properties. The Group currently plans to construct a new production plant and a staff quarter with an estimated gross floor area of approximately 23,275 sq.m. on the Acquired Land during the first phase of development. Construction of the new production plant commenced in December 2003 and is expected to be completed by the first quarter of 2005.

On 22nd April, 2004, the Group established IPE (Macau) under Macau’s Offshore Law which the Directors expect to operate as a sales office that is exempted from Macau income tax, industrial tax and stamp duties.

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On 25th June, 2004, the Group completed a corporate reorganisation in preparation for the listing of the Shares on the Stock Exchange, as a result of which the Company became the holding company of the Group. Details of the corporate reorganisation are set out in the paragraphs headed “Group reorganisation” in Appendix VII to this prospectus.

GROUP STRUCTURE

The diagram below illustrates the corporate structure of the Group immediately following the completion of the Offer and the Capitalisation Issue.

Mr. Lai Mr. Ng Mr. Chui Mr. Ho Mr. Li

6% 25%51.3% 13.9% 3.8%

Tottenhill (BVI) Public Investment Holding

25.5% 74.5%

The Company (the Cayman Islands) Investment Holding

100%

Best Device (BVI) Investment Holding

100% 100% 100% 100%

Cyber Starpower Anglo Dynamic Tai Situpa Lewiston Group (BVI) (BVI) (BVI) (BVI) Investment Holding Investment Holding Investment Holding Investment Holding

99.99% 100% 100% 90% 100%

IPE (HK) IPE (Thailand) IPE (Singapore) IPE (Japan) IPE (Macau) (Thailand) (Singapore) (Hong Kong) (Japan) Investment Holding (Macau) Manufacturing and Dormant Sales Office Sales Office Sales Office (Note 2) and Sales Office (Note 3) (Note 1)

100%

Dongguan Koda Xing Hao (PRC) (PRC) Manufacturing Manufacturing

Notes:

1. The remaining approximately 0.01% equity interest in IPE (Thailand) is equally owned by Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li, and a director of IPE (Japan).

2. IPE (Singapore) was formerly a manufacturing base and sales office of the Group. By October 2003, all of the production operations of IPE (Singapore) were relocated to IPE (Thailand) and IPE (Singapore) has remained dormant since then.

3. The remaining 10% equity interest in IPE (Japan) is owned by a director of IPE (Japan).

– 45 – BUSINESS

PRODUCT RANGE

Currently, all of the Group’s precision metal components are sold on an OEM basis for different applications. These products can generally be categorised into precision metal components used in HDDs, hydraulic equipment, optical products and electronic devices.

The following table sets out the breakdown of the Group’s turnover by product applications for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Precision metal components for:– – HDDs 169,765 87.1 148,787 80.8 168,429 80.9 100,479 76.5 – Hydraulic equipment 6,984 3.6 12,502 6.8 18,754 9.0 18,158 13.8 – Fiber optic connectors 6,682 3.4 11,109 6.0 12,633 6.1 5,883 4.5 – Electronic devices 5,579 2.9 8,398 4.6 5,779 2.8 4,762 3.6 – Others 5,821 3.0 3,405 1.8 2,660 1.2 2,158 1.6

Total 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

Note: Others refers to miscellaneous metal components for general industrial goods.

Precision metal components for HDDs

HDDs are typically used in computers and other electronic devices that require digital storage capabilities. Pivot cartridges and spindle motors are two of the major components of a HDD and the following diagram demonstrates its major components:–

Ball bearing / FDB spindle motor

Actuator arm

Pivot cartridge

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In particular, the Group’s precision metal components for HDDs mainly include (i) pivot shafts and pivot housings which are used for the manufacture of pivot cartridges; and (ii) FDB spindle motor components. As advised by the Directors, the Group’s average price for each set of HDD pivot cartridge component (composed of one pivot shaft and one pivot housing) for 2003 is around US$0.27 (equivalent to approximately HK$2.1), which represented only about 0.4% of the unit price of a typical 80-gigabytes HDD (approximately US$74/unit (equivalent to approximately HK$577/unit)).

For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the sales volume and sales value of HDD metal components of the Group are as follows:–

Sales volume of HDD Year ended 31st December, Six months ended metal components 2001 2002 2003 30th June, 2004 ’000 units % ’000 units % ’000 units % ’000 units %

Pivot shafts 45,624 38.6 42,305 33.8 53,156 31.2 36,320 34.8 Pivot housings 47,681 40.3 39,531 31.5 48,553 28.5 27,534 26.4 FDB components 1,245 1.1 14,302 11.4 37,116 21.8 21,525 20.7 Others 2,148 1.8 1,613 1.3 4,400 2.5 1,834 1.8

96,698 81.8 97,751 78.0 143,225 84.0 87,213 83.7

Group’s total sales volume 118,283 100.0 125,348 100.0 170,524 100.0 104,221 100.0

Sales value of HDD metal components HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Pivot shafts 75,088 38.5 51,276 27.8 52,624 25.3 33,827 25.8 Pivot housings 89,259 45.8 59,818 32.5 51,996 25.0 30,128 22.9 FDB components 3,484 1.8 36,121 19.6 61,912 29.7 35,928 27.3 Others 1,934 1.0 1,572 0.9 1,897 0.9 596 0.5

169,765 87.1 148,787 80.8 168,429 80.9 100,479 76.5

Group’s total sales value 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

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For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the sales volume of HDD pivot cartridge and FDB spindle motor components contributed from various plants of the Group and other subcontractors is as follows:–

Pivot Shafts Pivot Housings FDB ’000 units ’000 units ’000 units

For the year ended 31st December, 2001

Production plants of the Group: – IPE (Thailand) 12,601 7,603 1,245 – IPE (Singapore) 7,424 24,503 – Other subcontractors (Note 1) – Dongguan Koda (Note 2) 15,871 11,360 – – Others 9,728 4,215 –

45,624 47,681 1,245

For the year ended 31st December, 2002

Production plants of the Group: – Dongguan Koda (Note 3) 12,340 7,430 – – IPE (Thailand) 10,759 9,893 14,302 – IPE (Singapore) 2,700 12,684 – Other subcontractors (Note 1) – Dongguan Koda (Note 4) 11,398 9,524 – – Others 5,108 – –

42,305 39,531 14,302

For the year ended 31st December, 2003

Production plants of the Group: – Xing Hao (Note 5) 5,458 2,395 – – Dongguan Koda 26,477 21,270 – – IPE (Thailand) 11,263 15,258 37,116 – IPE (Singapore) (Note 6) 159 9,630 – – Other subcontractors (Note 1) 9,799 – –

53,156 48,553 37,116

For the six months ended 30th June, 2004

Production plants of the Group: – Xing Hao 14,486 8,174 – – Dongguan Koda 11,160 4,514 – – IPE (Thailand) 10,674 14,846 21,525

36,320 27,534 21,525

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Notes: 1. The Group occasionally engaged other subcontractors to supply semi-finished pivot shafts and pivot housings for certain small orders, especially when capacity was very tight. All of these subcontractors, other than Dongguan Koda, are independent third parties.

2. During the Track Record Period, Dongguan Koda only became a member of the Group from 1st August, 2002 when IPE (HK) acquired the entire interests in Dongguan Koda from Mr. Chui. However, since its establishment, Dongguan Koda has always been a subcontractor of the Group producing precision metal components for the customers of IPE (HK). Further details about Dongguan Koda are set out in the paragraph headed “Production facilities” in this section.

3. The number represented the production volume of Dongguan Koda for the period from 1st August, 2002 to 31st December, 2002.

4. The number represented the production volume of Dongguan Koda for the period from 1st January, 2002 to 31st July, 2002.

5. The number represented the production volume of Xing Hao for the period from 1st July, 2003 to 31st December, 2003.

6. IPE (Singapore) ceased operations in October 2003.

Pivot cartridge

The following diagram shows the simplified structure of a pivot cartridge:–

pivot cartridge

bearing

housing/ sleeve

shaft

The Group currently manufactures pivot shafts and pivot housings on an OEM basis. Each complete pivot cartridge for the actuator arm of a HDD requires one pivot shaft and one pivot housing, which form integral parts of a HDD. Given that a HDD composes of a number of different components and that the Group specialises in producing pivot shafts and pivot housings, the Group does not sell its products directly to HDD manufacturers but to upstream manufacturers of pivot cartridges. As the precision and quality specifications required by the Group’s customers and HDD manufacturers are very high and strict, the Group’s pivot shafts and pivot housings are generally manufactured within an extremely tight precision tolerance of size variance of down to around ±2 to 5 µm.

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FDB spindle motor

FDB is a new form of bearing technology increasingly being adopted in the production of HDD spindle motors. Currently, the majority of spindle motors used in HDDs adopt the ball bearing spindle motor technology. However, as HDD storage capacities increase, it becomes increasingly important that a new form of bearing technology be devised to minimize NRRO, lower acoustical noise and improve reliability. NRRO is considered a barrier to achieving higher track densities in HDDs as NRRO is the highest contributor to track mis-registration. As a result of the inherent defects found in the geometry of bearing interface, the mechanical contact between the bearing and the layer of the lubricant film will tend to produce larger NRRO. However, FDB spindle motors use lubricating oil as the contact which generate less NRRO due to the higher viscosity of lubrication oil between the sleeve and stator, and has higher damping capabilities, reduced frequency resonance, better non-operational shock resistance, greater speed control and improved acoustics. The Directors believe that FDB spindle motors will increasingly replace the ball bearing spindle motor as the motor of choice for HDD manufacturers. The following diagram demonstrates the structural difference between the ball bearing spindle motor and FDB spindle motor:–

Ball Bearing Spindle Motor FDB Spindle Motor

base base stator magnet magnet stator housing/sleeve hub

shaft

cap hub & shaft FDB oil

ball bearing

Although FDB technology is a relatively new introduction to the HDD components market, the Group has successfully manufactured the FDB spindle motor components to high specifications as required by manufacturers of FDB spindle motors. As HDD components manufacturers gradually shift their production capabilities towards FDB spindle motors, the Group will also upgrade its production capabilities to manufacture the precision metal components used for FDB spindle motors.

Since the Group began production of precision metal components for FDB spindle motors in 2000, sales volume has increased from approximately 1.1 million pieces in 2000 to approximately 14.3 million pieces in 2002. For the year ended 31st December, 2003 and the six months ended 30th June, 2004, approximately 37.1 million and 21.5 million pieces of FDB components were sold respectively. The Directors believe that the rapid increase in HDD storage capacities will accelerate the adoption of FDB technology by HDD manufacturers. Therefore, the Directors expect the growing trend towards the use of FDB technology will increase the need for such FDB spindle motor components correspondingly.

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Precision metal components for hydraulic equipment

The Group currently manufactures hydraulic precision metal components on an OEM basis for its customers. The components manufactured by the Group are mainly used in the different hydraulic fields of heavy equipment and are sold to hydraulic products manufacturers based in Europe, the US and the PRC.

The Group began supplying hydraulic precision metal components in 1998. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, sales volume of hydraulic precision metal components of the Group was approximately 1,510,000 units, 2,758,000 units, 4,556,200 units and 4,570,000 units respectively, with the sales value amounting to approximately HK$7.0 million, HK$12.5 million, HK$18.8 million and HK$18.2 million respectively. The contribution of the hydraulic precision metal components to the Group’s turnover has been increasing. In April 2003, the Group entered into a framework agreement with a multi- national corporation located in Denmark for the provision of hydraulic precision metal components, which the Directors believe will provide the Group with a stable source of revenue for the next few years.

Precision metal components for fiber optic connectors

The Group also manufactures components for fiber optic connectors which are generally used between fiber optic cables and their housings. Such components are generally supplied on an OEM basis to manufacturers of fiber optic devices based in the US.

The Group began supplying components for fiber optic connectors in 2000. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the Group’s sales volume of fiber optic connector components was approximately 986,000 units, 1,965,000 units, 2,710,000 units and 1,251,000 units respectively, with the sales value amounting to approximately HK$6.7 million, HK$11.1 million, HK$12.6 million and HK$5.9 million respectively.

Precision metal components for other applications

In addition to the precision metal components used for HDDs, hydraulic equipment and fiber optic connectors, the Group also manufactures a wide array of precision metal components in accordance with customer specifications. Such precision metal components are generally applied to electronic devices and general industrial goods such as facsimile machines and photocopying machines. Nevertheless, as the contribution from hydraulic precision metal components and fiber optic connector components have been increasing during the Track Record Period, the Group is currently less reliant on this market segment. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the turnover of the Group in relation to precision metal components used for electronic devices and others miscellaneous applications amounted to approximately HK$11.4 million, HK$11.8 million, HK$8.4 million and HK$6.9 million respectively, representing approximately 5.9%, 6.4%, 4.0% and 5.3% of the Group’s total turnover respectively.

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Precision metal components of the Group

1. For hydraulic equipment 2. For fiber optic connectors

3. For electronic devices 4. For office equipment

From 2001, the Group began to examine the possibility of producing automobile precision metal components which represented a new market segment for the Group. In 2002, the Group succeeded in manufacturing automobile precision metal components, which were applied in actuators, and has supplied testing samples to potential customers in the automobile parts industry for evaluation. In 2003, the Group secured orders from MagnetiMarelli Powertrail SH, an independent automobile parts manufacturer, to supply it with metal components for actuators. The Group will continue to seek long term strategic suppliers contract from other automobile parts manufacturers in the world.

Automobiles will continue to be an integral part of our society in the 21st century. The Directors believe that the growth of the automobile industry will be largely sustained by the rapid industrialization of developing countries and the move by automobile manufacturers to subcontract their parts and components manufacturing processes to companies located in developing countries in an attempt to lower their production cost and focus on principal activities such as design, assembly, and marketing. While the automobile manufacturers enact new procurement and product development strategies to trim costs and improve quality, suppliers have benefited from increasing orders from these automobile manufacturers and also from enhanced productivity.

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The Directors believe that the Group can benefit from the expected increase in demand for high quality automobile components. They believe the expertise that the Group has accumulated over the years in the production of high quality precision components used for HDD pivot cartridge components and FDB spindle motor components will assist the Group in becoming one of the major manufacturers in the automobile parts industry. The Directors believe that the automobile industry will provide great opportunities for the Group. Therefore, the Directors expect the Group’s activities in manufacturing of precision metal components used in actuators of automobiles will contribute to the future growth of the Group.

The production of automobile precision metal components is carried out in Dongguan Koda. On 24th October, 2002, Dongguan Koda was awarded QS 9000 certification by Yarsley International Certification Services Limited. QS 9000 is widely adopted as the standard by automobile industry aimed at harmonizing the quality system requirements by providing one common quality system for automobile components suppliers. With such certification, the Directors believe that the Group’s automobile precision metal components would be accepted by its potential customers.

SALES AND MARKETING

Customers

All of the Group’s products are sold on an OEM basis to customers consisting primarily of HDD component suppliers and manufacturers of hydraulic products, fiber optic devices and electronic devices. Most of the Group’s customers are located in the PRC and Hong Kong, Thailand, Singapore, Malaysia, North America and Europe. The Group has an active client base of over 35 customers.

For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the five largest customers of the Group in aggregate accounted for approximately 89.9%, 84.0%, 83.6% and 83.0% of the Group’s turnover respectively. During the same period, the largest customer of the Group accounted for approximately 63.3%, 45.8%, 29.7% and 27.3% of the Group’s turnover respectively. Sales value to the largest customer of the Group for the year 2001 and 2002 amounted to approximately HK$123.3 million and HK$84.3 million respectively and the principal product sold to it was HDD pivot cartridge components. The fall in the turnover contribution from the Group’s largest customer in 2001 and 2002 was due to the fact that the Group was diversifying its customer risk by shifting its major products from HDD pivot cartridge components to FDB spindle motor components. In addition, a new customer also started to place orders with the Group in 2002 for FDB spindle motor components and sales value attributable to it amounted to approximately HK$28.0 million, representing approximately 15.2% of the total turnover for 2002. As a result, turnover contribution from the largest customer of the Group decreased from approximately 63.3% in 2001 to 45.8% in 2002.

In 2003, sales value to the Group’s largest customer in 2001 and 2002 further dropped to approximately HK$61.4 million but sales value to the aforesaid customer for FDB spindle motor components increased to approximately HK$61.9 million for the year ended 31st December, 2003 and approximately HK$35.9 million for the six months ended 30th June, 2004. It became the largest customer of the Group in the above periods and accounted for approximately 29.7% and 27.3% of the Group’s total turnover respectively.

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The Group, however, has not entered into any long-term contracts with its major customers but on an order-by-order basis. Nevertheless, the Directors believe that the Group’s customers tend to place more rush orders at shorter intervals to avoid excessive inventory at their warehouses. Having continued to provide quality products and services, the Group has enjoyed a very stable relationship of over four to five years with most of its major customers. None of the Directors, their respective associates or any Shareholders, who, to the knowledge of the Directors, hold more than 5% of the issued share capital of the Company upon completion of the Offer and the Capitalisation Issue (without taking into account of any Shares that may be taken up under the Offer), has any interest in any of the five largest customers of the Group during the Track Record Period.

Principal markets

Revenue of the Group are mainly denominated in US dollars and accounted for over 90% of the Group’s turnover during the Track Record Period. The following table illustrates the breakdown of the Group’s turnover by geographical area for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004:–

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Thailand 124,539 63.9 116,629 63.3 130,309 62.6 74,774 56.9 Malaysia 41,648 21.4 42,402 23.0 50,819 24.4 32,148 24.5 PRC and Hong Kong 16,576 8.5 10,894 5.9 9,699 4.7 7,322 5.6 North America 6,535 3.4 2,394 1.3 3,017 1.4 2,537 1.9 Europe 3,141 1.6 8,768 4.8 12,377 5.9 13,731 10.4 Singapore 2,194 1.1 1,650 0.9 137 0.1 429 0.3 Others 198 0.1 1,464 0.8 1,897 0.9 499 0.4

Total 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

Credit policy

The Group’s normal credit term ranges from about 30 to 120 days. However, the exact term of the credit period is dependent on a number of criteria such as the length of business relationship, past payment track record and the financial strength of the Group’s customers. The actual debtors’ turnover periods during the Track Record Period were 87 days, 79 days, 111 days and 90 days respectively which fell between the above range of credit period. Most of the major customers usually pay punctually and in accordance to their given credit periods. The account and finance department of the Group reviews and approves the credit term of each customer before it is implemented.

As most of the Group’s customers are reputable and have maintained long-term business relationships with the Group, the Directors believe that the credit risk of the Group is minimal. However, as at 31st December, 2001, 2002 and 2003, trade receivables of the Group overdue for more than 120 days amounted to approximately HK$3.4 million, HK$2.6 million and HK$6.5 million respectively, representing approximately 7.4%, 6.5% and 10.3% of the total trade receivable balances. Although such credit periods were not within the normal credit term set by the Group, the Directors considered these outstanding cases to be exceptional. In fact, all the trade receivable balances as at 31st December, 2001, 2002 and 2003 were either subsequently settled or fully

– 54 – BUSINESS provided for. As at 30th June, 2004, trade receivables of the Group overdue for more than 120 days only amounted to approximately HK$67,000, representing approximately 0.1% of the total trade receivables, and such amount was also subsequently settled.

The Group’s account and finance department is responsible for carrying out credit control procedures and collection actions. Principal credit control policies include:–

– credit will only be given to sizeable and well known customers of good credit standing;

– credit term usually ranges from 30 days to 120 days but exceptional credit term will be granted to customers with the approval of the Directors. Any overdue balance will be followed up immediately by the accounts and finance department;

– if payment record of a customer remains unsatisfactory, the Group will stop delivery of products until full settlement of previous debts;

– a maximum credit limit is pre-determined for each customer. If the credit limit is exceeded, the customer will be requested to repay the excess amount before delivery of products resumes; and

– only letter of credit or payment before delivery are accepted for new and unknown customers.

The Group began to adopt a general provision policy for doubtful debts in 2001 under which 50% provision will be made for the debts outstanding over one year and 100% provision for debts outstanding over two years. In addition to the general provision policy, the Group reviews individual customer accounts and determines if specific provision is required. For each of the three years ended 31st December, 2003, the amount of the provision for doubtful debts were approximately HK$397,000, HK$85,000 and HK$56,000 respectively while no provision for doubtful debts was made for the six months ended 30th June, 2004. In view of the existing credit control policies, the Group’s customer base and their payment records, the Directors consider that the existing policy in making provision for bad and doubtful debts is appropriate and no further provision is considered necessary.

The Group usually accepts remittances and cheques as acceptable settlement methods and the percentage of such settlement methods used by the Group’s customers during the Track Record Period is set out as follows:–

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004

Remittance 80% 87% 91% 87% Cheque 20% 13% 9% 13%

Total 100% 100% 100% 100%

During the Track Record Period, the Group did not experience material change in its major customers’ base. As a result of long period of cooperation, most customers of the Group are offered the choice of settling their accounts via remittances.

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Sales discount and returns

For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the trade returns of the Group amounted to approximately HK$0.9 million, HK$2.0 million, HK$3.6 million and HK$2.9 million respectively and the trade discount only amounted to approximately HK$31,000 in 2001, HK$19,000 in 2002, HK$694,000 in 2003 and HK$1,356,000 in 2004. The Group generally does not offer trade discount to its customers as the selling prices are mutually agreed before orders are placed by customers. The trade discount incurred during the Track Record Period mainly represented special discounts to customers which were non-recurring in nature.

For the policy of trade returns, the Group will allow its customers to return the whole batch of order if inferior quality is found in one or more sampled units. The Directors consider that adopting a stringent trade returns policy can build up the confidence of customers and enhance the reputation of the Group. The percentages of trade returns to the Group’s total gross sales during the Track Record Period were approximately 0.4%, 1.1%, 1.7% and 2.2% respectively.

Sales network and marketing

As at the Latest Practicable Date, the Group operated five sales offices in Hong Kong, Dongguan City in the PRC, Macau, Japan and Thailand respectively whereas each of them has a defined geographical coverage with occasional overlaps. The following table depicts the general geographical coverage of each of the Group’s sales offices:

Location of sales office Geographical Coverage

Hong Kong PRC Japan Thailand Malaysia Singapore N. America Europe

Hong Kong

PRC

Macau

Japan

Thailand

: Represents responsible area(s)

The marketing department of the Group employs about 30 people globally to serve different customers who may have specific requirements. Regular visits are made to customers to maintain close contact and to keep abreast of the market trends and developments. The Group adopts an active marketing strategy, which includes attendance at trade fairs by both its marketing staff and senior management to maintain technologically edge and foster new customer contacts. Customers’ feedback on how the Group’s products can be improved are considered from time to time and, if applicable, incorporated in the Group’s product development and after-sales service.

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RAW MATERIALS AND PROCUREMENT

The principal raw materials used by the Group include stainless steel, brass, aluminium and iron. The Group has well-established business relationships with its suppliers and generally sources its raw materials from Japan, Hong Kong and Singapore. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the total cost of these principal raw materials accounted for approximately 21.0%, 31.9%, 42.5% and 48.4% respectively of the Group’s total costs of sales.

For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the Group’s purchases (including raw materials and supplies) through the top five suppliers represented approximately 13.9%, 25.5%, 37.1% and 50.7% respectively of the Group’s total costs of sales whilst the Group’s purchases through the largest supplier accounted for approximately 5.0%, 13.6%, 24.6% and 36.4% of the Group’s total costs of sales respectively. The Group has established business relationships with its five largest suppliers ranging from 2 to 9 years.

None of the Directors, their respective associates or any Shareholders, who, to the knowledge of the Directors, hold more than 5% of the issued share capital of the Company upon completion of the Offer and the Capitalisation Issue (without taking into account of any Shares that may be taken up under the Offer), has any interest in any of the five largest suppliers of raw materials of the Group during the Track Record Period.

The Group has not entered into any long-term purchase contract with any of its suppliers. However, the Directors do not believe that the Group will encounter any problems in sourcing raw materials for its products as it has maintained well-established working relationships with its suppliers. However, the Group generally maintains about two to three months supply of raw materials as contingencies against sudden unexpected shortage of supply of raw materials or urgent increase in demand for the Group’s products.

The Group’s purchases of raw materials were settled on an open account basis with credit term of 60 days to 90 days. The following table sets out the ratio of the currency used in the settlement of the Group’s purchases for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, respectively:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004

Yen 11.7% 46.1% 66.6% 63.0% US dollars 52.8% 35.3% 11.2% 11.2% Hong Kong dollars 26.9% 8.1% 11.7% 13.6% Renminbi 5.0% 5.0% 3.9% 10.1% Singapore dollars 1.8% 1.8% 1.8% – Thai Baht, Euro and others 1.8% 3.7% 4.8% 2.1%

Total 100.0% 100.0% 100.0% 100%

– 57 – BUSINESS

PRODUCTION FACILITIES

The Group’s products are manufactured in its production facilities which include one production plant in Thailand, one production plant in Dongguan City, Guangdong Province in the PRC and one production plant in Zengcheng City, Guangdong Province in the PRC. The following table summarises details of the production facilities in each of these countries:–

Approximate Approximate Operating Principal products maximum utilisation Location subsidiaries manufactured capacity rate in 2003 (Note 1) units %

Thailand

Sanap Thup Sub-district, IPE (Thailand) Metal components 72 million 92 Wang Noi District, for HDDs Phra Nakhon Si Ayutthaya Province, Thailand

The PRC

Huang Si Wei Dongguan Koda Metal components for 65 million 98 Guan Li Qu, (Note 2) HDDs, hydraulic Dongguan City, equipment, fiber optic Guangdong connectors and Province, electronic devices the PRC

Jiao Keng, Lan Tian Xing Hao Metal components for 14 million 93 She Shui Men Tou HDDs, hydraulic (Note 3) (Tu Ming), Xian Lian equipment, fiber optic Cun Xian Cun Town, connectors and Zengcheng City, electronic devices Guangdong Province, the PRC

Notes:–

1. The utilization rate is computed by taking the actual quantities produced during the year ended 31st December, 2003 and divided by the estimated maximum capacity of the CNC turning machine for that year.

2. Dongguan Koda was beneficially held by IPE (HK) since September 1994 but was later disposed of to Mr. Chui, an executive Director, in 1996. In August 2002, IPE (HK) re-acquired Dongguan Koda from Mr. Chui, and therefore Dongguan Koda became an indirect wholly-owned subsidiary of the Company since then.

3. Xing Hao was established in June 2002 and commenced production in July 2003. This figure is calculated by reference to the half-year production period from July to December 2003 only.

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IPE (Thailand)

Establishment of IPE (Thailand)

The production facilities of the Group in Thailand are operated by IPE (Thailand) which was established on 18th September, 1997 as a wholly foreign-owned enterprise for the manufacturing of pivot cartridge and FDB spindle motor components for customers located in Thailand. At the time of incorporation, the total issued share capital of IPE (Thailand) amounted to approximately Baht 1 million (equivalent to approximately HK$188,324) which was subsequently increased to Baht 75 million (equivalent to approximately HK$14.1 million) and Baht 150 million (equivalent to approximately HK$28.2 million) in August 1999 and March 2001 respectively.

As stated in Appendix V – “Summary of certain Thai laws relevant to the Group’s business operations” to this prospectus, the major legal requirements for the operation of a company with the majority of its shares held by a foreign entity are those set out in the Foreign Business Act B.E. 2542 (A.D. 1999) (the “FBA”). The purpose of the FBA is to prohibit or restrict foreigners from engaging in certain businesses in Thailand and, to this end, foreigners are required to obtain permission in accordance with the FBA before conducting restricted businesses.

As advised by the Thailand legal advisers of the Company, the business operated by IPE (Thailand) is not subject to the requirements under the FBA.

Another legislation relevant to foreigners engaging businesses in Thailand is the Investment Promotion Act B.E. 2520 (1977) which provides the legal framework for investment incentives granted by the Office of the Board of Investment (“BOI”). IPE (Thailand) obtained from BOI two certificates under which IPE (Thailand) was entitled to receive certain tax benefits in relation to the manufacture of metal products. According to Promotion Certificate No. 141/2542 dated 16th September, 1999 granted by BOI, IPE (Thailand) is entitled to exemption from income tax for a period of three years from the approved date on which income was first derived from the production facilities constructed in Thailand. Under the above certificate, the Phase I production facilities of IPE (Thailand) completed in May 2000 was exempted from income tax from 2nd June, 2000 to 1st June, 2003 for any estimated assessable profits arising from the Phase I production facilities.

In addition, IPE (Thailand) was awarded another Promotion Certificate No. 1296(2)/2545 dated 2nd May, 2002, pursuant to which the profits generated from the Phase II production facilities of IPE (Thailand), which was completed in December 2002, were exempted from income tax from 3rd January, 2003 to 2nd January, 2006.

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For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the turnover and net profit before taxation derived from each of the Phase I and Phase II production facilities of IPE (Thailand) is set out as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Turnover Phase I 43,378 55,095 26,408 15,956 Phase II – – 64,772 44,595

Total 43,378 55,095 91,180 60,551 Net profit Net profit before taxation Phase I 12,219 14,478 6,732 3,342 Phase II – – 10,146 5,450 Unallocated items – – 902 238

Total 12,219 14,478 17,780 9,030

Note: The above figures are translated from Baht at the average exchange rate for each respective year.

The Group’s tax holidays for Phase I production facilities of IPE (Thailand) expired on 1st June, 2003 and it is now subject to an income tax rate of 30% on the estimated assessable profits arising therefrom. The tax holidays for the Phase II production facilities will expire on 2nd January, 2006 and after that IPE (Thailand) is expected to be subject to a full income tax rate. Assuming IPE (Thailand) did not have the above tax holidays, the tax charges during the Track Record Period would be increased by approximately HK$3.5 million, HK$4.3 million, HK$4.7 million and HK$1.3 million respectively.

The Thailand legal advisers of the Company is of the view that IPE (Thailand) has complied with the requirements under the Investment Promotion Act B.E. 2520 (1977) for the obtaining of the BOI certificates and they are not aware of any violation of the conditions prescribed by the BOI under such certificates.

Production facilities

The production plant is located approximately 50 km from central Bangkok airport and occupied three parcels of land with a total site area of approximately 33,120 sq.m. and a total gross floor area of approximately 16,992 sq.m.. The land was originally purchased by the Group in November 1999 for Baht 7,956,000 (equivalent to approximately HK$1,498,305) as a freehold land. Under Thai law, foreigners may not acquire land in Thailand unless they are authorised by certain legislation and the BOI has the power under the law on investment promotion to permit ownership of land by an approved foreigner. IPE (Thailand) is considered as a foreigner according to the Thai Land Code since the majority of its shares is held by foreigners. However, IPE (Thailand) obtained the privilege under the BOI’s promotion to acquire land and therefore it has the right to occupy, use and dispose of the aforesaid land. The Phase I production facilities were completed in May 2000 and comprised 8 blocks of buildings and structures with total gross floor

– 60 – BUSINESS area of approximately 6,201 sq.m. and was used for production, administrative office, storage and warehousing, canteen and power generation purposes.

The Group started to relocate the production facilities from Singapore to Thailand in 2000. In view of the requirement for more space, IPE (Thailand) commenced the construction of the Phase II production facilities which consisted of an additional 11 blocks of buildings and structures. The Phase II production facilities were completed in December 2002 and comprised a total gross floor area of approximately 7,274 sq.m. as additional space for production, warehousing, staff accommodation and recreation purposes.

In addition, seven new buildings and structures, including car park, guard house, drainage system structures, with total gross floor area of approximately 3,517 sq. m. were recently completed.

The Group’s production facilities in Thailand was awarded ISO 9001 certification by SGS (Thailand) Limited in January 2002.

As at the Latest Practicable Date, IPE (Thailand) employed approximately 715 employees, of which approximately 441 were production staff. The Thailand production facilities are currently in full operation.

Dongguan Koda (東莞科達五金制品有限公司)

Establishment of Dongguan Koda

Dongguan Koda was established in the PRC on 6th September, 1994 as a wholly foreign- owned enterprise for the production of precision metal components with an initial registered capital of approximately HK$45 million. Since the incorporation of IPE (HK) on 13th September, 1994 until 31st December, 1996, it was the beneficial owner of Dongguan Koda with the legal title held by IPE (Singapore).

With the continued rapid expansion in the production capacity of the production facilities in Singapore and the growth in turnover of the Group during the year 1996, the Group was facing difficulties in funding the expansion of the Singapore and PRC operations simultaneously. The establishment of Dongguan Koda required substantial capital expenditures that the Group was unable to finance and therefore in December 1996, Dongguan Koda was disposed of to Mr. Chui for a consideration of approximately HK$27.8 million, which was based on the gross value of all the plant and machinery invested and cash injected by IPE (HK) into Dongguan Koda from 1994 to 1996. The Directors considered the disposal of Dongguan Koda to be reasonable and in the interest of the Group at that time as it enabled the Group to continue to enjoy the benefits of the increase in the production capacities of Dongguan Koda without over-stretching the financial capabilities of the Group as the funding for the expansion was provided by Mr. Chui.

Following the disposal of Dongguan Koda, the Group continued to engage it to manufacture precision metal components for the Group. For the financial year 2001, IPE (HK) was the sole customer of Dongguan Koda while for the financial years 2002 and 2003, other than IPE (HK), Dongguan Koda also provided other subcontracting services to a few independent third parties, which only accounted for an average of less than 2% of its total turnover for each of the relevant years. The products manufactured by Dongguan Koda were sold to the Group at cost plus a profit margin at a range of approximately 25% to 40%. The profit margin charged by Dongguan Koda was determined on an order-by-order basis and was adjusted after considering the then market situation when the order was placed and the prevailing prices quoted by other independent subcontractors. In addition, other factors such as different product types, degree of precision level required as well as order quantities would all affect the exact margin charged.

– 61 – BUSINESS

Following the market downturn as a result of the terrorist attack in the US in 2001, the Directors expected an upswing in orders for the Group’s products in the second half of 2002. In order to consolidate the Group’s control over its production capabilities and to improve cost efficiency and economies of scale, the Group expanded its production facilities in the PRC by entering into a sale and purchase agreement with Mr. Chui for the acquisition of the entire equity interest in Dongguan Koda at a consideration of HK$71 million. The terms of the sale and purchase agreement became effective from 1st August, 2002 onwards. The consideration was based on the registered capital of Dongguan Koda at the time of signing the relevant sale and purchase agreement. Pursuant to the audited accounts of Dongguan Koda as adjusted to Hong Kong accounting standards, the net asset value of Dongguan Koda as at 31st July, 2002 was approximately RMB105 million (equivalent to approximately HK$99 million). The consideration was fully settled through the current account with Mr. Chui which had an outstanding balance of approximately HK$17 million payable to him as at 31st December, 2003. Such amount was capitalised in June 2004 to the effect that 528 shares of Best Device were issued and allotted to Mr. Chui. As the financial resources of the Group has strengthened substantially since 1996, the Directors consider that the consideration for the acquisition of Dongguan Koda to be fair and reasonable, and is in the interest of the Group as the acquisition will enhance the asset base of the Group and give the Group more control over its production capabilities.

Prior to and following the acquisition of Dongguan Koda in August 2002, there has not been any material change in the operations of Dongguan Koda and it is operating under the same management. The Directors believe that by retaining the management of Dongguan Koda, the continuity can be assured and the synergy will be greatly enhanced through good understanding resulting from years of cooperation between the senior management of the Group and Dongguan Koda.

The following table sets out the senior management of Dongguan Koda which has existed prior to and after the acquisition in August 2002:

Name Position Years of experience

Mr. Chui Siu On Chairman 29 years Mr. Li Chi Hang Director 16 years Mr. Wong Kwok Keung General Manager 25 years Mr. Chui Siu Hung Deputy General Manager 12 years Ms. Zhang Jing Qun Administrative Manager 13 years Ms. Chen Shu Fong Production Manager 9 years Mr. S.N.Tan Quality Control Manager 3 years Ms. Zhang Yi Wu Financial Manager 9 years

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The following table sets out the major financial information of Dongguan Koda as audited by CCIF CPA Limited based on Hong Kong accounting standards, prior to and following the acquisition by IPE (HK) in August 2002:–

Pre-acquisition Post-acquisition From From Year ended 1st January, 1st August, Year ended Six months 31st 2002 to 2002 to 31st 31st ended December, 31st July, December, December, 30th June, 2001 2002 2002 2003 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000

Turnover 46,844 32,303 26,189 66,614 29,184 Cost of sales (35,260) (20,257) (17,018) (41,962) (19,997)

Gross profit 11,584 12,046 9,171 24,652 9,187 Other revenue 284 774 294 496 183 Distribution and selling expenses (1,176) (572) (365) (520) (460) General and administrative expenses (5,679) (2,461) (2,428) (5,388) (2,600) Other operating expenses (Note) (159) (12,623) (279) (42) (21)

Profit/(loss) from operation 4,854 (2,836) 6,393 19,198 6,289 Finance costs (349) (406) (308) (502) (106)

Profit/(loss) before taxation 4,505 (3,242) 6,085 18,696 6,183 Taxation (625) 120 (788) (2,731) 407

Net profit/(loss) for the year/period 3,880 (3,122) 5,297 15,965 6,590

Gross profit margin 24.7% 37.3% 35.0% 37.0% 31.5% Net profit margin 8.3% n/a 20.2% 24.0% 22.6%

Note: The significant increase in other operating expenses for the year 2002 was attributable to a provision for impairment loss on plant and machinery of approximately RMB12.5 million resulting from a re-valuation of machineries carried out in 2002.

Based on the above, during the Track Record Period, Dongguan Koda only became a member of the Group from 1st August, 2002 and the results of Dongguan Koda were consolidated into the audited accounts of the Group from 1st August, 2002 for the preparation of the accountants’ report as set out in Appendix I to this prospectus.

Details of the disposal and acquisition of Dongguan Koda were further described in the paragraph headed “Changes in the ownership of Dongguan Koda from 1994 to 2002” in this section.

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According to the PRC legal opinion, up to the end of 2003, the registered capital of Dongguan Koda amounted to HK$98 million. Dongguan Koda completed the capital verification on 25th February, 2004 and according to the verification report, total registered capital contributed by IPE (HK) amounted to approximately HK$93.7 million. As Dongguan Koda was operating near full capacity, the Directors decided to increase its registered capital to cater for the importation of machineries for the expansion of production facilities. On 12th February, 2004, Dongguan Koda received approval to further increase its registered capital by an additional HK$35 million from HK$98 million to HK$133 million. According to the approval, 15% of the additional registered capital of HK$35 million should be contributed before 15th May, 2004 and the remaining should all be contributed before 15th February, 2007. According to the capital verification report dated 30th April, 2004, the Group had completed the 15% contribution commitment of the additional registered capital of HK$35 million and had cumulatively contributed an aggregate of approximately HK$121.1 million. The Directors expect that the remaining capital contribution to Dongguan Koda of approximately HK$11.9 million will be injected by way of machineries which will be financed as to approximately HK$8.4 million by long-term bank loans and as to approximately HK$3.5 million by the proceeds from the Offer.

Under the relevant PRC regulations, the Company is not permitted to consolidate the financial results of Dongguan Koda into the audited consolidated accounts of the Group before its registered capital is fully paid up. However, the audited consolidated accounts of the Group as set out in Appendix I to this prospectus have consolidated the financial results of Dongguan Koda in accordance with the HKGAAP. The Group’s PRC legal advisers advised that as the relevant PRC authorities had approved the contribution by installments in the registered capital of Dongguan Koda, the fact that its registered capital was not fully paid up was permitted. The Directors also considered that as long as it was allowed by the relevant PRC authorities, it would be beneficial for the Group to contribute the registered capital of Dongguan Koda by stages due to greater flexibility in allocating the Group’s financial resources. Further details in relation to the breach of the relevant PRC regulations as a result of the consolidation action are set out in the paragraph headed “Consolidation of financial results of Dongguan Koda and Xing Hao” under the section headed “Risk factors” in this prospectus.

However, to protect the interest of the Group, each of the Indemnifiers have jointly and severally undertaken to indemnify Dongguan Koda and its direct or indirect holding companies within the Group against all claims, fines, penalties, expenses or losses whatsoever which may be incurred, suffered by, made against or become payable by any of them as a result of or otherwise in connection with the consolidation action.

Preferential tax treatment to Dongguan Koda

Under the applicable laws and regulations in the PRC, Dongguan Koda is entitled to full exemption from income tax for a period of two years commencing from its first profit-making year of operation and a 50% income tax relief for the following three years. As Dongguan Koda only became profitable during the financial year ended 31st December, 1999, it was exempted from PRC Enterprise Income Tax for the years ended 31st December, 1999 and 2000 and subject to 50% relief on the then prevailing tax rate for the following three years ended 31st December, 2003. However, as Dongguan Koda was appraised as 高新技術企業 (New and High Technology Enterprise) in June 2003, it is entitled to a preferential Enterprise Income Tax rate under the applicable PRC regulations. On 16th September, 2003, Dongguan Koda obtained the approval from the Dongguan Taxation Bureau and was subject to preferential income tax rate of 7.5% for the financial year ended 31st December, 2003. On 13th November, 2003, Dongguan Koda obtained another approval from the Dongguan Taxation Bureau and it is now subject to a tax rate of 10% for the following three years ending 31st December, 2006. – 64 – BUSINESS

Production facilities

The production facilities operated by Dongguan Koda in the PRC are located at Huang Si Wei Guan Li Qu, Dongguan City, Guangdong Province, the PRC. The production plant in Dongguan occupies a land site area of approximately 16,324 sq.m. of which approximately 6,007 sq.m. of land possess land use rights for a term of 50 years expiring on 24th October, 2046. The plant comprises 11 blocks of buildings providing a total gross floor area of approximately 11,089.01 sq.m. which include factory buildings, office building, warehouses, dormitory and canteen. Dongguan Koda was awarded ISO 9002 certification on 3rd February, 2000 and ISO 9001 and QS 9000 on 24th October, 2002 by SGS Yarsley International Certification Services Limited.

As at the Latest Practicable Date, Dongguan Koda employed approximately 787 staff, of which approximately 578 were production staff.

Xing Hao (廣州市新豪精密五金制品有限公司)

Establishment of Xing Hao

Xing Hao was established in the PRC on 19th June, 2002 by the Group as a wholly foreign- owned enterprise for the production of precision metal components at a production plant located at Xian Lian Cun, Xian Cun Town, Zengcheng City, Guangdong Province, the PRC. According to the business licence and the articles of association of Xing Hao, its approved business activities include the production and sale of metal components and moulds. The initial registered capital of Xing Hao amounted to HK$30 million, of which HK$19 million, HK$7 million and HK$4 million should be contributed by way of plant and machinery, land and buildings and working capital respectively.

Pursuant to the articles of association of Xing Hao, 15% of the initial registered capital of Xing Hao should be contributed within three months after obtaining the business licence and the remaining registered capital should all be contributed within one year after obtaining the business licence. However, as the Group required more time to arrange import of plant and machinery and financing of the working capital contribution to Xing Hao, it applied to the relevant PRC authorities for an extension of the time limit for the capital contribution to Xing Hao to 31st December, 2003 and such application was approved on 29th May, 2003. According to the capital verification report dated 11th February, 2004, the then total registered capital of Xing Hao amounted to HK$30 million and approximately HK$16.7 million had been contributed by way of plant and machineries and approximately HK$18.8 million was paid up by way of cash. The Group’s PRC legal advisers advised that as the relevant PRC authorities had approved the delay in payment and also the subsequent increases (as described below) in the registered capital of Xing Hao, the method and timing of capital contribution to Xing Hao were in line with the requirements set out in the articles of association and the conditions of the relevant approvals in relation to its establishment.

The Group is undertaking the Zengcheng Development Project and therefore the registered capital of Xing Hao will have to increase to cater for the relevant capital investment. On 11th August, 2003 and 1st December, 2003, the registered capital of Xing Hao was increased by each of HK$5 million respectively to HK$40 million of which the increased portion was required to be contributed before 1st July, 2004 according to the relevant approval from the PRC government authorities. On 17th February, 2004, the registered capital of Xing Hao was further increased by HK$50 million from HK$40 million to HK$90 million of which 15% of the increased portion was required to be contributed before 24th May, 2004 and the remaining 85% of the increased portion

– 65 – BUSINESS was required to be contributed before 24th February, 2006. According to the capital verification report dated 24th May, 2004, the Group had completed the 15% contribution commitment of the additional registered capital of HK$50 million and had cumulatively contributed an aggregate of approximately HK$57 million. On 26th August, 2004, the registered capital of Xing Hao was further increased by HK$50 million from HK$90 million to HK$140 million, of which 15% of the increased portion was required to be contributed before 9th December, 2004 and the remaining 85% to be contributed before 9th September, 2006. The Directors expect that the remaining registered capital of approximately HK$83 million will be contributed through the capital expenditure in relation to the Zengcheng Development Project which will be financed as to approximately HK$37.7 million by long-term bank loans, as to approximately HK$31.6 million by the proceeds from the Offer and as to approximately HK$13.7 million by internal resources of the Group.

Similar to the case for Dongguan Koda, the Company is not permitted to consolidate the financial results of Xing Hao into the audited consolidated accounts of the Group before its registered capital is fully paid up but the audited consolidated accounts of the Group as set out in Appendix I to this prospectus have consolidated the financial results of Xing Hao. The Directors considered that it would still be beneficial for the Group to contribute the registered capital of Xing Hao by stages given the substantial amount of the increased registered capital. Further details in relation to the breach of the relevant PRC regulations as a result of the consolidation action are set out in the paragraph headed “Consolidation of financial results of Dongguan Koda and Xing Hao” under the section headed “Risk factors” in this prospectus.

However, to protect the interest of the Group, each of the Indemnifiers have jointly and severally undertaken to indemnify Xing Hao and its direct or indirect holding companies within the Group against all claims, fines, penalties, expenses or losses whatsoever which may be incurred, suffered by, made against or become payable by any of them as a result of or otherwise in connection with the consolidation action.

Preferential tax treatment to Xing Hao

Under the applicable laws and regulations in the PRC, Xing Hao is entitled to full exemption from income tax for two years commencing from its first profit-making year, following by 50% relief for the three years thereafter. Xing Hao had started production in July 2003 and still recorded a net operating loss for the year ended 31st December, 2003.

Production facilities

The existing production plant operated by Xing Hao was acquired from an independent third party on 30th September, 2002 at an aggregate consideration of approximately HK$8 million which comprised i) the land use rights (with the State-owned Land Use Right Certificate No.: Zheng Guo Yong (2004) No. C0300035) of a land with site area of approximately 8,000 sq.m. for a term of 50 years expiring on 30th December, 2053; and ii) one factory building and other ancillary facilities erected on the site with a total gross floor area of approximately 2,689 sq.m.. The consideration of approximately HK$8 million was fully settled by the end of October 2003.

In order to cope with future business growth, the Group has initiated the Zengcheng Development Project and Xing Hao was granted the land use rights of a parcel of land with site area of approximately 166,534 sq.m. located at Shang Wei Sha He She, Yue Hu Cun, Xian Cun Zhen, Zengcheng City, Guangdong Province, the PRC as the location of the Group’s new production plant by 增城市國土資源和房屋管理局 (Zengcheng City Land Resources and Buildings

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Management Bureau) on 23rd May, 2003. The aggregate consideration of the Acquired Land amounted to approximately RMB28.8 million (equivalent to approximately HK$27.2 million) which was comparable to the open market value of the nearby properties. As at 30th June, 2004, the Group had already paid approximately RMB13.7 million (equivalent to approximately HK$12.9 million) which was wholly financed by internal resources of the Group for the purchase of the Acquired Land, with the remaining sum of approximately RMB15.1 million (equivalent to approximately HK$14.2 million) payable on or before 30th June, 2005.

The Group has obtained the State-owned Land Use Right Certificate of the Acquired Land for a term of 50 years expiring on 22nd May, 2053. Vigers Appraisal & Consulting Limited, an independent property valuer, has carried out a property valuation and estimated that the open market value of the Acquired Land as at 31st August, 2004 was approximately RMB29 million (equivalent to approximately HK$27.4 million). Details of the property valuation report were set out in Appendix IV (A) to this prospectus.

The Directors currently estimate that the Zengcheng Development Project will be carried out in three phases of which the first phase had commenced in December 2003 being the construction of a new production plant and a staff quarter with an estimated total gross floor area of approximately 23,275 sq.m.. The Group has already obtained the Construction Land Use Planning Permit No. 200205B003 dated 26th August, 2003 in respect of the Zengcheng Development Project. The relevant Construction Works Planning Permits and Construction Commencement Permit were also obtained in April 2004 and May 2004 respectively and the first phase construction is expected to be completed by the first quarter of 2005. For the second and third phase of the Zengcheng Development Project, the Directors currently expect that it would consist of the construction of one production plant, four staff quarters, one office building and other ancillary facilities with a total gross floor area of approximately 44,544 sq.m.. The Group currently plans to commence the construction of the four staff quarters in 2005 but does not have specific schedule for the production plant and office building. The Directors estimate the total costs for the Zengcheng Development Project to be approximately HK$85.9 million. As at 30th June, 2004, approximately HK$16 million had been paid out of internal resources of the Group.

The Directors expect to apply part of the proceeds from the Offer, amounting to approximately HK$31.6 million, to finance the Zengcheng Development Project. The remaining funding for the Zengcheng Development Project and the balance payment of the acquisition cost of the Acquired Land will be financed by internal resources of the Group and bank borrowings.

After the completion of the first phase of the Zengcheng Development Project, the production capacity of the Group is expected to increase by approximately 30%.

As at the Latest Practicable Date, Xing Hao employed approximately 413 employees, of which approximately 314 were production staff.

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PRODUCTION PROCESS

The following chart shows the principal steps in the production of the Group’s products:

Rawmaterials 原材料 Symbol / 符號 Operation / 操作 Lot inspection / 批量檢查 Inspection / 檢查 Storage / 存倉 Storage / 存倉

CNC turning / 車床 In-process inspection / 制程檢查

Lot inspection / 批量檢查

Washing / 清洗

Drilling / 鉆孔, tapping / 攻牙, slotting / 開槽 In-process inspection / 制程檢查 and milling plane / 鑼平位 Lot inspection / 批量檢查

Washing / 清洗

Fine tuning / 精車 In-process inspection / 制程檢查

Lot inspection / 批量檢查

Washing / 清洗

Optional treatments / 其他處理方法 – Electroless nickel plating / 電鍍 – Heat treatment / 熱處理 – Surface treatment / 表面處理 Incoming inspection / 來料檢查

Tumbling / 洗磨

Grinding / 研磨 In-process inspection / 制程檢查

Lot inspection / 批量檢查

Washing / 清洗

Optional treatment / 其他處理方法 – Passivation / 鈍化 Incoming inspection / 來料檢查

Visual checking / 外觀檢查

Packing / 包裝 Final inspection / 最終產品檢查

Storage / 存倉

Out-going / 出貨

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The Group’s manufacturing process basically consists of four major stages: (i) primary process which involves raw materials inspection and CNC turning (車床); (ii) secondary process which involves drilling (鉆孔), tapping (攻牙), slotting (開槽) or milling plane (鑼平位); (iii) finishing process which involves fine tuning (精車), tumbling (洗磨) and grinding (研磨); and (iv) packaging process which involves visual checking (外觀檢查), packing (包裝) and storage (存倉). During the finishing process, certain customers may request additional treatments such as electroless nickel plating (電鍍), heating treatment (熱處理), surface treatment (表面處理) or passivation (鈍化) and some of these processes are developed by the Group.

Given the sophisticated and high precision requirements, the Group’s primary and secondary production processes are principally performed by CNC machines. The CNC machines are operated by built-in computer software and workers are only required to input parameters according to each product specification. Processes such as turning, tumbling and grinding will be automatically performed by CNC machines with a high degree of precision.

As the Group’s products are of high precision specifications in nature, stringent quality control policies are applied in every production process. During each stage of the production processes, samples will be taken for immediate inspection and if any substandard products are found, the whole batch of products under processing would be rejected. In addition, inspection will be taken after each production process is finished and any substandard products will be rejected.

Certain principal production processes are further described below:–

CNC turning

It is one of the Group’s primary production processes in which raw materials such as stainless steel, brass and aluminum in long tube form will be cut into small pieces and then go through the primary drilling and cutting processes by CNC machines.

Secondary process

According to product types and customers’ specifications, different works will be performed during the secondary process such as drilling, tapping, slotting and milling plane.

Finishing process

Some components have to undergo the fine tuning process in order to ensure that their precision levels will exactly conform with the customers’ requirements. As in accordance with customers’ specifications, some parts need to be further washed and deburred whilst others require the surfaces of the parts to be smooth by going through a grinding process.

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SUBCONTRACTORS

Dongguan Koda was one of the Group’s subcontractors from 1996 up to 1st August, 2002 when Dongguan Koda became a member of the Group after the Group acquired Dongguan Koda from Mr. Chui at a consideration of HK$71 million. As such, the results of Dongguan Koda were consolidated into the audited accounts of the Group from 1st August, 2002 onwards. Details of the acquisition are set out in the paragraphs headed “Production facilities” and “Changes in the ownership of Dongguan Koda from 1994 to 2002” in this section.

Dongguan Koda possesses all necessary machineries and equipment for manufacturing of precision metal components for HDDs, hydraulic equipment, fiber optic connectors and electronic devices. As IPE (HK) does not maintain a manufacturing plant in Hong Kong, all the orders received by it are subcontracted to other manufacturers including Dongguan Koda which performs the whole production process. For the year ended 31st December, 2001 and the seven months ended 31st July, 2002, the subcontracting fee paid to Dongguan Koda by IPE (HK) amounted to approximately HK$44.3 million and HK$30.6 million respectively, representing approximately 33.3% and 28.8% of the Group’s total costs of sales of the relevant years respectively.

The subcontracting fee paid by IPE (HK) to Dongguan Koda was arrived at after arm’s length negotiation and was determined on an order-by-order basis. The price for each order was based on the manufacturing costs, including raw materials, labour and factory overheads, of the actual quantity of products supplied by Dongguan Koda plus a margin of 25% to 40%. The exact margin for each order was further adjusted after considering the market situation when the order was placed and the prevailing prices quoted by other independent subcontractors. For the year ended 31st December, 2001 and from 1st January, 2002 to 31st July, 2002 (the period within the Track Record Period when Mr. Chui owned the entire beneficial interest in Dongguan Koda), the gross profit margin of Dongguan Koda based on its audited results was approximately 24.7% and 37.3% respectively. From 1st August, 2002 to 31st December, 2002 and for the year ended 31st December, 2003 and the six months ended 30th June, 2004 (the period within the Track Record Period when the Group owned the entire beneficial interest in Dongguan Koda), the gross profit margin of Dongguan Koda based on its audited results was approximately 35%, 37% and 31.5% respectively. The relatively low gross profit margin of Dongguan Koda for the year ended 31st December, 2001 was due to the higher depreciation charges for that year as Dongguan Koda had, starting from 2002, lowered the depreciation rates for its machineries after an independent review on their useful lifes, which resulted in lower depreciation charges and hence cost of goods sold in subsequent years. Taking into account of the average gross profit margin of precision metal component in the industry and the negotiation process between the Group and Dongguan Koda in arriving at the margin for each order, the Directors consider that the margin charged by Dongguan Koda was fair and reasonable and on normal commercial terms.

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Apart from Dongguan Koda, IPE (HK) also engaged Golden Tech Industries Company Limited (“Golden Tech”), an independent third party, as its subcontractor to produce metal components. At the same time, the Group also leased machineries to Golden Tech for the reasons that i) it could facilitate them to manufacture products for the Group so that their product quality could be assured; and ii) the Group could avoid additional costs to look for production space and workers to operate the machines. There was no machinery leasing agreement entered into between the Group and Golden Tech and the leasing payment was charged on a monthly basis which was determined by reference to the Group’s acquisition cost of those machines in addition to any related hire purchase interest and repair and maintenance costs so that the Group would be able to cover all relevant machinery costs. In 2002, IPE (HK) established Xing Hao and had acquired the plant and machineries owned by Golden Tech for the verified value of approximately HK$16.7 million. Following the establishment of Xing Hao, IPE (HK) ceased to subcontract orders and lease machineries to Golden Tech. For the financial year 2001, the subcontracting fee paid to Golden Tech amounted to approximately HK$15.1 million, representing approximately 11.4% of the Group’s total costs of sales while the machinery rental income from Golden Tech amounted to approximately HK$4.8 million and HK$1.8 million respectively for each of the two years ended 31st December, 2002.

During the production processes, certain customers may request additional treatments for their products such as electroless nickel plating, heating treatment, surface treatment or passivation. As not all of the Group’s products require these optional treatments, the Directors do not consider it cost effective to acquire additional machineries to perform the whole processes and therefore the Group subcontracts some of them to other parties. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the total subcontracting fees in respect of optional product treatments amounted to approximately HK$7.9 million, HK$6.0 million, HK$1.2 million and HK$0.4 million respectively, representing approximately 5.9%, 5.7%, 1.0% and 0.5% of the Group’s total costs of sales respectively.

During the Track Record Period, the Group principally engaged four to five major subcontractors to perform optional product treatments which included IMF. IMF was engaged in the provision of passivation and plating services in Thailand and was controlled by Mr. Chui who is an executive Director and the beneficial controlling shareholder of the Company. For each of the three years ended 31st December, 2003, the total subcontracting fees paid to IMF amounted to approximately HK$4.3 million, HK$1.9 million and HK$0.1 million respectively, representing approximately 3.3%, 1.8% and 0.1% of the Group’s total costs of sales respectively.

For the six months ended 30th June, 2004, the Group did not engage IMF as subcontractor for the optional product treatment. In addition, Mr. Chui had already disposed of his entire equity interests in IMF to independent third parties in April 2004.

QUALITY CONTROL

The Group has implemented stringent quality control policies in all of its production facilities. The production plant in Dongguan in the PRC was awarded ISO 9002 certification on 3rd February, 2000 and ISO 9001 and QS 9000 on 24th October, 2002 by SGS Yarsley International Certification Services Limited. In addition, the production plant in Thailand was awarded ISO 9001 by SGS (Thailand) Limited on 25th January, 2002.

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Regardless of the certifications of the production facilities of the Group, the Directors believe that as the Group’s products are of high quality and of high precision specifications in nature, it is essential for the Group to implement quality control procedures beyond those required by ISO. The Directors also believe that as reliability and quality of its products are the key to the Group’s success, maintaining the consistency in quality and precision expected by its customers are the Group’s main priorities.

The Group has committed a team of about 199 quality control personnel as at the Latest Practicable Date to inspect incoming raw materials on a sampling basis so as to ensure that they conform to the quality requirements as specified by the Group. In addition, quality control checks are conducted during and after various stages of production to ensure that pre-determined specifications are met. Any products that fail to meet specifications at any stages of production are rejected immediately.

The above stringent policies were also extended to products manufactured by Dongguan Koda for the Group prior to its acquisition in August 2002. The Directors believe that it is essential that consistency in quality control is maintained to ensure customer confidence and satisfaction in the Group’s products.

RESEARCH AND DEVELOPMENT

The Group is committed to the research and development of new precision components and products. However, as the Group is principally an OEM manufacturer, its research and development efforts are generally directed at enhancement of product quality and production efficiency rather than on the technical specifications of the products. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the total costs incurred in research and development were approximately HK$3.3 million, HK$3.8 million, HK$3.9 million and HK$1.8 million respectively.

As the machineries currently utilised by the Group are generally versatile and can be programmed to manufacture a wide variety of precision components, the efficiency and feasibility of manufacturing high precision level of components will generally reside in the ability of the Group to devise the optimal production process.

The Directors believe that the expertise of the Group’s research and development department in the area of machine tooling augmentation and when required, machine fabrication, is one of the keys to the Group’s success. As electronic devices and equipment manufactured globally continue to miniaturise, the precision components they require will become increasingly challenging. Therefore, the Directors believe that the ability and effectiveness of the Group’s research and development department in devising new production processes, minimising materials usages or wastages and its effectiveness in responding to customers’ specifications provide the Group with an advantage over the majority of its competitors.

In order to keep abreast of the latest technological developments and production technology, the research and development team regularly attends technical conferences and closely cooperates with its customers in the area of research and development. As the majority of the customers of the Group are leading players in their designated field, the relationship between the Group’s research and development team and its customers are essential to maintaining an edge over its competitors. As at the Latest Practicable Date, the Group had about 44 staff involved in research and development.

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During the period from 2001 to 2002, the Group commenced the research and development on the production of precision metal components used in automobiles. With QS 9000 certification awarded by Yarsely International Certification Services Limited in October 2002, the Group is certified to manufacture quality precision metal components used for the automobile industry. The Group is now capable of producing automobile precision metal components that are applied in actuators. For the two years ended 31st December, 2001 and 2002, the total cost incurred, among other things, in research and development for precision metal components used for automobiles and in attaining QS 9000 certification was approximately HK$2.1 million and HK$3.2 million, accounting for approximately 63.6% and 82.1% of total cost for research and development of the Group respectively.

INVENTORY CONTROL

The Group maintains a strict first-in-first-out approach to ensure that an accurate inventory movement record is kept. Through this process, the Group has an up-to-date aging analysis of the Group’s inventories and their movements. In order to prepare for any sudden unexpected shortage of raw materials or urgent increase in demand for the Group’s products, the Group generally maintains an approximately two to three months supply of raw materials, work-in-progress and finished goods. In addition, the Group adopts a policy of general provision for stocks, under which any raw materials and finished goods aged over one year and work-in-progress aged over 120 days will be provided for 50% and any raw materials and finished goods not-moving for over two years and work-in-progress aged over one year will be fully provided for.

As at 31st December, 2001, 2002 and 2003 and 30th June, 2004, the Group had an inventory level including raw materials, work-in-progress, finished goods and consumables of approximately HK$10.4 million, HK$28 million, HK$30.3 million and HK$43.2 million respectively. The average inventory turnover for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 was approximately 19 days, 56 days, 53 days and 60 days respectively. The significant increase in stock turnover in 2002 was primarily due to the Group having to account for the stock maintained by Dongguan Koda and IPE (Europe) following their acquisitions in 2002. The additional inventory resulted in an increase in the Group’s overall inventory level. For the year ended 31st December, 2003, the increase in inventory level was in line with the general increase in turnover of the Group.

ACHIEVEMENTS AND AWARDS

The Directors believe that the quality of the Group’s products and its dedication to product development are recognised in the industry. The Group has received certifications during the period from 1997 to 2003 as follows:

Award Operating subsidiary Organisation Date

ISO 9002 Dongguan Koda SGS Yarsley International 3rd February, 2000 Certification Services Limited

ISO 9001 IPE (Thailand) SGS (Thailand) Limited 25th January, 2002

Dongguan Koda SGS Yarsley International 24th October, 2002 Certification Services Limited

QS9000 Dongguan Koda SGS Yarsley International 24th October, 2002 Certification Services Limited – 73 – BUSINESS

The above certifications require continuous examinations by the relevant granting organisations and the registration fees and on-going expenses incurred by the Group for such purpose during the Track Record Period amounted to approximately HK$55,306, HK$301,988, HK$87,041 and HK$30,703 respectively.

INTELLECTUAL PROPERTY RIGHTS

As at the Latest Practicable Date, the Group has registered seven trade marks in Hong Kong, further details of which are set out in the paragraph headed “Intellectual property rights of the Group” under the section headed “Further information about the business of the Group” in Appendix VII to this prospectus.

The Group does not hold any patent and has not filed any patent application in respect of any of its products given that majority of these products are manufactured on OEM basis. The Directors confirm that they are not aware of any infringement by the Group of intellectual property rights of any third parties.

INSURANCE COVERAGE

The total insurance premium paid by the Group for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 amounted to approximately HK$521,253, HK$592,590, HK$574,763 and HK$295,030 respectively, representing approximately 1.7%, 2.8%, 1.9% and 1.6% of the Group’s total administrative expenses for the respective periods.

The insurance policies paid for by the Group cover a range of activities including medical, life and accident for key staff, fire, burglary, public liability, worker compensation and business interruption. The Directors consider that the insurance coverage currently taken by the Group is generally adequate. The Directors confirm that there have not been any material insurance claims during the Track Record Period.

COMPETITION

The Directors believe that the precision component industry generally has a high entry barrier. As most of the production processes for precision components are mechanised, the differential amongst manufacturers and their individual competitive edge lies on the ability of the manufacturers to decrease wastage and to shorten production cycle time through machine tooling augmentation, as well as their ability to respond to new technical specifications. In this respect, the Directors believe that the Group’s experience and its track record over the years demonstrates the ability of the Group to innovate and maintain an edge over its competitors through an increase in production efficiency while reducing production costs. Along with the Group’s continuous effort in research and development in machine tooling augmentation, the Directors are confident that the Group will be able to defend its market share through manufacturing high quality precision components at competitive prices.

In addition, the Directors also believe in the importance of providing its customers with the most convenient and cost effective method to purchase the Group’s products. In 2001, the Group introduced the “Just In Time” delivery service which allows its customers to have higher flexibility in maintaining inventory level. Although providing the “Just In Time” delivery service will increase the Group’s stock level, the normal course of production is not affected. In addition to improving the quality of service provided by the Group, the Group has also indirectly assisted its customers in improving cost efficiencies.

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By adhering to this high quality level of services and by maintaining the Group’s technological edge, the Directors believe that the other manufacturers of precision components will not pose significant competition risks to the Group. However, in view of the rapid technological advancement, the Directors will continuously focus on upgrading its production facilities and capabilities to manufacture precision components as demanded by its customers.

CHANGES IN THE OWNERSHIP OF DONGGUAN KODA FROM 1994 TO 2002

Establishment of Dongguan Koda in 1994

During the initial stage of the establishment of Dongguan Koda, it was the intention of IPE (Singapore) and Randford Limited that the registered owner of Dongguan Koda be a Hong Kong company as it would allow more effective monitoring of the construction and operation of the production facilities in the PRC. However, as IPE (HK) had not yet been established at that time, it was decided to arrange IPE (Singapore) to begin the establishment process of Dongguan Koda in the PRC in order to prevent any delay. Consequently, Dongguan Koda was established on 6th September, 1994 while IPE (HK) was established on 13th September, 1994. After the establishment of Dongguan Koda, Randford Limited was lack of funding and according to the registered capital verification report dated 5th November, 1994 carried out by 華粵會計師事務所 (Huague Certified Public Accountant’s Office), Randford Limited did not contribute any registered capital to Dongguan Koda. However, IPE (HK) contributed approximately HK$13.7 million of machinery to Dongguan Koda. Given that the registered capital of Dongguan Koda was in effect contributed by IPE (HK), IPE (Singapore) was its registered owner solely for administration purpose while IPE (HK) was its beneficial owner. For the above reason and based on the relevant confirmations given by the directors of IPE (Singapore) to the then auditors, the financial results of Dongguan Koda were not consolidated into the financial statement of IPE (Singapore).

Disposal of Dongguan Koda to Mr. Chui in 1996

IPE (HK) continued to contribute registered capital to Dongguan Koda since its establishment. However, the Group was unable to fund the expansion of the Singapore and PRC operations simultaneously due to its limited financial resources, and for better utilizing the financial resources of the Group, IPE (HK) disposed of its entire beneficial interest in Dongguan Koda to Mr. Chui in December 1996 at a consideration of approximately HK$27.8 million. The consideration was based on the gross value of all the plant and machinery invested and cash injected by IPE (HK) into Dongguan Koda from 1994 to 1996 which represented the book value of the investment cost in Dongguan Koda of approximately HK$13.7 million as shown in the financial statement of IPE (HK) for the year ended 31st December, 1996 and the additional fund contribution made by IPE (HK) to Dongguan Koda during the year 1996 of approximately HK$14.0 million. Since Mr. Chui was the controlling shareholder of both IPE (Singapore) and IPE (HK), no action was taken by Mr. Chui and the Group to ensure that the legal title of Dongguan Koda was transferred to Mr. Chui following the disposal for avoiding the complicated administrative process and the expenses required to be incurred for changing the legal title of Dongguan Koda in the PRC. Therefore, although Mr. Chui had acquired the beneficial interest in Dongguan Koda in December 1996, the legal interest resided with IPE (Singapore) as the registered investor of Dongguan Koda. After the disposal, IPE (HK) had not made any further capital contribution to Dongguan Koda.

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The settlement of the consideration for the disposal of Dongguan Koda to Mr. Chui in 1996 was made through the current account with Dongguan Koda maintained in the books of IPE (HK) and such balance was set-off against the trade payables to Dongguan Koda in subsequent years.

Though there was no written arrangement between the Group and Dongguan Koda, the Group still engaged Dongguan Koda to manufacture precision metal components and the Group has always been the principal customer of Dongguan Koda.

Acquisition of Dongguan Koda from Mr. Chui in 2002

As the Directors expected the production facilities in Thailand to become full capacity shortly in view of the increasing demand from customers, and in order to consolidate the Group’s control over its production capabilities and to improve cost efficiency and economy of scale, the Directors decided to acquire Dongguan Koda, which was one of the subcontractors of the Group at that time, back from Mr. Chui. Pursuant to a sale and purchase agreement dated 11th September, 2002 (the “S&P Agreement”), inter alia, IPE (Singapore) as the registered owner and Mr. Chui as the beneficial owner agreed to sell to IPE (HK) the entire equity interest in Dongguan Koda at a consideration of HK$71 million and such transaction was agreed to have taken place on 1st August, 2002. No independent valuation had been conducted to establish the value of Dongguan Koda and the consideration was based on the registered capital of Dongguan Koda at the time of signing the S&P Agreement and by reference to the audited accounts of Dongguan Koda as at 31st July, 2002. The Directors considered the basis of determining the consideration to be fair and reasonable since the registered capital of Dongguan Koda had already been verified by the PRC auditor on 28th August, 2002 and therefore considered that valuation by another party was unnecessary. In addition, the registered capital of Dongguan Koda did not include any land and properties where the relevant State-owned Land Use Right Certificates and the Real Property Ownership Certificates had not been obtained. Pursuant to the audited accounts of Dongguan Koda as adjusted to Hong Kong accounting standards, the net asset value of Dongguan Koda as at 31st July, 2002 was approximately RMB105 million (equivalent to approximately HK$99 million). The consideration, representing approximately 28.3% discount to the audited net asset value of Dongguan Koda as at 31st July, 2002, was arrived at after arm’s length negotiation between IPE (HK) and Mr. Chui and settled through the current account with Mr. Chui. The approximately HK$28.9 million of negative goodwill arised as a result of the acquisition is then amortised in the Group’s income statement over weighted average life of the non-monetary assets acquired.

As the legal title of Dongguan Koda still resided with IPE (Singapore) prior to the acquisition in August 2002 and the fact that the accounts of Dongguan Koda has never been incorporated into the accounts of IPE (HK) and IPE (Singapore) since the disposal in December 1996, it was necessary for the Group and Mr. Chui to execute an agreement confirming the spilt in the legal title and beneficial interest of Dongguan Koda since 1994. Accordingly, on 3rd August, 2002, a deed of trust confirmation (as amended by a supplemental deed dated 10th September, 2002) (the “DK Deed”) was entered into between IPE (Singapore), IPE (HK), Mr. Chui and Dongguan Koda. Pursuant to the DK Deed, the parties thereto confirmed and acknowledged that, inter alia, IPE (Singapore), the registered investor of Dongguan Koda for the time being, had been holding the legal interest in Dongguan Koda for the benefit of IPE (HK) since 13th September, 1994 and then for the benefit of Mr. Chui since 31st December, 1996. In June 2004, the executive Directors further executed the statutory declarations (the “Statutory Declarations”) to confirm the events as acknowledged and confirmed by the parties to the DK Deed to have taken place since the establishment of Dongguan Koda in 1994 up to the disposal of Dongguan Koda to the Group in 2002.

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In addition, prior to the signing of the S&P Agreement, an agreement《關於東莞科達五金 製品有限公司-股權轉讓協議 》(sale and purchase agreement in relation to Dongguan Koda) (the “Chinese S&P Agreement”) was entered into by IPE (Singapore) as vendor and IPE (HK) as purchaser on 16th August, 2002 for effecting the registration of the change of registered owner of Dongguan Koda from IPE (Singapore) to IPE (HK) in the PRC.

The execution of the Chinese S&P Agreement was to prepare for the execution of the S&P Agreement, under which IPE (Singapore) as the legal owner and Mr. Chui as the beneficial owner were to transfer their respective interests in Dongguan Koda to IPE (HK). The Chinese S&P Agreement, while it was dated 16th August, 2002, would not, under the laws of PRC, complete the transfer of the legal interest of IPE (Singapore) in Dongguan Koda until it was approved by the relevant PRC legal authorities. Meanwhile, the S&P Agreement was executed to deal with in essence the transfer of the beneficial interest of Mr. Chui in Dongguan Koda and also the obligation of IPE (Singapore) as legal owner to complete the transfer of its legal interest in Dongguan Koda. The Chinese S&P Agreement was merely executed for completing the transfer procedures required under the laws of the PRC. Indeed, it was provided in the S&P Agreement that to the extent that there was any conflict between the terms of the S&P Agreement and the Chinese S&P Agreement, the former should prevail. It was also stated in the S&P Agreement that in the event that the relevant registration was not completed or unsuccessful and/or the relevant approval was not obtained, the legality, validity and enforceability of the provisions of the S&P Agreement should not be affected or impaired and that IPE (Singapore), which remains as the registered owner of Dongguan Koda, should then hold the legal title for the benefit of IPE (HK) from 1st August, 2002.

Nevertheless, on 19th September, 2002, the change of registered owner of Dongguan Koda from IPE (Singapore) to IPE (HK) in accordance with the Chinese S&P Agreement was approved by the relevant PRC authority and thereafter, the legal interest and beneficial interest in Dongguan Koda merged and are now vested in IPE (HK).

The acquisition of Dongguan Koda in 2002 required the Group to pay Mr. Chui a consideration of HK$71 million. The consideration was partially settled through the current account with Mr. Chui leaving a balance of approximately HK$17 million payable to him as at 31st December, 2003. Such amount was capitalised in June 2004 to the effect that 528 shares of Best Device were issued and allotted to Mr. Chui.

Legal opinion

The DK Deed, the Statutory Declarations and the S&P Agreement are the documents substantiating the ownership arrangement relating to Dongguan Koda. The DK Deed and the S&P Agreement are governed by and construed in accordance with, and the Statutory Declarations have been made by the executive Directors by virtue of, the laws of Hong Kong. The DK Deed was entered into by the relevant parties in 2002 to acknowledge and confirm retrospectively some historical facts relating to Dongguan Koda since its incorporation on 6th September, 1994 and, in particular, the relationships that had been in existence between IPE (Singapore) (as the registered owner), IPE (HK) (as the beneficial owner for the period from 13th September, 1994 to 30th December, 1996) and Mr. Chui (as the beneficial owner since 31st December, 1996) in respect of the interest in Dongguan Koda. The entering into of the DK Deed and the execution of the Statutory Declarations as aforesaid by the relevant parties are in compliance with the Hong Kong laws and, as advised by the legal advisers of the Company as to Hong Kong laws, So Keung Yip & Sin, the DK Deed and the S&P Agreement are legally binding and enforceable against the parties concerned for the events as acknowledged and confirmed by them to have taken place since the

– 77 – BUSINESS establishment of Dongguan Koda in September 1994 up to the acquisition of Dongguan Koda by the Group in August 2002, and any person who knowingly and wilfully makes a false statutory declaration shall be guilty of an offence and shall be liable on conviction to imprisonment.

According to the PRC legal opinion, the proper procedures for any change of registered investor of a PRC established enterprise under the PRC laws and regulations should be subject to filing with and approval from 中國商務部 (Ministry of Commerce) (or previously 中國對外貿易 經濟合作部 (Ministry of Foreign Trade and Economic Co-operation)) or its delegated organisations as well as amendment of the relevant memorandum of association. However, since Mr. Chui was the controlling shareholder of both IPE (Singapore) and IPE (HK), all of them considered that there was no urgency to effect the changes in the registered investor of Dongguan Koda in the PRC immediately, which involved complicated administrative process and would incur additional expenses.

The PRC legal advisers of the Company are of the view that there are no specific rules and regulations to require a wholly foreign-owned enterprise to inform relevant PRC authorities of any changes in its beneficial interest. Under the PRC laws, only the interest of registered investors will be recognised and accordingly, IPE (Singapore) was at all the time the sole registered investor of Dongguan Koda since its establishment up to July 2002. The arrangement among IPE (Singapore), IPE (HK) and Mr. Chui in respect of the legal title and beneficial interest in Dongguan Koda was confirmed and acknowledged in the DK Deed and the Statutory Declarations, and the acquisition of Dongguan Koda by IPE (HK) with effect from 1st August, 2002 was confirmed and acknowledged in the S&P Agreement, whereas all of these documents are governed by the laws of Hong Kong. As such, the PRC legal advisers of the Company are of the view that the ownership arrangement and the acquisition of Dongguan Koda by IPE (HK) as from 1st August, 2002, which are construed and governed by the Hong Kong laws, are not required to be approved by or to be filed with any relevant PRC authorities. Nevertheless, on 29th April, 2004, Dongguan Koda had reported to and received acknowledgment from 東莞市石碣鎮對外經濟辦公室 (Foreign Trade and Economic Management Office of Shi Xie Town of Dongguan City) in respect of the ownership arrangement and the acquisition of Dongguan Koda by IPE (HK) pursuant to the DK Deed, the Statutory Declarations and the S&P Agreement.

The PRC legal advisers of the Company are also of the view that even though the relevant PRC authorities have not been informed of the ownership arrangement in respect of Dongguan Koda, the legality of the investment (and the subsequent transfer) in, and the establishment and the existence of, Dongguan Koda would not be affected and no PRC laws or regulations would be breached. They are also of the opinion that the non-disclosure of the ownership arrangement and the respective transfers in the beneficial interest in Dongguan Koda to the PRC authorities would not constitute any misrepresentation or provision of false information to the PRC government or cause the relevant PRC authorities to take any action.

Indemnities given by Mr. Chui

The DK Deed contains indemnities given by Mr. Chui to indemnify IPE (Singapore) against any and all claims, threats, suits, damages, penalties, liabilities, costs and expenses (including, without limitation, legal fees, costs and disbursements) incurred, suffered or expended by or threatened against IPE (Singapore) with respect to any action or inaction taken in the course of IPE (Singapore) holding the legal title of Dongguan Koda for the benefit of Mr. Chui since 31st December, 1996.

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In addition, the S&P Agreement contains indemnities given by Mr. Chui to indemnify IPE (HK) against any loss or liability suffered by IPE (HK) as a result of or in connection with any breach of any of the warranties in relation to, inter alia, the ownership arrangement of Dongguan Koda prior to the acquisition by IPE (HK) in August 2002. The Directors therefore considered that the indemnities given by Mr. Chui in relation to the ownership arrangement of Dongguan Koda have provided adequate protection to the Group for any damages that may result therefrom.

CHANGES IN THE OWNERSHIP OF A PROPERTY IN THE PRC

In October 1997, IPE (HK) on behalf of Mr. Chui acquired a property located at Room E on Level 16, Shen Fang Commercial Building amid An Zhen Xi Li Si Qu, Chaoyang District, Beijing, the PRC (the “Beijing Property”) at a consideration of US$253,401 (equivalent to approximately HK$1,973,994). However, no further action was taken by Mr. Chui and the Group to ensure that the legal title of the Beijing Property was being properly registered. Therefore, although the beneficial interest in the Beijing Property was owned by Mr. Chui, the legal title of the Beijing Property resided with IPE (HK).

In March 2002, the Group decided to acquire the Beijing Property from Mr. Chui at a consideration of HK$1.5 million as an accommodation for its marketing staff to develop business of the Group in the PRC. The consideration was arrived at by reference to the valuation on the Beijing Property carried out by Vigers Appraisal & Consulting Limited. Its market value as at 31st December, 2002 amounted to approximately RMB2.3 million (equivalent to approximately HK$2.2 million). Therefore, the consideration of HK$1.5 million for the acquisition of the Beijing Property represented a discount of approximately 30.9% to its market value as at 31st December, 2002. Mr. Chui was willing to offer to the Group the Beijing Property at the discounted consideration of HK$1.5 million which was subsequently settled through the current account maintained by IPE (HK) with Mr. Chui.

As the legal title of the Beijing Property still resided with the Group prior to the acquisition in March 2002, it was necessary for the Group and Mr. Chui to execute an agreement confirming that arrangements were in place for the Group to hold the legal interest in the Beijing Property for the benefit of Mr. Chui since 21st October, 1997. Accordingly, a deed of confirmation dated 3rd April, 2003 was entered into between, inter alia, IPE (HK) and Mr. Chui (the “Beijing Property Deed”). Pursuant to the Beijing Property Deed, the parties thereto confirmed and acknowledged that, inter alia, IPE (HK), the registered owner of the Beijing Property for the time being, had been holding all its interest in the Beijing Property for the benefit of Mr. Chui since 21st October, 1997 and Mr. Chui then transferred his entire beneficial interest in the Beijing Property to IPE (HK) at a consideration of HK$1.5 million on 1st March, 2002. Since the legal title of the Beijing Property has never been changed under the PRC laws, the Group’s PRC legal advisers are of the view that the sale and purchase of the Beijing Property as recorded in the Beijing Property Deed will not be subject to any tax in the PRC.

Pursuant to the State-owned Land Use Right Certificate (Document No.: Jing Shi Chao Gang Aou Tai Guo Yong (2002) Chu Zi No. 1750010) dated 27th March, 2002, the land use rights of the Beijing Property will expire on 29th December, 2064, and in accordance with the related Building Ownership Certificate (Document No.: Jing Fang Quan Zheng Shi Chao Gang Auo Tai Zi No. 1750010), the relevant building ownership is vested in IPE (HK).

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Legal opinion

The Beijing Property Deed was governed by and construed in accordance with the laws of Hong Kong. According to the Hong Kong legal advisers of the Company, So Keung Yip & Sin, the Beijing Property Deed was legally binding and enforceable against the parties concerned.

According to the PRC legal opinion, the PRC legal advisers of the Company are of the view that the arrangement relating to the Beijing Property was not required to be approved by or to be filed with any relevant PRC authorities.

The PRC legal advisers of the Company are also of the view that even though the relevant PRC authorities have not been informed of the arrangement in respect of the Beijing Property, the legality of the investment and the subsequent transfer of the Beijing Property would not be affected and no PRC laws or regulations would be breached. They are also of the opinion that the non- disclosure of such arrangement to the PRC authorities would not constitute any misrepresentation or violation of laws.

LEGAL TITLES AND COMPLIANCE OF CERTAIN REAL PROPERTIES

As at the Latest Practicable Date, the Group has not yet obtained the relevant State-owned Land Use Right Certificates or Real Property Ownership Certificates for the following properties:

Documents not obtained Details of the properties

State-owned Land Use Right 2 parcels of land with 7,049 sq.m. and 3,268 sq.m. Certificates located at Huang Si Wei Guan Li Qu, Dongguan City, Guangdong Province, the PRC owned by Dongguan Koda (“Land B” and “Land C”, respectively)

Real Property Ownership 4 items of ancillary structures with a total gross floor Certificates area of approximately 1,250 sq.m. erected on a parcel of land located at Huang Si Wei Guan Li Qu, Dongguan City, Guangdong Province, the PRC owned by Dongguan Koda

2 items of ancillary structures with a total gross floor area of approximately 706.4 sq.m. erected on Land B

2 items of ancillary structures with a total gross floor area of approximately 425.93 sq.m. erected on Land C

Ancillary facilities with a total gross floor area of approximately 560 sq.m. located at Jiao Keng, Lan Tian She Shui Men Tou (Tu Ming), Xian Lian Cun Xian Cun Town, Zengcheng City, Guangdong Province, the PRC owned by Xing Hao

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The Group has applied for the State-owned Land Use Right Certificates for Land B and Land C and pursuant to a Notarial Certificate dated 10th February, 2004 issued by 東莞市國土資 源局石碣分局 (Dongguan Land Resources Bureau Shi Xie Branch), the application is under process by the relevant PRC government authority and the Group had not yet received notification as to the amounts of the land premium for Land B and Land C from the relevant PRC authority nor paid any sums thereof. Land B and Land C were acquired in 1997 and at that time the Group had not applied for the relevant State-owned Land Use Right Certificates since it would require the payment of land premium and the Directors considered that it would not be economically beneficial to pay such amount as the buildings or structures erected thereon were ancillary in nature. In 2002, in order to rectify the legal titles of Land B and Land C, the Group decided to apply for the State-owned Land Use Right Certificates. The Directors are not aware of any reasons as to the long processing time for the relevant PRC authority. Nevertheless, the Group will continue to pursue the application process. However, the Directors cannot estimate when the Group can obtain these State-owned Land Use Right Certificates.

As a result of the lack of the State-owned Land Use Right Certificates for Land B and Land C, the Group is not able to obtain the relevant Real Property Ownership Certificates for all the four items of ancillary structures erected thereon. These four ancillary structures include a canteen, a guardroom, a warehouse and an electricity distribution room. The Directors expect that upon the obtaining of the relevant State-owned Land Use Right Certificates for Land B and Land C, the Real Property Ownership Certificates for the above ancillary structures could be obtained. However, since the canteen, guardroom, warehouse and electricity distribution room erected on Land B and Land C can be easily relocated elsewhere if necessary and are only ancillary in nature, the Directors and the Sponsors consider that they are not material to the business activities of the Group.

The other four items of ancillary structures with a total gross floor area of approximately 1,250 sq.m. owned by Dongguan Koda include three staff quarters and a guardroom. The three staff quarters housed about 90 employees who are middle production management and clerical staff working in the office. The Group has not applied for the Real Property Ownership Certificates for these four ancillary structures since the application would not be worthy of the costs and expenses involved by reference to the expected relocation expenses. The Directors consider that these structures are not material to the Group’s business activities as the Group could easily relocate all these staff to other quarters or even find new spaces in nearby area. The Directors estimate that the additional expenses for renting new spaces for such purpose and related relocation expenses are still economically beneficial to the Group. The Sponsors concur with the Directors’ view in this respect.

Regarding the ancillary facilities with a total gross floor area of approximately 560 sq.m. located in Zengcheng City, the Directors consider that they are immaterial to the Group’s business activities, and the Group is applying for the relevant Real Property Ownership Certificates and expects to obtain them by the middle of 2005.

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Legal opinion

According to the Group’s PRC legal advisers, all the aforesaid land/buildings/structures without the relevant State-owned Land Use Right Certificates or Real Property Ownership Certificates cannot be transferred, leased, mortgaged or vested as gifts and the legal titles of the Group thereon may be affected. In addition, all the buildings/structures erected on Land B and Land C which do not have the relevant State-owned Land use Right Certificates are regarded as illegal buildings/structures and the PRC authorities may order demolition or forfeiture. In such event, the Group may have to incur additional relocation costs. However, since all these land/ buildings/structures are not considered material to the Group’s business activities, the Directors believe that the lack of the relevant State-owned Land Use Right Certificates or Real Property Ownership Certificates would not affect the operation and business of the Group in all material aspects.

Indemnities for properties

To protect the interest of the Group, each of the Indemnifiers have jointly and severally undertaken to indemnify each member of the Group against all claims, demands, actions, proceedings, costs, fines, penalties, expenses or losses whatsoever which may be incurred, suffered by, made against or become payable by any member of the Group as a result of or otherwise in connection with the lack of, or the failure of the Group to obtain, any of the title certificates in respect of the properties mentioned above (including, but not limited to, any diminution in the value of the assets of any member of the Group and/or any payment of penalties or fines by any member of the Group).

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DIRECTORS

Executive Directors

Mr. Chui Siu On, aged 44, is the Chairman, an executive and managing Director and one of the founders of the Group holding approximately 38.22% attributable interest in the Company immediately following the completion of the Offer and the Capitalisation Issue. Mr. Chui is responsible for directing and reviewing long-term business development strategies of the Group and establishing operational objectives and assignments. Mr. Chui has 29 years of experience in the field of mechanical engineering and precision automation. From 1975 to 1981, Mr. Chui was a technician of two private companies both of which were specialised in manufacturing machinery parts. From 1981 to 1988, Mr. Chui further served as technologist and mechanical computer operator in several companies where he acquired extensive experience in design and manufacture of automation equipments, precision mechanical components and machinery parts. Mr. Chui also holds positions in a number of associations as follows:

Association Position

Guangdong Chamber of Foreign Investors (廣東外商公會) Director Guangdong General Chamber of Commerce (廣東省總商會) Vice Chairman Guangdong Commercial Chamber of High-Tech Estate Vice Chairman (廣東高科技產業商會)

Mr. Ng Kin Nam, aged 45, is the Vice Chairman, an executive Director and one of the founders of the Group holding approximately 18.63% attributable interest in the Company immediately following the completion of the Offer and the Capitalisation Issue. Mr. Ng is responsible for advising the Board in the overall strategic development of the Group. Mr. Ng has 30 years of experience in the electrical product manufacturing industry and is the founder of “Reputed Industrial Co., Ltd.”, a manufacturer of connectors for electronic devices. From 1974 to 1984, Mr. Ng worked for a machinery parts manufacturer as a trainee and then being promoted as a manager. From 1984, Mr. Ng has been the chairman of a private company specialising in manufacturing electronic components devices. In August 2002, Mr. Ng was appointed as an executive director of Peaktop International Holdings Limited, a Main Board listed company engaging in design, manufacture and sale of decorative products. Mr. Ng also holds positions in a number of associations as follows:

Association Position

Eastern District Industries & Commerce Association Honorable President (東區工商業聯會) Jin Jiang Clans Association (H.K.) Ltd. (香港晉江同鄉會) Life Honorable President Ng Clan’s Association (香港吳氏宗親總會) Vice President The HK Fujian Charitable Education Fund Vice President (福建希望工程基金會) Guangdong Chamber of Foreign Investors (廣東外商公會) Director

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Mr. Ho Yu Hoi, aged 41, is an executive Director holding approximately 10.35% attributable interest in the Company immediately following the completion of the Offer and the Capitalisation Issue. He joined the Group in 1992 and has 21 years of experience in the field of computer aided design and manufacturing. From 1984 to 1992, Mr. Ho worked as an engineer, computer aided design/manufacturing manager and business manager in a private company engaging in the provision of mechanical equipment. Mr. Ho is currently responsible for assisting the Chairman of the Group in strategic planning, forecasting, monitoring and marketing management of the Group. He is also in charge of the production facilities in Thailand.

Mr. Lai Man Kit, aged 44, is an executive Director holding approximately 4.47% attributable interest in the Company immediately following the completion of the Offer and the Capitalisation Issue. He joined the Group in 1992 and is currently based in Xing Hao responsible for the overall management of the production facilities in China. He has 30 years of experience in the field of machine augmentation and manufacturing automation. Mr. Lai commenced his career as a trainee and then a technologist in a machinery parts manufacturer prior to joining the Group.

Mr. Li Chi Hang, aged 34, is an executive Director holding approximately 2.83% attributable interest in the Company immediately following the completion of the Offer and the Capitalisation Issue. Mr. Li has over 16 years of experience in the field of machine augmentation and manufacturing automation. Mr. Li worked as a trainee in a private company specialising in manufacturing automation from 1988 to 1992 and then joined IPE (Singapore) as an engineer from 1992 to 1995. He is currently based in Dongguan Koda responsible for the overall management and co-ordination of research and development projects of the Group.

Independent non-executive Directors

Mr. Cheng Ngok, aged 57, was appointed as an independent non-executive Director on 3rd June, 2004 and the chairman of the audit committee of the Company on 25th June, 2004. Mr. Cheng graduated from the National Taiwan University with a Bachelor of Science degree in Medical Technology in 1970 and then obtained a Doctor degree of Medicine, Surgery and Obstetrics, a Diploma certification and a Philosophy degree (Doctor of Biomedical Science) from Catholic University of Leuven, Belgium in 1978, 1983 and 1984 respectively. After graduation, Mr. Cheng worked as a medical practitioner in Europe between 1978 and 1984. From 1984 to 1986, he returned to Hong Kong and took up the position of a lecturer in the Department of Orthopaedic and Traumatology in the Chinese University of Hong Kong. Mr. Cheng has been a member of the Hospital Governing Committee of Alice Ho Min Ling Nethersole Hospital from April 2002 to March 2004 and a member of the Cluster Tender Board in New Territories East Cluster in 2003. In addition, Mr. Cheng is also a medical practitioner in Hong Kong and holds directorship in two private companies engaging in medical diagnostic laboratory and trading of medical equipment.

Mr. Choi Hon Ting, Derek, (formerly Choi Kwan Wai, Derek), aged 36, was appointed as an independent non-executive Director on 23rd June, 2004. Mr. Choi graduated from Purdue University in the US with a Bachelor degree in Engineering in Food Processing in 1991. After graduation, Mr. Choi worked as project manager, deputy general manager and executive director of Balama Prima Engineering Company Limited which businesses included highway construction, underground construction and environmental engineering. Since 1996, Mr. Choi has been a director of C&C Technology Inc. which is a company listed on the Toronto Stock Exchange. Mr. Choi was also a former vice-chairman and executive secretary of the China Hong Kong Society for Trenchless Technology.

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Mr. Wu Karl Kwok, aged 40, was appointed as an independent non-executive Director on 23rd June, 2004. Mr. Wu holds a bachelor of arts degree in business administration from the University of Washington and is a Certified Public Accountant (USA). He has over 17 years of international working experience in accounting, financial planning and control, business development, logistic, project management and contract administration in various industries. Mr. Wu currently works in an international trust company. Prior to that, he had been a financial controller and company secretary of UDL Holdings Limited, a company listed on the Main Board, and the chief financial officer and company secretary of Innovis Holdings Limited, a company listed on the Growth Enterprise Market of the Stock Exchange. Mr. Wu also used to be a project director of a private engineering and construction company in Hong Kong and served there for seven years. Before that, he worked for a private trading company, an international architectural and interior consultancy firm and a manufacturing company for a total of nine years principally responsible for financial controlling and business development.

Directors’ remuneration

Each of Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li, all being executive Directors, has entered into a director’s service agreement on 17th February, 2004 (as amended by a supplemental agreement dated 27th May, 2004) with the Company for an initial term of three years commencing from 1st January, 2004 and shall continue thereafter until terminated by either party by giving to the other not less than six calendar months’ notice in writing expiring not earlier than the last day of the initial term of three years. Each of the executive Directors is entitled to the respective salary and director fee set out below:

Name Salary (per annum) Director fee (per annum)

Mr. Chui HK$1,219,980 HK$390,000 Mr. Ng Nil HK$360,000 Mr. Ho HK$1,176,996 HK$360,000 Mr. Lai HK$627,996 HK$360,000 Mr. Li HK$339,000 HK$200,004

In addition, each of the executive Directors is also entitled to a discretionary bonus calculated as a percentage of the audited consolidated profit of the Group attributable to the Shareholders (after tax but before extraordinary items and such bonus), which percentage shall be determined by the Board, but in any event, the aggregate amount of the bonuses payable to all the executive Directors in respect of any financial year of the Company may not exceed 15% of such profit. The salary and director fee of each of the executive Directors will be reviewed by the Board at each financial year end of the Company provided that: (a) in respect of each of the financial years during the initial term of three years, any increment will not exceed 5% of the aggregate of executive Director’s salary and director fee at the time of the relevant review; and (b) the executive Director shall abstain from voting and not be counted in the quorum in respect of the resolution proposed at any meeting of the Board regarding any amount, including the monthly salary, the director fee, the discretionary bonus or other benefits or allowances payable to him.

The aggregate fees, annual salaries and other benefits received by the executive Directors for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 were HK$3.8 million, HK$3.2 million, HK$3.9 million and HK$2.4 million respectively. For the year ending 31st December, 2004, the estimated aggregate remuneration and other benefit in kind receivable by the executive Directors amounted to approximately HK$5 million, without taking into account of any performance bonus based on the operating results of the Group.

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SENIOR MANAGEMENT

Mr. Wan Tak Wing, Gary, aged 38, is the Chief Financial Officer, Company Secretary and Qualified Accountant of the Company. He joined the Group in October 2003 and is responsible for the Group’s financial, corporate and legal affairs. Mr. Wan holds a Bachelor degree in Accountancy and Finance from City of Birmingham Polytechnic of England and is a fellow member of the Hong Kong Institute of Certified Public Accountants. Prior to joining the Group, Mr. Wan was an executive director of two publicly listed companies in Hong Kong and has over 16 years of experience in corporate finance, business development and investors relationship.

Mr. Cheng Ka Keung, aged 32, is the Financial Controller of the Company. Mr. Cheng joined the Group in May 2004 and is responsible for assisting the Chief Financial Officer in the financial management of the Group. He holds a Bachelor degree in Business Administration from University of Lincoln and has more than 11 years’ experience in accounting and financial management. Before joining the Company, he worked for over 9 years in a blue-chip listed company in Hong Kong responsible for accounting and financial management, system developments and implementation. Mr. Cheng is an associated member of the Hong Kong Institute of Certified Public Accountants and a fellow member of The Association of Chartered Certified Accountants.

Mr. Lim Koy Cheong, aged 38, is the General Manager of IPE (Thailand). Mr. Lim joined the Group in 1994 and is responsible for the day-to-day operations of IPE (Thailand). He graduated from Singapore Ngee Ann Polytechnic with a diploma in Mechanical Engineering and has over 15 years of experience in the manufacturing industry.

Ms. Chiu Tak Chun, aged 39, is the General Manager of IPE (HK). Ms. Chiu joined the Group in 1996 and is responsible for the day-to-day operations of IPE (HK). She was granted a graduate diploma in management from the International Professional Managers Association, United Kingdom and has over 12 years of experience in office administration. Ms. Chiu is a fellow member of the International Professional Managers Association.

Mr. Wong Kwok Keung, aged 41, is the General Manager of Dongguan Koda. Mr. Wong joined Dongguan Koda in 1996 and is responsible for its day-to-day operations. He completed his study in Haking Wong Technology Institute in 1982 and has over 25 years of experience in the manufacturing industry.

Mr. Chui Siu Hung, aged 36, is the Deputy General Manager of Dongguan Koda. Mr. Chui is the brother of Mr. Chui Siu On, an executive Director and the Chairman of the Company. He joined Dongguan Koda in 1994 and is responsible for the supervision and production operation of Dongguan Koda. He graduated from the Hong Kong Institute of Vocational Education with a certificate in Communication and Computer Studies and has over 12 years of experience in the manufacturing industry.

Mr. Jiang Fei, aged 32, is the Deputy General Manager of Xing Hao. He joined the Group in 1995 after graduation from 華南理工大學 (South China University of Technology) with a graduate diploma in Mechanical Engineering. He has 9 years of experience in the manufacturing industry and is now responsible for the day-to-day operations of Xing Hao.

Mr. Kunikatsu Koitabashi, aged 57, is the Sales and Marketing Director of the Group. Mr. Koitabashi joined the Group in 1995 and is responsible for assisting the Directors in the sales and marketing activities of the Group. He has over 30 years of experience in the sales and marketing

– 86 – DIRECTORS, SENIOR MANAGEMENT AND STAFF industry. Prior to joining the Group, Mr. Koitabashi served as a director of a trading company in Tokyo from 1989 to 1996. Before that Mr. Koitabashi was the general manager of a listed company in Japan for 18 years.

AUDIT COMMITTEE

The Group has established an audit committee of the Company on 25th June, 2004 in accordance with Rules 3.21 to 3.23 of the Listing Rules and with written terms of reference in compliance with the Code of Best Practice as set out in Appendix 14 to the Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group.

The audit committee has three members comprising all the independent non-executive Directors. The chairman of the audit committee is Mr. Cheng Ngok.

COMPANY SECRETARY AND QUALIFIED ACCOUNTANT

Mr. Wan Tak Wing, Gary, aged 38, is the Chief Financial Officer, Company Secretary and Qualified Accountant of the Company. Mr. Wan’s personal particulars are set out in the paragraph headed “Senior management” above.

STAFF

Overview of staff members

As at 31st December, 2001, 2002 and 2003 and 30th June, 2004, the breakdown of the Group’s workforce by each of the Company’s operating subsidiaries is set out as follows:–

As at As at 31st December, 30th June, 2001 2002 2003 2004

Dongguan Koda (Note 1) – 667 817 781 Xing Hao (Note 2) – 39 162 374 IPE (Thailand) 353 603 748 720 IPE (HK) 13 18 19 17 IPE (Singapore) (Note 3) 80 34 1 – IPE (Japan) and IPE (Europe) (Note 4) 6822 IPE (Macau) (Note 5) –––2

Total 452 1,369 1,749 1,896

Notes:

1. Dongguan Koda only became a member of the Group from 1st August, 2002.

2. Xing Hao was established in June 2002.

3. All the production operations of IPE (Singapore) were relocated to IPE (Thailand) since October 2003.

4. IPE (Europe) ceased to be a member of the Group since November 2003.

5. IPE (Macau) was established in April 2004.

– 87 – DIRECTORS, SENIOR MANAGEMENT AND STAFF

As at the Latest Practicable Date, the Group employed about 1,937 full-time employees, and the breakdown of which by operational functions is set out as follows:–

Dongguan IPE IPE IPE IPE Koda Xing Hao (Thailand) (HK) (Japan) (Macau) Total

Manufacturing 578 314 441 – – – 1,333 Sales and Marketing 12 4932–30 Management 2222–210 Human resources and administration 52 33 85––98 Accounting and finance 5455–120 Engineering 57 19 126 1 – – 203 Research and development 23 15 6–––44 Quality control 58 22 118 1 – – 199

Total 787 413 715 17 2 3 1,937

Relationship with staff

The Directors consider that the Group maintains good working relations with its employees. The Group has not experienced any disruption of its normal business operations due to strikes or labour disputes.

RETIREMENT BENEFITS SCHEMES

The Group currently provides its staff in Hong Kong a provident fund scheme in compliance with the Mandatory Provident Fund Scheme Ordinance (Chapter 485, Laws of Hong Kong).

As required by the regulations in the PRC, Dongguan Koda and Xing Hao, all being indirect wholly-owned subsidiaries of the Company, are required to contribute to a state-sponsored retirement plan for all of their employees in the PRC at a rate of 11% of the employees’ monthly basic salaries. The Group has no obligation for the payment of retirement and other post-retirement benefits of employees other than the monthly contributions described above. During the Track Record Period, given that Dongguan Koda only became a member of the Group since 1st August, 2002 and Xing Hao was established in June 2002, the Group only started to make contributions to the state-sponsored retirement plan for the year ended 31st December, 2002.

Further details of the Group’s retirement benefits schemes are contained in the notes to the accountants report set out in Appendix I to this prospectus.

SHARE OPTION SCHEME

The Company has conditionally adopted the Share Option Scheme under which eligible full-time employees of the Group, including executive Directors, may be granted options to acquire Shares. The Directors believe that the Share Option Scheme will assist in the recruitment and retention of high calibre executive and employees to share the success of the Group. The principal terms of the Share Option Scheme are set out in the paragraph headed “Share Option Scheme” in Appendix VII to this prospectus.

– 88 – INTEREST DISCLOSEABLE UNDER THE SFO, SUBSTANTIAL SHAREHOLDERS AND CONTROLLING SHAREHOLDERS

SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors and taking no account of any Shares which may be taken up under the Offer and Shares falling to be issued upon exercise of any options which may be granted under the Share Option Scheme, the following persons will, immediately following completion of the Offer and the Capitalisation Issue, have interests or short positions in the Shares or 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 be 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 any other member of the Group:

Number of Shares or number of attributable Approximate Nature of Shares held percentage of Name interest (Note 1) shareholding

Tottenhill Beneficial 372,500,000 (L) 74.50% (Note 2)

Mr. Chui Corporate 372,500,000 (L) 74.50% (Note 3)

Mr. Ng Indirect 93,125,000 (L) 18.63% (Note 4)

Mr. Ho Indirect 51,777,500 (L) 10.35% (Note 5)

Notes:

1. The letter “L” denotes a long position in Shares.

2. These Shares are directly held by Tottenhill, an investment holding company incorporated in BVI, the issued entire share capital of which is owned as to approximately 51.3% by Mr. Chui, as to approximately 25% by Mr. Ng, as to approximately 13.9% by Mr. Ho, as to approximately 6% by Mr. Lai and as to approximately 3.8% by Mr. Li. All the shareholders of Tottenhill are executive Directors.

3. By virtue of his approximately 51.3% direct interest in Tottenhill as mentioned in Note 2 above, Mr. Chui is deemed or taken to be interested in the 372,500,000 Shares held by Tottenhill for the purpose of the SFO.

4. Mr. Ng directly holds approximately 25% equity interest in Tottenhill which holds 74.5% equity interest in the Company and therefore he has an indirect attributable interest in the Company as to approximately 18.63%.

5. Mr. Ho directly holds approximately 13.9% equity interest in Tottenhill which holds 74.5% equity interest in the Company and therefore he has an indirect attributable interest in the Company as to approximately 10.35%.

CONTROLLING SHAREHOLDERS

Immediately following the completion of the Offer and the Capitalisation Issue (but taking no account of any Shares which may be taken up under the Offer and Shares falling to be issued upon exercise of any options which may be granted under the Share Option Scheme), Tottenhill will be directly interested in 74.5% of the total issued share capital of the Company. In addition, by virtue of his approximately 51.3% direct interest in Tottenhill, Mr. Chui is deemed or taken to be interested in the Shares held by Tottenhill for the purpose of the SFO. Tottenhill and Mr. Chui are regarded as controlling shareholders of the Company and each of them has executed an undertaking to the Company and the Stock Exchange, respectively, pursuant to Note 3 to Rule 10.07(2) of the Listing Rules. They have also given certain undertakings pursuant to the Underwriting Agreement, details of which are set out in the paragraph headed “Undertakings” under the section headed “Underwriting” in this prospectus.

– 89 – SHARE CAPITAL

Authorised: HK$

1,200,000,000 Shares 120,000,000

Issued and to be issued, fully paid or credited as fully paid:

100,000,000 Shares in issue as at the date of this prospectus 10,000,000 272,500,000 Shares to be issued pursuant to the Capitalisation Issue (Note) 27,250,000 127,500,000 Shares to be issued pursuant to the Offer 12,750,000

500,000,000 Shares 50,000,000

Note: Pursuant to the resolutions in writing of the sole Shareholder passed on 12th October, 2004, the Directors were authorised, conditional on, amongst others, the share premium account of the Company being credited as a result of the Offer, to capitalise a sum of HK$27,250,000 standing to the credit of the share premium account of the Company by applying such sum in paying up in full 272,500,000 Shares for the allotment and issue to holders of Shares registered on the register of members of the Company as at the close of business on 19th October, 2004 (or as they may direct) in proportion as nearly as may be to their then respective shareholdings.

Assumptions

The above table assumes that the Offer and the Capitalisation Issue become unconditional and the issues of Shares pursuant to the Offer and the Capitalisation Issue are made but takes no account of any Shares which may be issued upon the exercise of any options which may be granted under the Share Option Scheme or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares granted to the Directors as described below.

Ranking

The Offer Shares will rank pari passu in all respects with all other Shares in issue or to be issued as mentioned in this prospectus, and in particular, will rank in full for all dividends and other distributions hereafter declared, paid or made on Shares in respect of a record date after the date of this prospectus except in respect of the Capitalisation Issue.

Share Option Scheme

The Company has conditionally adopted the Share Option Scheme. A summary of its principal terms is set out in the paragraph headed “Share Option Scheme” in Appendix VII to this prospectus.

Under the Share Option Scheme, the eligible persons (including the executive, non-executive and independent non-executive Directors and full-time employees of any member of the Group and any advisors, consultants, distributors, contributors, suppliers, agents, customers, joint venture business partners, promoters, service providers of any member of the Group who the Board considers, in its sole discretion, have contributed or will contribute to the Group) may be granted options which entitle them to subscribe for Shares representing, when aggregated with any Shares subject to any other scheme of the Company, up to a maximum of 10% of the Shares in issue on the date on which the Share Option Scheme becomes unconditional (which is expected to be on or before the Listing Date).

General mandate to issue new Shares

The Directors have been granted a general unconditional mandate to allot, issue and deal with the Shares with a total nominal value of not more than the sum of:

1. 20% of the total nominal amount of the share capital of the Company in issue immediately following completion of the Offer and the Capitalisation Issue; and

2. the total amount of the share capital of the Company repurchased by the Company (if any) pursuant to the repurchase mandate.

– 90 – SHARE CAPITAL

The Directors may, in addition to the Shares which they are authorised to issue under the mandate, allot, issue or deal in the Shares pursuant to a rights issue of Shares or pursuant to the exercise of subscription rights attaching to any warrants of the Company, scrip dividend or similar arrangement.

This mandate will expire:

• at the end of the Company’s next annual general meeting; or

• at the end of the period within which the Company is required by law or its articles of association to hold its next annual general meeting; or

• when varied or revoked by an ordinary resolution of the Shareholders in general meeting,

whichever is the earliest.

For further details of this general mandate, please see the paragraph headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in Appendix VII to this prospectus.

General mandate to repurchase Shares

The Directors have been granted a general unconditional mandate to exercise all the powers of the Company to repurchase Shares with a total nominal value of not more than 10% of the total nominal amount of the share capital of the Company issued and to be issued following completion of the Offer.

This mandate only relates to repurchases made on the Stock Exchange, or on any other stock exchange on which the Shares are listed (and which is recognised by the SFC and the Stock Exchange for this purpose), and which are in accordance with the Listing Rules. A summary of the relevant Listing Rules is set out in the paragraph headed “Repurchase by the Company of its own securities” in Appendix VII to this prospectus.

This mandate will expire:

• at the end of the Company’s next annual general meeting; or

• at the end of the period within which the Company is required by law or its articles of association to hold its next annual general meeting; or

• when varied or revoked by an ordinary resolution of the Shareholders in general meeting,

whichever is the earliest.

For further details of this general mandate, please see the paragraph headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in Appendix VII to this prospectus.

– 91 – FINANCIAL INFORMATION

INDEBTEDNESS

Borrowings

At the close of business on 31st August, 2004, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this prospectus, the Group had outstanding borrowings of approximately HK$143.9 million comprising bank borrowings of approximately HK$116.3 million and obligation under finance leases of approximately HK$27.6 million.

As at the Latest Practicable Date, the subsequent additional bank borrowings drawn down by the Group and additional obligation under finance leases according to the unaudited management accounts of the Group were approximately HK$17.0 million and HK$1.1 million respectively.

Contingent liabilities

As at 31st August, 2004, the Group had contingent liabilities of approximately HK$0.4 million in respect of a guarantee given to an independent third party in relation to the provision of utility services to IPE (Thailand).

Security and guarantees

As at 31st August, 2004, the Group’s total banking facilities amounted to approximately HK$257.2 million and were secured by the following:

(a) mortgages over the assets of the Group with book value of approximately HK$177.9 million;

(b) deposits of the Group of approximately HK$18.6 million;

(c) properties respectively owned by Mr. Chui, an executive Director, and his wife; and

(d) personal guarantees given by the executive Directors.

The relevant banks have agreed, in principal, to release the security and personal guarantees as referred to in items (c) and (d) above and replace the same by a corporate guarantee to be given by the Company upon the listing of the Shares on the Main Board.

Specific performance on certain Shareholders

In addition, a banking facility, which is renewable annually in June, amounting to HK$40 million will be subject to the condition that Mr. Chui, Mr. Ng, Mr. Ho and Mr. Li shall jointly and severally hold (directly or indirectly) not less than 50% of the issued share capital of the Company. Immediately following completion of the Offer and the Capitalisation Issue, Mr. Chui, Mr. Ng, Mr. Ho and Mr. Li will in aggregate hold approximately 70% attributable interest in the Company.

– 92 – FINANCIAL INFORMATION

Disclaimer

Save as aforesaid, the Group did not, as at 31st August, 2004, have any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, charges or debentures, mortgages, loans, or other similar indebtedness or any finance lease commitments, hire purchase commitments, liabilities under acceptances (other than normal trade business), acceptance credits or any guarantees or other material contingent liabilities.

The Directors have confirmed that there has not been any material change in the indebtedness and contingent liabilities of the companies comprising the Group since 31st August, 2004.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Net current assets and capital structure

As at 31st August, 2004 the Group had net current assets of approximately HK$5.5 million comprising current assets of approximately HK$168.4 million and current liabilities of approximately HK$162.9 million.

The current assets of the Group comprised inventories of approximately HK$50.1 million, trade receivables of HK$68.4 million, prepayments, deposits and other receivables of approximately HK$18.9 million, value added tax receivables of approximately HK$1.8 million and cash and bank balances of approximately HK$29.2 million.

The current liabilities of the Group comprised trade payables of approximately HK$43.3 million, other payables and accruals of approximately HK$22 million, tax payable of approximately HK$2.7 million, short-term borrowings of approximately HK$73.1 million, current portion of obligations under finance leases of approximately HK$8.3 million and current portion of long- term borrowings of approximately HK$13.5 million.

Financial resources

The Group generally finances its operations with internally generated resources and banking facilities provided by its principal banks in Hong Kong and Thailand. As at 31st August, 2004, the Group’s total banking facilities amounted to approximately HK$257.2 million of which approximately HK$57.8 million of trade finance facilities, HK$43.2 million of bank loans, HK$18.4 million of leasing facilities and HK$15.3 million of overdrafts had been utilised.

Working capital

Taking into account the financial resources available to the Group, including internally generated funds, the available banking facilities and the estimated net proceeds from the Offer, the Directors are of the opinion that the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this prospectus.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Save as disclosed in the paragraph headed “Specific performance on certain Shareholders” above, the Directors have confirmed that, as at the Latest Practicable Date, they were not aware of any circumstances which would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

– 93 – FINANCIAL INFORMATION

TRADING RECORD

The following table summarises the Group’s audited combined turnover and results for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 which are extracted from the accountants’ report, the text of which is set out in Appendix I to this prospectus.

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 Note HK$’000 HK$’000 HK$’000 HK$’000

Turnover 1 194,831 184,201 208,255 131,440 Cost of sales (132,907) (106,091) (121,898) (85,698)

Gross profit 61,924 78,110 86,357 45,742

Other revenue 18,040 5,347 3,631 2,647 Distribution and selling expenses (10,122) (7,436) (7,688) (3,623) General and administrative expenses (30,102) (21,071) (30,868) (18,169) Other operating expenses (2,009) (1,660) (1,010) (377)

Profit from operations 37,731 53,290 50,422 26,220

Amortisation of negative goodwill – 620 1,487 744

Impairment loss on goodwill – (1,301) – –

Finance costs (4,753) (3,150) (3,942) (2,122)

Profit before tax 32,978 49,459 47,967 24,842

Taxation (4,506) (5,378) (5,397) (1,995)

Profit before minority interests 28,472 44,081 42,570 22,847

Minority interests – (116) (167) 1

Profit attributable to shareholders 28,472 43,965 42,403 22,848

Dividends – 24,559 5,010 6,050

Earnings per share – basic (HK cents) 2 7.6 11.8 11.4 6.1

– 94 – FINANCIAL INFORMATION

Notes:

1. Turnover represents the invoiced value of goods sold, net of trade discounts and returns.

2. The calculation of the basic earnings per Share is based on the profit attributable to Shareholders for each of the relevant periods and on the assumption that 372,500,000 Shares are in issue and issuable, comprising 100,000,000 Shares in issue as at the date of this prospectus and 272,500,000 Shares to be issued pursuant to the Capitalisation Issue.

MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATING RESULTS

Investors should read the following discussion and analysis in conjunction with the combined financial information of the Group for the three years ended 31st December, 2003 and the six months ended 30th June, 2004, all of which is set forth in the accountants’ report set out in Appendix I to this prospectus. Except for the financial information as disclosed therein, the remainder of the Group’s financial information presented in this section has been extracted or derived from the unaudited management accounts or other records of the Group which the Directors have taken reasonable care in their preparation. Investors should read the whole of the accountants’ report and not rely merely on the information contained in this section.

Critical accounting policies and practices

The Group’s discussion and analysis of its financial condition and results of operations is based on the combined financial statements prepared in accordance with HKGAAP as set out in Appendix I to this prospectus. The Group’s principal accounting policies are set forth in note 2 to the Group’s combined financial statements. The Group’s reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the combined financial statements. The Group bases its assumptions and estimates on historical experience, the experience of other companies in the industry and on various other assumptions that the Group believes to be reasonable, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities and the Group’s results. The Group’s management evaluates its assumptions and estimates on a regular basis. Actual results may differ from these estimates, and the Group’s estimates may differ from other estimates that could be made under different assumptions and conditions.

The selection of critical accounting policies, the judgments and uncertainties affecting application of those policies and the sensitivity of reported results and financial condition to change in conditions and assumptions are factors to be considered when reviewing the Group’s combined financial statements. The Group believes that the following critical accounting policies involve the most significant judgments and estimates used in the preparation of its combined financial statements.

– 95 – FINANCIAL INFORMATION

Fixed assets and depreciation

Fixed assets of the Group are stated at cost less accumulated depreciation and impairment losses whereas the cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

The Group’s depreciation policy is based on straight-line basis to write off the cost of each asset over its estimated useful life on the following basis:

Freehold land Nil Leasehold land Over the remaining lease period Buildings Over shorter of the remaining lease period and 50 years Leasehold improvements Over shorter of the remaining period of lease and 3 to 5 years Plant and machinery10% per annum Furniture, fixtures and equipment 20% per annum Motor vehicles 20% per annum

During the year ended 31st December, 2001, the Group depreciated plant and machinery at 10% to 30% per annum.

During the year ended 31st December, 2002, the Group engaged a professional valuer to perform an independent review on the useful lives of the machinery. The Group depreciated the machinery over the remaining useful lives of the machinery based on the professional review effective from 1st January, 2002 with a maximum period of 10 years. In effect, the Group changed the depreciation rate for the machinery from 20% and 30% to 10% per annum. The change in depreciation rate resulted in a reduction in depreciation by approximately HK$8.6 million during the year ended 31st December, 2002.

Goodwill

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisitions.

In accordance with SSAP 30, goodwill on acquisitions occurring on or after 1st January, 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life.

– 96 – FINANCIAL INFORMATION

Negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non- monetary assets acquired, is recognised in the income statement over the remaining weighted average useful life of those assets on a straight line basis as follow:

Land and buildings 50 years Office equipments 5 years Plant and machinery6 to 10 years Motor vehicles 3 years

Negative goodwill in excess of the fair values of those non-monetary assets is recognised in the income statement immediately.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of or, for pre 1st January, 2001 acquisitions, the related goodwill written off against or negative goodwill taken directly to reserves to the extent it has not previously been realised in the income statement.

Provisions

A provision is recognised when there is present obligation, legal or constructive, as a result of a past event and it is probable (i.e. more likely than not) than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Overview

Turnover

The Group’s turnover are derived from the sales of precision components which are primarily used in HDDs, hydraulic equipment, fiber optical connectors and electronic devices. Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have transferred to customers.

– 97 – FINANCIAL INFORMATION

Set out below is a breakdown of the Group’s combined turnover for the three years ended 31st December, 2003 and the six months ended 30th June, 2004:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Precision metal components for:– – HDDs 169,765 87.1 148,787 80.8 168,429 80.9 100,479 76.5 – Hydraulic equipment 6,984 3.6 12,502 6.8 18,754 9.0 18,158 13.8 – Fiber optic connectors 6,682 3.4 11,109 6.0 12,633 6.1 5,883 4.5 – Electronic devices 5,579 2.9 8,398 4.6 5,779 2.8 4,762 3.6 – Others (Note) 5,821 3.0 3,405 1.8 2,660 1.2 2,158 1.6

Total 194,831 100.0 184,201 100.0 208,255 100.0 131,440 100.0

Notes: Others refers to miscellaneous metal components for general industrial goods.

Other revenue

Set out below is a breakdown of the Group’s other revenue:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Other revenue:– Exchange gain 3,944 – – – Gain on disposal of fixed assets 5,448 – 66 – Interest income 983 248 117 22 Machinery rental income 4,797 1,799 – – Rental income – 437 572 270 Gain on disposal of investment securities – 19 – – Gain on disposal of a subsidiary– – 1,013 – Dividend income – 4 – – Sales of raw materials – – – 817 Service fee income 2,225 1,690 650 57 Sundry income 643 1,150 1,213 1,481

18,040 5,347 3,631 2,647

– 98 – FINANCIAL INFORMATION

Other revenue is derived from activities incidental to the operations of the Group and is considered as complementary incomes generated in the Group’s usual course of business. The nature of the major items of other revenue derived during the Track Record Period is further set out in the following table:

Major items of other revenue Nature

Exchange gain Derived as a result of the fluctuations in the exchange rates in the settlement of raw materials purchased

Gain on disposal of fixed assets Represented gain from disposal of machineries in the end of 2001 to two independent third parties

Machinery rental income Represented rental income from leasing machineries to the Group’s subcontractors to facilitate them to manufacture products for the Group

Service fee income Derived from certain customers of the Group on a subcontracting basis who requested supplementary works on the metal components provided by the Group including tapping or other processing services

Sundry income Included sales of scrap materials and sorting/handling income received from customers and income generated from investment securities

Cost of sales

The Group’s cost of sales primarily consists of raw materials cost, direct labour cost, depreciation, manufacturing overheads and subcontracting cost. For each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the raw materials cost represented the largest portion of the Group’s cost of sales, accounting for approximately 21.0%, 31.9%, 42.5% and 48.4% respectively.

Expenses

The Group’s expenses include distribution and selling expenses, general and administrative expenses and other operating expenses.

Distribution and selling expenses consist of marketing staff salaries, commissions, freight charges, entertainments, transportation, travelling and others. General and administrative expenses mainly include directors’ remuneration, depreciation for office and rental machines, staff salaries and benefits, utilities, traveling, insurance and various office expenses. Other operating expenses primarily consist of exchange loss, impairment loss of fixed assets, loss on disposal of fixed assets, claims and provision for doubtful debts.

– 99 – FINANCIAL INFORMATION

Year ended 31st December, 2002 compared to year ended 31st December, 2001

Turnover

For the year ended 31st December, 2002, the Group’s turnover was approximately HK$184.2 million, representing a decrease of approximately 5.4% from approximately HK$194.8 million in 2001. Such decrease was attributed to the continuing decline in unit selling prices of the Group’s HDD metal components which dropped by approximately 11.8% from an average of HK$1.7 per unit in 2001 to HK$1.5 per unit in 2002. However, this loss effect was partially offset by approximately 5.9% increase in sales volume from approximately 118.3 million units to approximately 125.3 million units in the same period. About 86.3% of the Group’s turnover in 2002 was derived from Thailand and Malaysia which were the two largest markets of the Group. The sales to each of the two markets in 2002 amounted to approximately HK$116.6 million and HK$42.4 million, which accounted for approximately 63.3% and 23.0% of the overall turnover respectively.

In 2002, HDD metal components continued to be the major revenue source of the Group. The sale of HDD metal components amounted to approximately HK$148.8 million, representing a decrease of approximately 12.4% from approximately HK$169.8 million in the previous year. The decrease was mainly attributable to a corresponding decrease in the unit selling prices of HDD products. Compared with 2001, the sales volume of HDD metal components reached approximately 97.8 million units in 2002, representing an increase of approximately 1.1% from approximately 96.7 million units in the preceding year. The tragic incident of 911 in the US was believed to contribute to the global weakening in consumers’ sentiment and dampen the hope of sales recovery in the high technology sector.

Cost of sales

Cost of sales of the Group decreased by approximately 20.2% from approximately HK$132.9 million for the year ended 31st December, 2001 to approximately HK$106.1 million for the year ended 31st December, 2002. The decrease in the Group’s cost of sales was mainly due to the reduction in depreciation charges on machineries and tighter control of material wastages. Compared with 2001, the depreciation charges on the Group’s plants and machineries decreased by approximately HK$19.9 million from approximately HK$27.5 million to approximately HK$7.6 million, of which approximately HK$8.6 million was due to the change in the depreciation rate from 20%-30% per annum for the year 2001 to 10% per annum in 2002 after an independent professional review on the remaining useful lifes of the Group’s plants and machineries carried out in 2002. The remaining decrease in depreciation charges in 2002 was due to the disposal of certain machineries of the Group.

Gross profit

Gross profit margin of the Group increased from 31.8% in 2001 to 42.4% in 2002. Such an increase in gross profit margin for the year 2002 was mainly due to a significant decrease in cost of sales of approximately 20.2% as mentioned above.

Other revenue

Other revenue decreased by approximately 70.6% from approximately HK$18.0 million for the year ended 31st December, 2001 to approximately HK$5.3 million for the year ended 31st December, 2002. There were three reasons for the significant drop in other revenue in 2002. First, machinery rental income from subcontractors dropped in 2002 as the Group disposed of obsolete – 100 – FINANCIAL INFORMATION and less efficient machineries in 2001 and fewer machineries were available for leasing. Secondly, there was a gain on disposal of fixed assets in 2001 for approximately HK$5.4 million while no such gain was recorded in 2002. Finally, there were exchange losses of about HK$0.9 million in 2002 as compared to the exchange gains of approximately HK$3.9 million in 2001 which was mainly attributed to the strong US dollar in 2002.

Expenses

Distribution and selling expenses in 2002 was approximately HK$7.4 million, representing a decrease of approximately HK$2.7 million or 26.7% from approximately HK$10.1 million in the previous year. Lower commissions, fewer travelling and lower freight charges resulted in the decline of selling expenses in 2002.

General and administrative expenses reckoned a drop of around HK$9.0 million from approximately HK$30.1 million in 2001 to HK$21.1 million in 2002 mainly due to the significant drop in depreciation by approximately HK$14 million. In 2001, the Group depreciated plants and machineries at 10% to 30% per annum while in 2002, the Group engaged a professional valuer, Vigers Appraisal & Consulting Limited, to perform an independent review on the useful lifes of the machineries. The Group depreciated the machineries over the remaining useful lifes of the machineries based on the professional review effective from 1st January, 2002 with a maximum period of 10 years. In effect the Group changed the depreciation rates for those machineries from 20% and 30% per annum in 2001 to 10% per annum in 2002. The change in depreciation rates resulted in a reduction of general and administrative expenses by approximately HK$8.6 million during the year ended 31st December, 2002. In addition, plants and machineries with gross cost of approximately HK$48.8 million and net book value of approximately HK$4.7 million were disposed, which also contributed to the drop in depreciation of about HK$14 million for the year ended 31st December, 2002.

However, due to the acquisition of Dongguan Koda on 1st August, 2002, its general and administrative expenses from 1st August, 2002 to 31st December, 2002 amounting to approximately HK$2.3 million were consolidated into the audited group accounts. Together with an overall general increase in staff costs, travelling costs, repair and maintenance, bank charges of approximately HK$2.7 million, the general and administrative expenses dropped by approximately HK$9 million net.

Other operating expenses in 2002 amounted to approximately HK$1.7 million, representing a drop of 15% from approximately HK$2.0 million in the preceding year. It was mainly resulted from the fall in the provisions made for doubtful debts and the fact that there was no written-off of investment securities in 2002.

Net profit margin

Net profit margin of the Group rose from approximately 14.6% in 2001 to 23.9% in 2002 and such increase was mainly attributable to the change in depreciation rate which resulted in a significant drop in the general operating expenses. In addition, the profit contribution from Dongguan Koda effective from 1st August, 2002 improved the overall annual results of the Group.

Return on equity

Return on equity of the Group rose from 30.5% in 2001 to 38.6% in 2002. The increase was due to the significant increase in the profit attributable to Shareholders of approximately 54.4% to

– 101 – FINANCIAL INFORMATION approximately HK$44.0 million, which was primarily due to the significant reduction in cost of sales, and the overall expenses of approximately HK$38.8 million from an aggregate of about HK$175.1 million in 2001 to HK$136.3 million in 2002. Meanwhile, the overall increase in the return on equity as a result of the rise in the profit attributable to Shareholders was partly offset by the Group’s acquisition of Dongguan Koda in 2002 with the resulting equity increased by approximately HK$20.7 million or 22.2%.

Year ended 31st December, 2003 compared to year ended 31st December, 2002

Turnover

For the year ended 31st December, 2003, the Group’s turnover was approximately HK$208.3 million, representing an increase of approximately 13.1% from approximately HK$184.2 million in 2002. The increase in turnover was mainly due to the strong surge in demand from HDD manufacturers for HDD pivot cartridges components and FDB spindle motor components, especially in the second half-year of 2003. Sales volume of HDD metal components increased by approximately 46.4% from approximately 97.8 million units in 2002 to 143.2 million units in 2003. However the average unit selling price of HDD metal components had fallen by 20% from around HK$1.5 per unit to HK$1.2 per unit.

For the year ended 31st December, 2003, about 87.0% of the Group’s turnover was derived from Thailand and Malaysia markets which were the two largest markets of the Group. The sales to each of the two markets in 2003 amounted to approximately HK$130.3 million and HK$50.8 million, accounting for approximately 62.6% and 24.4% of the overall turnover respectively.

Cost of sales

Cost of sales of the Group increased by approximately HK$15.8 million or 14.9% from approximately HK$106.1 million in 2002 to approximately HK$121.9 million in 2003. Such increase was mainly due to the recruitment of more direct labour, full year depreciation and overheads effects of Dongguan Koda and Xing Hao plants in 2003. However, the more efficient utilisation of the machineries and labour, including improvements in production processes and minimisation of wastages alleviated the increase in cost of sales.

Gross profit

Squeezed by the fall in selling prices and the rise in some raw material costs, the gross profit margin of the Group fell slightly from 42.4% in 2002 to 41.5% in 2003. The Company managed to alleviate the unfavourable impacts on gross margin through a combination of extreme tight cost controls on material costs and overheads and innovation in production process controls as well as achieving higher operational efficiency by closing the Singapore production plant and increasing the production volume in the Group’s production plants located in Thailand and the PRC.

Other revenue

Other revenue decreased by approximately HK$1.7 million or 32.1% from approximately HK$5.3 million for the year ended 31st December, 2002 to approximately HK$3.6 million for the year ended 31st December, 2003. The drop was mainly attributable to a decrease in machineries rental income as the Group ceased to lease machineries to other parties and a reduction in service fee income.

– 102 – FINANCIAL INFORMATION

Expenses

Distribution and selling expenses in 2003 was approximately HK$7.7 million, representing an increase of approximately 4.1% from approximately HK$7.4 million in the previous year. The recruitment of more sales staff, more travelling to meet clients and the soaring export expenses, including higher freight rates accounted for the slight increase.

The sharp increase in general and administrative expenses from approximately HK$21.1 million in 2002 to approximately HK$30.9 million in 2003, representing an increase of approximately 46.4%, was mainly due to the following:–

– a full year of general and administrative expenses of Dongguan Koda amounting to approximately HK$5.1 million was consolidated in the year of 2003 while only five months’ general and administrative expenses of Dongguan Koda amounting to approximately HK$2.3 million was consolidated in 2002;

– Xing Hao began its first year of operation in 2003 and attributed additional general and administrative expenses by approximately HK$3.1 million in 2003; and

– a full year of general and administrative expenses of IPE (Japan) amounting to approximately HK$1.9 million was consolidated in the year of 2003 while only two months’ general and administrative expenses of IPE (Japan) amounting to approximately HK$0.4 million was consolidated in 2002.

Compared with 2002, the salary of the two highest paid employees (excluding the Directors) in the Group for 2003 increased from approximately HK$0.8 million to HK$1.5 million. The recruitment of a senior officer in the finance department for the purpose of the listing as well as a salary increment for a manager in Dongguan Koda contributed to such increase. Other operating expenses in 2003 amounted to approximately HK$1.0 million, representing a drop of approximately HK$0.7 million or 41.2% from approximately HK$1.7 million in the preceding year. There were no impairment loss or fixed assets written off in 2003 which resulted in lower expenses.

Net profit margin

Net profit margin dropped from 23.9% in 2002 to 20.4% in 2003 which was primarily due to the fall in gross profit margin, the recruitment of more staff to satisfy increased sales as well as the written off of approximately HK$2.1 million pre-operating expenses incurred in the setting up of the Xing Hao plant in Zengcheng City, the PRC.

Return on equity

In 2003, the return on equity slipped back to 26.4% from 38.6% of the preceding year. The drop was attributed to the fact that the rate of increase in equity was faster than the rate of increase in net profit attributable to Shareholders. This situation was brought about by a number of reasons including (i) higher general and administrative expenses; (ii) the Group operated at full capacity during the early 2003 while new machineries brought into use during late 2003 only had an insignificant impact on the Group’s overall revenue in 2003; and (iii) the fact that Xing Hao plant operated at a loss with only six months’ production record and the Group had to absorb RMB2.2 million (equivalent to approximately HK$2.1 million) of pre-operating expenses in 2003.

– 103 – FINANCIAL INFORMATION

Six months ended 30th June, 2004

Turnover

For the six months ended 30th June, 2004, the Group’s turnover was approximately HK$131.4 million, of which approximately HK$100.5 million was contributed by the sales of HDD metal components, representing approximately 76.5% of the turnover of the Group. In the first half of 2004, the Group was benefited from the strong demand for hydraulic equipment metal components. Sales from this product segment accounted for approximately 13.8% of the total turnover of the Group for the six months ended 30th June, 2004 compared with only approximately 9.0% for the whole year of 2003.

During the same period, about 81.4% of the Group’s revenue was derived from Thailand and Malaysia markets which were still the two largest markets of the Group. The sales to Thailand and Malaysia in the first half of 2004 were approximately HK$74.8 million and HK$32.1 million, accounting for about 56.9% and 24.5% of the total turnover respectively. Sales contribution from Europe also increased from approximately 5.9% of the total turnover in 2003 to 10.4% for the six months ended 30th June, 2004, which was primarily due to the strong demand for hydraulic equipment metal components from customers in Europe.

Cost of sales

Cost of sales of the Group for the six months ended 30th June, 2004 was approximately HK$85.7 million.

Gross profit margin

Gross profit margin of the Group for the six months ended 30th June, 2004 was approximately 34.8% compared with approximately 41.5% in 2003. The decrease was due to approximately 20% increase in the market price of stainless steel bars, one of the major raw materials of the Group, from December 2003 to June 2004.

Other revenue

Other revenue of the Group for the six months ended 30th June, 2004 was approximately HK$2.6 million which mainly comprised rental income and proceeds from sales of surplus raw materials and scrap materials.

Expenses

For the six months ended 30th June, 2004, distribution and selling expenses of the Group was approximately HK$3.6 million; general and administrative expenses was approximately HK$18.2 million; and other expenses was approximately HK$0.4 million. On an annualised basis, these expenses did not have material fluctuation compared with 2003.

Net Profit margin

Net profit margin of the Group for the six months ended 30th June, 2004 was approximately 17.4% compared with approximately 20.4% in 2003. The slightly drop in the net profit margin compared with 6.7% decrease in the gross profit margin was due to the Company’s effort in cost control in the period.

– 104 – FINANCIAL INFORMATION

Return on equity

On an annualised basis, return on equity of the Group during the six months ended 30th June, 2004 was approximately 23.5%, compared with about 26.4% in 2003.

Taxation

During the Track Record Period, the Group is principally subject to Hong Kong, the PRC, Singapore and Thailand taxation. Hong Kong profits tax has been provided at the rate of 17.5% for the six months ended 30th June, 2004 and for the year ended 31st December, 2003; and 16% for the two years ended 31st December, 2002 on the estimated assessable profit arising in or derived from Hong Kong.

The Group currently has two indirect wholly-foreign owned enterprises in the PRC, Dongguan Koda and Xing Hao, details of which are summarised in the paragraph headed “Information about the Group’s wholly-foreign owned enterprises in the PRC” under the section headed “Further information about the business of the Group” in Appendix VII to this prospectus. Under the PRC Income Tax Law, both Dongguan Koda and Xing Hao are entitled to exemption from PRC Enterprise Income Tax for two years starting from their first profit-making year, followed by 50% relief for the three years thereafter. As Dongguan Koda became profitable during the financial year ended 31st December, 1999, it was exempted from PRC Enterprise Income Tax for the years ended 31st December, 1999 and 2000 and subject to 50% relief on the then prevailing tax rate for the following three years ended 31st December, 2003. Thereafter Dongguan Koda is supposed to be subject to the full PRC Enterprise Income Tax.

However, Dongguan Koda was appraised as 高新技術企業 (New and High Technology Enterprise) in June 2003. Under the applicable PRC regulation, Dongguan Koda, as a New and High Technology Enterprise, is entitled to a preferential Enterprise Income Tax rate of 15% and can further apply to the local tax authority for a 50% reduction of the preferential Enterprise Income Tax rate given that Dongguan Koda is a wholly-foreign owned manufacturing enterprise. Dongguan Koda successfully obtained the approval from the Dongguan Taxation Bureau on 16th September, 2003 and was subject to a preferential income tax rate of 7.5% for the financial year ended 31st December, 2003. Further, on 13th November, 2003, Dongguan Koda obtained another approval from the Dongguan Taxation Bureau and it is now subject to a tax rate of 10% for the following three years ending 31st December, 2006. However, if Dongguan Koda ceases to be a New and High Technology Enterprise, such preferential tax treatment will be terminated.

Xing Hao had started production in July 2003 and recorded a net operating loss for the year ended 31st December, 2003. It became profitable in the first half of 2004.

IPE (Thailand), a company incorporated in Thailand, is principally subject to income tax at the rate of 30% on the estimated assessable profits arising in or derived from Thailand. However, under the applicable Thailand tax laws and regulations, IPE (Thailand) is entitled to exemption from income tax for a period of three years from the approved date on which income was derived from the production facilities constructed in Thailand. The Phase I production facilities of IPE (Thailand) was completed in 2000 and therefore the Board of Investment in Thailand offered IPE (Thailand) under the Investment Promotion Act B.E. 2542 an income tax exemption for a period of three years effective from 2nd June, 2000 to 1st June, 2003 for any estimated assessable profits arising from Phase I production facilities of IPE (Thailand). Also, the Phase II production facilities of IPE (Thailand) was completed in 2003 and the Board of Investment in Thailand further granted IPE (Thailand) under the Investment Promotion Act B.E. 2545 an income tax exemption period

– 105 – FINANCIAL INFORMATION from 3rd January, 2003 to 2nd January, 2006 for any estimated assessable profits arising from Phase II production facilities of IPE (Thailand). The Group’s tax holidays in Thailand for the Phase I production facilities of IPE (Thailand) expired on 1st June, 2003 and the tax holidays for the Phase II production facilities will expire on 2nd January, 2006. Upon expiration of the above tax holidays, IPE (Thailand) is expected to be subject to a full income tax rate of 30%.

IPE (Singapore), a company incorporated in Singapore, is subject to income tax at the rate of 24.5% and 22% in 2001 and 2002 respectively. IPE (Japan), a company incorporated in Japan, is subject to income tax at the rate of 22%.

For the year ended 31st December, 2001, IPE (Thailand) generated a profit of approximately HK$12.2 million which was exempted from income tax. As a result, the effective tax rate of the Group was only about 13.7%. In 2002, the effective tax rate of the Group further reduced to 10.9% as the profit contribution from IPE (Thailand) increased to approximately HK$14.5 million. For the year ended 31st December, 2003, the profit contribution was primarily derived from Dongguan Koda and IPE (Thailand) and the effective tax rate of the Group was about 11.3%. Assuming IPE (Thailand) did not have the above tax holidays, the tax charges during the Track Record Period would be increased by approximately HK$3.5 million, HK$4.3 million and HK$4.7 million respectively and the effective tax rate of the Group would then be 24.4%, 19.5% and 21.1% respectively.

By the end of 2003, IPE (Singapore) relocated all of its operations to IPE (Thailand) and IPE (Europe) was disposed of by the Group. Thereafter, the Group will principally be subject to only Hong Kong, the PRC and Thailand taxation.

For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the effective tax rates of the Group were 13.7%, 10.9%, 11.3% and 8.0% respectively. The decrease in effective tax rate in 2002 compared to 2001 was mainly the effect of the decrease in profit contribution from IPE (Singapore) which was subject to higher tax rate. The increase in effective tax rate in 2003 compared to 2002 was mainly the combined effect of (i) the increase in income tax of IPE (Thailand) as the tax exemption of phase I of IPE (Thailand) was expired on 1st June, 2003; and (ii) the reverse of the over provision of income tax of IPE (Singapore) in respect of previous years. The decrease in effective tax rate in the six months ended 30th June, 2004 as compared to 2003 was due to the benefit of tax exemption from Xing Hao which enjoyed full exemption from PRC Enterprise Income Tax for the six months ended 30th June, 2004.

Foreign exchanges

For the three years ended 31st December, 2003 and the six months ended 30th June, 2004, the Group settled approximately 53%, 35%, 11% and 11% respectively of its purchases in US dollars and approximately 12%, 46%, 67% and 63% respectively in Japanese Yen. The remaining balances were settled in a number of foreign currencies, including, amongst others, Thai Baht, Singapore dollars and Euro. Although the Group had no specific hedging policy for foreign exchange exposure in the past, it is planning to buy currency forward contracts to hedge the potential currency risk against the Group starting from the second half of 2004. For the year ended 31st December, 2001, the Group recorded a net exchange gain of approximately HK$3.9 million while there were exchange losses of approximately HK$0.9 million, HK$0.8 million and HK$0.4 million respectively for the two years ended 31st December, 2003 and the six months ended 30th June, 2004.

– 106 – FINANCIAL INFORMATION

FINANCIAL AND LIQUIDITY POSITION

Set out below is the summarised combined balance sheet of the Group as at 31st December, 2001, 2002 and 2003 and 30th June, 2004:–

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

NON-CURRENT ASSETS 85,760 153,272 209,981 290,804

CURRENT ASSETS Inventories 10,370 28,010 30,328 43,220 Due from directors 18,206 350 – – Due from related companies 54,046 406 – – Value added tax recoverable – – 2,213 1,771 Trade receivables 46,398 39,923 63,375 64,591 Prepayments, deposits and other receivables 18,554 7,903 13,609 16,121 Bill receivable – – – 189 Cash and bank balances 49,727 32,160 15,832 28,142

TOTAL ASSETS 283,061 262,024 335,338 444,838

CURRENT LIABILITIES Trade payables 20,869 18,898 24,678 38,677 Other payables and accruals 20,500 13,473 30,398 23,411 Due to directors 5,677 26,679 383 – Due to related companies 60,293 3,736 – – Due to minority shareholders – 954 – – Tax payable 8,194 10,164 2,863 2,762 Short-term borrowings 21,083 18,828 37,705 68,114 Current portion of obligations under finance leases 16,852 9,356 6,329 5,051 Current portion of long-term borrowings 11,656 5,674 15,099 13,012

NON-CURRENT LIABILITIES Long-term portion of obligations under finance leases 6,123 6,660 209 5,721 Long-term borrowings 16,083 33,219 27,758 24,951 Due to a director – – 17,000 – Other payable – – 9,434 65,889 Deferred tax liabilities 2,240 828 2,570 3,092

TOTAL LIABILITIES 189,570 148,469 174,426 250,680

– 107 – FINANCIAL INFORMATION

Non-current assets. The Group’s non current assets during the Track Record Period comprised fixed assets, club debentures, negative goodwill, investment securities and deferred tax assets, amongst which fixed assets amounting to approximately HK$85.3 million, HK$180.6 million, HK$235.3 million and HK$315.1 million respectively as at 31st December, 2001, 2002 and 2003 and 30th June, 2004. The increase in fixed assets during the Track Record Period was primarily due to the following factors:–

– acquisition of Dongguan Koda effective from 1st August, 2002 which led to the net increase in fixed assets of approximately HK$65.5 million;

– land and buildings acquired by Xing Hao in 2003 as its first production plant for the amount of approximately HK$8 million;

– additions of plant and machinery of approximately HK$38.9 million in 2002 and HK$22.9 million in 2003 and HK$75.5 million in the first half of 2004; and

– purchase of the Acquired Land in 2003 for the amount of approximately HK$27.2 million.

Inventories. The Group had inventory balances of approximately HK$10.4 million, HK$28.0 million, HK$30.3 million and HK$43.2 million as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively. The continuing increase in inventories of the Group was due to the acquisition of Dongguan Koda effective from 1st August, 2002 and the commencement of production of Xing Hao in 2003. In addition, as the Group started to deliver products on a “Just in time” basis to its customers, additional stock was kept and resulted in higher inventory level of the Group.

Due from directors. The amount due from directors represented non-trade fund advances to the Directors. Such amounts were gradually paid back in 2002 and fully settled in 2003.

Due from related companies. Amount due from related companies as at 31st December, 2001 primarily represented funds advanced to related companies which were all fully settled in 2003.

Trade receivables. Trade receivables as at 31st December, 2002 decreased by approximately HK$6.5 million or 14.0% compared with 2001 which was due to the effects of ongoing tightening of credit control policy and improvement in the credit quality of customers. As at 31st December, 2003, trade receivables increased significantly by approximately HK$23.5 million or 58.7% compared with 2002. Apart from the reason of an increase in turnover by approximately 13.1% during 2003, the sharp increase in trade receivables was attributable to the extension of credit terms for two major customers from 60 days to 90 days and 120 days respectively. During the Track Record Period, the Group’s normal credit term ranged from 30 to 120 days. According to the aging analysis of trade debtors, approximately HK$3.3 million, HK$2.6 million and HK$6.5 million of trade receivables remained outstanding for over 120 days to 2 years as at 31st December, 2001, 2002 and 2003 respectively, which accounted for approximately 7.0%, 6.5% and 10.3% of the total trade receivable balances. The Directors considered such outstanding cases exceptional. In fact all the trade receivable balances as at 31st December, 2001, 2002 and 2003 were either subsequently settled or fully provided for. As at 30th June, 2004, trade receivables of the Group overdue for more than 120 days only amounted to approximately HK$67,000, representing approximately 0.1% of the total trade receivables, and such amount was also subsequently settled.

– 108 – FINANCIAL INFORMATION

Prepayments, deposits and other receivables. As at 31st December, 2002, the total amount of prepayments, deposits and other receivables decreased by approximately HK$10.7 million or 57.4% compared with 2001 and it was due to the settlement of sundry debtors and temporary payment which included receivables from disposal of machineries of approximately HK$4.8 million and advances to an independent subcontractor of approximately HK$9 million. As at 31st December, 2003 and 30th June, 2004, the amount then increased to approximately HK$13.6 million and HK$16.1 million respectively which was mainly attributable to the prepayment of expenses for the listing of the Shares.

Cash and bank balances. Cash and bank balances of the Group continued to decrease from approximately HK$49.7 million in 2001 to HK$32.2 million in 2002 and to HK$15.8 million in 2003. Although it was then increased to approximately HK$28.1 million as at 30th June, 2004, the overall decrease was due to the funding requirement for the investment in fixed assets of the Group during the Track Record Period and further details are set out in the paragraph headed “Liquidity and funding” in this section.

Trade payables. The decrease in trade payables from approximately HK$20.9 million as at 31st December, 2001 to approximately HK$18.9 million as at 31st December, 2002 and the subsequent increase to approximately HK$24.7 million and HK$38.7 million as at 31st December, 2003 and 30th June, 2004 respectively were in line with the trend in the Group’s costs of sales. As at 31st December, 2003, trade payables remaining outstanding for over 120 days amounted to approximately HK$1.3 million and it was mainly due to the offer by a long-term supplier extending its credit period to the Group to over 120 days. As at 30th June, 2004, trade payable outstanding balance over 120 days only amounted to approximately HK$0.4 million.

Other payables and accruals. As at 31st December, 2003, other payables and accruals increased by approximately HK$16.9 million or 125.6% when compared with 2002 and it was due to the acquisition of machineries in 2003. As at 30th June, 2004, other payables and accruals decreased to approximately HK$23.4 million.

Due to directors. Amounts due to directors mainly represented balance of consideration payable to Mr. Chui for the acquisition of Dongguan Koda and other outstanding director fees and emoluments. The outstanding balance as at 31st December, 2003 amounting to approximately HK$0.4 million was fully settled in February 2004 while the remaining outstanding balance of approximately HK$17 million relating to Mr. Chui was capitalised in June 2004.

Due to related companies. Amount due to related companies as at 31st December, 2001 mainly represented transactions with Dongguan Koda which was wholly-owned by Mr. Chui at that time. From 1st August, 2002, the Group acquired Dongguan Koda and its results were then consolidated into the Group’s results and therefore such balances dropped significantly in 2002.

Other payable (non-current portion). Other payable more than one year as at 30th June, 2004 amounted to approximately HK$65.9 million compared with HK$9.4 million as at 31st December, 2003. The significant increase was due to the acquisition of plant and machineries in the first half of 2004 amounting to approximately HK$75.5 million and the Group was offered from a supplier the payment terms of more than one year. The Group expects to repay such long- term payable as to approximately HK$55 million by the proceeds from leasing facilities and the remaining by the Group’s internal resources.

Short-term and long-term borrowings. As at 31st December, 2001, 2002 and 2003 and 30th June, 2004, total short-term and long-term borrowings of the Group amounted to approximately

– 109 – FINANCIAL INFORMATION

HK$48.8 million, HK$57.7 million, HK$80.6 million and HK$106.1 million respectively. The continuous increase in short-term and long-term borrowings was a direct result of the Group’s investment in fixed assets. During the Track Record Period, the total additions in fixed assets of the Group amounted to approximately HK$23.6 million, HK$56.2 million, HK$66.8 million and HK$92.5 million respectively. In particular for the first half of 2004, the Group only arranged finance lease for an aggregate amount of approximately HK$9.9 million to finance such capital expenditure and the remaining funding was therefore mainly financed by short-term and long-term borrowings.

Liquidity and funding

The Group has historically met working capital and other capital requirements principally from cash provided by operations, long-term bank loans and short-term bank borrowings. As at 31st December, 2001, 2002 and 2003 and 30th June, 2004, the Group had net current assets of approximately HK$32.2 million, HK$1.0 million, HK$7.9 million and HK$3.0 million respectively. The significant decrease in net current assets throughout the Track Record Period was a direct result of the Group’s use of short-term funding, including short-term borrowings and cash, for long-term capital expenditure for expansion in production capacity.

As at 30th June, 2004, the Group had maintained short-term working capital credit facilities for an aggregate amount of approximately HK$95.5 million which comprised trade facilities with maximum credit limit of approximately HK$67.8 million and overdraft facilities with maximum credit limit of approximately HK$27.7 million.

The following table summaries the Group’s cash flow for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004:–

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Net cash generated from operating activities 22,352 14,835 12,731 31,290 Net cash used in investing activities (11,575) (21,592) (33,959) (27,725) Net cash generated from/(used in) financing activities (1,536) (13,737) 5,266 14,717

Net increase/(decrease) in cash and cash equivalents 9,241 (20,494) (15,962) 18,282

Cash and cash equivalents at the end of each year/period represented by: – Cash and bank balances 49,727 32,160 15,832 28,142 Less: Pledged deposits with banks (21,244) (15,928) (9,581) (12,086) – Bank overdrafts (6,547) (14,712) (20,625) (12,037)

21,936 1,520 (14,374) 4,019

– 110 – FINANCIAL INFORMATION

Operating activities

Net cash inflow from operating activities generally arose from operating results of the Group after adjustment in utilisation of working capital such as increase or decrease in current assets and current liabilities.

Investing activities

The net cash outflow of the Group for investing activities for the three years ended 31st December, 2003 and the six months ended 30th June, 2004 amounted to approximately HK$11.6 million, HK$21.6 million, HK$34.0 million and HK$27.7 million respectively. The Group’s expenditure for investing activities primarily related to the purchase of fixed assets for the amounts of approximately HK$23.6 million, HK$39.6 million, HK$39.1 million and HK$25.2 million. Such fixed assets mainly comprised land, buildings, plant and equipment used for the Group production.

Financing activities

Net cash outflow from financing activities amounted to approximately HK$1.5 million for the year ended 31st December, 2001, primarily comprising inflow from long-term or short-term bank borrowings of approximately HK$27.7 million, and offset by repayment of long-term or short-term bank loans of approximately HK$17 million and capital element of finance lease rental payments of HK$12.2 million.

Net cash outflow from financing activities amounted to approximately HK$13.7 million for the year ended 31st December, 2002, primarily comprising inflow from long-term or short-term bank borrowings of approximately HK$46.6 million, and offset by repayment of long-term or short-term bank loans of approximately HK$35.8 million and capital element of finance lease rental payments of HK$24.5 million.

Net cash inflow from financing activities amounted to approximately HK$5.3 million for the year ended 31st December, 2003, primarily comprising inflow from long-term or short-term bank borrowings of approximately HK$67.1 million, and offset by repayment of long-term or short-term bank loans of approximately HK$52.3 million and capital element of finance lease rental payments of HK$9.5 million.

For the six months ended 30th June, 2004, there was a net cash inflow from financing activities amounting to approximately HK$14.7 million. It primarily consisted of inflow from bank loans of approximately HK$73.1 million, outflow for repayment of bank loans of approximately HK$47.7 million, capital element of finance lease rental payment of HK$5.7 million and dividend payment of approximately HK$5.0 million.

DIVIDENDS

For the year ended 31st December, 2002, IPE (Singapore) declared dividends of approximately HK$24.6 million to its then shareholders and the payment of such dividends was settled through the current accounts with them. On 2nd April, 2004 and 30th August, 2004, dividends in the amounts of approximately HK$5.0 million and HK$6.1 million were declared by the Group for the year ended 31st December, 2003 and the six months ended 30th June, 2004 respectively to its then sole shareholder. Such dividends have been paid in May 2004 and October 2004 respectively out of the internal resources of the Group.

The above dividends cannot be construed as a reference or basis for the determination of future dividends. There is no assurance that future dividends will be paid in similar amounts or at all.

– 111 – FINANCIAL INFORMATION

In addition, the Group derived a majority of its profits from its two indirect wholly-owned subsidiaries established in the PRC, Dongguan Koda and Xing Hao. Distributable profits of these two subsidiaries are represented by their respective after-tax profits as determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”), and deduct any recovery of accumulated losses and allocations to statutory funds that they are required to make. Under the PRC laws, dividends may be paid only out of distributable profits. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years.

The calculation of distributable profits under PRC GAAP differs in many respects from that under HKGAAP. As a result, Dongguan Koda and Xing Hao may not be able to pay any dividend in a given year to the Company if they do not have distributable profits as determined under PRC GAAP (even if they have profits for that year as determined under HKGAAP). In the event that they do not have distributable profits as determined under PRC GAAP, the Group may not have sufficient distributable profits to pay dividends to the Shareholders.

It is the present intention of the Directors that future interim and final dividends will be financed by internal resources and will be paid in or around October and June of each financial year respectively. The declaration, payment and amount of dividends will be subject to the discretion of the Directors and will be dependent on the Company’s earnings, financial position, cash requirements and availability, the provisions of the relevant laws and all other relevant factors.

However, it is the current intention of the Directors to pay out not less than 30% of the profit attributable to shareholders of the Company whenever possible.

PROPERTY INTERESTS

Hong Kong

Property held and occupied by the Group in Hong Kong

The Group’s principal place of business in Hong Kong is located at 11th Floor, Block E1, Hoi Bun Industrial Building, No. 6 Wing Yip Street, Kowloon, Hong Kong which is owned by the Group with a total gross floor area of approximately 3,925 sq.ft.. The property is currently occupied by the Group for ancillary office purpose.

Property held by the Group in Hong Kong for investment purpose

A property owned by the Group and situated at Unit B, Golden Lake Villa, No. 29 Silver Cape Road, Sai Kung, New Territories, Hong Kong with a total saleable floor area of approximately 2,029 sq.ft. are leased to an independent third party not connected with the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates for a term of two years commencing from 18th May, 2003 at a monthly rental of HK$45,000 exclusive of rates, rent and management fees. On 14th August, 2004, a termination notice was received from the tenant to terminate the agreement with effect from 13th October, 2004.

– 112 – FINANCIAL INFORMATION

The PRC

Properties held and occupied by the Group in the PRC

The Group is currently operating a production plant located at Huang Si Wei Guan Li Qu, Dongguan City, Guangdong Province, the PRC. The property is held by the Group and comprises three parcels of land (referred to as “Land A”, “Land B” and “Land C”) with an aggregate site area of approximately 16,324 sq.m.. The Group has obtained the State-owned Land Use Right Certificate relating to Land A with site area of approximately 6,007 sq.m. for a term of 50 years commencing from 25th October, 1996 to 24th October, 2046. There are three buildings and four ancillary structures erected on Land A. The three buildings include two factories and a staff quarter with a total gross floor area of approximately 8,706.68 sq.m. of which the Real Property Ownership Certificates have been obtained. The four ancillary structures include three staff quarters and a guardroom with a total gross floor area of approximately 1,250 sq.m. of which the Real Property Ownership Certificates are not obtained.

The Group has not obtained the relevant State-owned Land Use Right Certificates relating to Land B and Land C which have a total site area of approximately 10,317 sq.m.. The Group has applied for the relevant State-owned Land Use Right Certificates and pursuant to a Notarial Certificate issued by 東莞市國土資源局石碣分局(Dongguan Land Resources Bureau Shi Xie Branch) dated 10th February, 2004, the application is being processed by the relevant PRC government authority. There is a total of four ancillary structures erected on Land B and Land C which include a guardroom, a canteen, a warehouse and an electricity distribution room with a total gross floor area of approximately 1,132.33 sq.m.. The Group has not obtained the relevant Real Property Ownership Certificates for all of these four ancillary structures for the reason that the State-owned Land Use Right Certificates for Land B and Land C on which these structures are erected has not yet been obtained.

The Group holds another parcel of land located at Jiao Keng, Lan Tian She Shui Men Tou (Tu Ming), Xian Lian Cun Xian Cun Town, Zengcheng City, Guangdong Province, the PRC with a site area of approximately 8,000 sq.m. of which the Group was granted the State-owned Land Use Right Certificate for a term of 50 years expiring on 30th December, 2053. There are one factory building and other ancillary facilities with a gross floor area of approximately 2,689 sq.m.. As at the Latest Practicable Date, the Group has obtained Real Property Ownership Certificates for gross floor area of approximately 2,129 sq.m. of the buildings, including the main factory. The application of Real Property Ownership Certificates of the remaining gross floor area of approximately 560 sq.m. of the buildings is being processed.

– 113 – FINANCIAL INFORMATION

The Group also holds three residential properties in Dongguan City and one residential property in Beijing as staff dormitory and details of which are summarised as follows:

Location Gross Floor Area

Room C, Level 4, Block 3, Jinhu Garden, Heng Keng, 79.52 sq.m. Liaobu Town, Dongguan City, Guangdong Province, the PRC

Room 6A303, Level 3, Block 6, Di San Xiao Qu, Dong Xie Square, 60.72 sq.m. Chong Huan Zhong Road, Shihe Town, Dongguan City, Guangdong Province, the PRC

Unit B, Level 23, Block 1, Dong Hu Hua Yuen, Dong Zong Da Dao, 133.00 sq.m. Cheng Qu, Dongguan City, Guangdong Province, the PRC

Room E, Level 16, Shen Fang Commercial Building 150.19 sq.m. (also known as Block 23) amid An Zhen Xi Li Si Qu, Chaoyang District, Beijing, the PRC

Properties held for development by the Group in the PRC

The Group holds the land use rights of a parcel of land for development with site area of approximately 166,534 sq.m. located in Zengcheng City, Guangdong Province in the PRC as the location of the Group’s new production plant. The Group has obtained the relevant State-owned Land Use Right Certificate (Document No.: Zeng Guo Yong (2003) Zi No. C300028) for a term of 50 years expiring on 22nd May, 2053. Vigers Appraisal & Consulting Limited, an independent property valuer, has carried out a property valuation and estimated that the open market value of the land as at 31st August, 2004 was approximately RMB29 million (equivalent to approximately HK$27.4 million).

Other countries

Properties held and occupied by the Group in Thailand

The Group has a production plant located at Sanap Thup Sub-district, Wang Noi District, Phra Nakhon Si Ayutthaya Province, Thailand. The land is held by the Group in the form of freehold and has a site area of approximately 33,120 sq.m.. The production facilities in Thailand were completed in two phases. Phase I of the production facilities were completed in May 2000 and have a total gross floor area of approximately 6,201 sq.m. with a total of 8 buildings and structures including office and factory, warehouse, canteen and dormitory. Phase II of the production facilities were completed in December 2002 and have a total gross floor area of approximately 7,274 sq.m. with a total of 11 buildings and structures including office and factory, warehouse, canteen and dormitory. Recently, seven new buildings and structures, including car park, guard house, drainage system structures, with total gross floor area of approximately 3,517 sq. m. were completed. IPE (Thailand) is the owner and has the right to use, occupy and dispose of the aforesaid land and buildings.

– 114 – FINANCIAL INFORMATION

Properties leased in Japan and Macau

The Group’s offices in Japan and Macau were leased from independent third parties not connected with the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates. The office in Japan was leased for a term of two years commencing from 1st April, 2004 to 31st March, 2006 at a monthly rental of ¥66,400 (equivalent to approximately HK$4,819) and the office in Macau was leased for a term of two years commencing from 1st June, 2004 to 31st May, 2006 at a monthly rental of approximately HK$8,860.

Property valuation

The property interests of the Group were valued at approximately HK$62.7 million as at 31st August, 2004 by Vigers Appraisal & Consulting Limited and Thai Property Appraisal Lynn Phillips Co., Ltd., the independent property valuers. The summary of values of the property interests and valuation certificates of the property interests owned by the Group are set out in Appendix IV to this prospectus.

DISTRIBUTABLE RESERVES

As at 30th June, 2004, the Company has no reserves available for distribution to the Shareholders.

UNAUDITED PROFORMA ADJUSTED NET TANGIBLE ASSETS

The following is an illustrative statement of unaudited proforma adjusted net tangible assets of the Group which has been prepared for the purpose of illustrating the effect of the Offer as if it had taken place on 30th June, 2004 and based on the audited consolidated net assets of the Group as at 30th June, 2004 as shown in the accountants’ report, the text of which is set out in Appendix I to this prospectus and is adjusted as follows:

Audited consolidated net assets of Estimated Adjusted the Group as at net proceeds Adjusted net tangible 30th June, Negative fromnet tangible asset value 2004 goodwill the Offer assets per Share HK$’000 HK$’000 HK$’000 HK$’000 HK$

Based on an Offer Price of HK$0.63 per Share 194,141 26,069 56,400 276,610 0.55

Based on an Offer Price of HK$0.81 per Share 194,141 26,069 78,800 299,010 0.60

This statement has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of financial position of the Group following the Share Offer.

– 115 – FINANCIAL INFORMATION

Notes:

1. The estimated net proceeds from the Offer are based on the respective Offer Price of HK$0.63 and HK$0.81 per Share after deduction of the underwriting commission and other related expenses of the Offer payable by the Group.

2. The adjusted net tangible asset value per Share is arrived at based on the 500,000,000 Shares expected to be in issue immediately following completion of the Offer and the Capitalisation Issue and takes no account of any Shares which may fall to be allotted and issued upon the exercise of options which may be granted under the Share Option Scheme or which may be allotted and issued or purchased by the Company pursuant to the general mandates for the allotment and issue and repurchase of Shares granted to the Directors as referred to in the paragraph headed “Resolutions in writing of the sole Shareholders passed on 25th June, 2004 and 12th October, 2004” in the section headed “Further information about the Company” in Appendix VII to this prospectus.

3. The Group’s property interests as at 31st August, 2004 have been valued by Vigers Appraisal & Consulting Limited, an independent property valuer, and the relevant property valuation report is set out in Appendix IV to this prospectus. The above adjustment does not take into account the surplus arising from the revaluation of the Group’s property interests. The revaluation surplus will not be incorporated in the Group’s financial statements for the year ending 31st December, 2004. If the revaluation surplus was recorded in the Group’s financial statements, the depreciation expense of the Group for the year ending 31st December, 2004 would be increased by approximately HK$5,000.

The text of the report from CCIF CPA Limited in respect of the unaudited proforma adjusted net tangible assets above is set out in Appendix III to this prospectus.

NO MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position or the prospects of the Group since 30th June, 2004, the date to which the latest audited financial statements of the Group were made up.

– 116 – FUTURE PLANS

FUTURE PLANS AND PROSPECTS

Future prospects

As the Directors believe that the Group is one of the major manufacturers of pivot cartridge components in the world, they are confident that the ongoing applications of HDDs in the computer industry and their increasing applications in various kinds of consumer electronic products will have a positive impact on the performance of the Group. In addition, the Directors believe that the rapid growth in the computer industry in major developing countries, especially in the PRC, will contribute greatly to the growth of the Group.

The Directors also believe that the Group must continue to strive to reduce its industry risks and expand its market horizon by diversifying the product range of the Group. As the machineries currently utilised by the Group can be altered to manufacture precision components for a wide range of applications, the Group has been diversifying its product lines to serve customers from different manufacturing industries including hydraulic equipment and optical device manufacturers.

With the experience and the customer base that the Group has built up over the years, the Directors believe that the Group can leverage on its expertise and capitalise on the increasing demand for precision metal components used for different applications. As electronic devices and equipment become increasingly sophisticated and refined, high quality precision components will be required in their production. Therefore, in order to strengthen the Group’s future profitability, maintain its market share and diversify its product range, the Group intends to (i) expand the production facilities and increase the overall production capacity; (ii) upgrade the Group’s production capabilities to meet the changing demands of its customers; (iii) diversify the product range; and (iv) develop new overseas and the PRC markets.

Expanding production facilities and increasing production capacity

The Directors estimated that the production facilities of the Group had been operated at an aggregate of approximately 95% of the total production capacity in 2003. In order to cope with future business growth, the Group has initiated the Zengcheng Development Project and Xing Hao, an indirect wholly-owned subsidiary of the Company, was granted the land use rights for a piece of land with site area of approximately 166,534 sq.m. located at Shang Wei Sha He She, Yue Hu Cun, Xian Cun Zhen, Zengcheng City, Guangdong Province, the PRC as the location of the Group’s new production base from 增城市國土資源和房屋管理局(Zengcheng City Land Resources and Buildings Management Bureau) on 23rd May, 2003. The aggregate consideration of the Acquired Land amounted to approximately RMB28.8 million (equivalent to approximately HK$27.2 million) which was comparable to the open market value of nearby properties. As at 30th June, 2004, the Group had already paid approximately RMB13.7 million (equivalent to approximately HK$12.9 million) from by internal resources of the Group for the purchase of the Acquired Land, with the remaining sum of approximately RMB15.1 million (equivalent to approximately HK$14.2 million) payable on or before 30th June, 2005.

The Group has obtained the State-owned Land Use Right Certificate of the Acquired Land for a term of 50 years expiring on 22nd May, 2053. Vigers Appraisal & Consulting Limited, an independent property valuer, has carried out a property valuation and estimated that the open market value of the Acquired Land as at 31st August, 2004 was approximately RMB29 million (equivalent to approximately HK$27.4 million). Details of the property valuation report are set out in Appendix IV (A) to this prospectus.

– 117 – FUTURE PLANS

The Directors currently plan for the Zengcheng Development Project to be carried out in three phases of which the first phase had commenced construction in December 2003. The first phase of the Zengcheng Development Project includes a two-storey production plant and a six-storey staff quarter with an estimated total gross floor area of approximately 23,275 sq.m. and the construction is expected to be completed by the first quarter of 2005. For the second and third phase of the Zengcheng Development Project, the Directors currently expect that it will involve the construction of one production plant, four staff quarters, one office building and other ancillary facilities with a total gross floor area of approximately 44,544 sq.m.. The Group currently plans to commence the construction of the four staff quarters in 2005 but does not have specific schedule for the production plant and office building. The Directors estimate the total cost for the Zengcheng Development Project to be approximately HK$85.9 million.

As at 30th June, 2004, approximately HK$16 million of the cost for the first phase of the development had been paid and was fully financed by internal resources of the Group.

The Directors expect to apply part of the proceeds from the Offer, amounting to approximately HK$31.6 million, to finance the Zengcheng Development Project. The remaining funding for the Zengcheng Development Project and the balance payment of the acquisition cost of the Acquired Land will be financed by internal resources of the Group and bank borrowings.

After the completion of the first phase of the Zengcheng Development Project, the production capacity of the Group is expected to increase by approximately 30% and the Group will continue to look for expansion opportunities where appropriate.

Upgrading of production capabilities

The Directors have given particular attention to product quality and cost competitiveness which they considered as crucial factors affecting the Group’s ability to compete and maintain its competitive edge. Emphasis has been placed by the Group on improving the efficiency of the production cycle of the Group’s machineries and improving the quality control process. To achieve these, the Group plans to acquire new machineries to ensure that it is geared up to maintain a high level of production capabilities and to meet the market demand.

Diversifying the Group’s product range

The Directors believe it is important and prudent for a company to diversify its product range to ensure that it does not become overly dependent on the success in one particular industry. In addition to increasing efforts in research and development of current products, the Group constantly explores new market segments where its expertise and production capabilities may be successfully applied. Following months of research and development, market surveys and marketing efforts, the Group has identified and begun the production of precision metal components used in actuators of automobiles. The supply of such precision metal components is a major breakthrough for the Group as it represents a move into a new market segment.

– 118 – FUTURE PLANS

Developing new overseas and the PRC markets

Since the establishment of the Group, the Directors have concentrated on the development of overseas markets including Thailand and Malaysia where the majority of the Group’s customers are based in. However, with the rapid economic and technological development in the PRC, the Directors believe that this is the right time for the Group to begin developing the local PRC market before foreign competitors become entrench.

With the PRC joining the WTO in 2001, the Directors believe that the demand for high quality precision metal components from foreign invested production facilities will increase substantially over the next couple of years. To capitalise on the opportunities in the PRC market and aiming at maintaining its global market share and broadening its customer base, the Group will allocate additional resources in developing the domestic PRC market.

In addition, with the Group’s increasing product range, the Group will also need to explore and expand into new overseas markets such as precision metal components for automobile. The Group will place more emphasis on developing these overseas markets through appointing sales agents or setting up new sales offices.

REASONS FOR THE OFFER AND USE OF PROCEEDS

The Directors consider that the proceeds from the Offer will enhance the Group’s financial strength. A public listing status on the Stock Exchange will offer the Group access to capital markets for corporate finance exercises to assist in its future business development, enhance the Group’s corporate profile and strengthen its competitiveness.

Based on an indicative Offer Price of HK$0.72 per Offer Share (being the mid-point of the stated price range of the Offer Price between HK$0.63 and HK$0.81 per Offer Share), the net proceeds of the Offer, after deduction of all expenses payable by the Company, are estimated to amount to approximately HK$67.6 million. The Directors at present intend to apply the net proceeds as follows:

– approximately HK$31.6 million will be used as the capital expenditure in relation to the Zengcheng Development Project;

– approximately HK$26 million will be used as the capital expenditure relating to the acquisition of new machineries for upgrading production capabilities;

– approximately HK$3.5 million will be used in the research and development of new product range;

– approximately HK$1.5 million will be used in the expansion of overseas and PRC markets; and

– the balance of approximately HK$5 million as general working capital for the Group.

– 119 – FUTURE PLANS

Should the Offer Price be fixed at HK$0.63 or HK$0.81 per Offer Share, being the lowest and highest point of the indicative Offer Price range as stated in this prospectus, the net proceeds from the Offer, after deduction of all expenses payable by the Company, are estimated to be approximately HK$56.4 million and HK$78.8 million respectively. The Directors presently intend to apply the aforesaid net proceeds in the same manner and in the same proportion as shown above.

To the extent that the net proceeds of the Offer are not immediately used for the above purposes, it is the present intention of the Directors that such net proceeds will be placed in short term deposits with authorised financial institutions or licenced banks in Hong Kong, or be used to purchase money market instruments such as investments in bank deposits, government bonds or treasury bills in Hong Kong which can yield stable and recurring return to the Group and are of low risk profile in general. As the Directors intend that the placing of any deposits or purchase of money market instruments will be of a short term nature only, when future financial needs arise during the implementation of the Group’s future plans, the Group should have sufficient resources to meet the Group’s financial requirements.

– 120 – UNDERWRITING

UNDERWRITERS

Placing Underwriters

Lead Manager

Partners Capital International Limited

Co-Lead Manager

G.K. Goh Securities (H.K.) Limited

Co-Managers

Core Pacific-Yamaichi International (H.K.) Limited UOB Kay Hian (Hong Kong) Limited

Public Offer Underwriters

Lead Manager

Partners Capital International Limited

Co-Managers

CAF Securities Company Limited Hantec International Finance Group Limited YF Securities Company Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Underwriting Agreement

Pursuant to the Underwriting Agreement, the Company is offering: (i) the Public Offer Shares for subscription by members of the public in Hong Kong on and subject to the terms and conditions set out in this prospectus and the related application forms; and (ii) the Placing Shares under the Placing to professional, institutional and other investors on and subject to the terms and conditions set out in the documents relating to the Placing; in each case at the Offer Price. Subject to, inter alia, the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus on or before 18th November, 2004 or such later date as the Lead Manager (for itself and on behalf of the Underwriters) may determine,

(a) the Public Offer Underwriters have severally agreed to subscribe for or procure subscription for, on the terms and conditions of this prospectus and the related application forms, their respective applicable proportions of the Public Offer Shares initially being offered and which are not taken up under the Public Offer; and

(b) the Placing Underwriters have severally agreed to subscribe for or procure placees to subscribe for the Placing Shares.

– 121 – UNDERWRITING

Grounds for termination

The respective obligations of the Underwriters to subscribe for or procure subscription for the Offer Shares are subject to termination by notice in writing given by the Lead Manager (for itself and on behalf of the Underwriters) to the Company, if any of the following events occur prior to 5:00 p.m. (Hong Kong time) on the day immediately preceding the Listing Date (the “Termination Time”):

(a) there comes to the notice of the Lead Manager any matter or event showing any of the representations, warranties or undertakings contained in the Underwriting Agreement to be untrue, inaccurate or misleading in any material respect when given or repeated or there has been a breach of any of the representations, warranties and undertakings to be given by the Company and the executive Directors or any other provisions in the Underwriting Agreement which is considered in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters) to be material in the context of the Offer;

(b) any statement contained in this prospectus or the application forms has become or been discovered to be untrue, incorrect or misleading in any material respect;

(c) any event, or series of events which in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters) has or is likely to have the effect of making any material part of the Underwriting Agreement incapable of performance in accordance with its terms or which prevents the processing of subscriptions and/or payments pursuant to the Offer or pursuant to the underwriting thereof;

(d) any litigation or claim of material importance to the business, financial or operation of the Group being instigated by any third party against any member of the Group;

(e) any event, series of events, matters or circumstances occurs or arises on or after the date of the Underwriting Agreement and before the Termination Time, being events, matters or circumstances which, if it had occurred before the date of the Underwriting Agreement, would have rendered any representations, warranties and undertakings to be given by the Company and the executive Directors contained in the Underwriting Agreement untrue, incorrect or misleading in any respect, comes to the knowledge of the Lead Manager and which is considered in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters) to be material in the context of the Offer;

(f) any matter which, had it arisen immediately before the date of this prospectus and not having been disclosed in this prospectus, would have constituted in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters) a material omission in the context of the Offer;

(g) there comes to the knowledge of the Lead Manager any breach by any party to the Underwriting Agreement other than the Underwriters of any provision of the Underwriting Agreement which, in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters), is material in the context of the Offer; or

– 122 – UNDERWRITING

(h) there shall have developed, occurred, existed or come into effect any event or series of events, matters or circumstances whether occurring or continuing before, on and/or after the date of the Underwriting Agreement and including an event or change in relation to or a development of an existing state of affairs concerning or relating to any of the following:

(i) any change in, or any event or series of events resulting or likely to result in any change in the local, national or international, financial, currency, political, military, industrial, economic or market conditions in the Cayman Islands, Hong Kong, BVI, Thailand, Japan, Macau, Singapore and/or the PRC;

(ii) any change in the conditions of Hong Kong, the PRC or international equity securities or other financial markets;

(iii) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise;

(iv) any change or development involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in the Cayman Islands, Hong Kong, BVI, Thailand, Japan, Macau, Singapore, the PRC or other jurisdiction relevant to the Group;

(v) any change or prospective change in the business or in the financial or trading position of the Group or otherwise;

(vi) the imposition of economic sanction or withdrawal of trading privileges, in whatever form, by the US or by the European Union (or any member thereof) on Hong Kong or the PRC;

(vii) a general moratorium on commercial banking activities in New York, London, the PRC or Hong Kong declared by the relevant authorities;

(viii) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, escalation of hostility, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or

(ix) any other change whether or not ejusdem generis with any of the foregoing; which, in the absolute opinion of the Lead Manager (for itself and on behalf of the Underwriters):

(aa) is or will or is likely to be materially adverse to the business, financial condition or prospects of the Group;

(bb) has or will have or is likely to have a material adverse effect on the level of the Offer Shares being applied for or accepted or the distribution of the Offer Shares; or

(cc) for any reason makes any material part of the Underwriting Agreement incapable of performance in accordance with its terms or which prevents the processing of the applications and/or payments pursuant to the Offer or pursuant to the underwriting thereof.

– 123 – UNDERWRITING

Undertakings

Pursuant to Rule 10.07(1) of the Listing Rules, the controlling Shareholders, namely, Tottenhill and Mr. Chui, will not, except pursuant to the Offer or unless in accordance with the Listing Rules, (i) in the period commencing from the date of this prospectus and ending on the date which is six months from the Listing Date (the “First Six Months Period”), dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of any of the Shares in respect of which the controlling Shareholders are shown by this prospectus to be the beneficial owners; and (ii) in the six-month period commencing on the expiry of the First Six Months Period (the “Second Six Months Period”) dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of any of the Shares as described above and to such an extent that immediately following such disposal, Tottenhill and Mr. Chui would then cease to be the controlling Shareholders (as defined in the Listing Rules).

Pursuant to Rule 10.08 of the Listing Rules, no further Shares or securities convertible into equity securities (whether or not of a class already listed) may be issued or form the subject of any agreement to such an issue within six months from the Listing Date (whether or not such issue of Shares or securities will be completed within six months from the Listing Date), except in certain prescribed circumstances, which include the issue of Shares pursuant to the exercise of any options that may be granted under the Share Option Scheme.

For the purpose of the above, the Underwriting Agreement contains the following undertakings:–

(a) Each of the Indemnifiers, on a several basis as among themselves, has undertaken to and covenanted with the Company, the Sponsors, the Lead Manager and all other Underwriters that, save as permitted under the Listing Rules and with the prior written consent of the Sponsors and the Lead Manager, he/it shall not, and shall procure that none of his/its associates, nominees or trustees holding in trust for him/it shall:

(i) during the First Six Months Period:

(1) sell, transfer or otherwise dispose of or create any rights (including but not limited to the creation of any options, rights, interests or encumbrances), nor enter into any agreement to do the same, in respect of any of his/its direct or indirect interest in the Shares held by him/it or his/its associates, nominees or trustees; or

(2) sell, transfer or otherwise dispose of any interest in any shares in any company in which each Indemnifier is interested as to 30% (or any such amount as shall from time to time be specified in the Hong Kong Code on Takeovers and Mergers as being the level for triggering a mandatory general offer) or more of such company’s then issued share capital and which is directly, or through another company indirectly, the beneficial owner of any of the issued share capital of the Company; or

(3) in the case for Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li, sell, transfer or otherwise dispose of any rights (including but not limited to the creation of any options, rights, interests or encumbrances), nor enter into any agreement to do the same, in respect of his direct or indirect interest in the shares in Tottenhill held by him or his associates, nominees or trustees; and

– 124 – UNDERWRITING

(ii) in the case for Tottenhill and Mr. Chui where they are the controlling Shareholders, within the Second Six Months Period, take any action referred to in sub-paragraph (a)(i) above which, if immediately following such action, would result in Tottenhill or Mr. Chui ceasing to be a controlling Shareholder (as defined in the Listing Rules).

(b) Each of Tottenhill and Mr. Chui has severally further undertaken to the Company, the Sponsors, the Lead Manager and all other Underwriters that within the First Six Months Period and the Second Six Months Period, he/it will:

(i) when he/it pledges or charges any securities of the Company beneficially owned by him/it, immediately inform the Company, the Sponsors and the Lead Manager of such pledges or charges together with the number of securities so pledged or charged; and

(ii) when he/it receives indications, either verbal or written, from the pledgee or chargee that any of the pledged or charged securities will be disposed of, immediately inform the Company, the Sponsors and the Lead Manager of such indications.

The Company has further undertaken to and covenanted with the Stock Exchange, the Sponsors, the Lead Manager and all other Underwriters to forthwith inform all matters referred to in paragraphs (b)(i) and (ii) above to the Stock Exchange and disclose such matters by press announcement immediately in accordance with the Listing Rules upon receipt of the notification from any of Tottenhill and Mr. Chui.

(c) Each of the Company and the executive Directors (on a several basis as among themselves) has severally undertaken to and covenanted with the Sponsors, the Lead Manager and all other Underwriters that it shall not (in the case of the Company) and he shall procure (in the case of the executive Directors) that the Company shall not, within the period of six months from the Listing Date:

(i) allot or issue or agree to allot or issue any securities (including warrants or other securities convertible into or exchangeable for shares or other rights to subscribe for shares and whether or not of a class already listed); or

(ii) grant or agree to grant any options or other rights carrying any right to subscribe for or otherwise acquire any securities; or

(iii) offer to or agree to do any of the foregoing or announce any intention to do so; or

(iv) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any shares,

other than any Shares which may fall to be issued pursuant to the grant or the exercise of options under the Share Option Scheme or otherwise allowed by the Listing Rules or approved by the Stock Exchange.

– 125 – UNDERWRITING

(d) Each of the Company and the executive Directors (on a several basis as among themselves) has severally undertaken to and covenanted with the Sponsors, the Lead Manager and all other Underwriters that it shall not (in the case of the Company) and he shall procure (in the case of the executive Directors) that the Company shall not, within the First Six Months Period and the Second Six Months Period, do or cause to be done any of the matters including those set out in sub-paragraphs (c)(i) to (iv) above which would result in Tottenhill or Mr. Chui ceasing to be a controlling Shareholder (as defined in the Listing Rules).

Commission and expenses

The Underwriters will receive a commission of 2.5% on the Offer Price for the Offer Shares, out of which they will, as the case may be, pay any sub-underwriting commissions. The Sponsors will, in addition, receive a documentation fee. The underwriting commission, documentation and financial advisory fee, the Stock Exchange initial listing fee and trading fee, SFC transaction levy and SFC investor compensation levy, legal and other professional fees together with applicable printing and other expenses relating to the Offer are estimated to be approximately HK$24.2 million in total (based on an indicative Offer Price of HK$0.72 (being the mid-point of the stated Offer Price range between HK$0.63 and HK$0.81)).

Underwriters’ interests in the Company

Save for its obligations under the Underwriting Agreement, none of the Underwriters or any of their respective holding companies, or any of the subsidiaries of such holding companies shall have any shareholding interest in the Group nor has any right or option (whether legally enforceable or not) to subscribe or nominate persons to subscribe for securities in any member of the Group.

– 126 – STRUCTURE OF THE OFFER

PRICE PAYABLE ON APPLICATION

The Offer Price will be not more than HK$0.81 per Offer Share and not less than HK$0.63 per Offer Share. Based on the maximum Offer Price, the price payable upon application will be the Offer Price of HK$0.81 per Offer Share plus 1% brokerage, 0.005% SFC transaction levy, 0.002% SFC investor compensation levy and 0.005% Stock Exchange trading fee, amounting to a total of HK$4,090.98 for each board lot of 5,000 Shares. The application forms include a table showing the exact amount payable for certain multiples of Offer Shares.

If the final Offer Price, as determined in the manner described below, is lower than the maximum price of HK$0.81, appropriate refund payments (including brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee in respect of the surplus application monies) will be made to successful applicants, without interest.

DETERMINING THE OFFER PRICE

The Offer Price is expected to be determined between the Lead Manager (for itself and on behalf of the Underwriters) and the Company on or before 8:00 p.m. on Tuesday, 26th October, 2004. If the Lead Manager (for itself and on behalf of the Underwriters) and the Company are unable to reach agreement on the Offer Price by 8:00 p.m. on Tuesday, 26th October, 2004, the Offer will not proceed.

Prospective investors should be aware that the final Offer Price may be, but is not expected to be, lower than the indicative Offer Price range stated in this prospectus. If, based on the level of interest expressed by prospective investors under the book-building process, the Lead Manager (for itself and on behalf of the Underwriters, and with the consent of the Company) thinks it appropriate, the Offer Price may be reduced to a price below the indicative Offer Price range stated in this prospectus at any time prior to the morning of the last day for lodging applications under the Public Offer. In such a case, the Company will, as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the last day for lodging applications under the Public Offer, cause to be published in The Standard (in English) and the Hong Kong Economic Times (in Chinese) notices of the reduction in the Offer Price to a price below the indicative Offer Price range. Upon issue of such a notice, the revised Offer Price will be final and conclusive and the Offer Price will be fixed at such revised Offer Price. Such notice will also include confirmation or revision, as appropriate, of the working capital statement, the offer statistics as currently set out in the section headed “Summary” in this prospectus and any other financial information which may change as a result of any such reduction. Applicants under the Public Offer should note that, even if the indicative Offer Price range is so reduced, in no circumstances can applications be withdrawn once submitted, except where a person responsible for this prospectus under section 40 of the Companies Ordinance (as applied by section 342E of the Companies Ordinance) gives a public notice under that section before the expiration of the fifth day after the time of the opening of the application lists (the opening of the application lists is expected to be 25th October, 2004) (excluding any day which is a Saturday, Sunday or public holiday in Hong Kong) which excludes or limits the responsibility of that person for this prospectus, in which case applications made may be revoked before the said fifth day.

An announcement of, among other things, the final Offer Price, the results of applications and the basis of allotment of the Public Offer Shares is expected to be published on Friday, 29th October, 2004.

– 127 – STRUCTURE OF THE OFFER

No temporary documents of title or evidence of title will be issued. Share certificates for the Offer Shares which will be issued on Friday, 29th October, 2004 will only become valid certificates of title provided that (i) the Offer has become unconditional in all respects; and (ii) the Underwriting Agreement has not been terminated in accordance with its terms at or before 5:00 p.m. on Sunday, 31st October, 2004, as further described in the section headed “Underwriting” in this prospectus.

CONDITIONS OF THE OFFER

Acceptance of your application for Offer Shares or your agreement to take up any Offer Shares will be conditional upon:

1. Listing

the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus and the related application forms and any Shares which fall to be issued pursuant to the exercise of options that may be granted under the Share Option Scheme and such listing and permission not subsequently being revoked prior to the commencement of dealings in the Shares on the Stock Exchange, on or before 18th November, 2004; and

2. Underwriting Agreement

the obligations of the Underwriters under the Underwriting Agreement becoming unconditional, and not being terminated, prior to 5:00 p.m. (Hong Kong time) on the day immediately preceding the Listing Date. Details of the Underwriting Agreement, its conditions and grounds for termination, are set out in the section headed “Underwriting” in this prospectus.

If these conditions are not fulfilled on or before 18th November, 2004, your application money will be returned to you, without interest. The terms on which your application money will be returned to you are set out under the paragraph headed “Refund of your application money” on the application forms.

In the meantime, your application money will be held in one or more separate bank accounts with the receiving banker or other banks in Hong Kong licensed under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).

THE OFFER

The Offer comprises the Placing and the Public Offer. A total of 127,500,000 Shares will be made available under the Offer, of which 114,750,000 Shares, representing 90% of the Offer Shares, will initially be available for subscription or purchase by professional, institutional and private investors under the Placing. The remaining 12,750,000 Shares, representing 10% of the Offer Shares, will initially be offered to the public in Hong Kong under the Public Offer. Both the Placing and the Public Offer are subject to re-allocation on the basis described below.

The Offer Shares represent 25.5% of the enlarged issued share capital of the Company immediately after the completion of the Offer and the Capitalisation Issue. The Placing Underwriters and the Public Offer Underwriters have severally agreed to underwrite the Placing Shares and the Public Offer Shares respectively under the terms of the Underwriting Agreement. Further details of the underwriting arrangement are set out in the section headed “Underwriting” in this prospectus. – 128 – STRUCTURE OF THE OFFER

Investors may apply for the Offer Shares under the Public Offer or indicate an interest for the Offer Shares under the Placing, but may not do both. Investors may only receive an allocation of Shares under the Placing or the Public Offer but not both.

OFFER MECHANISM – BASIS OF ALLOCATION OF THE OFFER SHARES

Placing

The Company is initially offering 114,750,000 new Shares for subscription pursuant to the Placing, which represent 90% of the Offer Shares under the Offer, subject to re-allocation as mentioned in the paragraph headed “Re-allocation of Offer Shares between the Placing and the Public Offer” below.

Pursuant to the Placing, it is expected that the Placing Underwriters, or selling agents nominated by them on behalf of the Company, shall conditionally place the Placing Shares at the Offer Price with selected professional, institutional and private investors in Hong Kong. Professional and institutional investors generally include brokers, dealers and companies (including fund managers) whose ordinary business involves dealing in shares and other securities and entities which regularly invest in shares and other securities.

Allocation of the Placing Shares to professional, institutional and private investors pursuant to the Placing is based on a number of factors, including the level and timing of demand and whether or not it is expected that the relevant investor is likely to acquire further Shares and/or hold or sell the Shares after the listing of the Shares on the Main Board. Such allocation is intended to result in a distribution of the Placing Shares on a basis which would lead to the establishment of a solid professional and institutional shareholder base to the benefit of the Company and its shareholders as a whole. Investors who have been allocated any of the Placing Shares under the Placing will be required to undertake not to apply for any of the Public Offer Shares under the Public Offer.

The Placing is subject to the conditions as stated in the paragraph headed “Conditions of the Offer” above.

Public Offer

The Company is initially offering 12,750,000 new Shares, representing 10% of the Offer Shares, for subscription by the public in Hong Kong, subject to re-allocation as mentioned in the paragraph headed “Re-allocation of Offer Shares between the Placing and the Public Offer” below. The Public Offer is open to all members of the public in Hong Kong. An applicant for Public Offer Shares will be required to give an undertaking and confirmation in the application form submitted by him that he has not taken up any Shares under the Placing, indicated an interest in or otherwise participated in the Placing. Applicants should note that if such undertaking and/or confirmation given by the applicant is breached and/or is untrue (as the case may be), such applicant’s application under the Public Offer is liable to be rejected.

The attention of applicants, including nominees who wish to submit separate applications on behalf of their respective beneficial owners, is drawn to the information regarding multiple applications contained in the section headed “How to apply for the Public Offer Shares” in this prospectus. There will initially be a total of 12,750,000 Public Offer Shares to be offered for

– 129 – STRUCTURE OF THE OFFER subscription under the Public Offer. 1,275,000 Public Offer Shares (representing 10% of the Public Offer Shares initially being offered under the Public Offer) will be available for application by eligible full-time employees of the Company or its subsidiaries under the PINK application forms as mentioned in the paragraph headed “Preference to employees” below. Subject to the number of Shares validly applied for under preferential applications by eligible full-time employees of the Company and its subsidiaries, there will be no less than 11,475,000 Public Offer Shares (representing 90% of the Public Offer Shares initially being offered for subscription under the Public Offer) initially available for public subscription.

The Lead Manager (for itself and on behalf of the Underwriters) will take reasonable steps to identify and reject applications under the Public Offer from investors who have been allotted Placing Shares under the Placing, and to identify and reject applications for the Placing Shares from investors who have been allotted Public Offer Shares under the Public Offer.

Allocation of Public Offer Shares to investors under the Public Offer will be based solely on the level of valid applications received. The basis of allocation may vary, depending on the number of Public Offer Shares validly applied for by each applicant, but will otherwise be made on a strictly pro-rata basis. However, this may involve balloting, which would mean that some applicants may be allotted more Public Offer Shares than others who have applied for the same number of Public Offer Shares and that applicants who are not successful in the ballot may not receive any Public Offer Shares.

The Public Offer is subject to the conditions stated in the paragraph headed “Conditions of the Offer” above.

PREFERENCE TO EMPLOYEES

Up to 1,275,000 Public Offer Shares, being 10% of the Public Offer Shares initially being offered under the Public Offer, are available for subscription by eligible full-time employees of the Company or its subsidiaries (other than the directors and chief executive of the Company or any of its subsidiaries, existing beneficial owners of Shares, or their respective associates) on a preferential basis under the Public Offer. These Public Offer Shares will be allocated to eligible applicants on an equitable basis pursuant to the written guidelines sent to each full-time employee according to the number of Shares validly subscribed for by eligible full-time employees who have applied for such Shares in accordance with the terms set out under the section headed “How to apply for the Public Offer Shares” in this prospectus. Each eligible applicant will be allotted at least 5,000 Shares in the first allotment. For the balance, the allocation will be made on a pro-rata basis in proportion to the number of Shares being applied for. The above allocation will not be based on seniority or length of services of the full-time employees. Any application for more than 100% of the Public Offer Shares being offered to eligible full-time employees of the Company or its subsidiaries will be rejected.

– 130 – STRUCTURE OF THE OFFER

RE-ALLOCATION OF OFFER SHARES BETWEEN THE PLACING AND THE PUBLIC OFFER

The allocation of Offer Shares between the Placing and the Public Offer is subject to adjustment on the following basis:

(a) if the number of Public Offer Shares validly applied for under the Public Offer represents 15 times or more but less than 50 times the number of Public Offer Shares initially available for subscription under the Public Offer, then the Offer Shares will be re-allocated from the Placing to the Public Offer so that the total number of Offer Shares available under the Public Offer will be increased to 38,250,000 Shares, representing 30% of the Offer Shares;

(b) if the number of Public Offer Shares validly applied for under the Public Offer represents 50 times or more but less than 100 times the number of Public Offer Shares initially available for subscription under the Public Offer, then the Offer Shares will be re-allocated from the Placing to the Public Offer so that the total number of Offer Shares available under the Public Offer will be increased to 51,000,000 Shares, representing 40% of the Offer Shares; and

(c) if the number of Public Offer Shares validly applied for under the Public Offer represents 100 times the number of Public Offer Shares initially available for subscription under the Public Offer or more, then the Offer Shares will be re-allocated from the Placing to the Public Offer so that the total number of Offer Shares available under the Public Offer will be increased to 63,750,000 Shares, representing 50% of the Offer Shares.

If either the Public Offer or the Placing is not fully subscribed, the Lead Manager may, with the prior consent of the Placing Underwriters/Public Offer Underwriters, re-allocate all or any of the unsubscribed Public Offer Shares/Placing Shares originally included in the Public Offer/Placing to the Placing/Public Offer in such amounts and manner as it may agree with such Placing Underwriters/Public Offer Underwriters. Details of re-allocation of Offer Shares between the Placing and the Public Offer, if any, will be disclosed in the allotment results announcement, which is expected to be made on Friday, 29th October, 2004.

– 131 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

WHICH APPLICATION FORM TO USE

Use a WHITE application form if you want the Public Offer Shares to be issued in your own name.

Use a YELLOW application form if you want the Public Offer Shares to be issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant.

Use a PINK application form if you are a full-time employee of the Company or its subsidiaries and want your application to be given preferential consideration. Up to 1,275,000 Public Offer Shares (being 10% of the Public Offer Shares initially available for subscription under the Public Offer) are available to full-time employees of the Company or its subsidiaries on this basis.

Note: The Public Offer Shares are not available to the directors and chief executive of the Company or any of its subsidiaries, existing beneficial owners of Shares, or their respective associates.

WHERE TO COLLECT THE APPLICATION FORMS

(a) You can collect a WHITE application form and a prospectus from:

Any participant of the Stock Exchange

or

MasterLink Securities (Hong Kong) Partners Capital International Limited Corporation Limited Room 1305, 13th Floor Unit 2603, 26th Floor 9 Queen’s Road The Center Central 99 Queen’s Road Central Hong Kong Hong Kong

G.K. Goh Securities (H.K.) Limited Core Pacific-Yamaichi International Suite 1808, Alexandra House (H.K.) Limited 16-20 Chater Road, Central 36th Floor, Cosco Tower Hong Kong Grand Millennium Plaza 183 Queen’s Road Central, Hong Kong

UOB Kay Hian (Hong Kong) Limited CAF Securities Company Limited 15th Floor, Aon China Building 13th Floor, Fairmont House 29 Queen’s Road Central 8 Cotton Tree Drive Hong Kong Central, Hong Kong

Hantec International Finance Group Limited YF Securities Company Limited 45th Floor, Cosco Tower 11th Floor, CMA Building 183 Queen’s Road Central 64-66 Connaught Road Central Hong Kong Hong Kong

– 132 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES or any of the following branches of Bank of China (Hong Kong) Limited:

District Branch Address

Hong Kong Island Bank of China Tower Branch 3rd Floor, 1 Garden Road, Central

Central District 71 Des Voeux Road Central (Wing On House) Branch

409 Hennessy Road Branch 409-415 Hennessy Road, Wan Chai

North Point Branch G/F., Roca Centre, 464 King’s Road, North Point

Taikoo Shing Branch Shop G1012, Yiu Sing Mansion, Taikoo Shing

Kowloon Mong Kok (President 608 Nathan Road, Mong Kok Commercial Centre) Branch

Tsim Sha Tsui East Branch Shop G02-03, Inter-Continental Plaza, 94 Granville Road, TST

Kowloon Plaza Branch Unit 1, Kowloon Plaza, 485 Castle Peak Road

Hoi Yuen Road Branch 55 Hoi Yuen Road, Kwun Tong

New Territories Castle Peak Road 201-207 Castle Peak Road, Tsuen Wan (Tsuen Wan) Branch

Lek Yuen Branch No. 1, Fook Hoi House, Lek Yuen Estate, Shatin

Ma On Shan Centre Branch Shop A2, G/F Ma On Shan Centre, Sai Sha Road, Ma On Shan

(b) You can collect a YELLOW application form and a prospectus from:

1. the Depository Counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong; or

2. the Customer Service Centre of HKSCC at Upper Ground Floor, V-Heun Building, 128-140 Queen’s Road Central, Hong Kong; or

your stockbroker may have application forms available.

– 133 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

(c) You can collect a PINK application form from the company secretary of the Company, Mr. Wan Tak Wing, Gary at:

11th Floor, Block E1 Hoi Bun Industrial Building No. 6, Wing Yip Street Kwun Tong Kowloon, Hong Kong

HOW TO COMPLETE THE APPLICATION FORMS

There are detailed instructions on each application form. You should read those instructions carefully. If you do not follow the instructions, your application may be rejected.

If your application is made by a person duly authorised under a power of attorney, the Company and the Lead Manager (for itself and on behalf of the Public Offer Underwriters) or their respective agents or nominees as the Company’s agent may accept the application at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney.

HOW MANY APPLICATIONS MAY YOU MAKE

There are only two situations where you may make more than one application for Public Offer Shares:

1. If you are a nominee, you may lodge more than one application in your own name on behalf of different owners. In the box on the application form marked “For nominees”, you must include:

– an account number; or

– some other identification code

for each beneficial owner, or in the case of joint beneficial owners, for each such joint beneficial owner. If you do not include this information, the application will be treated as being for your benefit.

2. If you are an eligible full-time employee of the Company or any of its subsidiaries and apply on a PINK application form, you may also apply on a WHITE or YELLOW application form.

Otherwise, multiple applications are not allowed and will be rejected.

All of your applications may be rejected as multiple applications if you, or you and your joint applicants together:

– make more than one application on a WHITE or YELLOW application form;

– make more than one application on a PINK application form;

– apply on one WHITE or YELLOW application form for more than 100% of the Public Offer Shares initially available under the Public Offer as more particularly described in the paragraph headed “Offer Mechanism – Basis of allocation of the Offer Shares” under the section headed “Structure of the Offer” in this prospectus; or

– 134 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

– apply on one PINK application form for more than 100% of the Public Offer Shares being offered to eligible full-time employees of the Company or any of its subsidiaries on a preferential basis.

All of your applications will also be rejected as multiple applications if more than one application is made for your benefit. If an application is made by an unlisted company and

– the only business of that company is dealing in securities; and

– you exercise statutory control over that company then that application will be deemed to be made for your benefit.

Unlisted company means a company with no equity securities listed on the Stock Exchange.

Statutory control means you:

– control the composition of the board of directors of that company; or

– control more than half of the voting power of that company; or

– hold more than half of the issued share capital of that company (not counting any part of it which carries no right to participate beyond a specified amount in a distribution of either profits or capital).

HOW MUCH ARE THE PUBLIC OFFER SHARES

The maximum Offer Price of the Public Offer Shares is HK$0.81 each. You must also pay brokerage of 1%, SFC transaction levy of 0.005%, SFC investor compensation levy of 0.002% and Stock Exchange trading fee of 0.005%. The proposed board lot for trading in the Shares is 5,000 Shares. This means that for every 5,000 Public Offer Shares you will pay HK$4,090.98. The application forms have tables showing the exact amount payable for certain multiples of Public Offer Shares.

You must pay the maximum Offer Price, brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee in full when you apply for the Public Offer Shares.

If your application is successful, the brokerage is paid to participants of the Stock Exchange, the transaction levy and the investor compensation levy are paid to the SFC and the trading fee is paid to the Stock Exchange.

If the Offer Price as finally determined is less than HK$0.81 per Public Offer Share, appropriate refund payments (including brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee attributable to the surplus application monies) will be made to successful applicants, without interest. Details of the procedure for refund are set out in the paragraph headed “Collection/posting of share certificates/refund cheques and deposit of share certificates into CCASS” in this section.

– 135 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

FULL-TIME EMPLOYEES – TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

Completed PINK application forms, with payment attached, must be returned to the company secretary of the Company, Mr. Wan Tak Wing, Gary, by 12:00 noon on Saturday, 23rd October, 2004.

MEMBERS OF THE PUBLIC – TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

Completed WHITE or YELLOW application forms, with payment attached, must be lodged by 12:00 noon on Monday, 25th October, 2004 or, if the application lists are not open on that day, then by 12:00 noon on the next day the lists are open.

Your completed application form, with payment attached, should be deposited in the special collection boxes provided at any of the branches of Bank of China (Hong Kong) Limited listed under the paragraph headed “Where to collect the application forms” in this section at the following times:

Tuesday, 19th October, 2004 – 9:00 a.m. to 4:00 p.m. Wednesday, 20th October, 2004 – 9:00 a.m. to 4:00 p.m. Thursday, 21st October, 2004 – 9:00 a.m. to 4:00 p.m. Saturday, 23rd October, 2004 – 9:00 a.m. to 12:00 noon Monday, 25th October, 2004 – 9:00 a.m. to 12:00 noon

The application lists will open from 11:45 a.m. to 12:00 noon on Monday, 25th October, 2004.

EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS

The application lists will not be open if there is:

– a tropical cyclone warning signal number 8 or above, or

– a “black” rainstorm warning signal in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Monday, 25th October, 2004. Instead they will be open between 11:45 a.m. and 12:00 noon on the next business day which does not have either of those warnings in force at any time between 9:00 a.m. and 12:00 noon.

Business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.

– 136 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED PUBLIC OFFER SHARES

Full details of the circumstances in which you will not be allocated Public Offer Shares are set out in the notes attached to the application forms, and you should read them carefully. You should note in particular the following two situations in which Public Offer Shares will not be allocated to you:

– If your application is revoked:

By completing and submitting an application form, you agree that you may not revoke your application before the expiration of the fifth day after the time of the opening of the application lists (excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong) unless a person responsible for this prospectus under section 40 of the Companies Ordinance (as applied by section 342E of the Companies Ordinance) gives a public notice under that section which excludes or limits the responsibility of that person for this prospectus.

If your application has been accepted, it cannot be revoked. For this purpose, acceptance of applications which are not rejected will be constituted by notification in the announcement of the results of allocation, and where such basis of allocation is subject to certain conditions or provides for allocation by ballot, such acceptance will be subject to the satisfaction of such conditions or results of the ballot (as the case may be).

– If the allotment of Public Offer Shares is void:

Your allotment of Public Offer Shares will be void if the Listing Committee of the Stock Exchange does not grant the listing of, and permission to deal in, the Shares either:

– within three weeks from the date of the closing of the application lists; or

– within a longer period of up to six weeks if the Listing Committee of the Stock Exchange notifies the Company of that longer period within three weeks of the closing date of the application lists.

COLLECTION/POSTING OF SHARE CERTIFICATES/REFUND CHEQUES AND DEPOSIT OF SHARE CERTIFICATES INTO CCASS

WHITE application forms:

If you have applied for 500,000 Public Offer Shares or more and have indicated in your application form that you will collect your share certificate(s) and/or refund cheque(s) in person, you may collect it/them from:

Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor Hopewell Centre 183 Queen’s Road East Hong Kong. between 9:00 a.m. and 1:00 p.m. on the date notified by the Company in the newspapers as the date of despatch of share certificates. The date of despatch is expected to be on Friday, 29th October, 2004.

– 137 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

Applicants being individuals who opt for personal collection cannot authorise any other person to make collection on their behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing authorisation letters from their corporations stamped with the corporations’ chops. Both individuals and authorised representatives of corporations (where applicable) must produce, at the time of collection, evidence of identity acceptable to Computershare Hong Kong Investor Services Limited.

If you do not collect your share certificate(s) and/or refund cheque(s) (if any) personally within the specified time, it/they will be sent to the address on your application form shortly after the time specified for personal collection, by ordinary post and at your own risk.

If you have applied for less than 500,000 Public Offer Shares, or if you have applied for 500,000 Public Offer Shares or more but have not indicated in your application form that you will collect your share certificate(s) and/or refund cheque(s) personally, your share certificate(s) and/or refund cheque(s) (if any) will be sent to the address on your application form on the date of despatch, by ordinary post and at your own risk.

YELLOW application forms:

Your share certificate(s) will be issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant as instructed by you at the close of business on Friday, 29th October, 2004, or under contingent situation, on any other date as shall be determined by HKSCC or HKSCC Nominees Limited.

If you are applying through a designated CCASS participant (other than a CCASS investor participant):

– for Public Offer Shares credited to the stock account of your designated CCASS participant (other than a CCASS investor participant), you can check the number of Public Offer Shares allotted to you with that CCASS participant.

If you are applying as a CCASS investor participant:

– the Company will publish the results of CCASS investor participants’ applications together with the results of the Public Offer in the newspapers on Friday, 29th October, 2004. You should check the announcement published by the Company and report any discrepancies to HKSCC before 5:00 p.m. on Friday, 29th October, 2004 or such other date as shall be determined by HKSCC or HKSCC Nominees Limited. Immediately after the credit of the Public Offer Shares to your stock account, you can check your new account balance via the CCASS Phone System or CCASS Internet System (under the procedures contained in HKSCC’s “An Operating Guide for Investor Participants” in effect from time to time). HKSCC will also make available to you an activity statement showing the number of Public Offer Shares credited to your stock account.

If you have indicated on your application form that you will collect your refund cheque(s) in person, please follow the instructions set out under the paragraph headed “WHITE application forms” above.

– 138 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

If you have applied for 500,000 Public Offer Shares or more and have not indicated on your application form that you will collect your refund cheque(s) in person, or if you have applied for less than 500,000 Public Offer Shares, then your refund cheque(s) (if any) will be sent to the address on your application form by ordinary post and at your own risk on Friday, 29th October, 2004.

PINK application forms:

The share certificate(s) and refund cheque(s) (if any) will be sent to the address on your application form shortly after the date of despatch (which is expected to be on or before Friday, 29th October, 2004), by ordinary post and at your own risk.

No receipt will be issued for application monies paid. The Company will not issue temporary documents of title or evidence of title.

Refund of your application money

If you do not receive any Public Offer Shares for any of, but not limited to, the reasons set out in the above paragraph headed “Circumstances in which you will not be allocated Public Offer Shares”, the Company will refund your application money together with brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee to you without interest. If your application is accepted only in part, the Company will refund the appropriate portion of your application money, brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee to you, without interest. In the event that the final Offer Price is less than the price per Public Offer Shares initially paid by you on application, the Company will refund the surplus application money together with the brokerage, SFC transaction levy, SFC investor compensation levy and the Stock Exchange trading fee to you, without interest. All such interest accrued prior to the date of despatch of refund cheques will be retained for the benefit of the Company.

All refunds will be made by cheque(s) crossed “Account Payee Only”, made out to you, or, if you are joint applicants, to the first-named applicant on your application form. Part of your Hong Kong Identity Card number/passport number, or, if you are joint applicants, part of the Hong Kong Identity Card number/passport number of the first-named applicant, provided by you may be printed on your refund cheque(s), if any. Such data would also be transferred to a third party for refund purpose. Your banker may require verification of your Hong Kong Identity Card number/ passport number before encashment of your refund cheque(s). Inaccurate completion of your Hong Kong Identity Card number/passport number in the application form may lead to delay in encashment of or may invalidate your refund cheque(s).

Share certificates for the Offer Shares will only become valid certificates of title provided that (i) the Offer has become unconditional in all respects; and (ii) the Underwriting Agreement has not been terminated in accordance with its terms, which is expected to be at 5:00 p.m. on Sunday, 31st October, 2004, as further described in the section headed “Underwriting” in this prospectus.

COMMENCEMENT OF DEALINGS IN THE SHARES

Dealings in the Shares on the Stock Exchange are expected to commence on Monday, 1st November, 2004.

Shares will be traded in board lots of 5,000 Shares each.

– 139 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

If the Stock Exchange grants the listing of and permission to deal in the Shares in issue and to be issued as mentioned in this prospectus on the Stock Exchange, and the Company complies with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on the Stock Exchange or any other date HKSCC chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time.

All necessary arrangements have been made for the Shares to be admitted into CCASS.

– 140 – APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the purpose of incorporating in this prospectus, received from the auditors and reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

CCIF CPA Limited 37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong

19th October, 2004

The Directors IPE Group Limited MasterLink Securities (Hong Kong) Corporation Limited Partners Capital International Limited

Dear Sirs,

We set out below our report on the financial information relating to IPE Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for the three years ended 31st December, 2003 and the six months ended 30th June, 2004 (the “Relevant Period”) for inclusion in the prospectus of the Company dated 19th October, 2004 (the “Prospectus”).

The Company was incorporated in the Cayman Islands on 10th July, 2002 as an exempted company with limited liability under the Companies Law (Revised) of the Cayman Islands. The Company has not carried on any business since its incorporation, except that on 25th June, 2004, it acquired the entire issued share capital of Best Device Group Limited through a share exchange and consequently became the holding company of the Group. Best Device Group Limited acts as an intermediate holding company of the other companies now comprising the Group.

As at the date of this report, no audited financial statements have been prepared for the Company, Best Device Group Limited, Cyber Starpower Limited, Anglo Dynamic Limited, Tai Situpa Group Limited, Lewiston Group Limited, Integrated Precision Engineering (Japan) Company Limited, I.P.E. Europe S.p.A. and IPE Macao Commercial Offshore Limited for the Relevant Period or since their respective dates of incorporation where there was a shorter period as these companies were not subject to any statutory audit requirement in their jurisdictions of incorporation or acquisitions and it is not a requirement for IPE Macao Commercial Offshore Limited to be audited as it is a company newly incorporated on 22nd April, 2004. We have, however, reviewed all relevant transactions of these companies for the period covered by this report, and carried out such procedures as we considered necessary for inclusion of the financial information relating to these companies in this report.

– 141 – APPENDIX I ACCOUNTANTS’ REPORT

We have acted as auditors of the other companies comprising the Group for each of the Relevant Period covered by this report or their respective dates of incorporation where there was a shorter period, except for as set out below:

Name Financial period Auditors

Integrated Precision Engineering Years ended 31st December, 2001, 2002 and Thai Audit Limited, (Thailand) Company Limited 2003 and six months ended 30th June, 2004 Certified Public Accountants

Integrated Precision Engineering Year ended 31st December, 2001 Deloitte & Touche, Pte. Limited Certified Public Accountants

Years ended 31st December, 2002 and 2003 Winston Loong & Co., and six months ended 30th June, 2004 Certified Public Accountants

東莞科達五金製品有限公司 Year ended 31st December, 2002 Shenzhen Fa Wei, (“Dongguan Koda Metal Products Certified Public Accountants Company Limited”)

Year ended 31st December, 2003 Guangdong Kaowick, and six months ended 30th June, 2004 Certified Public Accountants

廣州市新豪精密五金製品 Period ended 31st December, 2002 Level Water, 有限公司 Certified Public Accountants

Year ended 31st December, 2003 Guangzhou Zengxin Certified and six months ended 30th June, 2004 Public Accountants Company Limited Certified Public Accountants

For the purpose of this report, we have undertaken an independent audit of the financial statements, prepared in accordance with accounting principles generally accepted in Hong Kong, of Integrated Precision Engineering (Thailand) Company Limited (“IPE Thailand”) for the Relevant Period and Dongguan Koda Metal Products Company Limited (“Dongguan Koda”) for the five months ended 31st December, 2002, the year ended 31st December, 2003 and the six months ended 30th June, 2004 and 廣州市新豪精密五金製品有限公司(“Xing Hao”) for the period from 19th June, 2002 (date of incorporation) to 31st December, 2002, the year ended 31st December, 2003 and the six months ended 30th June, 2004 in accordance with auditing standards issued by the Hong Kong Institute of Certified Public Accountants, for incorporation of the financial statements of these companies into the combined financial statements of the Group.

We have examined the audited financial statements or, where appropriate, the unaudited management accounts of the companies now comprising the Group for the Relevant Period or since their respective dates of incorporation, where there was a shorter period, and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.

The financial information as set out in this report have been prepared from the audited financial statements or, where appropriate, management accounts of the companies now comprising the Group on the basis set out in Note 1 to the combined financial statements below, after making such adjustments as appropriate.

The directors of the respective companies now comprising the Group are responsible for the preparation of the financial statements of the respective companies which give a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are

– 142 – APPENDIX I ACCOUNTANTS’ REPORT selected and applied consistently. The directors of the Company are also responsible for the combined financial statements of the Group as at and for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004. It is our responsibility to form an independent opinion on the combined financial statements of the Group.

In our opinion, the combined financial statements together with the notes thereon give, for the purpose of this report, a true and fair view of the combined profit and cash flows of the Group for the Relevant Period, and of the combined financial position of the Group as at 31st December, 2001, 2002, 2003 and 30th June, 2004.

I. COMBINED FINANCIAL STATEMENTS

The followings are combined financial statements of the Group for the Relevant Period prepared on the basis set out in Note 1 to the combined financial statements below:

Combined income statements

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 Notes HK$’000 HK$’000 HK$’000 HK$’000

Turnover 4 194,831 184,201 208,255 131,440 Cost of sales (132,907) (106,091) (121,898) (85,698)

Gross profit 61,924 78,110 86,357 45,742

Other revenue 4 18,040 5,347 3,631 2,647

Distribution and selling expenses (10,122) (7,436) (7,688) (3,623)

General and administrative expenses (30,102) (21,071) (30,868) (18,169)

Other operating expenses 5 (2,009) (1,660) (1,010) (377)

Profit from operations 6 37,731 53,290 50,422 26,220 Amortisation of negative goodwill – 620 1,487 744 Impairment loss on goodwill – (1,301) – – Finance costs 7 (4,753) (3,150) (3,942) (2,122)

Profit before tax 32,978 49,459 47,967 24,842

Taxation 10 (4,506) (5,378) (5,397) (1,995)

Profit before minority interests 28,472 44,081 42,570 22,847

Minority interests – (116) (167) 1

Profit attributable to shareholders 28,472 43,965 42,403 22,848

Dividend 11 – 24,559 5,010 6,050

Basic earnings per share 12 7.6 cents 11.8 cents 11.4 cents 6.1 cents

– 143 – APPENDIX I ACCOUNTANTS’ REPORT

Combined statement of movements in equity Statutory Statutory public Exchange Share Share surplus welfare Merger fluctuation Retained premium capital reserve fund reserve reserve profits Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 – 8,605 – – (853) (1,389) 60,813 67,176 Issue of share capital –8–––––8 Reverse of merger difference ––––853––853 Merger difference ––––237––237 Movement in exchange fluctuation reserve –––––(3,255) – (3,255) Profit attributable to shareholders ––––––28,472 28,472 At 31st December, 2001 – 8,613 – – 237 (4,644) 89,285 93,491 At 1st January, 2002 – 8,613 – – 237 (4,644) 89,285 93,491 Issue of share capital – 39 –––––39 Decrease in share capital (Note i) – (8,613) –––––(8,613) Merger difference (Note i) ––––8,605 – – 8,605 Movement in exchange fluctuation reserve –––––1,005 – 1,005 Profit attributable to shareholders ––––––43,965 43,965 Transfer from retained profits – – 574 287 – – (861) – Dividend ––––––(24,559) (24,559) At 31st December, 2002 (Note ii) – 39 574 287 8,842 (3,639) 107,830 113,933 At 1st January, 2003 – 39 574 287 8,842 (3,639) 107,830 113,933 Movement in exchange fluctuation reserve –––––4,558 – 4,558 Profit attributable to shareholders ––––––42,403 42,403 Transfer from retained profits – – 1,772 – – – (1,772) – At 31st December, 2003 (Note ii) – 39 2,346 287 8,842 919 148,461 160,894 At 1st January, 2004 – 39 2,346 287 8,842 919 148,461 160,894 Issue of share capital 16,996 9,961 –––––26,957 Merger difference (Note iii) ––––(9,958) – – (9,958) Movement in exchange fluctuation reserve –––––(1,590) – (1,590) Profit attributable to shareholders ––––––22,848 22,848 Dividend ––––––(5,010) (5,010) At 30th June, 2004 (Note ii) 16,996 10,000 2,346 287 (1,116) (671) 166,299 194,141

Notes: (i) During the year ended 31st December, 2002, Anglo Dynamic Limited acquired IPE Singapore, Tai Situpa Group Limited acquired IPE Hong Kong, and Best Device Group Limited acquired Cyber Starpower Limited, Anglo Dynamic Limited and Tai Situpa Group Limited through share exchange. For the purpose of preparing the combined balance sheet of the Group as of 31st December, 2002, the investment costs recognised by Best Device Group Limited, Anglo Dynamic Limited and Tai Situpa Group Limited have been eliminated against the share capital of Cyber Starpower Limited, IPE Singapore and IPE Hong Kong respectively. Consequently, the total combined share capital of the Group decreased accordingly. The differences between the investment costs and share capital have been credited to the merger reserve. (ii) The share capital of HK$39,000 represents the issued share capital of Best Device Group Limited. The share capital of HK$10,000,000 represents the issued share capital of the Company. (iii) During the six months ended 30th June, 2004, the Company acquired the entire issued 5,528 shares of US$1 each in Best Device by allotment of 99,999,999 shares of HK$0.1 each. The difference between the nominal value of the share capital of Best Device and the Company has been debited to the merger reserve.

– 144 – APPENDIX I ACCOUNTANTS’ REPORT

Combined balance sheets As at As at 31st December, 30th June, 2001 2002 2003 2004 Notes HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Intangible assets 13 – (28,300) (26,813) (26,069) Fixed assets 14 85,298 180,595 235,309 315,059 Club debentures 297 297 607 607 Investment securities 15 165 – – – Deferred tax assets 30(a) – 680 878 1,207 85,760 153,272 209,981 290,804 CURRENT ASSETS Inventories 16 10,370 28,010 30,328 43,220 Due from directors 17 18,206 350 – – Due from related companies 18 54,046 406 – – Value added tax recoverable – – 2,213 1,771 Trade receivables 19 46,398 39,923 63,375 64,591 Prepayments, deposits and other receivables 18,554 7,903 13,609 16,121 Bills receivable – – – 189 Cash and bank balances 20 49,727 32,160 15,832 28,142 197,301 108,752 125,357 154,034 CURRENT LIABILITIES Trade payables 21 (20,869) (18,898) (24,678) (38,677) Other payables and accruals (20,500) (13,473) (30,398) (23,411) Due to directors 22 (5,677) (26,679) (383) – Due to related companies 23 (60,293) (3,736) – – Due to minority shareholders – (954) – – Tax payable 24 (8,194) (10,164) (2,863) (2,762) Short-term borrowings 25 (21,083) (18,828) (37,705) (68,114) Current portion of obligations under finance leases 26 (16,852) (9,356) (6,329) (5,051) Current portion of long-term borrowings 27 (11,656) (5,674) (15,099) (13,012) (165,124) (107,762) (117,455) (151,027) NET CURRENT ASSETS 32,177 990 7,902 3,007 TOTAL ASSETS LESS CURRENT LIABILITIES 117,937 154,262 217,883 293,811 NON-CURRENT LIABILITIES Long-term portion of obligations under finance leases 26 (6,123) (6,660) (209) (5,721) Long-term borrowings 27 (16,083) (33,219) (27,758) (24,951) Due to a director 28 – – (17,000) – Other payable 29 – – (9,434) (65,889) Deferred tax liabilities 30(a) (2,240) (828) (2,570) (3,092) (24,446) (40,707) (56,971) (99,653) MINORITY INTERESTS – 378 (18) (17) NET ASSETS 93,491 113,933 160,894 194,141

Represented by: Paid-in capital 31 8,613 39 39 10,000 Reserves 32 84,878 113,894 160,855 184,141 Combined shareholders’ equity 93,491 113,933 160,894 194,141

– 145 – APPENDIX I ACCOUNTANTS’ REPORT

Combined cash flow statements Six months ended Year ended 31st December. 30th June, 2001 2002 2003 2004 Notes HK$’000 HK$’000 HK$’000 HK$’000 CASH GENERATED FROM OPERATIONS (33a) 31,845 25,382 27,949 35,363

Interest received 983 248 117 22 Interest paid (1,501) (2,039) (3,418) (1,855) Interest element of finance lease rental payments (3,252) (1,111) (524) (267) Income tax paid – Hong Kong (2,965) (4,787) (3,473) (543) – Mainland China – – (3,463) (672) – Thailand (178) (159) (320) (399) – Japan– – (39) – – Singapore (2,580) (2,703) (4,098) (359) Dividend received – 4 – –

Net cash generated from operating activities 22,352 14,835 12,731 31,290

INVESTING ACTIVITIES Purchase of fixed assets (23,626) (39,595) (39,124) (25,220) Acquisition of club debentures – – (310) – Acquisition of subsidiaries, net of cash acquired (33b) – 423 – – Disposal of a subsidiary, net of cash disposed (33c) – – (1,227) – (Increase)/decrease in pledged deposits with banks (9,857) 5,495 6,393 (2,505) Interest capitalised (81) (329) – – Proceeds from disposal of investment securities – 151 – – Proceeds from disposal of fixed assets 21,989 12,263 309 –

Net cash used in investing activities (11,575) (21,592) (33,959) (27,725)

FINANCING ACTIVITIES Increase in share capital 8 32 – – Proceeds from bank and other loans 27,704 46,590 67,092 73,088 Repayment of bank loans (17,000) (35,841) (52,314) (47,694) Capital element of finance lease rental payments (12,248) (24,518) (9,512) (5,667) Dividend paid – – – (5,010)

Net cash generated from/(used in) financing activities (1,536) (13,737) 5,266 14,717

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 9,241 (20,494) (15,962) 18,282 Cash and cash equivalents at beginning of year/period 11,947 21,936 1,520 (14,374) Effect of foreign exchange changes, net 748 78 68 111

CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD (33d) 21,936 1,520 (14,374) 4,019

– 146 – APPENDIX I ACCOUNTANTS’ REPORT

II. NOTES TO THE COMBINED FINANCIAL STATEMENTS

1. Basis of presentation

As at the date of this report, the Company has direct or indirect interests in the following subsidiaries (all these companies being private limited companies or, if incorporated outside Hong Kong, have substantially the same characteristics as a Hong Kong private limited company):

Issued and Percentage of equity Place and date fully paid interest attributable Name of incorporation share capital to the Group Principal activities Direct Indirect

Best Device Group Limited British Virgin Islands USD5,528 100% – Investment holding 12th February, 2002

Cyber Starpower Limited British Virgin Islands US$1,000 – 100% Investment holding 3rd January, 2001

Anglo Dynamic Limited British Virgin Islands US$2,000 – 100% Investment holding 22nd August, 2001

Tai Situpa Group Limited British Virgin Islands US$2,000 – 100% Investment holding 18th November, 1997

Lewiston Group Limited British Virgin Islands US$1,000 – 100% Investment holding 22nd August, 2001

Integrated Precision Thailand THB150,000,000 – 99.99% Trading and Engineering (Thailand) 18th September, 1997 manufacturing of Company Limited precision metal components

Integrated Precision Singapore S$1,200,000 – 100% Dormant Engineering Pte. Limited 6th December, 1990 (“IPE Singapore”)

Integrated Precision Hong Kong HK$3,000,000 – 100% Trading of precision Engineering Company 13th September, 1994 metal components Limited

Integrated Precision Japan ¥3,000,000 – 90% Trading of precision Engineering (Japan) 24th January, 2000 metal components Company Limited

IPE Macao Commercial Macau MOP100,000 – 100% Trading of precision Offshore Limited 22nd April, 2004 metal components

東莞科達五金製品 Mainland China HK$121,109,869 – 100% Manufacturing of 有限公司 6th September, 1994 Note (i) precision metal (Dongguan Koda Metal components Products Company Limited)

廣州市新豪精密五金 Mainland China HK$56,950,113 – 100% Manufacturing of 製品有限公司 19th June, 2002 Note (ii) precision metal (“Xing Hao”) components

Notes:

(i) The registered capital of Dongguan Koda Metal Products Company Limited was HK$133,000,000. The remaining capital contribution of HK$11,890,131 should be contributed before 15th February, 2007.

(ii) The registered capital of Xing Hao was HK$140,000,000. The remaining capital contribution of HK$7,500,000, HK$33,049,887 and HK$42,500,000 should be contributed before 9th December, 2004, 24th February, 2006 and 9th September, 2006 respectively.

– 147 – APPENDIX I ACCOUNTANTS’ REPORT

The combined income statements and cash flow statements for the Relevant Period include the results of operations and cash flows of the companies now comprising the Group as if the current structure of the Group had been in existence throughout the Relevant Period covered by this report or since their respective dates of incorporation where there was a shorter period, or since the respective dates of acquisitions by the Group.

The combined balance sheets of the Group as at 31st December, 2001, 2002, 2003 and 30th June, 2004 have been prepared to present the financial position of the companies now comprising the Group as at the respective dates as if the current structure of the Group had been in existence as at 1st January, 2001, or their respective dates of incorporation where they were incorporated after 1st January, 2001, or since the respective dates of acquisitions by the Group.

On 19th June, 2002, Xing Hao a wholly owned subsidiary of the Group was incorporated in Mainland China. The Group acquired of I.P.E. Europe S.p.A. (“IPE Europe”), Integrated Precision Engineering (Japan) Company Limited (“IPE Japan”) and Dongguan Koda on 28th November, 2002, 6th November, 2002 and 1st August, 2002 respectively have been accounted for under acquisition accounting. On 1st November, 2003, the Group had disposed of the entire interest in IPE Europe. The results of operations and financial position of Xing Hao, Dongguan Koda, IPE Europe and IPE Japan have been reflected in the combined financial statements since their dates of incorporation or acquisitions to 30th June, 2004 or up to the date of disposal.

Significant transactions and balances between companies comprising the Group have been eliminated on combination.

2. Principal accounting policies

The principal accounting policies adopted by the Group in arriving at the financial information set out in this report, which conform with Statements of Standard Accounting Practice issued by the Hong Kong Institute of Certified Public Accountants and accounting principles generally accepted in Hong Kong, are as follows:

(a) Basis of measurement

The financial statements have been prepared on the historical cost basis.

(b) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following basis:

(i) sales of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to customers;

(ii) service income is recognised as services are rendered;

(iii) interest income, on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable; and

(iv) operating lease rental income is recognised on a straight-line basis over the periods of the respective leases.

(c) Subsidiaries

A subsidiary is an entity in which the Group controls the composition of the board of directors, controls more than half of the voting power or holds more than half of the issued share capital or has power to govern the financial and operating policies.

(d) Investment in securities

Security is a bond or share or other negotiable instrument evidencing debts or ownership which is distinguished between equity and debt securities, is classified as held-to-maturity securities, investment securities and other investments.

– 148 – APPENDIX I ACCOUNTANTS’ REPORT

Investments in other than held-to-maturity debt securities are accounted for using the benchmark treatment. Investments in other than held-to-maturity debt securities and long-term investment securities are accounted for as other investments and are stated at fair values with unrealised gains or losses included in the income statement.

Gain or loss on disposal of investment in securities, representing the difference between the net sale proceeds and the carrying amount of the securities, is recognised in the income statement in the period in which the disposal occurs.

(e) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and impairment losses.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life on the following basis:

Freehold land Nil Leasehold land Over the remaining lease period Buildings Over shorter of the remaining lease period and 50 years Leasehold improvements Over shorter of the remaining period of lease and 3 to 5 years Plant and machinery 10% per annum Furniture, fixtures and equipment 20% per annum Motor vehicles 20% per annum

During the year ended 31st December, 2001, the Group depreciated plant and machinery at 10% to 30% per annum.

During the year ended 31st December, 2002, the Group engaged a professional valuer to perform an independent review on the useful lives of the machinery. The Group depreciated the machinery over the remaining useful lives of the machinery based on the professional review effective from 1st January, 2002 with a maximum period of 10 years.

In effect, the Group changed the depreciation rate for the machinery which were depreciated at 20% and 30% to 10% per annum. The change in depreciation rate has resulted in a reduction in depreciation by approximately HK$8,603,000 during the year ended 31st December, 2002.

The gain or loss on disposal or retirement of a fixed asset recognised in the income statement, is the difference between the net sales proceeds and the carrying amount of the relevant asset.

(f) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential with rental income being negotiated at arm’s length.

Investment properties are valued at intervals of not more than three years by independent valuers; in each of the intervening years valuations are undertaken by professionally qualified executives of the Company. The valuations are on an open market value basis related to individual properties and separate values are not attributed to land and buildings. The valuations are incorporated in the annual accounts. Increases in valuation are credited to the investment properties revaluation reserve. Decreases in valuation are first set off against increases on earlier valuations on a portfolio basis and thereafter are debited to operating profit. Any subsequent increases are credited to operating profit up to the amount previously debited.

– 149 – APPENDIX I ACCOUNTANTS’ REPORT

(g) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition.

In accordance with SSAP 30, goodwill on acquisitions occurring on or after 1st January, 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisitions.

Negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the income statement over the remaining weighted average useful life of those assets on a straight line basis as follow:

Land and buildings 50 years Office equipments 5 years Plant and machinery 6 to 10 years Motor vehicles 3 years

Negative goodwill in excess of the fair values of those non-monetary assets is recognised in the income statement immediately.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of or, for pre 1st January, 2001 acquisitions, the related goodwill written off against or negative goodwill taken directly to reserves to the extent it has not previously been realised in the income statement.

(h) Construction-in-progress

Construction-in-progress is stated at cost which comprises construction costs, purchased costs and other related expenses incurred in connection with the construction of plant and machinery for own use, less any provision for impairment loss. No depreciation is provided for construction-in-progress until they are completed and put into production.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes costs of raw materials determined using the first-in, first-out method of costing and, in cases of work-in-progress and finished goods, also direct labour and an appropriate proportion of production overheads. Net realisable value is based on estimated normal selling prices, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write- down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(j) Trade receivables

Provision is made against trade receivables to the extent that they are considered to be doubtful. Trade receivables in the balance sheet is stated net of such provision.

– 150 – APPENDIX I ACCOUNTANTS’ REPORT

(k) Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised of an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however, not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

(l) Leases

(i) Finance leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

(ii) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rental payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

(m) Employee benefits

(i) Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employee of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Contributions to Mandatory Provident Funds as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the income statement as incurred, except to the extent that they are included in the cost of assets and inventories not yet recognised as an expense.

Certain employees of the subsidiaries in the Mainland China are members of a compulsory retirement benefit scheme operated by the government of the Mainland China, the fund of which is held separately from those of the subsidiaries. Contributions made are based on a percentage of the eligible employees’ salaries and are charged to the income statement as they become payable in accordance with the rules of the scheme. The subsidiaries’ employer contributions are fully vested once made.

– 151 – APPENDIX I ACCOUNTANTS’ REPORT

(iii) Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(n) Deferred tax

Deferred tax is provided, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation on fixed assets, unrealised profits resulting from intra- group transactions and tax losses carried forward. Taxation rates enacted at the balance sheet date are used to determine deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(o) Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transactions dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at the date. Exchange differences are dealt with in the income statement.

On combination, the results of the foreign subsidiaries are translated into Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet date for the year ended 31st December, 2001. By the adoption of SSAP 11 (revised) “ Foreign currency translation”, the results of foreign subsidiaries are translated into Hong Kong dollars at the average exchange rates for the years ended 31st December, 2002 and 2003 and the six months ended 30th June, 2004. This represents a change in accounting policy. However, the translation of the income statement of subsidiaries expressed in foreign currencies in 2001 has not been restated as the effect of this change is not material to the combined financial statements. Balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The resulting translated differences are included in the exchange fluctuation reserve.

(p) Cash equivalents

Cash and cash equivalents comprise cash and bank balances, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(q) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that geographical segment be presented as the primary reporting format and business segment is presented as the secondary reporting format.

Segment assets consist primarily of fixed assets, construction-in-progress, inventories, receivables, deposits, prepayments and operating cash and mainly exclude investments. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain borrowings. Capital expenditure comprise additions to fixed assets and construction-in-progress.

(r) Research and development costs

Research and development costs are expensed as incurred, except where the product or process is clearly defined and the costs attributable to the product or process can be separately identified and measured reliably; is technically feasible; the Group intends to produce and market, or use, the product or process; the existence of a market for the product or process or, if it is to be used internally rather than sold, its usefulness to the company, can be demonstrated; and adequate resources exist, or their availability can be demonstrated, to complete the project and market or use the product or process.

– 152 – APPENDIX I ACCOUNTANTS’ REPORT

(s) Provisions and contingent liabilities

A provision is recognised when there is present obligation, legal or constructive, as a result of a past event and it is probable (i.e. more likely than not) than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

(t) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

3. Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

– 153 – APPENDIX I ACCOUNTANTS’ REPORT

Particulars of significant transactions between the companies now comprising the Group and the related parties during the Relevant Period are summarised below:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 Notes HK$’000 HK$’000 HK$’000 HK$’000

Discontinuing transactions:

IMF Thailand – Sales (a) –1–– – Interest income (b) 25 – – – – Handling income (c) 567 361 – – – Sub-contracting charges (d) 4,323 1,883 91 –

Dongguan Koda – Purchases (e) 44,291 30,555 – –

King Mighty Limited – Gain on disposal of a property (f) 88 – – –

Integrated Precision Machinery Ltd. – Sales of parts and tools (g) 4–––

IPE Europe – Sales (h) 97 5,569 2,839 – – Purchases (h) 1,857 87 – – – Commission paid (h) 231 61 – –

IPE Holdings Pte. Ltd. – Acquisition of a subsidiary (i) – 496 – –

Mr. Scandolo Francesco – Disposal of a subsidiary (j) – – 515 –

IPE Japan – Commission paid (k) 2,282 2,090 – –

Oesse Kuhler (Thailand) Co., Ltd. – Interest income (l) –5–– – Interest expenses (l) –4–– – Sundry income (l) – 36 170 – – Reimbursement of office expenses (l) –5830–

Integrated Optic Pte. Ltd. – Proceeds on disposal of land and buildings (m) – 10,693 – – – Rental expenses (m) – – 1,030 –

Mr. Ho Yu Hoi – Proceeds on disposal of motor vehicles (n) – 1,227 – –

Strengthen Asia Limited – Disposal of a subsidiary (o) ––––

Mr. Chui Siu On – Loss on disposal of investment securities (p) –11– – – Purchase of a property (p) – 1,500 – –

Notes:

(a) Mr. Ho Yu Hoi (“Mr. Ho”) is a common director of IMF Thailand and the Group.

(b) The interest income was charged on amount advanced to IMF Thailand at an interest rate of 7.75% per annum for the year ended 31st December, 2001.

(c) The handling income was charged for arrangements of shipments and contact of IMF Thailand’s customers by IPE Thailand on reimbursement basis.

– 154 – APPENDIX I ACCOUNTANTS’ REPORT

(d) The sub-contracting charges were paid for passivation and plating services provided by IMF Thailand and determined by reference to market price.

(e) The payment was made for purchases of precision components, at a price determined by reference to similar transactions with outside suppliers. On 1st August, 2002, the Group acquired from Mr. Chui the entire interest in Dongguan Koda for HK$71,000,000 which became a wholly owned subsidiary of the Group.

(f) On 10th December, 2001, Integrated Precision Engineering Company Limited (“IPE Hong Kong”) entered into a sales and purchase agreement with King Mighty Limited to dispose of a property together with decoration with net book value of approximately HK$7,562,000 for HK$7,650,000, recorded a gain of approximately HK$88,000. The consideration was determined by reference to book value. King Mighty Limited is a company incorporated in Hong Kong and is owned as to 1% by Mr. Chui Siu On (“Mr. Chui”) and 99% by IPE Engineering Holdings Ltd. IPE Engineering Holdings Ltd. is jointly owned by Mr. Chui, Mr. Ho, Mr. Ng Kin Nam (“Mr. Ng”), Mr. Li Chi Hang (“Mr. Li”) and Mr. Lai Man Kit (“Mr. Lai”) who are directors of the Group.

(g) Mr. Chui and Mr. Ng are common directors of Integrated Precision Machinery Ltd. The prices were determined based on purchase price plus reimbursement of transportation costs.

(h) The purchase price charged by IPE Europe was at cost plus a mark up of approximately 10% and the selling price charged by IPE Hong Kong to IPE Europe was at cost plus a mark up of 10% to 25%. The commission paid to IPE Europe was for coordinating with customers in Europe and charged at 5% to 8%.

(i) On 28th November, 2002, the Group acquired 61% equity interest in IPE Europe from IPE Holdings Pte. Ltd. for Euro 61,000. IPE Europe became a subsidiary of the Group.

(j) On 1st November, 2003, the Group disposed of the entire interest in IPE Europe at par value to the minority shareholder, Mr. Scandolo Francesco for Euro 61,000 and recorded a gain of approximately HK$1,013,000. IPE Europe then became unrelated to the Group.

(k) The commission paid to IPE Japan was for co-ordinating with customers in Japan. The commission was determined at a fixed monthly amount to cover operating expenses of IPE Japan. On 6th November, 2002, the Group acquired 90% equity interest in IPE Japan from Mr. Li and a shareholder of IPE Japan for ¥2,700,000. IPE Japan became a subsidiary of the Group.

(l) Mr. Chui, Mr. Ng, Mr. Ho, Mr. Li and Mr. Lai are shareholders of Oesse Kuhler (Thailand) Co., Ltd. (“ Oesse Kuhler”) and Mr. Ho is a director.

The interest income was charged on amount advanced to Oesse Kuhler at an interest rate of 7% per annum.

On 22nd August, 2002, IPE Thailand entered into a loan agreement with Oesse Kuhler to borrow a loan of approximately HK$1,808,000. The loan was bearing interest at 1% per annum and repayable within one year.

During the period from July, 2002 to December, 2002 and the year ended 31st December, 2003, Oesse Kuhler made use of the office facilities owned by IPE Thailand. Oesse Kuhler paid a total consideration of approximately HK$36,000 and HK$170,000 for the use of the office facilities and reimbursed office expenses of approximately HK$58,000 and HK$30,000 to IPE Thailand for the years ended 31st December, 2002 and 2003 respectively.

(m) On 30th June, 2002, IPE Singapore entered into a sales and purchases agreement to dispose of a property at net book value of approximately HK$10,693,000 to Integrated Optic Pte. Ltd. Mr. Chui, Mr. Ng, Mr. Ho and Mr. Lai are directors and shareholders of Integrated Optic Pte. Ltd and Mr. Li is a shareholder.

After the disposal, IPE Singapore made use of the same property free of rental charges as office and for production for a period from 1st July, 2002 to 16th December, 2002. On 17th December, 2002, IPE Singapore entered into a rental agreement to rent the same property for office and production at HK$80,000 per month for a period of three years starting from 17th December, 2002. The rental was determined on an arm’s length basis less 20% discount. The rental agreement was terminated on 30th November, 2003.

– 155 – APPENDIX I ACCOUNTANTS’ REPORT

During the year ended 31st December, 2002, IPE Singapore issued guarantees in favour of a finance company for finance lease facilities granted to Integrated Optic Pte. Ltd. The total amount of guarantees granted amounted to approximately HK$6,109,000. As at 31st December, 2002, the outstanding finance lease obligations of approximately HK$5,738,000 were disclosed as contingent liabilities in Note 36 below. The guarantee was released as at 31st December, 2003.

(n) During the year ended 31st December, 2002, motor vehicles with net book value of HK$1,227,000 were sold to Mr. Ho at net book value.

(o) On 6th November, 2002, IPE Hong Kong disposed of the entire 65% interest in Detas Asia Limited at par value to Strengthen Asia Limited for a consideration of HK$65. Mr. Chui, Mr. Ng, Mr. Ho, Mr. Li and Mr. Lai are all shareholders and Mr. Li is the sole director of Strengthen Asia Limited.

(p) During the year ended 31st December, 2002, IPE Hong Kong disposed of investment securities with net book value of approximately HK$44,000 at market value to Mr. Chui for a consideration of approximately HK$33,000 and recorded a loss on disposal of approximately HK$11,000.

On 1st March, 2002, the Group purchased from Mr. Chui a property in Mainland China for HK$1,500,000. Based on an independent valuation conducted by a professional valuer, the market value of the property was approximately HK$2,170,000 as at 31st December, 2002. The consideration represented a discount of approximately 31% to the market value.

In the opinion of the Company’s directors, the above related party transactions were carried out on normal commercial terms.

4. Turnover, revenue and segmental information

(a) An analysis of the Group’s turnover and other revenue is as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Turnover Sales of precision metal components 195,713 186,172 212,529 135,734

Less: Trade discounts and returns (882) (1,971) (4,274) (4,294)

Net sales 194,831 184,201 208,255 131,440

Other revenue Exchange gain 3,944 – – – Gain on disposal of fixed assets 5,448 – 66 – Interest income 983 248 117 22 Machinery rental income 4,797 1,799 – – Rental income – 437 572 270 Gain on disposal of investment securities – 19 – – Gain on disposal of a subsidiary – – 1,013 – Dividend income – 4 – – Sales of raw materials – – – 817 Service fee income 2,225 1,690 650 57 Sundry income 643 1,150 1,213 1,481

18,040 5,347 3,631 2,647

Total revenue 212,871 189,548 211,886 134,087

– 156 – APPENDIX I ACCOUNTANTS’ REPORT

(b) Primary reporting format – geographical segments

Six months ended 30th June, 2004 PRC and North Other Thailand Malaysia Singapore Hong Kong America Europe countries Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 74,774 32,148 429 7,322 2,537 13,731 499 131,440 Other revenue 261 – – 2,307 – – 57 2,625

Total revenue 75,035 32,148 429 9,629 2,537 13,731 556 134,065

Segment results 11,277 6,779 164 4,435 634 3,437 216 26,942

Interest income 22 Interest expenses (2,122 )

Profit before tax 24,842 Taxation (1,995 )

Profit after tax 22,847 Minority interests 1

Profit attributable to shareholders 22,848

Segment assets 139,142 17,325 65 278,730 929 7,886 761 444,838 Unallocated assets –

Total assets 444,838

Segment liabilities 47,554 – 782 182,387 92 262 19,603 250,680 Unallocated liabilities –

Total liabilities 250,680

Capital expenditure 2,909 – – 89,575 – – – 92,484

Depreciation5,521 – – 5,184 – – 19 10,724

– 157 – APPENDIX I ACCOUNTANTS’ REPORT

Year ended 31st December, 2003 PRC and North Other Thailand Malaysia Singapore Hong Kong America Europe countries Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 130,309 50,819 137 9,699 3,017 12,377 1,897 208,255 Other revenue 1,417 – 66 1,018 – 1,013 – 3,514

Total revenue 131,726 50,819 203 10,717 3,017 13,390 1,897 211,769

Segment results 32,914 7,519 10 5,312 735 4,733 569 51,792

Interest income 117 Interest expenses (3,942 )

Profit before tax 47,967 Taxation (5,397 )

Profit after tax 42,570 Minority interests (167 )

Profit attributable to shareholders 42,403

Segment assets 147,522 14,635 1,139 163,467 623 6,859 1,093 335,338 Unallocated assets –

Total assets 335,338

Segment liabilities 56,671 – 2,416 85,492 8 146 12,310 157,043 Unallocated liabilities 17,383

Total liabilities 174,426

Capital expenditure 10,153 – – 56,632 – 38 – 66,823

Depreciation8,666 – 41 7,944 – 116 50 16,817

– 158 – APPENDIX I ACCOUNTANTS’ REPORT

Year ended 31st December, 2002 PRC and North Other Thailand Malaysia Singapore Hong Kong America Europe countries Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 116,629 42,402 1,650 10,894 2,394 8,768 1,464 184,201 Other revenue 2,456 183 – 2,437 – – – 5,076

Total revenue 119,085 42,585 1,650 13,331 2,394 8,768 1,464 189,277

Segment results 34,172 12,439 599 4,170 625 418 (85 ) 52,338

Unallocated income 23 Interest income 248 Interest expenses (3,150 )

Profit before tax 49,459 Taxation (5,378 )

Profit after tax 44,081 Minority interests (116 )

Profit attributable to shareholders 43,965

Segment assets 116,789 12,353 11,643 111,950 533 7,788 618 261,674 Unallocated assets 350

Total assets 262,024

Segment liabilities 48,249 – 13,370 50,015 – 2,239 7,917 121,790 Unallocated liabilities 26,679

Total liabilities 148,469

Capital expenditure 35,682 – 21 20,232 – 309 – 56,244

Depreciation8,528 494 19 722 28 412 86 10,289

– 159 – APPENDIX I ACCOUNTANTS’ REPORT

Year ended 31st December, 2001 PRC and North Other Thailand Malaysia Singapore Hong Kong America Europe countries Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 124,539 41,648 2,194 16,576 6,535 3,141 198 194,831 Other revenue 5,669 869 46 10,314 133 23 3 17,057

Total revenue 130,208 42,517 2,240 26,890 6,668 3,164 201 211,888

Segment results 19,845 11,046 (425 ) 5,557 1,646 (421 ) 13 37,261

Interest income 983 Unallocated expenses (513 ) Interest expenses (4,753 )

Profit before tax 32,978 Taxation (4,506 )

Profit after tax 28,472 Minority interests –

Profit attributable to shareholders 28,472

Segment assets 90,205 8,181 33,770 125,130 – 3,564 4,005 264,855 Unallocated assets 18,206

Total assets 283,061

Segment liabilities 25,847 – 29,490 126,787 – 19 1,750 183,893 Unallocated liabilities 5,677

Total liabilities 189,570

Capital expenditure 19,093 – 1,273 3,260 – – – 23,626

Depreciation21,888 2,988 157 4,393 501 691 29 30,647

(c) Secondary reporting format – business segments

Six months ended 30th June, 2004 Segment Total Capital Turnover results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

HDD components 100,479 21,317 79,925 – Hydraulic equipment components 18,158 168 17,083 – Fiber optical connector components 5,883 2,306 2,804 – Electronic device components 4,762 380 4,925 – Others 2,158 (185) 3,074 –

131,440 23,986 107,811 –

Unallocated income 2,625 Interest income 22 Unallocated expenses (413)

Operating profit 26,220

Unallocated items 337,027 92,484

Total 444,838 92,484

– 160 – APPENDIX I ACCOUNTANTS’ REPORT

Year ended 31st December, 2003 Segment Total Capital Turnover results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

HDD components 168,429 34,258 73,662 – Hydraulic equipment components 18,754 7,524 10,523 – Fiber optical connector components 12,633 4,019 2,946 – Electronic device components 5,779 1,624 3,671 – Others 2,660 282 2,901 –

208,255 47,707 93,703 –

Unallocated income 3,514 Interest income 117 Unallocated expenses (916)

Operating profit 50,422

Unallocated items 241,635 66,823

Total 335,338 66,823

Year ended 31st December, 2002 Segment Total Capital Turnover results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

HDD components 148,787 40,023 46,281 – Hydraulic equipment components 12,502 4,113 3,433 – Fiber optical connector components 11,109 3,532 2,652 – Electronic device components 8,398 2,265 3,663 – Others 3,405 (269) 11,904 –

184,201 49,664 67,933 –

Unallocated income 5,099 Interest income 248 Unallocated expenses (1,721)

Operating profit 53,290

Unallocated items 194,091 56,244

Total 262,024 56,244

– 161 – APPENDIX I ACCOUNTANTS’ REPORT

Year ended 31st December, 2001 Segment Total Capital Turnover results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

HDD components 169,765 25,635 47,555 – Hydraulic equipment components 6,984 674 1,030 – Fiber optical connector components 6,682 717 120 – Electronic device components 5,579 (79) 805 – Others 5,821 (2,290) 7,258 –

194,831 24,657 56,768 –

Unallocated income 17,057 Interest income 983 Unallocated expenses (4,966)

Operating profit 37,731

Unallocated items 226,293 23,626

Total 283,061 23,626

5. Other operating expenses

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Exchange loss – 882 769 377 Claims 1,007 – – – Impairment loss on fixed assets – 308 – – Impairment loss on investment securities 63 – – – Written off of unlisted investment 450 – – – Loss on disposal of fixed assets – 38 79 – Loss on written off of fixed assets – 229 – – Provision for doubtful debts 397 85 56 – Others 92 118 106 –

2,009 1,660 1,010 377

– 162 – APPENDIX I ACCOUNTANTS’ REPORT

6. Profit from operations

The Group’s profit from operations was arrived at after charging/crediting the following:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Charging: Auditors’ remuneration 281 878 752 330 Cost of inventories sold (Note) 132,907 106,091 121,898 85,698 Depreciation – Owned assets 19,305 6,826 15,355 9,949 – Assets held under finance leases 11,342 3,463 1,462 775 Minimum lease payments under operating leases: – Land and buildings 303 316 1,189 112 – Equipment 48 40 103 20 Staff costs (excluding directors’ remuneration) – Salaries, bonuses, allowances and benefits in kind 14,726 19,215 31,808 20,186 – Retirement benefits scheme contribution 837 607 870 267 Provision for obsolete and slow-moving inventories 2,729 3,415 – 517 Research and development costs 3,282 3,737 3,921 1,828

Crediting: Rental income from investment properties less outgoings – 437 572 270 Reversal of provision for obsolete and slow-moving inventories – – 271 –

Note: Cost of inventories includes approximately HK$22,322,000 (2003: HK$35,103,000) (2002: HK$20,743,000) (2001: HK$23,906,000) relating to staff costs, depreciation expenses and operating lease charges, the amount of which were also included in the respective total amounts disclosed separately above for each of these types of expenses.

7. Finance costs

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Interest on bank loan and overdrafts wholly repayable within five years 1,574 2,110 2,871 1,701 not wholly repayable within five years – 254 546 – Interest on finance leases 3,260 1,111 524 267 Other interest – 4 1 154

4,834 3,479 3,942 2,122

Less: Interest capitalised (81) (329) – –

4,753 3,150 3,942 2,122

– 163 – APPENDIX I ACCOUNTANTS’ REPORT

8. Directors’ and senior executives’ remuneration

(i) Details of directors’ remuneration are as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Fees 886 609 – 835

Other emoluments of executive directors: Salaries, bonuses, allowance and benefits in kind 2,671 2,438 3,789 1,588 Retirement benefits scheme contributions 213 188 130 20

2,884 2,626 3,919 1,608

3,770 3,235 3,919 2,443

The remuneration of the directors fell within the following bands:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004

Nil to HK$1,000,000 3 5 4 5 HK$1,000,001 to HK$1,500,000 2 – – – HK$1,500,001 to HK$2,000,000 – – 1 –

5555

(ii) The five highest paid individuals in the Group for each of the years ended 31st December, 2001, 2002 and 2003 and the six months ended 30th June, 2004 as stated below included four, three, three and three directors, respectively, the details of their remuneration have also been disclosed in Note 8(i) above. The emoluments of the five highest paid individuals are as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Directors Fees 886 609 – 555

Salaries, bonuses, allowance and benefits in kind 2,671 2,191 3,313 1,422 Retirement benefit scheme contributions 213 177 123 14

2,884 2,368 3,436 1,436

3,770 2,977 3,436 1,991

– 164 – APPENDIX I ACCOUNTANTS’ REPORT

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Employees Fees – – – –

Salaries, bonuses, allowance and benefits in kind 380 780 1,445 895 Retirement benefits scheme contributions 33 47 25 12

413 827 1,470 907

413 827 1,470 907

Total Fees 886 609 – 555

Salaries, bonuses, allowance and benefits in kind 3,051 2,971 4,758 2,317 Retirement benefits scheme contributions 246 224 148 26

3,297 3,195 4,906 2,343

4,183 3,804 4,906 2,898

The remuneration of the highest paid directors and employees fell within the following band:

Six months ended Number of individuals 30th June, 2001 2002 2003 2004

Director

Nil to HK$1,000,000 2 3 2 3 HK$1,000,001 to HK$1,500,000 2 – – – HK$1,500,001 to HK$2,000,000 – – 1 –

Employee

Nil to HK$1,000,000 1 2 2 2

5555

During the Relevant Period, no emoluments were paid by the Group to the directors or any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

9. Provident fund

Following the introduction of the Mandatory Provident Fund legislation in Hong Kong, the group companies operating in Hong Kong participate in the defined contribution Mandatory Provident Fund since 1st December, 2000. Both IPE Hong Kong and its employees make monthly contributions to the scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation. The contributions of the employer and the employees are subject to a cap of monthly earnings of HK$20,000 and thereafter contributions are voluntary. The aggregate amount of employer’s contributions made by IPE Hong Kong amounted to approximately HK$147,000, HK$144,000, HK$160,000 and HK$96,000 for the years ended 31st December, 2001, 2002 and 2003 and the six months ended 30th June, 2004 respectively. The assets of the fund are held separately from those of the Group and are managed by independent professional fund managers.

– 165 – APPENDIX I ACCOUNTANTS’ REPORT

As stipulated by the regulations in Mainland China, Dongguan Koda and Xing Hao, being wholly owned subsidiaries, are required to contribute to a state-sponsored retirement plan for all of its employees in Mainland China at a rate of 11% of the basic salary of its employees. The state-sponsored retirement plan is responsible for the entire pension obligation payable to all retired employees and the Group has no further obligations for the actual pension payments or post-retirement benefits beyond the annual contributions. For the year ended 31st December, 2002 and 2003 and the six months ended 30th June, 2004, the Group provided for retirement plan contributions of approximately HK$43,000, HK$280,000 and HK$171,000 respectively.

IPE Singapore is required to contribute 16% of the basic salary of the Singapore employees to the Singapore government for social security purposes. The aggregate amount of contribution made by the Group amounted to approximately HK$690,000, HK$420,000, HK$430,000 and Nil for the years ended 31st December, 2001, 2002 and 2003 and the six months ended 30th June, 2004 respectively.

10. Taxation

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Current tax – Hong Kong Profits Tax Provided for the year/period 3,300 5,068 2,383 224 Overprovision in respect of prior years – (366) (3) –

3,300 4,702 2,380 224

Current tax – Overseas tax Provided for the year/period 2,191 2,489 2,804 1,518 Under/(over)provision in respect of prior years 839 – (1,322) –

3,030 2,489 1,482 1,518

Deferred tax Origination and reversal of temporary differences (1,732) (1,636) 1,666 475 Effect of change in tax rate on deferred tax (92) (177) (131) (222)

(1,824) (1,813) 1,535 253

Total income tax expense 4,506 5,378 5,397 1,995

By geographical area

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong profits tax 3,300 5,068 2,383 224 Mainland China enterprise income tax – 794 1,468 547 Thailand income tax 120 78 667 971 Singapore income tax 2,071 1,585 633 – Japan corporation tax – 32 36 – Under/(over)provision in previous years 839 (366) (1,325) –

6,330 7,191 3,862 1,742

Deferred taxation (note 30) (1,824) (1,813) 1,535 253

4,506 5,378 5,397 1,995

– 166 – APPENDIX I ACCOUNTANTS’ REPORT

A numerical reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rates is as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Profit before tax 32,978 49,459 47,967 24,842

Notional tax on profit before tax, calculated at the rates applicable to profits in the tax jurisdictions concerned 7,377 9,943 8,945 5,449 Tax effect of non-deductible expenses 372 557 320 78 Tax effect of non-taxable revenue (3,990) (4,615) (2,594) (2,807) Effect on opening deferred tax balances resulting from a change in tax rate during the year/period (92) (177) (131) (222) Unrecognised tax loss – 105 274 31 Utilisation of previously unrecognised tax loss – (69) (92) (606) Under/(over)provision in prior years 839 (366) (1,325) – Others – – – 72

Actual tax expense 4,506 5,378 5,397 1,995

Hong Kong profits tax was provided at the rate of 17.5% (2002 and 2001 16%) on the estimated assessable profits arising in or derived from Hong Kong.

In accordance with the applicable enterprise income tax law of Mainland China, Dongguan Koda and Xing Hao as wholly foreign-owned enterprises incorporated in Dongguan Coastal Economic Open Zone, are subject to Mainland China enterprise income tax “EIT” at a rate of 24%. Pursuant to a letter of approval issued by the local tax authority on 16th September, 2003, Dongguan Koda as a New and High Technology Enterprise (高新 科技企業) was entitled to a preferential tax rate of 15% for the year ended 31st December, 2003. Dongguan Koda and Xing Hao are exempted from EIT for the first two profitable years of operations after offsetting prior year losses and are entitled to a 50% reduction on the EIT for the following three years. Dongguan Koda began its first profitable year in the year ended 31st December, 1999. Dongguan Koda was entitled to a 50% reduction on EIT, at an effective tax rate of 12% for 2001 and 2002 and 7.5% for 2003. On 13th November, 2003, Dongguan Koda obtained an approval from the local tax authority and it is now subject to a tax rate of 10% for the three years ending 31st December, 2006. Xing Hao was operating at a loss in 2002 and 2003 and began profitable during the six months ended 30th June, 2004.

IPE Thailand, a company incorporated in Thailand is subject to income tax in Thailand at the rate of 30% on estimated assessable profits arising in or derived from Thailand. IPE Thailand has two production factories. IPE Thailand is exempted from income tax for a period of three years effective from 2nd June, 2000 to 1st June, 2003 for income generated from factory I due to the promotion privileges granted under the Investment Promotion Act B.E. 2520 by the Board of Investment in Thailand. The Board of Investment also granted IPE Thailand an exemption from income tax for a period of three years effective from 3rd January, 2003 to 2nd January, 2006 for income generated from factory II. From 2nd June, 2003, IPE Thailand is subject to income tax at the rate of 30% for income generated from factory I.

IPE Singapore, a company incorporated in Singapore is subject to income tax in Singapore at the rate of 24.5% in 2001. The income tax rate was reduced to 22% effective from 1st January, 2002.

IPE Japan, a company incorporated in Japan is subject to corporation tax in Japan at the rate of 22%.

IPE Europe, a company incorporated in Italy was subject to income tax in Italy at the rate of 36%. IPE Europe operated at a loss during the Relevant Period.

– 167 – APPENDIX I ACCOUNTANTS’ REPORT

11. Dividend

The dividend paid or declared by the Company and the Company’s subsidiaries to their previous shareholders during the Relevant Period was as follows:

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

IPE Singapore – 24,559 – – Best Device – – 5,010 – The Company – – – 6,050

– 24,559 5,010 6,050

The dividend rates and the number of shares ranking for dividends are not presented as such information is not meaningful for the purpose of this report.

Details of the dividend declared for the six months ended 30th June, 2004 is set out in note 39 to the combined financial statements.

12. Basic earnings per share

The calculation of basic earnings per share for the Relevant Period is based on the profit attributable to shareholders for the Relevant Period and on 372,500,000 ordinary shares in issue and issuable comprising 100,000,000 ordinary shares in issue as at the date of the Prospectus and 272,500,000 ordinary shares to be issued pursuant to the Capitalisation Issue, as described in the section headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in Appendix VII to the Prospectus as if those shares had been outstanding during the entire Relevant Period.

No diluted earnings per share has been presented as no diluting event existed during each of the Relevant Period.

13. INTANGIBLE ASSETS

Negative Goodwill goodwill Total HK$’000 HK$’000 HK$’000

Cost At 1st January, 2001 – – – Additions – – –

At 31st December, 2001 – – –

Accumulated amortisation and impairment loss At 1st January, 2001 – – – Charge for the year – – – Impairment loss – – –

At 31st December, 2001 – – –

Net book value At 31st December, 2001 – – –

– 168 – APPENDIX I ACCOUNTANTS’ REPORT

Negative Goodwill goodwill Total HK$’000 HK$’000 HK$’000

Cost At 1st January, 2002 – – – Additions 1,301 (28,920) (27,619)

At 31st December, 2002 1,301 (28,920) (27,619)

Accumulated amortisation and impairment loss At 1st January, 2002 – – – Charge for the year – 620 620 Impairment loss (1,301) – (1,301)

At 31st December, 2002 (1,301) 620 (681)

Net book value At 31st December, 2002 – (28,300) (28,300)

Negative Goodwill goodwill Total HK$’000 HK$’000 HK$’000

Cost At 1st January, 2003 1,301 (28,920) (27,619) Additions – – –

At 31st December, 2003 1,301 (28,920) (27,619)

Accumulated amortisation and impairment loss At 1st January, 2003 (1,301) 620 (681) Charge for the year – 1,487 1,487

At 31st December, 2003 (1,301) 2,107 806

Net book value At 31st December, 2003 – (26,813) (26,813)

Negative Goodwill goodwill Total HK$’000 HK$’000 HK$’000

Cost At 1st January, 2004 1,301 (28,920) (27,619) Additions – – –

At 30th June, 2004 1,301 (28,920) (27,619)

Accumulated amortisation and impairment loss At 1st January, 2004 (1,301) 2,107 806 Charge for the period – 744 744

At 30th June, 2004 (1,301) 2,851 1,550

Net book value At 30th June, 2004 – (26,069) (26,069)

– 169 – APPENDIX I ACCOUNTANTS’ REPORT

14. Fixed assets

Furniture, Leasehold Land and Construction Plant and fixtures and improve- Motor buildings in-progress machinery equipment ments vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost At 1st January, 2001 42,767 – 200,960 3,826 2,850 9,845 260,248 Exchange movement (1,145) – (4,835) (176) (72) (282) (6,510) Additions 781 1,080 17,288 438 2,218 1,821 23,626 Interest capitalised 24 57 – – – – 81 Disposals (8,096) – (97,606) – (389) (822) (106,913)

At 31st December, 2001 34,331 1,137 115,807 4,088 4,607 10,562 170,532

Accumulated depreciation At 1st January, 2001 4,991 – 130,358 2,919 2,652 7,157 148,077 Exchange movement (119) – (2,610) (150) (72) (167) (3,118) Provided for the year 791 – 27,531 362 507 1,456 30,647 Eliminated on disposals (647) – (88,732) – (275) (718) (90,372)

At 31st December, 2001 5,016 – 66,547 3,131 2,812 7,728 85,234

Net book value At 31st December, 2001 29,315 1,137 49,260 957 1,795 2,834 85,298

Furniture, Leasehold Land and Investment Construction Plant and fixtures and improve- Motor buildings properties in-progress machinery equipment ments vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost At 1st January, 2002 34,331 – 1,137 115,807 4,088 4,607 10,562 170,532 Exchange movement 781 – 5 2,224 150 72 248 3,480 Additions 209 1,500 13,799 38,886 1,108 266 476 56,244 Interest capitalised – – 329 ––––329 Acquisition of subsidiaries 17,028 – 150 87,979 814 604 1,740 108,315 Reclassification2,376 9,993 (12,369 ) – – – – – Disposals (13,092) – – (48,810 ) (2,601 ) (1,279 ) (4,162 ) (69,944 ) Written off – – – (382 ) – – – (382 )

At 31st December, 2002 41,633 11,493 3,051 195,704 3,559 4,270 8,864 268,574

Accumulated depreciation and impairment loss At 1st January, 2002 5,016 – – 66,547 3,131 2,812 7,728 85,234 Exchange movement 118 – – 1,753 141 68 159 2,239 Provided for the year 740 – – 7,578 420 514 1,037 10,289 Acquisition of subsidiaries – – – 41,542 397 – 897 42,836 Reclassification(1,282 ) 1,282 –––––– Eliminated on disposals (2,087 ) – – (44,117 ) (2,484 ) (1,203 ) (2,883 ) (52,774 ) Written off – – – (153 ) – – – (153 ) Impairment loss – – – 308 – – – 308

At 31st December, 2002 2,505 1,282 – 73,458 1,605 2,191 6,938 87,979

Net book value At 31st December, 2002 39,128 10,211 3,051 122,246 1,954 2,079 1,926 180,595

– 170 – APPENDIX I ACCOUNTANTS’ REPORT

Furniture, Land and Investment Construction Plant and fixtures and Leasehold Motor buildings properties in-progress machinery equipment improvements vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost At 1st January, 2003 41,633 11,493 3,051 195,704 3,559 4,270 8,864 268,574 Exchange movement 1,749 – – 6,610 204 121 140 8,824 Additions 35,755 – 7,355 22,926 606 12 169 66,823 Reclassification1,175 – (1,175 ) ––––– Disposal of a subsidiary – – – (245 ) (625 ) (736 ) (221 ) (1,827 ) Disposals – – – (4,117 ) (11 ) – (230 ) (4,358 ) Written off ––––––(151)(151)

At 31st December, 2003 80,312 11,493 9,231 220,878 3,733 3,667 8,571 337,885

Accumulated depreciation and impairment loss At 1st January, 2003 2,505 1,282 – 73,458 1,605 2,191 6,938 87,979 Exchange movement 110 – – 1,875 43 – 58 2,086 Disposal of a subsidiary – – – (7 ) (43 ) (55 ) (13 ) (118 ) Disposals – – – (3,906 ) – – (131 ) (4,037 ) Provided for the year 1,651 – – 13,270 582 528 786 16,817 Written off ––––––(151)(151)

At 31st December, 2003 4,266 1,282 – 84,690 2,187 2,664 7,487 102,576

Net book value At 31st December, 2003 76,046 10,211 9,231 136,188 1,546 1,003 1,084 235,309

Furniture, Land and Investment Construction Plant and fixtures and Leasehold Motor buildings properties in-progress machinery equipment improvements vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost At 1st January, 2004 80,312 11,493 9,231 220,878 3,733 3,667 8,571 337,885 Exchange movement (516) – – (2,041 ) (35 ) – (22 ) (2,614 ) Additions 370 – 15,214 75,516 836 – 548 92,484 Reclassification– – (6,952 ) 6,952 – – – – Written off ––––––(111)(111)

At 30th June, 2004 80,166 11,493 17,493 301,305 4,534 3,667 8,986 427,644

Accumulated depreciation and impairment loss At 1st January, 2004 4,266 1,282 – 84,690 2,187 2,664 7,487 102,576 Exchange movement (43 ) – – (535 ) (14 ) – (12 ) (604 ) Provided for the period 1,181 – – 8,662 309 238 334 10,724 Written off ––––––(111)(111)

At 30th June, 2004 5,404 1,282 – 92,817 2,482 2,902 7,698 112,585

Net book value At 30th June, 2004 74,762 10,211 17,493 208,488 2,052 765 1,288 315,059

– 171 – APPENDIX I ACCOUNTANTS’ REPORT

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Net book value of assets held under finance leases 8,711 11,967 10,380 21,874 Net book value of assets charged for banking facilities 29,247 79,797 92,812 93,531 Net book value of assets held under finance leases and also charged for banking facilities 6,217 2,185 – –

44,175 93,949 103,192 115,405

The Group’s land and buildings and investment properties at their net book values are analysed as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

In Hong Kong, held on Lease of 10 to 50 years 10,537 10,390 10,327 10,295

Outside Hong Kong, held on Freehold 8,292 20,310 21,794 20,827 Leases of over 50 years – 2,416 2,396 2,387 Leases of 10 to 50 years 10,486 16,223 51,740 51,464

29,315 49,339 86,257 84,973

The assets held for use in operating leases are as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Cost Investment properties – 11,493 11,493 11,493 Plant and machinery 14,023 – – –

14,023 11,493 11,493 11,493

Accumulated depreciation Investment properties – 1,282 1,282 1,282 Plant and machinery 10,437 – – –

10,437 1,282 1,282 1,282

– 172 – APPENDIX I ACCOUNTANTS’ REPORT

15. Investment securities

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Equity securities listed in Hong Kong At cost 946 – – – Less: impairment losses (781) – – –

165 – – –

Market value of listed investments 165 – – –

16. Inventories

Inventories consisted of:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Raw materials 5,785 8,406 5,853 14,388 Consumables 743 1,609 4,067 4,200 Work in progress 3,678 12,688 13,638 20,841 Finished goods 2,894 11,452 12,644 10,182

13,100 34,155 36,202 49,611

Less: Provision for obsolete and slow-moving inventories (2,730) (6,145) (5,874) (6,391)

10,370 28,010 30,328 43,220

The amount of inventories that was carried at net realisable value amounted to approximately HK$Nil, HK$4,231,000, HK$4,353,000 and HK$3,457,000 as at 31st December, 2001, 2002, 2003 and 30th June, 2004 respectively.

– 173 – APPENDIX I ACCOUNTANTS’ REPORT

17. Due from directors

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Mr. Chui Siu On18,206 – – – Mr. Li Chi Hang – – – – Mr. Lai Man Kit – 350 – –

18,206 350 – –

Maximum balance during the year Mr. Chui Siu On18,206 18,206 – – Mr. Li Chi Hang 100 – – – Mr. Lai Man Kit – 350 350 –

The outstanding balances represented non-trade fund advances to the directors. The amounts were unsecured, non-interest bearing and without pre-determined repayment terms.

18. Due from related companies

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Due from:

Detas Asia Limited (i) 41,040 – – – IPE Europe (ii) 3,564 – – – Integrated Precision Machinery Limited (iii) 1,013 403 – – King Mighty Limited (iv) 2,976 – – – IMF (Thailand) (v) 5,051 – – – Jet Knitting Machinery Company Limited (v) –––– Integrated Optic Pte. Ltd. (v) 402 3 – –

54,046 406 – –

Maximum balance due from:

Detas Asia Limited 41,040 41,040 – – IPE Europe 3,612 3,612 – – Integrated Precision Machinery Limited 1,013 1,013 403 – King Mighty Limited 2,976 2,976 – – IMF (Thailand) 5,918 5,918 – – Jet Knitting Machinery Company Limited (vi) –––– Integrated Optic Pte. Ltd. 402 402 3 –

(i) This represented fund advance for start-up of sales branches and facilities of Detas Asia Limited in the Mainland China. Detas Asia Limited was a subsidiary of IPE Hong Kong which had been disposed of on 6th November, 2002 (Note 3(o)).

(ii) This represented trade receivable from sales of goods to IPE Europe.

(iii) This represented temporary advance to Integrated Precision Machinery Limited for funding needs.

(iv) This represented fund advance to King Mighty Limited for repayment of mortgage loan.

– 174 – APPENDIX I ACCOUNTANTS’ REPORT

(v) These represented temporary fund advance to related companies by the Group and these amounts were shortly paid back.

(vi) Mr. Chui and Mr. Lai were directors of Jet Knitting Machinery Company Limited which was de- registered in August 2001.

The amounts due from related companies were unsecured and without pre-determined repayment terms. Except for the amount due from IMF (Thailand) was bearing interest at 7.75% per annum for the year ended 31st December, 2001, the amounts due from other related companies are interest free.

Had interest been charged on the outstanding balances with the related companies during the Relevant Period covered by this report based on the Group’s saving deposits of approximately 3.5%, 1.0% and 0.8% per annum, the Group would have received interest, net of tax, of approximately HK$1,014,000, HK$474,000 and HK$3,000 respectively, for the years ended 31st December, 2001 and 2002 and 2003.

The outstanding balances with the related companies were fully settled as at 31st December, 2003.

19. Trade receivables

During the Relevant Period, the Group granted credit terms to its customers normally ranges from 30 to 120 days. The aging analysis of the Group’s trade receivables, based on invoice date, is as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

0 to 30 days 17,543 16,125 21,509 26,201 31 to 60 days 16,251 16,279 20,961 22,370 61 to 90 days 6,980 2,818 12,023 11,991 91 to 120 days 2,195 2,088 2,333 3,962 121 to 365 days 2,616 1,223 6,485 67 1 to 2 years 646 1,390 64 – Over 2 years 167 – – –

46,398 39,923 63,375 64,591

20. Cash and bank balances

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Pledged deposits with banks 21,244 15,928 9,581 12,086 Cash and bank balances 28,483 16,232 6,251 16,056

49,727 32,160 15,832 28,142

Included in cash and bank balances of the Group as at 30th June, 2004 were amounts of approximately HK$9,540,000 (2003: HK$5,195,000, 2002: HK$4,162,000 and 2001: HK$Nil) denominated in Renminbi not freely convertible to other currencies.

– 175 – APPENDIX I ACCOUNTANTS’ REPORT

21. Trade payables

The aging analysis of trade payables is as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

0 to 30 days 4,915 5,832 7,109 14,813 31 to 60 days 4,582 4,988 8,889 14,032 61 to 90 days 2,955 3,972 6,468 8,954 91 to 120 days 1,510 3,025 931 519 121 to 365 days 6,700 953 1,274 359 1 to 2 years 80 1 7 – Over 2 years 127 127 – –

20,869 18,898 24,678 38,677

22. Due to directors

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Mr. Chui Siu On (i) 3,768 26,351 – – Mr. Ho Yu Hoi (ii) 1,200 209 264 – Mr. Lai Man Kit (ii) 709 – – – Mr. Li Chi Hang – 119 119 –

5,677 26,679 383 –

(i) The balance in 2001 represented fund advance and outstanding director fees and emoluments. The balance in 2002 represented balance of consideration payable for acquisition of Dongguan Koda.

(ii) These represented outstanding director fees and emoluments.

The balances were unsecured, interest-free and had no pre-determined terms of repayment.

23. Due to related companies

As at As at 31st December, 30th June, 2001 2002 2003 2004 Note HK$’000 HK$’000 HK$’000 HK$’000

Dongguan Koda (i) 58,789 – – – IPE Europe (ii) 19 – – – IPE Japan (iii) 92 – – – IMF Thailand (iv) 233 192 – – King Mighty Limited (v) – 831 – – Oesse Kuhler (vi) – 788 – – IPE Holdings Pte. Limited (vii) 1,160 1,925 – –

60,293 3,736 – –

– 176 – APPENDIX I ACCOUNTANTS’ REPORT

(i) The amount due to Dongguan Koda mainly comprises of trade payables for purchases of finished goods.

(ii) The amount due to IPE Europe represented trade payables for purchases of raw materials.

(iii) The amount due to IPE Japan represented commission payable.

(iv) The amount due to IMF Thailand represented service charge for passivation services provided to the Group.

(v) This represented fund advances from King Mighty Limited. The amount is unsecured, interest free and without pre-determined repayment terms.

(vi) The amount due to Oesse Kuhler comprised an unsecured loan from Oesse Kuhler of approximately HK$856,000 which is bearing interest at 1% per annum and unsecured non-interest bearing advance of approximately HK$68,000 to Oesse Kuhler.

(vii) The balances in 2001 were temporary advances to the Group which were repaid in 2002. The balance in 2002 represented consideration payable for acquisition of 61% interest in IPE Europe and current account. On 3rd May, 2003, IPE Holdings Pte. Limited had waived to receive the amount of HK$1,174,000 due by IPE Europe. All other balances have been settled in cash during the year ended 31st December, 2003.

24. Tax payable

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Income tax 8,112 9,944 2,536 2,256 Value added tax 82 220 327 506

8,194 10,164 2,863 2,762

25. Short-term borrowings

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Trust receipt loans, secured 14,536 955 2,024 11,823 Bills payable, secured – 3,161 1,521 1,259 Bank overdrafts, secured 6,547 14,712 20,625 12,037 Short-term bank loans, secured – – 13,535 42,995

21,083 18,828 37,705 68,114

– 177 – APPENDIX I ACCOUNTANTS’ REPORT

26. Obligations under finance leases

The total future minimum lease payments under finance leases and their present values for each of the Relevant Period were as follows:

Present value of minimum Minimum lease payments lease payments As at As at 30th 30th As at 31st December, June, As at 31st December, June, 2001 2002 2003 2004 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Amounts repayable: Within one year 18,190 10,019 6,488 5,458 16,852 9,356 6,329 5,051 In the second year 3,932 6,544 215 3,597 3,660 6,349 209 3,384 In the third to fifth years, inclusive 2,335 316 – 2,382 2,220 290 – 2,337 Over five years 250 26 – – 243 21 – –

Total minimum finance lease payments 24,707 16,905 6,703 11,437 22,975 16,016 6,538 10,772

Less: Future finance charges (1,732) (889) (165) (665)

Total net finance lease payable 22,975 16,016 6,538 10,772

Less: Portion classified as current liabilities (16,852) (9,356) (6,329) (5,051)

Long-term portion 6,123 6,660 209 5,721

– 178 – APPENDIX I ACCOUNTANTS’ REPORT

27. Long-term borrowings

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Bank loans Wholly repayable within five years 15,784 24,233 33,230 30,318 Not wholly repayable within five years 5,616 14,660 9,627 7,645

21,400 38,893 42,857 37,963

Loans from financial institutions Wholly repayable within five years 6,339 – – –

27,739 38,893 42,857 37,963

Amount due within one year or on demand included under current liabilities (11,656) (5,674) (15,099) (13,012)

16,083 33,219 27,758 24,951

The Group’s bank loans and loans from financial institutions were repayable as follows:

Bank loans Due within one year or on demand 5,317 5,674 15,099 13,012 Due in the second year 4,237 22,338 9,897 10,411 Due in the third to fifth years 6,230 5,776 14,486 10,756 Due after the fifth year 5,616 5,105 3,375 3,784

21,400 38,893 42,857 37,963

Loans from financial institutions: Due within one year or on demand 6,339 – – –

27,739 38,893 42,857 37,963

As at 31st December, 2002, the bank loans included instalment loans of which approximately HK$9.98 million was originally due for repayment from April 2003 to December 2003. On 3rd April, 2003, the bank has agreed to defer the repayment of the said loans to 31st January, 2004. On this basis, the loans were classified as non-current liabilities as at 31st December, 2002.

On 31st January, 2004, the bank has agreed to refinance the short-term loan facilities as at 31st December, 2003 into long-term facilities. Therefore, the repayment of loan of approximately HK$15,564,000 was deferred and classified as non-current liabilities as at 31st December, 2003.

28. Due to a director

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Mr. Chui Siu On– – 17,000 –

The amount was unsecured, interest free and repayment after one year. On 31st December, 2003, IPE Hong Kong signed an agreement with Mr. Chui. Under the terms of the agreement, Mr. Chui agreed not to demand for repayment on or before 31st December, 2005, therefore, the amount has been reclassified from current liabilities to non-current liabilities as at 31st December, 2003. In June 2004, the amount was capitalised to the effect that 528 shares of Best Device Group Limited were issued and allotted to Mr. Chui.

– 179 – APPENDIX I ACCOUNTANTS’ REPORT

29. Other payable

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Balance of consideration payable on acquisition of land – – 9,434 –

Consideration payable on acquisition of machinery – – – 65,889

– – 9,434 65,889

The balance was unsecured and interest-free and not repayable within one year.

30. Deferred tax assets and liabilities

(a) Deferred tax assets and liabilities recognised

The components of deferred tax (assets)/liabilities recognised in the consolidated balance sheet are as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Deferred tax liabilities: Depreciation allowances in excess of related depreciation2,405 1,878 2,081 2,435

Deferred tax assets: Provision for slow-moving inventories, costs and expenses not yet deductible for tax purposes (165) (1,730) (389) (550)

Net deferred tax liabilities 2,240 148 1,692 1,885

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Net deferred tax assets recognised on the balance sheet – (680) (878) (1,207) Net deferred tax liabilities recognised on the balance sheet 2,240 828 2,570 3,092

2,240 148 1,692 1,885

(b) Deferred tax assets not recognised

The Group has not recognised deferred tax assets in respect of tax losses of approximately HK$Nil, HK$Nil, HK$2,526,000 and HK$Nil as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively. There is no expiry date for utilisation of the tax losses under current tax legislation.

31. Paid-in capital

The paid-in capital represented the aggregate amount of the nominal value of the companies comprising the Group as at that date.

– 180 – APPENDIX I ACCOUNTANTS’ REPORT

32. Reserves

Statutory Statutory public Exchange Share surplus welfare Merger fluctuation Retained premium reserve fund reserve reserve profits Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1st January, 2001 – – – (853 ) (1,389 ) 60,813 58,571 Reverse of merger difference – – – 853 – – 853 Merger difference – – – 237 – – 237 Movement in exchange fluctuation reserve – – – – (3,255 ) – (3,255 ) Profit attributable to shareholders – – – – – 28,472 28,472

At 31st December, 2001 – – – 237 (4,644 ) 89,285 84,878

At 1st January, 2002 – – – 237 (4,644 ) 89,285 84,878 Merger difference – – – 8,605 – – 8,605 Movement in exchange fluctuation reserve – – – – 1,005 – 1,005 Profit attributable to shareholders – – – – – 43,965 43,965 Transfer from retained profits – 574 287 – – (861 ) – Dividend – – – – – (24,559 ) (24,559 )

At 31st December, 2002 – 574 287 8,842 (3,639 ) 107,830 113,894

At 1st January, 2003 – 574 287 8,842 (3,639 ) 107,830 113,894 Movement in exchange fluctuation reserve – – – – 4,558 – 4,558 Profit attributable to shareholders – – – – – 42,403 42,403 Transfer from retained profits – 1,772 – – – (1,772 ) –

At 31st December, 2003 – 2,346 287 8,842 919 148,461 160,855

At 1st January, 2004 – 2,346 287 8,842 919 148,461 160,855 Merger difference – – – (9,958 ) – – (9,958 ) Movement in exchange fluctuation reserve – – – – (1,590 ) – (1,590 ) Profit attributable to shareholders – – – – – 22,848 22,848 Dividend – – – – – (5,010 ) (5,010 ) Issue of new shares 16,996 – – – – – 16,996

At 30th June, 2004 16,996 2,346 287 (1,116 ) (671 ) 166,299 184,141

Mainland China laws and regulations require Dongguan Koda and Xing Hao to provide for statutory surplus reserve which are appropriated from the net profit as reported in the statutory financial statements prepared in accordance with the generally accepted accounting principles in Mainland China but before dividend distribution. They are required to allocate 10% of its net profit to statutory surplus reserve until the balance of such fund has reached 50% of their registered capital. The reserve can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital.

The transfer of net profit to statutory public welfare fund is made at the discretion of the directors at 5% of the net profit of the subsidiaries. The statutory public welfare fund can be used for employees welfare facilities. The directors did not resolve to make any transfer of retained profits to the statutory public welfare fund for the year ended 31st December, 2003 and the six months ended 30th June, 2004.

– 181 – APPENDIX I ACCOUNTANTS’ REPORT

33. Notes to the combined cash flow statements

(a) Reconciliation of profit before tax to cash generated from operations

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Profit before tax 32,978 49,459 47,967 24,842 Depreciation30,647 10,289 16,817 10,724 Amortisation of negative goodwill – (620) (1,487) (744) Provision/(reversal of provision) for obsolete and slow moving inventories 2,729 3,415 (271) 517 Provision for doubtful debts 397 85 56 – Impairment loss on goodwill – 1,301 – – Impairment loss on fixed assets – 308 – – Impairment loss on investment securities 63 – – – Gain on disposal of investment securities – (19) – – Gain on disposal of a subsidiary – – (1,013) – Unrealised exchange difference – (1,099) 523 (620) Net loss/(gain) on disposal of fixed assets (5,448) 38 13 – Loss on write off of fixed assets – 229 – – Written off of unlisted investment 450 – – – Dividend income – (4) – – Interest income (983) (248) (117) (22) Interest expenses 4,753 3,150 3,942 2,122

Operating profit before working capital changes 65,586 66,284 66,430 36,819 Increase in inventories (2,919) (12,569) (1,482) (13,409) Increase in prepayments, deposits and other receivables (11,127) (3,534) (5,526) (2,512) Increase in amounts due from related companies (42,217) (11,496) (5,020) – (Increase)/decrease in valued added tax recoverable – – (2,213) 442 (Increase)/decrease in trade receivables 9,932 6,092 (20,321) (1,216) (Increase)/decrease in amounts due from directors (5,124) 2,036 350 – Increase in bills receivable – – – (189) Increase in trade payables 584 5,809 4,647 13,998 Increase in trust receipts 10,513 950 1,062 9,798 Decrease in bills payable (144) (11,375) (1,901) (262) Increase/(decrease) in other payables and accruals 730 (12,906) (1,621) (7,901) Decrease in amount due to minority shareholders – – (1,122) – Increase/(decrease) in value added tax payable (140) (294) 217 178 Increase/(decrease) in amounts due to directors 2,496 (918) (9,313) (383) Increase/(decrease) in amounts due to related companies 3,675 (2,697) 3,762 –

Cash generated from operations 31,845 25,382 27,949 35,363

– 182 – APPENDIX I ACCOUNTANTS’ REPORT

(b) Acquisition of subsidiaries

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

The fair value of assets acquired and liabilities assumed were as follows:

Property, plant and equipment – 65,478 – – Deferred tax assets – 354 – – Inventories – 8,125 – – Due from related companies – 56,095 – – Prepayments, deposits and other receivables – 1,328 – – Due to related companies – (4,183) – – Trade receivables – 2,336 – – Cash and bank balances – 589 – – Bank overdrafts – (166) – – Trust receipts – (4) – – Trade payables – (326) – – Other payables and accruals – (5,495) – – Due to directors – (8,394) – – Corporate income tax payable – (2,310) – – Obligations under finance leases – (14,630) – – Minority interest – 495 – –

– 99,292 – –

Goodwill – 1,301 – – Negative goodwill – (28,920) – –

Consideration payable – 71,673 – –

The financial information of Dongguan Koda prior to and following the acquisition is set out below:

Income Statement Prior to acquisition Following the acquisition From From Year ended 1st January, 1st August, Year ended Six months 31st 2002 to 2002 to 31st 31st ended December, 31st July, December, December, 30th June, 2001 2002 2002 2003 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Turnover 46,844 32,303 26,189 66,614 29,184 Cost of sales (35,260) (20,257) (17,018) (41,962) (19,997)

Gross profit 11,584 12,046 9,171 24,652 9,187 Other revenue 284 774 294 496 183 Distribution and selling expenses (1,176) (572) (365) (520) (460) General and administrative expenses (5,679) (2,461) (2,428) (5,388) (2,600) Other operating expenses (159) (12,623) (279) (42) (21)

Profit/(loss) from operation4,854 (2,836) 6,393 19,198 6,289 Finance costs (349) (406) (308) (502) (106)

Profit/(loss) before taxation4,505 (3,242) 6,085 18,696 6,183 Taxation(625) 120 (788) (2,731) 407

Net profit/(loss) for the year/period 3,880 (3,122) 5,297 15,965 6,590

– 183 – APPENDIX I ACCOUNTANTS’ REPORT

Balance Sheet

Prior to acquisition Following the acquisition 31st 31st 31st December, 31st July, December, December, 30th June, 2001 2002 2002 2003 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

NON-CURRENT ASSETS Fixed assets 48,395 66,972 66,098 73,648 121,299 Deferred tax assets 2,729 374 428 706 900

51,124 67,346 66,526 74,354 122,199

CURRENT ASSETS Inventories 4,305 7,472 10,097 10,092 18,746 Due from immediate holding company – – 64,562 43,174 39,035 Due from a fellow subsidiary – – – 1,616 1,616 Due from a related company 62,316 58,711 – – – Trade receivables – – – 327 219 Bills receivables – – – – 200 Prepayments, deposit and other receivables 1,710 879 402 269 430 Value added tax receivable – – – 2,097 1,271 Cash and bank balances 334 357 2,804 1,106 1,394

68,665 67,419 77,865 58,681 62,911

CURRENT LIABILITIES Trade payables (9) (346) (2,176) (3,221) (3,712) Other payables and accruals (2,142) (2,998) (2,667) (1,418) (1,293) Due to a director (23,112) (8,702) (9,573) – – Short-term bank loan, secured – – – (83) (83) Tax payable (941) (2,448) (2,928) (744) (611) Current portion of obligations under finance leases (5,587) (7,384) (9,185) (6,503) (1,858)

(31,791) (21,878) (26,529) (11,969) (7,557)

NET CURRENT ASSETS 36,874 45,541 51,336 46,712 55,354

TOTAL ASSETS LESS CURRENT LIABILITIES 87,998 112,887 117,862 121,066 177,553

NON-CURRENT LIABILITIES Long-term portion of obligations under finance leases (8,957) (8,009) (6,649) (146) –

NET ASSETS 79,041 104,878 111,213 120,920 177,553

Represented by: Issued capital 75,289 76,356 77,393 79,931 130,766 Reserves 3,752 28,522 33,820 40,989 46,787

79,041 104,878 111,213 120,920 177,553

– 184 – APPENDIX I ACCOUNTANTS’ REPORT

(c) Disposal of a subsidiary

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Fixed assets – – 1,700 – Inventories – – 1,018 – Prepayments, deposits and other receivables – – 465 – Due from related companies – – 532 – Trade receivables – – 3,884 – Cash and bank balances – – 1,360 – Bank overdrafts – – (133) – Trade payables – – (690) – Other payables and accruals – – (122) – Value added tax payable – – (122) – Due to related companies – – (8,638) – Minority interest – – 229 –

– – (517) – Gain on disposal (Note 4(a)) – – 1,013 –

– – 496 –

Satisfied by:

Set off with other payable – – 496 –

Analysis of the net outflow of cash and cash equivalents in respect of the disposal of a subsidiary.

Six months ended Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Cash and cash equivalents disposed of with the subsidiary Cash and bank balances – – 1,360 – Bank overdrafts – – (133) –

Net outflow of cash and cash equivalents in respect of the disposal of a subsidiary – – 1,227 –

(d) Analysis of balances of cash and cash equivalents

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Cash and bank balances 49,727 32,160 15,832 28,142 Less: pledged deposits with banks (21,244) (15,928) (9,581) (12,086)

Bank overdrafts (6,547) (14,712) (20,625) (12,037)

Cash and cash equivalents 21,936 1,520 (14,374) 4,019

– 185 – APPENDIX I ACCOUNTANTS’ REPORT

(e) Major non-cash transactions

(i) The Group entered into finance lease arrangements in respect of fixed assets with a total capital value at the inception of the leases of approximately HK$851,000, HK$149,000, HK$Nil and HK$9,895,000 for the years ended 31st December, 2001, 2002 and 2003 and the six months ended 30th June, 2004 respectively.

(ii) During the year ended 31st December, 2002, the Group acquired subsidiaries for a total consideration of approximately HK$71,673,000. The consideration was satisfied through current account with directors, a related company and a minority shareholder of approximately HK$71,120,000, HK$496,000 and HK$57,000 respectively.

(iii) During the year ended 31st December, 2002, a subsidiary declared an interim dividend of approximately HK$24,559,000 which was credited as fully paid through current accounts with the previous shareholders.

(iv) During the year ended 31st December, 2002, the Group acquired fixed assets of HK$1,500,000 and HK$15,000,000 from Mr. Chui and a third party respectively. The consideration was satisfied through the respective current accounts with Mr. Chui and the third party.

34. Capital commitment

The capital commitments of the Group were as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Contracted but not provided for – purchase of machinery 8,820 307 59,300 4,661 – Construction in progress – 3,664 1,867 13,189

8,820 3,971 61,167 17,850

The Company did not have any commitments during the Relevant Period.

35. Operating lease arrangements

(a) The Group as lessor

The total future minimum lease payments to be received by the Group for assets leased out under non-cancellable operating leases are as follows:

As at Year ended 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Not later than one year – 624 540 154 Later than one year and not later than five years – 260 203 –

– 884 743 154

– 186 – APPENDIX I ACCOUNTANTS’ REPORT

(b) The Group as lessee

The Group’s total minimum lease payments under non-cancellable operating lease agreements are analysed as follows:

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Not later than one year 354 1,465 55 137 Later than one year and not later than five years 1,416 2,900 – 89 Later than five years 15,993 12,887 – –

17,763 17,252 55 226

The Group leases land and buildings under operating leases with lease terms from 3 to 50 years. None of these leases includes contingent rentals.

36. Contingent liabilities

As at As at 31st December, 30th June, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000

Guarantees to Thailand custom department 1,530 – – – Guarantees to an electricity company 72 217 235 433 Guarantee to a related company 376 5,738 – – Guarantee to independent third parties 6,385 1,950 – –

8,363 7,905 235 433 Letter of credit issued on behalf of a related company 1,483 – – –

9,846 7,905 235 433

The Company did not have any contingent liabilities during the Relevant Period.

37. Banking facilities

The Group had aggregate banking facilities of approximately HK$187,932,000, HK$114,403,000, HK$121,750,000 and HK$174,521,000 as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively, for loans, overdrafts and trade financing. Unused facilities as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 amounted to approximately HK$135,306,000, HK$54,225,000, HK$42,683,000 and HK$68,444,000 respectively. During the Relevant Period, these facilities were secured by:–

(a) guarantees provided by directors of the Company;

(b) corporate guarantee provided by a related company;

(c) properties respectively owned by a related company, a director and his wife;

(d) land and buildings with net book value of approximately HK$18,422,000, HK$29,020,000, HK$43,574,000 and HK$42,466,000 as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively;

(e) machinery with net book value of approximately HK$17,042,000, HK$52,962,000, HK$49,238,000 and HK$51,065,000 as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively; and

(f) pledged deposits with banks of approximately HK$21,244,000, HK$15,928,000, HK$9,581,000 and HK$12,086,000 as at 31st December, 2001, 2002 and 2003 and 30th June, 2004 respectively.

– 187 – APPENDIX I ACCOUNTANTS’ REPORT

The corporate guarantee provided by and the security in respect of the properties owned by a related company were released in 2003. The creditor banks have agreed in principle that the guarantees provided by the directors and the security in respect of the properties respectively owned by a director and his wife above be released and replaced by a corporate guarantee to be issued by the Company upon the listing of the Company’s shares on the Main Board of the Stock Exchange of Hong Kong Limited.

38. Ultimate holding company

The directors of the Company consider Tottenhill Limited, a company incorporated in British Virgin Islands, to be the ultimate holding company.

39. Subsequent events

On 30th August, 2004, the Company has declared an interim dividend of HK$6,050,000 for the six months ended 30th June, 2004, which has been paid to the sole shareholder of the Company in October 2004.

III. OTHER FINANCIAL INFORMATION ABOUT THE COMPANY

1. Distribution reserves

The Company had no reserves available for distribution to shareholders as at 30th June, 2004.

2. Directors’ remuneration

Under the arrangement currently in force, the estimated amount of directors’ fees and other emoluments payable to the directors of the Company for the year ended 31st December, 2004 will be approximately HK$5,033,000, excluding discretionary bonuses payable under directors’ service contracts. Further details of directors’ service contracts are set out in the paragraph headed “Further information about directors, management, staff, substantial shareholders and experts” in Appendix VII to the Prospectus.

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of the companies comprising the Group in respect of any period subsequent to 30th June, 2004.

Yours faithfully, CCIF CPA LIMITED Certified Public Accountants Hong Kong Chan Wai Dune, Charles Practising Certificate Number P00712

– 188 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

The following is the text of a report, prepared for the purpose of incorporating in this prospectus, received from the auditors and reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

CCIF CPA Limited 37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong

19th October, 2004

The Directors IPE Group Limited MasterLink Securities (Hong Kong) Corporation Limited Partners Capital International Limited

Dear Sirs,

We set out below our report on the financial information relating to Dongguan Koda Metal Products Company Limited (“Dongguan Koda”) for the year ended 31st December, 2001 and seven months ended 31st July, 2002 (the date prior to the effective date of acquisition of Dongguan Koda) (the “Relevant Period”) for inclusion in the prospectus of IPE Group Limited dated 19th October, 2004 (the “Prospectus”).

Dongguan Koda is a wholly foreign-owned enterprise with limited liability incorporated in the People’s Republic of China (“Mainland China”) on 6th September, 1994, and is principally engaged in the manufacturing of precision metal components.

Dongguan Koda has its financial year ending on 31st December each year. The statutory financial statements of Dongguan Koda prepared in accordance with the relevant accounting rules and regulations applicable to enterprises with foreign investment in the Mainland China for the year ended 31st December, 2001 were audited by Shenzhen Fa Wei, Certified Public Accountants, a firm of certified public accountants registered in the Mainland China. For the purpose of this report, we have undertaken an independent audit of the financial statements, prepared in accordance with accounting principles generally accepted in Hong Kong, of Dongguan Koda for the Relevant Period in accordance with auditing standards issued by the Hong Kong Institute of Certified Public Accountants and carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.

The financial information of the income statement, statement of changes in equity and cash flows for the Relevant Period and the balance sheet of Dongguan Koda as at 31st December, 2001 and 31st July, 2002 (the “Financial Information”) as set out in this report have been prepared from the audited financial statements of Dongguan Koda on the basis set out in Note 1 to Section II below.

– 189 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

The directors of Dongguan Koda are responsible for the preparation of the Financial Information which give a true and fair view. In preparing the Financial Information, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion on the Financial Information.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of Dongguan Koda for the Relevant Period, and of the financial position of Dongguan Koda as at 31st December, 2001 and 31st July, 2002.

I. FINANCIAL INFORMATION

The following is a summary of the financial information of Dongguan Koda for the Relevant Period:

Income statements For the year ended 31st December, 2001 and seven months ended 31st July, 2002 (the date prior to the effective date of acquisition of Dongguan Koda)

Seven months Year ended ended 31st December, 31st July, 2001 2002 Notes RMB’000 RMB’000

Turnover 4 46,844 32,303 Cost of sales (35,260) (20,257)

Gross profit 11,584 12,046

Other revenue 4 284 774 Distribution and selling expenses (1,176) (572) General and administrative expenses (5,679) (2,461) Other operating expenses 5 (159) (12,623)

Profit/(loss) from operations 6 4,854 (2,836) Finance costs 7 (349) (406)

Profit/(loss) before tax 4,505 (3,242)

Taxation 10 (625) 120

Profit/(loss) for the year/period 3,880 (3,122)

– 190 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

Statement of movements in equity For the year ended 31st December, 2001 and seven months ended 31st July, 2002 (the date prior to the effective date of acquisition of Dongguan Koda)

Statutory Retained Statutory public profits/ Issued surplus welfare Revaluation (Accumulated capital reserve fund reserve losses) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1st January, 2001 72,958 1,868 934 – (2,930) 72,830 Issue of capital 2,331 ––––2,331 Profit for the year ––––3,880 3,880 Transfer from retained profits – 547 273 – (820) –

At 31st December, 2001 75,289 2,415 1,207 – 130 79,041

At 1st January, 2002 75,289 2,415 1,207 – 130 79,041 Issue of capital 1,067 ––––1,067 Surplus on revaluation – Gross – – – 31,696 – 31,696 – Taxation – – – (3,804) – (3,804) Loss for the period ––––(3,122) (3,122) Transfer from retained profits – 947 473 – (1,420) –

At 31st July, 2002 76,356 3,362 1,680 27,892 (4,412) 104,878

– 191 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

Balance sheets As at 31st December, 2001 and 31st July, 2002 (the date prior to the effective date of acquisition of Dongguan Koda)

At At 31st December, 31st July, 2001 2002 Notes RMB’000 RMB’000

NON-CURRENT ASSETS Fixed assets 11 48,395 66,972 Deferred tax assets 19 2,729 374

51,124 67,346

CURRENT ASSETS Inventories 12 4,305 7,472 Due from a related company 13 62,316 58,711 Prepayments, deposits and other receivables 1,710 879 Cash and bank balances 14 334 357

68,665 67,419

CURRENT LIABILITIES Trade payables 15 (9) (346) Other payables and accruals (2,142) (2,998) Tax payable 16 (941) (2,448) Due to a director 17 (23,112) (8,702) Current portion of obligations under finance leases 18 (5,587) (7,384)

(31,791) (21,878)

NET CURRENT ASSETS 36,874 45,541

TOTAL ASSETS LESS CURRENT LIABILITIES 87,998 112,887

NON-CURRENT LIABILITIES Long-term portion of obligations under finance leases 18 (8,957) (8,009)

NET ASSETS 79,041 104,878

Represented by: Paid up capital 20 75,289 76,356

Reserves 21 3,752 28,522

79,041 104,878

– 192 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

Cash flow statements For the year ended 31st December, 2001 and seven months ended 31st July, 2002 (the date prior to the effective date of acquisition of Dongguan Koda)

Seven months Year ended ended 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Profit/(loss) before tax 4,505 (3,242) Depreciation 7,496 4,416 Provision/(reversal of provision) for obsolete and slow moving inventories (2,972) 1,066 Write off of inventories 7 – Impairment loss on fixed assets – 12,513 Interest income (2) (1) Interest expenses 349 406

Operating profit before working capital changes 9,383 15,158 Decrease/(increase) in inventories 2,628 (4,233) (Increase)/decrease in prepayments, deposits and other receivables (1,556) 831 Decrease in amount due from a related company 10,296 8,999 Increase in trade payables 9 337 Increase in other payables and accruals 674 856 Increase in value added tax payable 139 318 Decrease in amount due to a director (18,532) (14,410)

CASH GENERATED FROM OPERATIONS 3,041 7,856

Income tax paid (14) (140)

Net cash generated from operating activities 3,027 7,716

INVESTING ACTIVITIES Purchase of fixed assets (312) (2,743) Interest received 2 1

Net cash used in investing activities (310) (2,742)

FINANCING ACTIVITIES Capital element of finance lease rental payments (2,359) (4,545) Interest expenses (349) (406)

Net cash used in financing activities (2,708) (4,951)

NET INCREASE IN CASH AND CASH EQUIVALENTS 9 23

Cash and cash equivalents at beginning of year/period 325 334

CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 334 357

– 193 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

II. NOTES TO THE FINANCIAL INFORMATION

1. Corporate information and basis of preparation

Dongguan Koda is a wholly foreign-owned enterprise with limited liability incorporated in the Mainland China on 6th September, 1994. During the Relevant Period, Dongguan Koda was engaged in the manufacturing of precision metal components.

The Financial Information has been prepared in accordance with Statements of Standard Accounting Practice issued by the Hong Kong Institute of Certified Public Accountants and accounting principles generally accepted in Hong Kong.

2. Principal accounting policies

The principal accounting policies adopted by Dongguan Koda in arriving at the Financial Information set out in this report are as follows:

(a) Basis of measurement

The financial information has been prepared on the historical cost convention as modified by the revaluation of the land and buildings and plant and machinery.

(b) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to Dongguan Koda and when the revenue can be measured reliably, on the following basis:

(i) sales of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to customers;

(ii) service income is recognised as services are rendered; and

(iii) interest income, on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable.

(c) Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation and any impairment losses.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life on the following basis:

Leasehold land Over the remaining lease period Buildings Over shorter of the remaining lease period and 50 years Plant and machinery 10% per annum Furniture, fixtures and equipment 20% per annum Motor vehicles 30% per annum

The gain or loss on disposal or retirement of a fixed asset recognised in the income statement, is the difference between the net sales proceeds and the carrying amount of the relevant asset.

– 194 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

(d) Construction-in-progress

Construction-in-progress is stated at cost which comprises construction costs, purchased costs and other related expenses incurred in connection with the construction of plant and machinery for own use, less any provision for impairment loss. No depreciation is provided for construction-in-progress until they are completed and put into production.

(e) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes costs of raw materials determined using the first-in, first-out method of costing and, in cases of work-in-progress and finished goods, also direct labour and an appropriate proportion of production overheads. Net realisable value is based on estimated normal selling prices, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write- down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(f) Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised of an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

(g) Leases

(i) Finance leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the company, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

– 195 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

(ii) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Company is the lessee, rental payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

(h) Employee benefits

(i) Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Company of non-monetary benefits are accrued in the year in which the associated services are rendered by employee of the company. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Certain employees of the company are members of a compulsory retirement benefit scheme operated by the government of the Mainland China, the fund of which is held separately. Contributions made are based on a percentage of the eligible employees’ salaries and are charged to the income statement as they become payable in accordance with the rules of the scheme. The employer contributions are fully vested once made.

(iii) Termination benefits are recognised when, and only when, the company demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(i) Deferred tax

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation on fixed assets and tax losses carried forward. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(j) Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transactions dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at the date. Exchange differences are dealt with in the income statement.

(k) Cash equivalents

Cash and cash equivalents comprise cash and bank balances, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the company’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(l) Segment reporting

In accordance with the company’s internal financial reporting the company has determined that business segment is presented as the primary reporting format.

– 196 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

Segment assets consist primarily of fixed assets, construction-in-progress, inventories, receivables, deposits, prepayments and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain borrowings. Capital expenditure comprise additions to fixed assets and construction-in-progress.

(m) Provisions and contingent liabilities

A provision is recognised when there is present obligation, legal or constructive, as a result of a past event and it is probable (i.e. more likely than not) than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

(n) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

3. Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Particulars of the significant related party transactions during the Relevant Period are summarised below:

Seven months Year ended ended 31st December, 31st July, Discontinued transactions 2001 2002 RMB’000 RMB’000

Sales of precision metal components to Integrated Precision Engineering Company Limited (Note) 46,844 32,303

Note: In the opinion of the directors, the above related party transactions were carried out in the usual course of business and on normal commercial terms. On 1st August, 2002, Integrated Precision Engineering Company Limited acquired the entire issued capital of Dongguan Koda from Mr. Chui and became an immediate holding company of Dongguan Koda.

– 197 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

4. Turnover, revenue and segmental information

An analysis of the turnover and other revenue is as follows:

Seven months Year ended ended 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Turnover Sales of precision metal components 46,844 32,303

Other revenue Sales of scrap materials 282 85 Interest income 2 1 Sub-contracting fee income – 688

284 774

Total revenue 47,128 33,077

Dongguan Koda is primarily engaged in the manufacturing of precision metal components in the Mainland China and therefore no geographical segment analysis is presented. An analysis by business segment is set out as follows:

Seven months ended 31st July, 2002 Segment Total Capital Turnover results assets expenditure RMB’000 RMB’000 RMB’000 RMB’000

HDD components 22,192 5,581 5,133 Hydraulic equipment components 6,202 1,675 1,435 Electronic device components 3,586 1,668 829 Others 323 89 75

32,303 9,013 7,472

Unallocated income 773 Interest income 1 Unallocated expenses (12,623)

Operating profit (2,836)

Unallocated items 127,293 3,810

Total 134,765 3,810

– 198 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

Year ended 31st December, 2001 Segment Total Capital Turnover results assets expenditure RMB’000 RMB’000 RMB’000 RMB’000

HDD components 34,852 1,103 3,203 Hydraulic equipment components 5,434 1,542 499 Electronic device components 3,185 901 293 Others 3,373 1,183 310

46,844 4,729 4,305

Unallocated income 282 Interest income 2 Unallocated expenses (159)

Operating profit 4,854

Unallocated items 115,484 2,643

Total 119,789 2,643

5. Other operating expenses

Year ended Seven months 31st December, ended 31st July, 2001 2002 RMB’000 RMB’000

Exchange loss 159 110 Impairment loss on fixed assets – 12,513

159 12,623

6. Profit/(loss) from operations

The profit/(loss) from operations was arrived at after charging/crediting the following:

Year ended Seven months 31st December, ended 31st July, 2001 2002 RMB’000 RMB’000

Charging: Auditors’ remuneration 29 75 Cost of inventories sold 35,260 20,257 Depreciation – Owned assets 7,092 4,180 – Assets held under finance leases 404 236 Staff costs (excluding directors’ remuneration) – Salaries, bonuses, allowances and benefits in kind 5,827 3,794 – Retirement benefits scheme contribution 305 322 Provision for obsolete and slow-moving inventories – 1,066 Write off of inventories 7 –

Crediting: Reversal of provision for obsolete and slow-moving inventories 2,972 –

– 199 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

7. Finance costs

Seven months Year ended 31st ended 31st December, 2001 July, 2002 RMB’000 RMB’000

Interest on finance leases 349 406

8. Directors’ and senior executives’ remuneration

(i) Details of directors’ remuneration are as follows:

Seven months Year ended 31st ended 31st December, 2001 July, 2002 RMB’000 RMB’000

Fees 144 84 Other emoluments of executive directors: Salaries, bonuses, allowance and benefits in kind – –

144 84

The remuneration of the directors fell within the following band:

Number of directors Seven months Year ended 31st ended 31st December, 2001 July, 2002

Nil to RMB1,000,000 4 4

– 200 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

(ii) The emoluments of the five highest paid individuals in Dongguan Koda for the Relevant Period are as follows:

Seven months Year ended 31st ended 31st December, 2001 July, 2002 RMB’000 RMB’000

Directors

Fees 144 84 Salaries, bonuses, allowance and benefits in kind – –

144 84

Employees

Salaries, bonuses, allowance and benefits in kind 100 52 Retirement benefits scheme contributions 3 2

103 54

247 138

Total

Fees 144 84

Salaries, bonuses, allowance and benefits in kind 100 52 Retirement benefits scheme contributions 3 2

103 54

247 138

The remuneration of the highest paid directors and employees fell within the following band:

Number of individuals Seven months Year ended 31st ended 31st December, 2001 July, 2002

Director

Nil to RMB1,000,000 3 3

Employee

Nil to RMB1,000,000 2 2

55

During the Relevant Period, no emoluments were paid by Dongguan Koda to the directors or any of the five highest paid individuals as an inducement to join or upon joining Dongguan Koda or as compensation for loss of office.

– 201 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

9. Provident fund

As stipulated by the regulations in Mainland China, Dongguan Koda is required to contribute to a state- sponsored retirement plan for all of its employees in Mainland China at a rate of 11% of the basic salary of its employees. The state-sponsored retirement plan is responsible for the entire pension obligation payable to all retired employees and Dongguan Koda has no further obligations for the actual pension payments or post- retirement benefits beyond the annual contributions. For the year ended 31st December, 2001 and seven months ended 31st July, 2002, Dongguan Koda provided for retirement plan contributions of approximately RMB305,000 and RMB322,000 respectively.

10. Taxation

Seven months Year ended 31st ended 31st December, 2001 July, 2002 RMB’000 RMB’000

Current tax – Provision for Mainland China Enterprise income tax 816 1,329 Deferred tax (191) (1,449)

625 (120)

A numerical reconciliation between tax expense and the product of accounting profit at applicable tax rate of 12% is as follows:

Seven months Year ended 31st ended 31st December, 2001 July, 2002 RMB’000 RMB’000

Profit/(loss) before tax 4,505 (3,242)

Notional tax on profit/(loss) before tax 541 (389) Tax effect of non-deductible expenses 84 269

625 (120)

In accordance with the applicable enterprise income tax law of Mainland China, Dongguan Koda as a wholly foreign-owned enterprise incorporated in Dongguan Coastal Economic Open Zone, is subject to Mainland China enterprise income tax “EIT” at a rate of 24%. Dongguan Koda is exempted from EIT for the first two profitable years of operations after offsetting prior year losses and is entitled to a 50% reduction on the EIT for the following three years. Dongguan Koda began its first profitable year in the year ended 31st December, 1999. Dongguan Koda was entitled to a 50% reduction on EIT, at an effective tax rate of 12% for the Relevant Period.

Pursuant to a letter of approval issued by the local tax authority on 16th September, 2003, Dongguan Koda as a New and High Technology Enterprise (高新科技企業) was entitled to a preferential tax rate of 15% for the year ended 31st December, 2003. On 13th November, 2003, Dongguan Koda obtained an approval from the local tax authority and it is now subject to a tax rate of 10% for the three years ending 31st December, 2006.

– 202 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

11. Fixed assets

Furniture, Land and Construction Plant and fixtures and Motor buildings in-progress machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost

At 1st January, 2001 14,749 204 67,848 408 694 83,903 Additions – – 2,553 90 – 2,643 Reclassification 39 (39) – – – –

At 31st December, 2001 14,788 165 70,401 498 694 86,546

Accumulated depreciation

At 1st January, 2001 874 – 29,084 293 404 30,655 Provided for the year 296 – 6,976 55 169 7,496

At 31st December, 2001 1,170 – 36,060 348 573 38,151

Net book value

At 31st December, 2001 13,618 165 34,341 150 121 48,395

Cost/valuation

At 1st January, 2002 14,788 165 70,401 498 694 86,546 Additions 653 – 2,608 5 544 3,810 Reclassification 6 (6) – – – – Revaluation surplus 2,603 – 19,099 – – 21,702

At 31st July, 2002 18,050 159 92,108 503 1,238 112,058

Comprising:

At cost – 159 – 503 1,238 1,900 At valuation 18,050 – 92,108 – – 110,158

18,050 159 92,108 503 1,238 112,058

Accumulated depreciation and impairment loss

At 1st January, 2002 1,170 – 36,060 348 573 38,151 Provided for the period 175 – 4,109 32 100 4,416 Eliminated on revaluation (1,345) – (8,649) – – (9,994) Impairment loss – – 12,513 – – 12,513

At 31st July, 2002 – – 44,033 380 673 45,086

Net book value

At 31st July, 2002 18,050 159 48,075 123 565 66,972

– 203 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

(a) Dongguan Koda’s land and buildings at their net book values are analysed as follows:

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Held in the PRC Leases of over 50 years 233 980 Leases of 10 to 50 years 13,385 17,070

13,618 18,050

(b) As at 31st July, 2002, the carrying amount of fixed assets held under finance leases amounted to approximately RMB8,609,000 (2001: RMB2,091,000).

(c) Land and buildings and plant and machinery was revalued as at 31st July, 2002 on the basis of their open market value in existing use carried out by Vigers Hong Kong Limited, an independent firm of chartered surveyors. The surplus on revaluation of approximately RMB3,948,000 and RMB27,748,000 totalling RMB31,696,000 has been credited to the revaluation reserve. The impairment loss on plant and machinery of approximately RMB12,513,000 has been charged to the income statement.

(d) The carrying amount of the land and buildings and plant and machinery would have been RMB14,102,000 and RMB32,840,000 respectively had they been stated at cost less accumulated depreciation.

12. Inventories

Inventories consisted of:

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Raw materials 3,502 4,274 Consumables 27 39 Work in progress 2,841 5,570 Finished goods 977 1,697

7,347 11,580

Less: Provision for obsolete and slow-moving inventories (3,042) (4,108)

4,305 7,472

The amount of inventories that was carried at net realisable value amounted to approximately RMB801,000 and RMB616,000 as at 31st December, 2001 and 31st July, 2002 respectively.

13. Due from a related company

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Integrated Precision Engineering Company Limited 62,316 58,711

The amount was unsecured, interest free and without fixed terms of repayment. The amount mainly represented trade receivables from sales of precision metal components.

– 204 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

14. Cash and bank balances

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Cash and bank balances 334 357

The cash and bank balances were denominated in Renminbi and not freely convertible into other currencies.

15. Trade payables

The aging analysis of trade payables is as follows:

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

0 to 30 days 9 346

16. Tax payable

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Income tax 802 1,991 Value added tax 139 457

941 2,448

17. Due to a director

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Mr. Chui Siu On 23,112 8,702

The balance was unsecured, interest-free and had no pre-determined terms of repayment.

– 205 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

18. Obligations under finance leases

The total future minimum lease payments under finance leases and their present values for each of the Relevant Period were as follows:

Present value of minimum Minimum lease payments lease payments At At At At 31st December, 31st July, 31st December, 31st July, 2001 2002 2001 2002 RMB’000 RMB’000 RMB’000 RMB’000

Amounts repayable: Within one year 6,340 8,092 5,587 7,384 In the second year 6,124 7,949 5,735 7,687 In the third to fifth years, inclusive 3,290 323 3,222 322

Total minimum finance lease payments 15,754 16,364 14,544 15,393

Less: Future finance charges (1,210) (971)

Total net finance lease payable 14,544 15,393

Less: Portion classified as current liabilities (5,587) (7,384)

Long term portion 8,957 8,009

19. Deferred tax assets and liabilities

The components of deferred tax (assets)/liabilities recognised in the balance sheet and the movements during the Relevant Period are as follows:

Depreciation allowances in excess of Provision Revaluation related for Deferred tax arising from: of fixed assets depreciation inventories Total RMB’000 RMB’000 RMB’000 RMB’000

At 1st January, 2001 – (1,817) (721) (2,538) Charged/(credited) to income statement – (437) 246 (191)

At 31st December, 2001 – (2,254) (475) (2,729)

At 1st January, 2002 – (2,254) (475) (2,729) Charged/(credited) to income statement – 136 (1,585) (1,449) Charged to equity 3,804 – – 3,804

At 31st July, 2002 3,804 (2,118) (2,060) (374)

– 206 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Net deferred tax asset recognised on the balance sheet 2,729 374

20. Paid up capital

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Registered capital

At beginning and end of the year/period 77,393 77,393

Paid up capital

At beginning of the year/period 72,958 75,289 Additions during the year/period 2,331 1,067

At end of the year/period 75,289 76,356

21. Reserves

Statutory Retained Statutory public profits/ surplus welfare Revaluation (Accumulated reserve fund reserve losses) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1st January, 2001 1,868 934 – (2,930) (128) Profit for the year – – – 3,880 3,880 Transfer from retained profits 547 273 – (820) –

At 31st December, 2001 2,415 1,207 – 130 3,752

At 1st January, 2002 2,415 1,207 – 130 3,752 Revaluation surplus – Gross – – 31,696 – 31,696 – Taxation – – (3,804) – (3,804) Loss for the period – – – (3,122) (3,122) Transfer from retained profits 947 473 – (1,420) –

At 31st July, 2002 3,362 1,680 27,892 (4,412) 28,522

Mainland China laws and regulations require Dongguan Koda to provide for statutory surplus reserve which are appropriated from the net profit as reported in the statutory financial statements prepared in accordance with the generally accepted accounting principles in the Mainland China but before dividend distribution. They are required to allocate 10% its net profit to statutory surplus reserve until the balance of such fund has reached 50% of their registered capital. The reserve can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital.

The transfer of net profit to statutory public welfare fund is made at the discretion of the directors at 5% of the net profit of Dongguan Koda. The statutory public welfare fund can be used for employees welfare facilities.

– 207 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION OF DONGGUAN KODA

22. Notes to the cash flow statements

Major non-cash transactions

The increase in paid up capital of Dongguan Koda of approximately RMB2,331,000 and RMB1,067,000 during the year ended 31st December, 2001 and the seven months ended 31st July, 2002 were contributed in form of fixed assets.

23. Contingent liabilities

Dongguan Koda did not have any contingent liabilities during the Relevant Period.

24. Operating lease commitment

Dongguan Koda had operating lease commitment in respect of office equipment under non-cancellation operating lease commitment as follows:

At At 31st December, 31st July, 2001 2002 RMB’000 RMB’000

Amount payable within one year – 21

25. Subsequent events

(a) On 25th June, 2004, IPE Group Limited, which was incorporated in the Cayman Islands, became the ultimate holding company.

(b) On 3rd November, 2003 and 9th December, 2003, Dongguan Koda declared interim dividends totaling approximately RMB10,222,000 in respect of the year ended 31st December, 2003.

Yours faithfully, CCIF CPA Limited Certified Public Accountants Hong Kong Chan Wai Dune, Charles Practising Certificate Number P00712

– 208 – APPENDIX III UNAUDITED PROFORMA FINANCIAL INFORMATION

For illustrative purpose only, the unaudited proforma financial information prepared in accordance with Rule 4.29 of the Listing Rules, is set out here to provide the prospective investors with further information about how the proposed listing might have affected (a) the proforma basic earnings per Share for the year ended 31st December, 2003 (assuming that the Shares in issue at the date of this prospectus and those Shares to be issued pursuant to the Offer and the Capitalisation Issue had been in issue on 1st January, 2003); and (b) the unaudited proforma adjusted net tangible assets of the Group as at 30th June, 2004 as if the Shares were in issue as at 30th June, 2004 (including Shares in issue as at the date of this prospectus and those Shares to be issued pursuant to the Offer and the Capitalisation Issue).

Although reasonable care has been exercised in preparing the said information, prospective investors who read the information should bear in mind that these figures are inherently subject to adjustments and may not give a complete picture of the actual earnings per share and financial position of the Group after completion of the Offer.

(A) UNAUDITED PROFORMA BASIC EARNINGS PER SHARE

Combined net profit attributable to shareholders of the Company for the year ended 31st December, 2003 HK$42.4 million

Shares in issue at the date of this prospectus 100,000,000 Shares to be issued pursuant to the Capitalisation Issue 272,500,000 Shares to be issued under the Offer 127,500,000

Total Shares already issued and to be issued under the Offer and the Capitalisation Issue 500,000,000

Proforma basic earnings per Share HK$8.5 cents

The proforma basic earnings per Share is calculated by dividing the combined net profit attributable to shareholders of the Company for the year ended 31st December, 2003 by a total of 500,000,000 Shares (assuming that the Shares in issue at the date of this prospectus and those Shares to be issued pursuant to the Offer and the Capitalisation Issue had been listed since 1st January, 2003 and in issue throughout the year but without taking account for any Shares which may fall to be issued upon the exercise of any options which may be granted under the Share Options Scheme).

– 209 – APPENDIX III UNAUDITED PROFORMA FINANCIAL INFORMATION

(B) UNAUDITED PROFORMA ADJUSTED NET TANGIBLE ASSETS

The following is an illustrative statement of unaudited proforma adjusted net tangible assets of the Group which has been prepared for the purpose of illustrating the effect of the Offer as if it had taken place on 30th June, 2004 and based on the audited consolidated net assets of the Group as at 30th June, 2004 as shown in the accountants’ report, the text of which is set out in Appendix I to this prospectus and is adjusted as follows:

Audited consolidated net assets of Estimated Adjusted the Group as at net proceeds Adjusted net tangible 30th June, Negative from net tangible asset value 2004 goodwill the Offer assets per Share HK$’000 HK$’000 HK$’000 HK$’000 HK$

Based on an Offer Price of HK$0.63 per Share 194,141 26,069 56,400 276,610 0.55

Based on an Offer Price of HK$0.81 per Share 194,141 26,069 78,800 299,010 0.60

This statement has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of financial position of the Group following the Share Offer.

Notes:

1. The estimated net proceeds from the Offer are based on the respective Offer Price of HK$0.63 and HK$0.81 per Share after deduction of the underwriting commission and other related expenses of the Offer payable by the Group.

2. The adjusted net tangible asset value per Share is arrived at based on the 500,000,000 Shares expected to be in issue immediately following completion of the Offer and the Capitalisation Issue and takes no account of any Shares which may fall to be allotted and issued upon the exercise of options which may be granted under the Share Option Scheme or which may be allotted and issued or purchased by the Company pursuant to the general mandates for the allotment and issue and repurchase of Shares granted to the Directors as referred to in the paragraph headed “Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004” in the section headed “Further information about the Company” in Appendix VII to this prospectus.

3. The Group’s property interests as at 31st August, 2004 have been valued by Vigers Appraisal & Consulting Limited, an independent property valuer, and the relevant property valuation report is set out in Appendix IV to this prospectus. The above adjustment does not take into account the surplus arising from the revaluation of the Group’s property interests. The revaluation surplus will not be incorporated in the Group’s financial statements for the year ending 31st December, 2004. If the revaluation surplus was recorded in the Group’s financial statements, the depreciation expense of the Group for the year ending 31st December, 2004 would be increased by approximately HK$5,000.

– 210 – APPENDIX III UNAUDITED PROFORMA FINANCIAL INFORMATION

(C) COMFORT LETTER ON UNAUDITED PROFORMA FINANCIAL INFORMATION

The following is the text of a report from CCIF CPA Limited, the reporting accountants to the Company, for the purpose of incorporating in this prospectus.

CCIF CPA Limited 37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong

19th October, 2004

The Directors IPE Group Limited MasterLink Securities (Hong Kong) Corporation Limited Partners Capital International Limited

Dear Sirs,

We report on the unaudited proforma financial information of IPE Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 209 and 210 under the headings of “Unaudited Proforma Basic Earnings Per Share” and “Unaudited Proforma Adjusted Net Tangible Assets” (the “Unaudited Proforma Financial Information”) set out in Appendix III to the Company’s prospectus dated 19th October, 2004 (the “Prospectus”) in connection with the placing and public offer of shares of the Company on the Main Board of the Stock Exchange of Hong Kong Limited. The Unaudited Proforma Financial Information has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the placing and public offer might have affected the relevant financial information of the Group as at 30th June, 2004 and for the year ended 31st December, 2003.

RESPONSIBILITIES

The directors of the Company are solely responsible for preparing the Unaudited Proforma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion as required by the Listing Rules on the Unaudited Proforma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Proforma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 211 – APPENDIX III UNAUDITED PROFORMA FINANCIAL INFORMATION

BASIS OF OPINION

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on proforma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Proforma Financial Information with the directors of the Company.

Our work does not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, therefore, we do not express any such audit or review assurance whatsoever on the Unaudited Proforma Financial Information.

The Unaudited Proforma Financial Information has been prepared in accordance with the basis set out in sections A and B of Appendix III to the Prospectus for illustrative purpose only and, because of its nature, it may not give an indicative financial position of the Group as at 30th June, 2004 or at any future dates and the earnings per share of the Company for any future periods.

OPINION

In our opinion:

(a) the Unaudited Proforma Financial Information has been properly compiled by the directors of the Company on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purpose of the Unaudited Proforma Financial Information as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully, CCIF CPA Limited Certified Public Accountants Hong Kong Chan Wai Dune, Charles Practising Certificate Number P00712

– 212 – APPENDIX IV (A) PROPERTY VALUATION

The following is the text of a letter and a valuation certificate, prepared for the purpose of incorporation in the prospectus dated 19th October, 2004 issued by the Company, received from Vigers Appraisal & Consulting Limited, an independent property valuer, in connection with its valuation as at 31st August, 2004.

19th October, 2004

The Directors IPE Group Limited Unit No. E1, 11th Floor Hoi Bun Industrial Building No. 6 Wing Yip Street Kwun Tong Kowloon Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests of IPE Group Limited (the “Company”) and its subsidiaries (together referred to as the “Group”) in Hong Kong Special Administrative Region (“Hong Kong”), the People’s Republic of China (the “PRC”), Macau Special Administrative Region (“Macau”) and Japan, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of such property interests as at 31st August, 2004 (“the date of valuation”).

Our valuation of the interest in a property is our opinion of the open market value which we would define as intended to mean – “the best price at which the sale of an interest in property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation assuming:–

(a) a willing seller;

(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

– 213 – APPENDIX IV (A) PROPERTY VALUATION

(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

Our valuations have been made on the assumption that the owners sell the relevant property interests on the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to increase the values of such interests. In addition, no forced sale situation in any manner is assumed in our valuations.

For all property interests in Hong Kong, we have caused searches to be made at the Land Registry and in some instances we have been provided with extracts from title documents relating to those properties. We have not, however, searched the original documents to verify ownership or to verify the existence of any lease amendments which do not appear on the copies handed to us. All documents and leases have been used for reference only. All dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Group and therefore are only approximation.

For those properties situated in Hong Kong and held under the Government Leases which have been expired before 30th June, 2047, we have taken account of the statement contained in the Annex III of the Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that more of such leases would have been extended without premium until 30th June, 2047 and that an annual rent of three percent of the then rateable value would be charged from the date of extension.

In valuing the property interest in Group I, which are owner-occupied by the Group in Hong Kong, direct comparison approach is adopted with reference to comparable transactions in the open market and on the basis of vacant possession.

We have valued the property interests of all property interests in Group II (except for Property Nos. 2 & 3) by reference to sales evidence as available on the open market assuming that vacant possession of the properties would be readily available upon completion of a sale. Due to the specific purpose, for which most of the buildings and structures of Property Nos. 2 & 3 in Group II have been constructed, there is no readily identifiable market comparable. Thus these buildings and structures cannot be valued on the basis of direct comparison. They have therefore been valued on the basis of their depreciated replacement costs. We would define “depreciated replacement cost” to be our opinion of the land value in its existing use and an estimate of the new replacement costs of the buildings and structures, including fees and finance charges, from which deductions are then made to allow for age, condition and functional obsolescence. The depreciated replacement cost approach generally provides the most reliable indication of value for property in the absence of a known market based on comparable sales.

In valuing the property interest in Group III, which is held under construction and will be occupied by the Group in the future, we have valued the property interest on the basis that the property will be developed and completed in accordance with the Group’s latest development proposal provided to us. We have assumed that approvals for the proposals will be granted without onerous conditions. In arriving at our opinion of value, we have valued it using the Depreciated Replacement Costs Approach and have also taken into account the construction costs that will be expended to complete the development to reflect the quality of the completed development. The “Capital value when completed” represents our opinion of the aggregate selling prices of the property assuming that it would have been completed as at the date of valuation.

– 214 – APPENDIX IV (A) PROPERTY VALUATION

In valuating the property interest in Group IV, which are held for investment by the Group in Hong Kong, we have adopted the investment approach which capitalises the current rent receivable from the existing tenancy and the potential reversionary market rent of the property interest, taking into account the latest market rental comparables in the open market.

In valuing the property interests in Groups V & VI, which is rented by the Group in Japan and Macau, we have assigned no commercial value to them mainly due to the prohibition against the assignment or subletting, the lack of substantial profit rent, or the short term nature of such interests.

In undertaking our valuation of the property interests in Group II & III, we have relied on the legal opinion provided by the Group’s PRC legal adviser, King & Wood PRC Lawyers, (the “PRC Legal Opinion”). Based on the PRC Legal Opinion, details of the current status of titles, grant of major approvals, licences and documents of property interests are set out in pages 220 to 229 in the report.

In undertaking our valuation of the property interest in Group VI, we have relied on the legal opinion provided by the Group’s Macau legal adviser, C & C Advogados, (the “Macau Legal Opinion”). Based on the Macau Legal Opinion, details of the current status of titles, grant of major approvals, licences and documents of property interest are set out in page 232 in the report.

We have inspected the exterior and, where possible, the interior of the properties valued. However, we have not carried out a structural survey. We are therefore unable to report whether any such parts of the properties are free from decay, damage by insects or any other structural defects. However, in the course of our inspection, we have not discovered any serious defects.

We have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, particulars of occupancy, lettings, rental income and revenue, joint venture agreements, development plans, construction costs estimates, site and floor areas, the identification of those properties in which the Group has valid interests and all other relevant matters. Dimensions, measurements and areas included in the valuation certificates are based on information contained in copies of documents provided to us and are therefore only approximation.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

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Our valuations have been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute of Surveyors in September 1999.

Unless otherwise stated, all amounts stated in our valuations are in Hong Kong dollars. The exchange rates used in valuing the property interests in Groups II, III, IV, V and VI are rates prevailing as at the date of valuation, the details being summarised as follows:

Country/City Exchange Rate

The PRC HK$1.00 = RMB1.06 JapanHK$1.00 = Yen14.08 Macau HK$1.00 = MOP1.03

We enclose herewith a summary of valuation and valuation certificates.

Yours faithfully, For and on behalf of VIGERS APPRAISAL & CONSULTING LIMITED Raymond Ho Kai Kwong, Registered Professional Surveyor MRICS, MHKIS, MSc (e-com) Executive Director

Note: Raymond K.K. Ho, Chartered Surveyor, MRICS, MHKIS, MSc (e-com) has over seventeen year’s experience in undertaking valuations of properties in Hong Kong and Macau and has over ten years’ experience in the valuation of properties in the PRC. Moreover, Raymond also has more than seven year’s experience in valuing leased properties in Japan.

– 216 – APPENDIX IV (A) PROPERTY VALUATION

SUMMARY OF VALUATION

Open market value in existing state as at Property 31st August, 2004

Group I – Property interest held and occupied by the Group in Hong Kong

1. Block/Unit No. E1 on 11th Floor HK$1,410,000 Hoi Bun Industrial Building No. 6 Wing Yip Street, Kowloon Hong Kong

Sub-total: HK$1,410,000

Group II – Property interests held and occupied by the Group in the PRC

2. A factory complex, Huang Si Wei Guan Li Qu RMB14,280,000 Dongguan City, Guangdong Province (equivalent to the PRC HK$13,470,000)

3. A factory complex located in Jiao Keng, RMB7,200,000 Lan Tian She Shui Men Tou (Tu Ming), (equivalent to Xian Lian Cun Xian Cun Town, HK$6,800,000) Zengcheng City Guangdong Province, the PRC

4. Room C, Level 4, Block 3, Jinhu Garden RMB170,000 Heng Keng, Liaobu Town, Dongguan City (equivalent to Guangdong Province, the PRC HK$160,000)

5. Room 6A303 on Level 3, Block 6, Di San Xiao Qu RMB130,000 Dong Xie Square, Chong Huan Zhong Road (equivalent to Shihe Town, Dongguan City HK$120,000) Guangdong Province, the PRC

6. Unit B on Level 23, Block 1 RMB680,000 Dong Hu Hua Yuen, Dong Zong Da Dao (equivalent to Cheng Qu, Dongguan City HK$640,000) Guangdong Province, the PRC

7. Room E on Level 16, Shen Fang Commercial Building RMB2,300,000 (also known as Block 23) amid (equivalent to An Zhen Xi Li Si Qu, Chaoyang District HK$2,170,000) Beijing, the PRC

Sub-total: RMB24,760,000 (equivalent to HK$23,360,000)

– 217 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in existing state as at Property 31st August, 2004

Group III – Property interest held for development by the Group in the PRC

8. An industrial site located in RMB29,000,000 Shang Wei Sha He She, Yue Hu Cun, (equivalent to Xian Cun Zhen, Zengcheng City, HK$27,358,000) Guangdong Province, the PRC

Sub-total: RMB29,000,000 (equivalent to HK$27,358,000)

Group IV – Property interest held for investment by the Group in Hong Kong

9. Unit B, Golden Lake Villa HK$10,600,000 No. 29 Silver Cape Road Sai Kung, New Territories Hong Kong

Sub-total: HK$10,600,000

Group V – Property interest rented by the Group in Japan

10. An office unit located at Room No. 301 No Commercial Chamber of Commerce Value 2-7-8 Tonya-Machi Takasaki-Shi Gumma Japan 370-0006

Sub-total: Nil

Group VI – Property interest rented by the Group in Macau

11. Alameda Dr. Carlos D’Assumpção n.˚ 398, No Commercial Edificio Commercial Tai Fung, Value 9˚ andar “F” Macau

Sub-total: Nil

Grand Total: HK$62,728,000

– 218 – APPENDIX IV (A) PROPERTY VALUATION

VALUATION CERTIFICATE

Group I – Property interest owned by the Group in Hong Kong

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

1. Block/Unit No. E1 The property comprises a unit on The property is HK$1,410,000 on 11th Floor the 11th Floor of a 15-storey currently occupied by Hoi Bun Industrial building. The development was the Group for ancillary Building completed in 1981. office purpose. No. 6 Wing Yip Street The property has a total gross floor Kwun Tong area of approximately 3,925 sq.ft.. Kowloon Hong Kong The property is held under two Conditions of Sale Nos. 6482 and 153/18,742nd parts 6491 for a common term or shares of and in commencing from 1st July, 1959. Kwun Tong Inland By virtue of the New Territories Lot Nos. 167 and (Extension) Ordinance, the said 168 term has been extended without premium until 30th June, 2047 at a new rent payable of $1,422 per annum.

Notes:

1. According to the record in the Land Registry, the current registered owner of the property is Integrated Precision Engineering Company Limited (referred hereinafter as “IPE (HK)”).

2. According to the information provided by the Group, IPE (HK) is a company incorporated in Hong Kong with limited liability on 13th September, 1994 and an indirect wholly-owned subsidiary of the Company.

3. Under the Occupation Permit No. NK58/81 issued by the Building Authority, the property shall be used as workshop for non-domestic use.

– 219 – APPENDIX IV (A) PROPERTY VALUATION

Group II – Property interests owned by the Group in the PRC

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

2. A factory complex The property comprises 3 parcels The property is at RMB14,280,000 located in Huang Si of land (hereinafter referred to as present occupied by the (equivalent to Wei Guan Li Qu “Land A, B and C”) with a total Group for industrial HK$13,470,000) Dongguan City site area of approximately 16,324 production and ancillary Guangdong Province sq.m. and 3 buildings and 8 items purposes. the PRC of ancillary facilities erected thereon.

Three parcels of land have a site area as follows:

Land A: 6,007 sq.m. Land B: 7,049 sq.m. Land C: 3,268 sq.m.

16,324 sq.m.

The 3 buildings erected on Land A and with Real Property Ownership Certificates were completed between 1996 and 2000. These buildings have a total gross floor area of approximately 8,706.68 sq.m..

The 3 buildings erected on Land A and with Real Property Ownership Certificates are two factories and a staff quarter. 8 items of ancillary structures erected on Lands A, B and C include three staff quarters, two guard rooms, a canteen, a warehouse and an electricity distribution room with a total gross floor area of approximately 2,382.33 sq.m..

Land A was granted with the land use rights for a term of 50 years expiring on 24th October, 2046.

Notes:

1. According to a State-owned Land Use Right Certificate (Document No.: Dong Fu Guo Yong (1996) Zi No. Te 329) dated 15th November, 1996, the land use rights of Land A with a site area of approximately 6,007 sq.m. for a term of 50 years commencing from 25th October, 1996 to 24th October, 2046 for industrial use have been granted to 東莞科達五金制品有限公司(Dongguan Koda Metal Products Co., Ltd.) (referred hereinafter as “Dongguan Koda”).

2. According to three Real Property Ownership Certificates (Document Nos.: Yue Fang Di Zheng Zi Nos. 0235802, 0235803 and 0235804) all dated 2nd December, 1996 the building ownership of 3 buildings of the property with a total gross floor area of 8,706.68 sq.m. is vested in Dongguan Koda.

3. Pursuant to two Land Transfer Agreements dated 15th April, 1997 entered into between 東莞市石碣鎮黃泗 圍管理區(Dongguan Shi Shixiezhen Huangxi Wei Management District) (referred hereinafter as “Party A”) and Dongguan Koda, Party A agreed to sell two land parcels, namely Land B and Land C, with a total site area of 10,317 sq.m. to the Dongguan Koda at a total consideration of RMB1,739,800.

– 220 – APPENDIX IV (A) PROPERTY VALUATION

4. According to a Notarial Certificate dated 10th February, 2004, which is issued by東莞市國土資源局石碣分 局 (Dongguan Land Resources Bureau Shi Xie Branch), the application of a State-owned Land Use Right Certificate for two parcels of land, namely Land B and Land C is under process.

5. In the course of our valuation, we have ascribed no commercial value to the 4 items of ancillary structures erected on Land A with a total gross floor area of approximately 1,250 sq.m. as they do not have Real Property Ownership Certificates and therefore their transferability is unknown. For indicative purpose, the total replacement cost of these 4 items of ancillary structures as at the date of valuation was RMB1,980,000.

6. In the course of our valuation, we have excluded the value of two parcels of land, namely Land B and Land C, with a total site area of approximately 10,317 sq.m. and the 4 items of ancillary facilities with a total gross floor area of approximately 1,132.33 sq.m.. The 2 items of ancillary facility erected on Land B, which include a canteen and a guard room, have a total gross floor area of 706.4 sq.m.. The 2 items of ancillary facility erected on Land C, which include a warehouse and an electricity distribution room, have a total gross floor area of approximately 425.93 sq.m.. Since these two parcels of land and the 4 items of ancillary facilities do not have the State-owned Land Use Right Certificates and Real Property Ownership Certificates, the transferability of the legal ownership is unknown. We have ascribed no commercial value to these 2 parcels of land and ancillary facilities. For indicative purpose, the total depreciated replacement cost of the 4 items of ancillary facilities as at the date of valuation was RMB1,250,000.

7. We have been provided with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) Dongguan Koda has obtained the land use rights and building ownership under the aforesaid Real Property Ownership Certificates mentioned in Note 2.

(ii) The land use rights and building ownership under the aforesaid State-owned Land Use Right Certificate and Real Property Ownership Certificate mentioned in Note 1 and Note 2 respectively are subject to a mortgage dated 18th July, 2003 in favor of Belgium United Bank Shenzhen Branch.

(iii) Dongguan Koda is entitled to freely transfer, let or mortgage the land use rights of Land A and building ownership for those buildings erected on Land A.

(iv) Dongguan Koda has not obtained the State-owned Land Use Right Certificate for Land B and C, hence it does not have land use rights towards these two parcels of lands.

(v) The property is not subject to any transfer, lease or any third party rights.

(vi) All payments and fees in relation to the property have been fully settled.

8. According to the information provided by the Group, Dongguan Koda is a wholly foreign-owned enterprise established in the PRC on 6th September, 1994 and an indirect wholly-owned subsidiary of the Company.

9. We understand that the current status of titles, grant of major approvals, licences and documents of the property area as follows:

(a) State-owned Land Use Right Certificate of Land A Yes (b) Real Property Ownership Certificates for the buildings with a total gross floor area of 8,706.68 sq.m. Yes

– 221 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

3. A factory complex The property comprises a parcel of The property is at RMB7,200,000 located in land with a site area of present occupied by the (equivalent to Jiao Keng, approximately 8,000 sq.m. and a Group as a factory HK$6,800,000) Lan Tian She Shui factory building and other ancillary purpose. Men Tou (Tu Ming) facilities erected thereon. Xian Lian Cun Xian Cun Town The factory building and other Zengcheng City ancillary facilities were completed Guangdong Province between 1999 to 2000 and have a the PRC total gross floor area of approximately 2,689 sq.m..

The parcel of land was granted with the land use rights for a term of 50 years expiring on 30th December, 2053 for industrial uses.

Notes:

1. According to a State-owned Land Use Right Certificate (Document No.: Zheng Guo Yong (2004) No. C0300035) dated 15th January, 2004, the land use rights of the land parcel with a site area of approximately 8,000 sq.m. for a term of 50 years expiring on 30th December, 2053 have been granted to 廣州市新豪精密五金制品有 限公司(Guangzhou Xing Hao Precision Metal Products Co., Ltd.) (referred hereinafter as “Xing Hao”) for Industrial use.

2. According to two Building Ownership Certificates (Document Nos.: Yuefangzi No. 4014993 and Yuefangzi No. 4014994) both dated 9th July, 2004, two out of total four buildings with gross floor area of approximately 1,944 sq.m. as factory and 185 sq.m. as warehouse are vested in Xing Hao.

3. The detail information of the buildings erected thereon are summarized as follow:

No. Building Gross Floor Area Building Ownership (sq.m.) Certificate

1 Factory 1,944 Yuefangzi No. 4014993 2 Raw material warehouse 185 Yuefangzi No. 4014994 3 2 blocks of staff quarters 480 Nil 4 Electricity distribution room 80 Nil

Total 2,689

4. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) The land use rights of the property is vested in Xing Hao.

(ii) Xing Hao is entitled to freely transfer, let or mortgage the property (excluding building Nos. 3 and 4).

(iii) The property is not subject to any transfer, lease or any third party rights.

(iv) The Building Ownership Certificates of Building Nos. 3 & 4 is under application.

– 222 – APPENDIX IV (A) PROPERTY VALUATION

5. In the course of our valuation, we have ascribed no commercial value to the buildings No. 3 & 4 with a total gross floor area of approximately 560 sq.m. as they does not have a Building Ownership Certificates and therefore their transferability are unknown. For indicative purpose, the total replacement costs of buildings No. 3 & 4 as at the date of valuation was RMB500,000.

6. According to the information provided by the Group, Xing Hao is a wholly foreign-owned enterprise established in the PRC on 19th June, 2002 and an indirect wholly-owned subsidiary of the Company.

7. We understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:

(a) State-owned Land Use Right Certificate Yes (b) Building Ownership Certificates for Building No. 1 & 2 Yes (c) Building Ownership Certificates for Building No. 3 & 4 Applying

– 223 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

4. Room C on Level 4 The property comprises a The property is RMB170,000 Block 3 residential unit on Level 4 of a currently occupied by (equivalent to Jinhu Garden 7-storey composite building. The the Group as staff HK$160,000) Heng Keng development was completed in dormitory. Liaobu Town 1993. Dongguan City Guangdong Province The property has a gross floor area the PRC of approximately 79.52 sq.m..

The property is held under land use rights for a term expiring on August 2063 for commercial/ residential uses.

Notes:

1. According to a Real Property Ownership Certificate (Document No.: Yue Fang Di Zheng Zi No. C0787939), the building ownership of the property with a gross floor area of 79.52 sq.m. is vested in Dongguan Koda for a term expiring on August 2063 for commercial/residential uses.

2. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) Dongguan Koda has obtained the land use rights and building ownership under the aforesaid Real Property Ownership Certificates mentioned in Note 1.

(ii) Dongguan Koda is entitled to freely transfer, let or mortgage the land use rights and building ownership of the property.

(iii) The property is not subject to any transfer, lease or any third party rights.

(iv) All payments and fees in relation to the property have been fully settled.

3. According to the information provided by the Group, Dongguan Koda is a wholly foreign-owned enterprise established in the PRC on 6th September, 1994 and an indirect wholly-owned subsidiary of the Company.

4. We understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:

(a) Real Property Ownership Certificate Yes

– 224 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

5. Room 6A303 The property comprises a The property is at RMB130,000 on Level 3, residential unit on Level 3 of a present occupied by the (equivalent to Block 6 7-storey composite building. The Group as staff HK$120,000) Di San Xiao Qu development was completed in dormitory. Dong Xie Square 1997. Chong Huan Zhong Road The property has a gross floor area Shihe Town of approximately 60.715 sq.m.. Dongguan City Guangdong Province The property is held under land use the PRC rights for a term expiring on 30th September, 2063 for commercial/ residential uses.

Notes:

1. According to a Real Property Ownership Certificate dated 28th December, 2000 (Document No.: Yue Fang Di Zheng Zi No. 3020445), the building ownership of the property with a gross floor area of 60.715 sq.m. is vested in Dongguan Koda for a term of 70 year expiring on 30th September, 2063 for commercial/residential uses.

2. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) Dongguan Koda has obtained the land use rights and building ownership under the aforesaid Real Property Ownership Certificate mentioned in Note 1.

(ii) Dongguan Koda is entitled to freely transfer, let or mortgage the land use rights and building ownership of the property.

(iii) The property is not subject to any transfer, lease or any third party rights.

(iv) All payments and fees in relation to the property have been fully settled.

3. According to the information provided by the Group, Dongguan Koda is a wholly foreign-owned enterprise established in the PRC on 6th September, 1994 and an indirect wholly-owned subsidiary of the Company.

4. We understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:

(a) Real Property Ownership Certificate Yes

– 225 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

6. Unit B on Level 23, The property comprises a The property is RMB680,000 Block 1 residential unit on Level 23 of a currently occupied by (equivalent to Dong Hu Hua Yuen 33-storey residential building. The the Group as staff HK$640,000) Dong Zong Da Dao development was completed in dormitory. Cheng Qu 2002. Dongguan City Guangdong Province The property has a gross floor area the PRC of approximately 133.00 sq.m..

The property is held under land use rights for a term of 70 years commencing from August 1992 to August 2062 for residential uses.

Notes:

1. According to a Real Property Ownership Certificate (Document No.: Yue Fang Di Zheng Zi No. C0398987) dated 5th November, 2002, the building ownership of the property with a gross floor area of 133.00 sq.m. is vested in Dongguan Koda for a period of 70 years commencing from August 1992 to August 2062 for residential use.

2. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) Dongguan Koda has obtained the land use rights and building ownership under the aforesaid Real Property Ownership Certificate mentioned in Note 1.

(ii) Dongguan Koda is entitled to freely transfer, let or mortgage the land use rights and building ownership of the property.

(iii) The property is not subject to any transfer, lease or any third party rights.

(iv) All payments and fees in relation to the property have been fully settled.

3. According to the information provided by the Group, Dongguan Koda is a wholly foreign-owned enterprise established in the PRC on 6th September, 1994 and an indirect wholly-owned subsidiary of the Company.

4. We understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:

(a) Real Property Ownership Certificate Yes

– 226 – APPENDIX IV (A) PROPERTY VALUATION

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

7. Room E on Level 16 The property comprises a The property is at RMB2,300,000 Shen Fang residential unit on Level 16 of a present occupied by the (equivalent to Commercial 23-storey residential building. The Group as staff quarters. HK$2,170,000) Building development was completed in (also known as 1997. Block 23) amid An Zhen Xi Li Si Qu The property has a gross floor area Chaoyang District of approximately 150.19 sq.m.. Beijing the PRC The property is held under land use rights for a term commencing from 25th January, 2002 to 29th December, 2064 for residential uses.

Notes:

1. According to a State-owned Land Use Right Certificate (Document No.: Jing Shi Chao Gang Aou Tai Guo Yong (2002) Chu Zi No. 1750010) dated 27th March, 2002, the land use rights of the property with an apportioned site area of approximately 6.03 sq.m. expiring on 29th December, 2064 for residential use is vested in IPE (HK).

2. According to a Building Ownership Certificate (Document No.: Jing Fang Quan Zheng Shi Chao Gang Auo Tai Zi No. 1750010), dated 27th March, 2002, the building ownership of the property with a gross floor area of 150.19 sq.m. is vested in IPE (HK).

3. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) IPE (HK) has obtained the land use rights and building ownership under the aforesaid State-owned Land Use Right Certificate and Building Ownership Certificate mentioned in Note 1 and 2.

(ii) IPE (HK) is entitled to freely transfer, let or mortgage the land use rights and building ownership of the property.

(iii) The property is not subject to any transfer, lease or any third party rights.

(iv) All payments and fees in relation to the property have been fully settled.

4. According to the information provided by the Group, IPE (HK) is a company incorporated in Hong Kong with limited liability on 13th September, 1994 and an indirect wholly-owned subsidiary of the Company.

5. We understand that the current status of titles, grant of major approvals, licences and documents of the property area as follows:

(a) State-owned Land Use Right Certificate Yes (b) Building Ownership Certificate for the building with a total gross floor area of 150.19 sq.m. Yes

– 227 – APPENDIX IV (A) PROPERTY VALUATION

Group III – Property interests held for development by the Group in the PRC

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

8. An industrial site The property comprises an The property is a RMB29,000,000 located in Shang industrial site with a total site area construction site (equivalent to Wei Sha He She, of approximately 166,534 sq.m. recently, site formation HK$27,358,000) Yue Hu Cun located on Shang Wei Sha He She, work has been Xian Cun Zhen Yue Hu Cun, Xian Cun Zhen, completed and Zengcheng City Zengcheng City. foundation works are Guangdong undergoing. Province The property will be developed into the PRC a comprehensive industrial estate including 2 factory buildings, 5 blocks of staff quarters, an office building and some open space car parks. The total gross floor area of the buildings is approximately 67,819 sq.m. Details of the floor areas are listed as follows:

GFA (sq.m.)

Factory Building 1 19,389 sq.m. Factory Building 2 19,389 sq.m. Office Building 12,555 sq.m. 5 blocks of Staff Quarters 16,486 sq.m.

67,819 sq.m.

The property will be developed by three phases. Phase I of the development comprises Factory Building 1 and a block of staff quarter with a total gross floor area of approximately 23,275 sq.m.. The construction works for Phase I commenced in December 2003, and is expected to be completed by the first quarter of 2005.

The property is held under the land use rights for a term of 50 years expiring on 22nd May, 2053 for industrial use.

Notes:

1. Pursuant to a State-owned Land Use Right Certificate (Document No. Zeng Guo Yong (2003) Zi No. C0300028) dated 26th May, 2003, the land use rights of the subject property with a site area of approximately 166,534 sq.m. for industrial use expiring on 22nd May, 2053 has been granted to Xing Hao.

2. Pursuant to a Construction Land Use Planning Permit No. 200205B003 dated 26th August, 2002, the permission towards the planning of the subject land with a site area of approximately 166,667 sq.m. is granted to Xing Hao for industrial use.

– 228 – APPENDIX IV (A) PROPERTY VALUATION

3. Pursuant to eight Construction Works Planning Permits all issued by Zengcheng City Town Planning Bureau on 5th April, 2004 or 13th April, 2004 in favor of Xing Hao, the development scale of the property is permitted to comprise the following 8 blocks of buildings with a total gross floor area of approximately 67,819 sq.m.. Details of the buildings’ floor areas are listed as follows:

Construction Works Planning Permit Construction Scale Number of (Document No.) Building Name (Gross Floor Area sq. m.) Storey

1 Zeng Gui Zheng (2004) No.05A024 Staff Quarter A2 3,665 6 2 Zeng Gui Zheng (2004) No.05A025 Staff Quarter A1 3,665 6 3 Zeng Gui Zheng (2004) No.05A026 Staff Quarter B 3,478 6 4 Zeng Gui Zheng (2004) No.05A027 Staff Quarter C 1,792 6 5 Zeng Gui Zheng (2004) No.05A028 Staff Quarter A 3,886 6 6 Zeng Gui Zheng (2004) No.05A029 Factory No.1 19,389 2 7 Zeng Gui Zheng (2004) No.05A030 Office Building 12,555 7 8 Zeng Gui Zheng (2004) No.05A031 Factory No.2 19,389 2

Total: 67,819

4. Pursuant to a Construction Commencement Permit (Document No. 440125200405240101) issued by Zengcheng City Construction Bureau on 24th May, 2004 in favour of Xing Hao, Xing Hao is permitted to commence the construction work of the property with a construction scale of approximately 66,600 sq.m..

5. We have been provide with a PRC legal opinion on the title to the property issued by King & Wood, the PRC legal adviser, which contains, inter alias, the following information:

(i) The land use rights of the property is vested in Xing Hao.

(ii) The property is not subject to any transfer, lease or any third party rights.

(iii) Xing Hao is entitled to freely transfer, let, or mortgage the land use rights of the property.

6. In our course of inspection, Phase I of the development is under construction. Since these buildings that are under construction has not been applied for Real Property Ownership Certificate, our valuation has not incorporated their values. However, as advised by the Group, the total development costs (including construction costs) expended as at the date of valuation was approximately RMB27,044,000 and the outstanding development costs (including construction costs) to complete the development was approximately RMB64,000,000.

7. The “Capital value when completed” of the proposed development as at 31st August, 2004 is estimated to be approximately RMB147,800,000.

8. We understand that the current status of titles, grant of major approvals, licences and documents of the property area as follows:

(a) State-owned Land Use Right Certificate Yes (b) Drafted State-owned Land Use Right Transfer Agreement Yes (c) Red-line Drawing Yes (d) Construction Land Use Planning Permit Yes (e) Construction Works Planning Permits Yes (f) Construction Commencement Permit Yes

9. According to the information provided by the Group, Xing Hao is a wholly foreign-owned enterprise established in the PRC on 19th June, 2002 and an indirect wholly-owned subsidiary of the Company.

– 229 – APPENDIX IV (A) PROPERTY VALUATION

Group IV – Property interest held for investment by the Group in Hong Kong

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

9. Unit B The property comprises a 2-storey The property is HK$10,600,000 Golden Lake Villa terrace house, which includes a currently let to Ecolab No. 29 Silver Cape parking area, terrace and garden. Limited for a term of 2 Road The development was completed in years commencing from Sai Kung 1977. 18th May, 2003 to 17th New Territories May, 2005 (both days Hong Kong The property has a total saleable inclusive) at a monthly floor area of approximately rental of HK$45,000 16/99th parts or 2,029 sq.ft. In addition, the with a rent free period shares of and in Lot property includes a garden of from 1st May, 2002 to No. 1484 in DD 243 288 sq.ft.. 17th May, 2002 (both days inclusive), The property is held under New exclusive of rates, rent Grant No. 5419 for a term of 99 and management fees. years commencing from 1st July, 1898. By virtue of the New However, on 14th Territories (Extension) Ordinance, August, 2004, a the said term has been extended termination notice was without premium until 30th June, received from the tenant 2047 and an annual rent of 3% of to terminate the tenancy the then rateable value is charged agreement with effect from the date of extension. from 13th October, 2004.

Notes:

1. The registered owner of the property is IPE (HK), a company incorporated in Hong Kong with limited liability on 13th September, 1994 and an indirect wholly-owned subsidiary of the Company.

2. The property is subject to a mortgage in favour of Dah Sing Bank, Limited registered at the Sai Kung Land Registry vide Memorial No. 504064 dated 11th December, 2001 which as varied or modified by a Deed of Variation of Mortgage dated the 3rd day of April, 2004. The said Deed of Variation of Mortgage has been lodged for registration in the Sai Kung New territories Land Registry and was assigned with the Memorial No. 595985 but the registration of the same is at present being withheld.

– 230 – APPENDIX IV (A) PROPERTY VALUATION

Group V – Property interest rented by the Group in Japan

Open market value in Particulars of existing state as at Property Description occupancy 31st August, 2004

10. An office unit The property comprises an office The property is leased No commercial value located at Room unit on level 3 of a 7-storey to Integrated Precision No. 301 building plus 1 level of basement Engineering (Japan) Chamber of underneath completed in 1971. Company Limited by Commerce The Takasaki Chamber 2-7-8 Tonya-Machi The property has a gross floor area of Commerce and Takasaki-Shi of approximately 36.50 sq.m.. Industry under the Gumma tenancy agreement Japan 370-0006 dated 6th January, 2004 for a term of 2 years commencing from 1st April, 2004 to 31st March, 2006 at a monthly rent of Japanese Yen 66,400, exclusive of service charges, rates, management fees, utility charges and all other taxes and outgoings (other than fixed asset tax).

The property is currently occupied by the Group as office.

– 231 – APPENDIX IV (A) PROPERTY VALUATION

Group VI – Property interest rented by the Group in Macau

Open market value in Particulars of existing state as at Property Description occupancy 31st August, 2004

11. Alameda Dr. Carlos The property comprises a unit on The property is leased No commercial value D’Assumpção n.˚ 398, Level 9 of a 21 storey office to IPE Macao Edificio Commercial building completed in 1997. Commercial Offshore Tai Fung, Limited by an 9˚ andar “F” The property has a gross floor area independent third party Macau of approximately 1,303 sq.ft. for a term of two years commencing from 1st June, 2004 to 31st May, 2006 at a monthly rent of approximately HK$8,860 inclusive of management fee and utility charges.

The property is at present occupied by the Group as office.

Notes:

1. The current registered owner of the property, Hemswell Limited, is an independent third party, which is not connected with and is independent of, any of the directors, or any of their respective associates of the Group.

2. According to the information provided, the tenant, IPE Macao Commercial Offshore Limited is a company incorporated in Macau with limited liability on 22nd April, 2004 and an indirect wholly-owned subsidiary of the Company.

3. We have been provided with a legal opinion on the title to the property issued by C & C Advogados, the Macau legal adviser, which contains, inter alias, the following information:

(i) The current registered owner of the property is Hemswell Limited.

(ii) The tenancy agreement is good valid and subsisting in all respects and IPE Macao Commercial Offshore Limited has a good title to the property pursuant to the tenancy agreement and since the commencement of the terms has enjoyed uninterrupted use of the property and the terms of the tenancy agreement are fully enforceable by IPE Macao Commercial Offshore Limited against the owner.

(iii) The property at present is free of any charges and encumbrances, which may affecting the title of the property.

– 232 – APPENDIX IV (B) PROPERTY VALUATION

The following is the text of a letter and a valuation certificate, prepared for the purpose of incorporation in the prospectus dated 19th October, 2004 issued by the Company, received from Thai Property Appraisal Lynn Phillips Co., Ltd., an independent property valuer, in connection with its valuation as at 31st August, 2004.

Thai Property Appraisal Lynn Phillips Co., Ltd. 121/47-48 RS Tower Building 11th Floor Rachadaphisek Road, Dindaeng Bangkok 10320 Thailand

19th October, 2004

The Directors IPE Group Limited Unit No. E1, 11th Floor Hoi Bun Industrial Building No. 6 Wing Yip Street Kwun Tong Kowloon Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interest of IPE Group Limited (the “Company”) and its subsidiaries (together referred to as the “Group”) in Thailand, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of such property interest as at 31st August, 2004 (“the date of valuation”).

Our valuation of the interest in property is our opinion of the open market value which we would define as intended to mean – “the best price at which the sale of an interest in property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation assuming:–

(a) a willing seller;

(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

– 233 – APPENDIX IV (B) PROPERTY VALUATION

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

Our valuations have been made on the assumption that the owner sells the relevant property on the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to increase the value of such interest. In addition, no forced sale situation in any manner is assumed in our valuation.

In valuing the property, which is owned by the Group in Thailand, we have adopted a combination of the open market and depreciated replacement cost approaches in assessing the land portions of the property and the buildings and structures standing on the land respectively. Hence, the sum of the two results represents the market value of the property as a whole. In the valuation of the land portions, reference has been made to the standard land price in the vicinity area and the sales comparables in the locality. As the nature of the buildings and structures cannot be valued on the basis of open market value, they have therefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnished the most reliable indication of value for property in the absence of a known market based on comparable sales.

We have inspected the exterior and, where possible, the interior of the property. However, we have not carried out a structural survey. We are therefore unable to report whether any such part of the property interest is free from decay, damage by insects or any other structural defects. However, in the course of our inspection, we have not discovered any serious defects.

We have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, particulars of occupancy, lettings, rental income and revenue, joint venture agreements, development plans, construction costs estimates, site and floor areas, the identification of the property in which the Group has valid interests and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in copies of documents provided to us and are therefore only approximations.

We have assumed that the information provided to us by the Group is true and accurate, and that no material information has been withheld. We were also advised by the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

– 234 – APPENDIX IV (B) PROPERTY VALUATION

Unless otherwise stated, all money amounts stated are in Thai Baht. The exchange rate used in valuing the property interest in Thailand on 31st August, 2004 was HK$1 = Thai Baht 5.34. There has been no significant fluctuation in exchange rate between that date and the date of this letter.

We enclose herewith our valuation certificate.

Yours faithfully, For and on behalf of Thai Property Appraisal Lynn Phillips Co., Ltd. Mr. Wirach Trithanawat The Valuers Association of Thailand S.38-623 Thai Valuers Association S.02-1-0101-41 Deputy Associate Director

Notes:

(i) The source of the reference exchange rate is the Bank of Thailand (www.bot.or.th). The rate being used is the average of the average counter buying (telex-transfer) and selling rates quoted by commercial banks.

(ii) Mr. Wirach Trithanawat, Deputy Associate Director, has over 18 years’ extensive experience in undertaking valuations of properties in Thailand.

– 235 – APPENDIX IV (B) PROPERTY VALUATION

VALUATION CERTIFICATE

Property interest owned by the Group in Thailand

Open market value in Particulars of existing state as at Property Description and Tenure occupancy 31st August, 2004

1. A factory complex The property comprises 3 parcels The property is Thai Baht 103,490,000 located at Sanap of land (hereinafter referred to as currently occupied by (equivalent to Thup Subdistrict “Lands A, B and C) with a total the Group for HK$19,380,150) Wang Noi District site area of approximately 33,120 production purpose. Phra Nakhon Si sq.m. and 26 buildings and Interest attributable Ayutthaya Province structures created thereon. to the Group: 99.99% Thailand The three parcels of land have a Capital value total site area of approximately attributable 33,120 sq.m. and the details are as to the Group follows: Thai Baht 103,479,651 (equivalent to Land A: 25,920 sq.m. HK$19,378,212) Land B: 2,400 sq.m. Land C: 4,800 sq.m.

Total: 33,120 sq.m.

The three parcels of land were granted with the land use rights in the form of freehold.

The buildings and structures of the property, which are in Phase I and Phase II, have a total gross floor area of approximately 13,475 sq.m..

The 8 buildings and structures in Phase I were completed in 2000 and have a total gross floor area of approximately 6,201 sq.m.. The details are as follows:

Office and Factory 1: 2,400 sq.m. Warehouse 1: 338 sq.m. Canteen 1: 183 sq.m. Dormitory 1: 370 sq.m. Electric Control Room: 54 sq.m. Toilet: 64 sq.m. Reinforced Concrete Road and Car Park: 2,400 sq.m. Concrete Fences with Stainless Steel and Barb Wire: 392 sq.m.

Total: 6,201 sq.m.

– 236 – APPENDIX IV (B) PROPERTY VALUATION

The 11 buildings and structures in Phase II were completed end of 2002 with a total gross floor area of approximately 7,274 sq.m.. The details are as follows:

Office and Factory 2: 5,130 sq.m. Warehouse 2: 608 sq.m. Canteen 2: 304 sq.m. Dormitory 2: 370 sq.m. Water Supply Tank: 72 sq.m. Toilet 1: 104 sq.m. Garage: 75 sq.m. Electric Control Room 1: 120 sq.m. Electric Control Room 2: 96 sq.m. Club House: 380 sq.m. Water Tower Tank: 15 sq.m.

Total: 7,274 sq.m.

Seven new buildings and structures, including 3 overhead structures were recently completed with a total gross floor space of approximately 3,517 sq.m. The 3 overhead structures cover a total area of 741 sq.m. Details are as follows:

Parking Lot for Motorcycles 180 sq.m. Car Park 125 sq.m. Guard House 12 sq.m. Reinforced Concrete Road with drainage system 3,200 sq.m.

Total: 3,517 sq.m.

Overhead Structures: Overhead Shelter 115 sq.m. Overhead Shelter 374 sq.m. Overhead Shelter 252 sq.m.

Total: 741 sq.m.

Notes:

1. According to a Land Sale Contract of Land A entered into between Mrs. Sa-ard Raksacharoen (Party A) and Integrated Precision Engineering (Thailand) Co., Ltd. (referred hereinafter as “IPE (Thailand)”) dated 9th November, 1999, Party A agrees to sell Land A in whole to IPE (Thailand) at a consideration of Thai Baht 6,156,000.

2. According to a Land Sale Contract of Land B and Land C entered into between Mr. Tavatchai Raksacharoen (Party B) and IPE (Thailand) dated 9th November, 1999, Party B agrees to sell Land B and Land C in whole to IPE (Thailand) at a consideration of Thai Baht 1,800,000.

3. The Thai legal opinion states that:

(i) The land portion of the property is wholly owned by IPE (Thailand), which has the rights to use and dispose of the land.

(ii) The land is free from any registered easement, lease, or other registered real rights or attachments.

(iii) IPE (Thailand), is the owner of the buildings and has the rights to use, occupy and dispose of the buildings.

– 237 – APPENDIX IV (B) PROPERTY VALUATION

(iv) The land and buildings are subject to 4 mortgages in favour of Bangkok Bank Public Company Limited dated 14th March, 2000, 7th July, 2000, 18th August, 2000 and 4th June, 2002 respectively.

(v) Even though the land and buildings are under mortgage, IPE (Thailand) may transfer or lease of the captioned provided that prior written consent is obtained from the mortgagee.

4. According to the information provided by the Group, IPE (Thailand) is a company incorporated in Thailand on 18th September, 1997 and approximately 99.99% at its issued share capital is indirectly owned by the Company.

– 238 – APPENDIX V SUMMARY OF CERTAIN THAI LAWS RELEVANT TO THE GROUP’S BUSINESS OPERATIONS

Set forth below is a summary of certain background information on Thai laws that are in the views of the Directors relevant to the Group’s business operations. As the following is only a summary of certain selected information, no representation is made by the Company, the Sponsors, the Underwriters and other parties involved in the Offer that the following is a complete description of all applicable Thai laws and regulations relevant to the Group’s business operations:

LEGAL SYSTEM

1. The Law

Thailand has a codified system of law. The major legislative codes are the Civil and Commercial Code, Penal Code, Civil Procedure Code, Criminal Procedure Code, Revenue Code and Land Code, and the content of which was drawn from the laws of other countries having codified systems (e.g. France, Switzerland and Germany), from the laws of countries with common law systems (e.g. Great Britain) and from the traditional customary laws of Thailand.

The supreme law of Thailand is the Constitution. This is supplemented by Acts of the Thai Legislature, Royal Decrees, Emergency Decrees, Ministerial Regulations, Ministerial Notifications, other governmental notifications and local government regulations.

The objectives of the Constitution are outlined in the preamble:

• to promote and protect the rights and liberties of the people;

• to provide for public participation in governance and inspection of the exercise of the State power; and

• to improve the efficiency and stability of Thailand’s political structure.

The measures and principles of the Constitution are all intended to meet these objectives.

2. The Courts

Thai laws are normally drafted in broad terms, especially laws regulating commercial activities. Broad powers are delegated to government ministries or organizations to issue notifications or regulations.

The Court of Justice is divided into three tiers, consisting of the Supreme Court, the Court of Appeals and the Courts of First Instance. There are also separate Juvenile, Labor, and Tax Courts. There are also a number of specialized courts, including the Central and Regional Intellectual Property and International Trade Court (IPIT), and the Central Bankruptcy Court in Bangkok. All these courts were created under their own enacting legislations, which also established their specialized procedures.

The Constitution established a separate system of Administrative Courts to deal with administrative law matters. The Constitutional Court was also established to deal with governmental matters and constitutional questions. The Military Courts were established to try and adjudicate military criminal cases and other cases as provided by law.All cases are decided by judges. There is no provision for a jury trial in Thai law.

– 239 – APPENDIX V SUMMARY OF CERTAIN THAI LAWS RELEVANT TO THE GROUP’S BUSINESS OPERATIONS

3. Arbitration

Arbitration is available as a means of dispute settlement. Under the Arbitration Act B.E. 2545 (2002), written agreements between parties to arbitrate disputes is required. The enforcement of arbitration award also requires the courts’ endorsement. Parties to an agreement may agree that certain types of disputes should be resolved by means of arbitration. If an instance of such disputes arises and one party brings the matter to litigation in court, the other party has the right to object. In this case, the court will refuse to hear the case and will order the parties to resolve the dispute via arbitration, in complying with the terms of the agreement.

The Arbitration Act also provides that Thai courts may enforce foreign arbitration awards if the parties involved are entitled to rely on the terms of the relevant international conventions. To enforce any of such awards, a court would require that the petitioner submits as evidence the originals, or certified copies of the originals, and Thai translations of both the agreement and the award.

FOREIGN INVESTMENT REGULATIONS

The major legal requirements for the operation of a company with the majority of its shares held by a foreign entity are those set out in the Foreign Business Act B.E. 2542 (A.D. 1999) (the “FBA”). Pursuant to the FBA, a Thai company, the majority of whose shares being held by foreign individuals or entities, is restricted from the operations of certain businesses as specified in the FBA. In addition, certain businesses operated by a Thailand company are subject to promotion granted by Thailand investment promotion authority under the relevant investment law, i.e. the Investment Promotion Act B.E. 2520 (1977). The above major legal requirements can be summarised as follows:

1. The Foreign Business Act

In Thailand, foreign individuals and foreign legal entities conducting business must comply with the FBA, which has been in force since 3rd March, 2000. The purpose of the FBA is to prohibit or restrict foreigners from engaging in certain businesses in Thailand and, to this end, foreigners are required to obtain permission (i.e. a “Foreign Business Licence”) in accordance with the FBA before conducting restricted businesses.

The prohibited or restricted businesses are categorized in Schedules One, Two and Three of the FBA. Schedule One businesses are prohibited for special reasons and cannot be engaged by foreigners and, thus, permission to conduct these businesses cannot be obtained.

Schedule Two businesses are restricted, but can be conducted by foreigners if permission is granted by the Commerce Minister with the approval of the Cabinet. Businesses under Schedule Two are restricted because they relate to national safety and security, art and culture, tradition and folk handicraft and/or natural resources or the environment.

Schedule Three businesses are also restricted, but can be conducted by foreigners if permission is granted by the Director-General of Commercial Registration Department, Ministry of Commerce, with the approval of the Foreign Business Committee. Businesses under Schedule Three are restricted because it is deemed that Thai nationals are not ready to compete in these businesses.

– 240 – APPENDIX V SUMMARY OF CERTAIN THAI LAWS RELEVANT TO THE GROUP’S BUSINESS OPERATIONS

2. The Investment Promotion Act and the Board of Investment

The Investment Promotion Act B.E. 2520 (1977) provides the legal framework for investment incentives granted by the Office of the Board of Investment (“BOI”). The BOI is responsible for promoting foreign and domestic investment. It has wide discretionary powers to encourage investment in areas considered to be the most beneficial to Thailand’s economic and social development. BOI incentives include tax privileges, relaxation (in certain cases) of restrictions on foreign participation and employment, business protection measures, etc.

BOI promoted companies are subject to certain conditions and/or performance requirements set by the BOI.

FOREIGN EXCHANGE ISSUES

Thai foreign exchange controls are administered by the Bank of Thailand on behalf of the Ministry of Finance of Thailand, pursuant to the Exchange Control Act B.E. 2485 (1942) as amended. In 1991, the Ministry of Finance of Thailand enacted regulations to further liberalise exchange control restrictions, making it easier for foreign investors to transfer their funds to and from Thailand. In particular, the Bank of Thailand has granted commercial banks and certain other entities the authority to conduct foreign exchange transactions as authorised agents of the Bank of Thailand. The Bank of Thailand instituted temporary measures on 28th May, 1997 to restrict certain foreign exchange related transactions by domestic financial institutions with non-residents of Thailand and to safeguard against instability and speculation in the domestic currency market. Such temporary measures were lifted by the Bank of Thailand on 29th January, 1998 (with effect from 30th January, 1998). However, in order to safeguard against potential speculation in the Baht, the Bank of Thailand simultaneously introduced a new measure limiting the value of foreign exchange related transactions without underlying trade or investment activities in Thailand to Baht 50 million per counterparty.

The inward remittance of money into Thailand for investment in securities does not require registration with the exchange control authorities. However, any Thai resident (including any Thai national or permanent resident who is resident in Thailand, any corporation organised under the laws of Thailand and any Thai-registered branch of a company not organised under the laws of Thailand) acquiring foreign currency anywhere or bringing foreign currency into Thailand must, within seven days, either (i) sell such foreign currency to an authorised agent, for which a specified form must be submitted to such authorised agent if the amount deposited is in excess of US$10,000 or its equivalent, or (ii) deposit it into a foreign currency account opened with a commercial bank in Thailand if the owner of such foreign currency account proves to an authorised bank that he will be subject to payment of a debt outside Thailand within three months from the date of deposit; provided however that amount of such deposit must not exceed the debt and the daily balance of a foreign currency deposit in all accounts of each depositor may not exceed US$500,000 or its equivalent for an individual, or US$10,000,000 or its equivalent for a juristic entity.

– 241 – APPENDIX V SUMMARY OF CERTAIN THAI LAWS RELEVANT TO THE GROUP’S BUSINESS OPERATIONS

The outward remittance from Thailand of dividends or the proceeds of sales (including any capital gain) derived from the transfer of shares after payment of applicable Thai taxes, if any, may be made without exchange control permission from the Bank of Thailand if an authorised commercial bank is satisfied that the supporting documents provided to it are in order. As the Bank of Thailand has a policy not to allow any person to bring Baht currency out of Thailand, dividends paid to a non-resident must be converted into foreign currency prior to the outward remittance from Thailand. If the amount exceeds US$10,000 or its equivalent in the relevant currency, a specified form must be submitted to the authorised commercial bank.

Export of share certificates or other securities certificates from Thailand does not require prior approval from an exchange control officer. The exporter may either despatch the certificates by mail or carry them when traveling abroad.

– 242 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the memorandum and articles of association of the Company and of certain aspects of Cayman company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 10th July, 2002 under the Companies Law. The memorandum of association (the “Memorandum”) and the articles of association (the “Articles”) of the Company comprise its constitution.

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.

(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on 25th June, 2004. The following is a summary of certain provisions of the Articles:

(a) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed.

The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles)

– 243 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iii) Compensation or payments for loss of office

Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors.

(v) Disclosure of interests in contracts with the Company or any of its subsidiaries.

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it

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thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his associates is materially interested, but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his associate(s) any security or indemnity in respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of his associates at the request of or for the benefit of the Company or any of its subsidiaries;

(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/ themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

(dd) any contract or arrangement in which the Director or his associate(s) is/ are interested in the same manner as other holders of shares or debentures or other securities of the Company or any of its subsidiaries by virtue only of his/their interest in shares or debentures or other securities of the Company;

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(ee) any contract or arrangement concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or a shareholder other than a company in which the Director and/or his associate(s) is/are in aggregate beneficially interested in 5 percent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest or that of any of his associates is derived); or

(ff) any proposal concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s), as such any privilege or advantage not accorded to the employees to which such scheme or fund relates.

(vi) Remuneration

The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or

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have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons.

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Retirement, appointment and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not greater than one third) will retire from office by rotation. The Directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit.

The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.

A Director may be removed by a special resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

The office or director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board;

(bb) becomes of unsound mind or dies;

(cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated;

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(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;

(ee) if he is prohibited from being a director by law;

(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(viii) Borrowing powers

The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special resolution of the Company.

(ix) Proceedings of the Board

The board may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

(x) Register of Directors and Officers

The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within thirty (30) days of any change in such directors or officers.

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(b) Alterations to constitutional documents

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

(c) Alteration of capital

The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;

(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;

(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine;

(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares;

(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than

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at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(e) Special resolution-majority required

Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than twenty-one (21) clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five (95) per cent. in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one (21) clear days’ notice has been given.

A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles.

(f) Voting rights (generally and on a poll) and right to demand a poll

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a show of hands, every member who is present in person or by proxy or being a corporation, is present by its duly authorised representative shall have one vote and on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

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At any general meeting a resolution put to the vote of the meeting is to be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by (i) the chairman of the meeting or (ii) at least three members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting or (iii) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting or (iv) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.

Where any shareholder is, under the rules of the Designated Stock Exchange (as defined in the Articles), required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

(g) Requirements for annual general meetings

An annual general meeting of the Company must be held in each year, other than the year of adoption of the Articles (within a period of not more than 15 months after the holding of the last preceding annual general meeting or a period of 18 months from the date of adoption of the Articles, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board.

(h) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

The accounting records shall be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No

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member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report, shall not less than twenty-one (21) days before the date of the meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), the Company may send to such persons a summary financial statement derived from the Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to a summary financial statement, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.

(i) Notices of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by at least twenty-one (21) clear days’ notice in writing, and any other extraordinary general meeting shall be called by at least fourteen (14) clear days’ notice (in each case exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given). The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and

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(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five (95) per cent in nominal value of the issued shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(aa) the declaration and sanctioning of dividends;

(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;

(cc) the election of directors in place of those retiring;

(dd) the appointment of auditors and other officers;

(ee) the fixing of the remuneration of the directors and of the auditors;

(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty (20) per cent in nominal value of its existing issued share capital; and

(gg) the granting of any mandate or authority to the directors to repurchase securities of the Company.

(j) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

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Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.

The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year.

(k) Power for the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated Stock Exchange (as defined in the Articles).

(l) Power for any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

(m) Dividends and other methods of distribution

Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

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The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

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All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

(n) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is 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 or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(o) Call on shares and forfeiture of shares

Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty (20) per cent. per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non- payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such

– 256 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty (20) per cent. per annum as the board determines.

(p) Inspection of register of members

Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every business day by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1 or such lesser sum specified by the board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.

(q) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

(r) Rights of the minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman law, as summarised in paragraph 3(f) of this Appendix.

(s) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

– 257 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively.

If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(t) Untraceable members

Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.

(u) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

– 258 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

3. CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Operations

As an exempted company, the Company’s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

(b) Share capital

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or the value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and (f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid the company will be able to pay its debts as they fall due in the ordinary course business.

The Companies Law provides that, subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.

– 259 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(c) Financial assistance to purchase shares of a company or its holding company

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

Subject to the provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner or purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

– 260 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(e) Dividends and distributions

With the exception of section 34 of the Companies Law, there is no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m) above for further details).

(f) Protection of minorities

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

In the case of a company (not being a bank) having a share capital divided into shares, the court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the court shall direct.

Any shareholder of a company may petition the court which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the Company’s memorandum and articles of association.

(g) Management

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

A company shall cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company.

– 261 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.

(i) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Council:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and

(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations of the Company.

The undertaking for the Company is for a period of twenty years from 30th July, 2002.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

(m) Inspection of corporate records

Members of the Company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company’s Articles.

– 262 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

(n) Winding up

A company may be wound up by either an order of the court or by a special resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.

For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidator; and the Court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court. In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets.

Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval. A liquidator’s duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and, subject to the rights of preferred and secured creditors and to any subordination agreements or rights of set-off or netting of claims, discharge the company’s liability to them (pari passu if insufficient assets exist to discharge the liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This final general meeting shall be called by Public Notice (as defined in the Companies Law) or otherwise as the Registrar of Companies may direct. – 263 – APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(o) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five (75) per cent. in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Courts. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management.

(p) Compulsory acquisition

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than ninety (90) per cent. of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court of the Cayman Island within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

(q) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

4. GENERAL

Conyers Dill & Pearman, Cayman, the Company’s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix VIII. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

– 264 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT THE GROUP

1. Incorporation of the Company

The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company on 10th July, 2002. As the Company was incorporated in the Cayman Islands, it is subject to the Companies Law and its constitution which comprises a memorandum and articles of association. A summary of certain relevant parts of the constitution of the Company and relevant aspects of the Companies Law is set forth in Appendix VI to this prospectus.

2. Changes in share capital of the Company

As at the date of incorporation, the Company had an authorised share capital of HK$100,000 divided into 1,000,000 Shares. On 29th July, 2002, one Share was allotted and issued to Codan Trust Company (Cayman) Limited, fully paid at par. On the same date, Codan Trust Company (Cayman) Limited transferred the one Share to Tottenhill.

On 25th June, 2004, the authorised share capital of the Company was increased from HK$100,000 divided into 1,000,000 Shares to HK$120,000,000 divided into 1,200,000,000 Shares by the creation of an additional 1,199,000,000 Shares.

On 25th June, 2004, an aggregate of 99,999,999 Shares were allotted and issued, credited as fully paid, to Tottenhill as consideration for the acquisition by the Company of 5,528 shares of US$1 each in Best Device, representing the entire issued share capital of Best Device.

Assuming that the Offer becomes unconditional and the issue of Shares pursuant to the Offer and the Capitalisation Issue is duly completed, but taking no account of any Shares which may be issued pursuant to the exercise of any options which may be granted pursuant to the Share Option Scheme, the authorised share capital of the Company will be HK$120,000,000 divided into 1,200,000,000 Shares and the issued share capital will be HK$50,000,000 divided into 500,000,000 Shares (each of which will be fully paid or credited as fully paid) and 700,000,000 Shares will remain unissued.

Other than any Shares which may be allotted and issued pursuant to the Capitalisation Issue and the exercise of any options which may be granted under the Share Option Scheme, there is no present intention to issue any part of the authorised but unissued share capital of the Company and, without the prior approval of the Shareholders in general meeting, no issue of Shares will be made which would effectively alter the control of the Company.

Save as disclosed herein, there has been no alteration in the share capital of the Company since the date of its incorporation.

– 265 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

3. Changes in share capital of the subsidiaries of the Company

The subsidiaries of the Company are listed in the accountants’ report set out in Appendix I to this prospectus. The following alterations in the share capital of the subsidiaries of the Company took place within the two years immediately preceding the date of this prospectus:

(a) Best Device

(i) On 6th November, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Best Device were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 1,000 shares of US$1 each in Cyber Starpower from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) respectively.

(ii) On 6th December, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Best Device, were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 2,000 shares of US$1 each in Anglo Dynamic from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) respectively.

(iii) On 6th December, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Best Device, were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 2,000 shares of US$1 each in Tai Situpa from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) respectively.

(iv) On 6th December, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Best Device were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 1,000 shares of US$1 each in Lewiston Group from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) respectively.

(v) On 15th June, 2004, 528 shares of US$1 each in the capital of Best Device were issued and allotted to Mr. Chui, at par and credited as fully paid up, as payment for and capitalisation of a debt in the sum of HK$17,000,000 (the “Debt”) (the obligations and liabilities for which were assumed by way of novation by Best Device from IPE (HK)).

– 266 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(b) Anglo Dynamic

On 6th November, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Anglo Dynamic, were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 1,200,000 shares of S$1 each in IPE (Singapore) from Mr. Chui (as to 615,600 shares), Mr. Ng (as to 300,000 shares), Mr. Ho (as to 166,800 shares), Mr. Lai (as to 72,000 shares) and Mr. Li (as to 45,600 shares) respectively.

(c) Tai Situpa

On 6th November, 2002, an aggregate of 1,000 shares of US$1 each in the capital of Tai Situpa, were issued and allotted to Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares), at par and credited as fully paid, as considerations for the acquisition of an aggregate of 3,000,000 shares of HK$1 each in IPE (HK) from Mr. Chui (as to 1,539,000 shares), Mr. Ng (as to 750,000 shares), Mr. Ho (as to 417,000 shares), Mr. Lai (as to 180,000 shares) and Mr. Li (as to 114,000 shares) respectively.

(d) Xing Hao

(i) On 1st December, 2003, the registered capital of Xing Hao was approved to be increased from HK$35,000,000 to HK$40,000,000.

(ii) On 17th February, 2004, the registered capital of Xing Hao was approved to be increased from HK$40,000,000 to HK$90,000,000.

(iii) On 26th August, 2004, the registered capital of Xing Hao was approved to be increased from HK$90,000,000 to HK$140,000,000.

(e) Dongguan Koda

(i) On 11th November, 2003, the registered capital of Dongguan Koda was approved to be increased from HK$83,000,000 to HK$98,000,000.

(ii) On 12th February, 2004, the registered capital of Dongguan Koda was approved to be increased from HK$98,000,000 to HK$133,000,000.

(f) IPE Macau

On 22nd April, 2004, IPE Macau was incorporated with a registered capital of MOP100,000.

Save as disclosed in this Appendix, there has been no alteration in the share capital of any subsidiary of the Company within the two years preceding the date of this prospectus.

– 267 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

4. Resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004

Pursuant to the resolutions in writing of the sole Shareholder passed on 25th June, 2004 and 12th October, 2004:

(a) the Articles were approved and adopted in substitution for and to the exclusion of the then existing articles of association of the Company;

(b) conditional on (aa) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, the Shares in issue and the Shares to be issued by the Company as mentioned in this prospectus; and (bb) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and not being terminated in accordance with the terms of the Underwriting Agreement or otherwise, in each case on or before the date falling 30 days after the date of this prospectus:

(i) the Offer at the Offer Price was approved, and the Directors or any committee thereof were/was authorised to allot and issue the new Shares pursuant thereto;

(ii) the Share Option Scheme was approved and adopted, and the Directors were authorised to grant options thereunder and to allot, issue and deal with Shares pursuant to the exercise of any options which may be granted under the Share Option Scheme;

(iii) conditional further on the share premium account of the Company being credited as a result of the issue of the new Shares pursuant to the Offer, the sum of HK$27,250,000 standing to the credit of the share premium account of the Company was directed to be capitalised and applied in paying up in full at par 272,500,000 Shares for allotment and issue to holders of Shares registered on the register of members of the Company as at the close of business on 19th October, 2004 (or as they may direct) in proportion as nearly as possible to their then respective shareholdings;

(iv) a general unconditional mandate was given to the Directors to allot, issue and deal with additional Shares or securities convertible into Shares in the unissued share capital of the Company, including the entering into any agreements or granting any options to do any of the foregoing, provided that the aggregate nominal amount of the share capital allotted or agreed to be allotted by the Directors pursuant thereto, otherwise than pursuant to a rights issue; or the exercise of any options which may be granted under the Share Option Scheme; or any allotment of Shares in lieu of the whole or part of the dividend on Shares in accordance with the Articles, shall not exceed the sum of (aa) 20% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Offer and the Capitalisation Issue; and (bb) the aggregate nominal amount of the share capital of the Company purchased by the Company pursuant to the authority granted to the

– 268 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

Directors as referred to in paragraph A4(b)(v) of this Appendix, such mandate to expire at the conclusion of the next annual general meeting of the Company, or the expiration of the period within which the next annual general meeting of the Company is required by any applicable law of the Cayman Islands or its articles of association to be held, or the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying such mandate, whichever is the earliest; and

(v) a general unconditional mandate was given to the Directors authorising them to exercise all the powers of the Company to repurchase on the Stock Exchange or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose, in accordance with all applicable laws and regulations, the Shares with an aggregate nominal amount not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Offer and the Capitalisation Issue, such mandate to expire at the conclusion of the next annual general meeting of the Company, or the expiration of the period within which the next annual general meeting of the Company is required by any applicable law of the Cayman Islands or its articles of association to be held, or the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying such mandate, whichever is the earliest.

5. Group reorganisation

The companies comprising the Group underwent a reorganisation to rationalise the structure of the Group in preparation for the listing of the Shares on the Stock Exchange. The Reorganisation involved the following:

(a) On 1st August, 2002, IPE (HK) acquired the entire equity interest in Dongguan Koda from IPE (Singapore) (as legal owner) and Mr. Chui (as beneficial owner) at a consideration of HK$71,000,000.

(b) On 6th November, 2002, Lewiston Group acquired an aggregate of 270 shares (mochibun) of ¥10,000 each in IPE (Japan), representing 90% equity interest of IPE (Japan), from Mr. Li (as to 183 shares (mochibun)) and Mr. Koitabashi Kunikatsu (as to 87 shares (mochibun)) at a consideration of ¥2,700,000.

(c) On 6th November, 2002, IPE (HK) disposed of an aggregate of 65 shares of HK$1 each in Detas Asia Limited (“Detas Asia”), representing 65% equity interest of Detas Asia, to Strengthen Asia Limited (“Strengthen Asia”) at a consideration of HK$65.

(d) On 6th November, 2002, Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li acquired an aggregate of 2,999,999 shares of HK$1 each in IPE (HK), representing approximately 99.99% equity interest of IPE (HK), from IPE Holdings Pte. Ltd. (“IPE Holdings”) as to 1,538,999 shares, 750,000 shares, 417,000 shares, 180,000 shares and 114,000 shares respectively at an aggregate consideration of HK$2,999,999.

– 269 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(e) On 6th November, 2002, Tai Situpa acquired an aggregate of 3,000,000 shares of HK$1 each in IPE (HK), representing the entire issued share capital of IPE (HK), from Mr. Chui (as to 1,539,000 shares), Mr. Ng (as to 750,000 shares), Mr. Ho (as to 417,000 shares), Mr. Lai (as to 180,000 shares) and Mr. Li (as to 114,000 shares) in consideration for the issue and allotment by Tai Situpa of an aggregate of 1,000 shares of US$1 each in the capital of Tai Situpa, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(f) On 6th November, 2002, Best Device acquired an aggregate of 1,000 shares of US$1 each in Cyber Starpower, representing the entire issued share capital of Cyber Starpower, from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(g) On 21st November, 2002, Anglo Dynamic acquired an aggregate of 1,200,000 shares of S$1 each in IPE (Singapore), representing the entire issued share capital of IPE (Singapore), from Mr. Chui (as to 615,600 shares), Mr. Ng (as to 300,000 shares), Mr. Ho (as to 166,800 shares), Mr. Lai (as to 72,000 shares) and Mr. Li (as to 45,600 shares) in consideration for the issue and allotment by Anglo Dynamic of an aggregate of 1,000 shares of US$1 each in the capital of Anglo Dynamic, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(h) On 28th November, 2002, Lewiston Group acquired an aggregate of 61,000 shares of Euro 1 each in IPE (Europe), representing 61% equity interest of IPE (Europe), from IPE Holdings at a consideration of Euro 61,000.

(i) On 6th December, 2002, Best Device acquired an aggregate of 2,000 shares of US$1 each in Anglo Dynamic, representing the entire issued share capital of Anglo Dynamic, from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(j) On 6th December, 2002, Best Device acquired an aggregate of 2,000 shares of US$1 each in Tai Situpa, representing the entire issued share capital of Tai Situpa, from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li. – 270 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(k) On 6th December, 2002, Best Device acquired an aggregate of 1,000 shares of US$1 each in Lewiston Group, representing the entire issued share capital of Lewiston Group, from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(l) On 6th December, 2002, Tottenhill acquired an aggregate of 5,000 shares of US$1 each in Best Device, representing the entire issued share capital of Best Device, from Mr. Chui (as to 2,565 shares), Mr. Ng (as to 1,250 shares), Mr. Ho (as to 695 shares), Mr. Lai (as to 300 shares) and Mr. Li (as to 190 shares) in consideration for the issue and allotment by Tottenhill of an aggregate of 1,000 shares of US$1 each in the capital of Tottenhill, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(m) On 5th November, 2003, Lewiston Group disposed of 61,000 shares of Euro 1 each in IPE (Europe), representing 61% equity interest of IPE (Europe), to Mr. Scandolo Francesco at a consideration of Euro 61,000.

(n) On 8th December, 2003, Mr. Lee Kian Heng transferred his one share of par value Baht 100 in IPE (Thailand) to Cyber Starpower at a consideration of Baht 100.

(o) On 15th June, 2004, Best Device assumed by way of novation the obligations and liabilities of IPE (HK) to pay the Debt, and for the purpose of paying the Debt, capitalise the Debt by allotting and issuing 528 shares of US$1 each in Best Device at par and credited as fully paid up, to Mr. Chui.

(p) On 15th June, 2004, Tottenhill acquired 528 shares of US$1 each in Best Device, representing approximately 9.55% equity interest of Best Device, from Mr. Chui in consideration for the issue and allotment by Tottenhill of 211 shares of US$1 each in Tottenhill to Mr. Chui, at par and credited as fully paid.

(q) On 15th June, 2004, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li acquired an aggregate of 103 shares of US$1 each in Tottenhill, representing approximately 4.66% equity interest of Tottenhill, from Mr. Chui (as to 53 shares, 29 shares, 13 shares and 8 shares of US$1 each in Tottenhill, respectively) at an aggregate consideration of HK$103 (that is, HK$1 per share).

(r) On 25th June, 2004, the Company acquired an aggregate of 5,528 shares of US$1 each in Best Device, representing the entire issued share capital of Best Device, from Tottenhill in consideration for the issue and allotment by the Company of an aggregate of 99,999,999 Shares, credited as fully paid, to Tottenhill.

– 271 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

6. Repurchase by the Company of its own securities

This section includes information required by the Stock Exchange to be included in this prospectus concerning the repurchase by the Company of its own securities.

(a) The Listing Rules

The Listing Rules permit companies with a primary listing on the Stock Exchange to purchase their equity securities subject to certain restrictions, the most important of which are summarised below:

(i) Shareholders’ approval

All proposed repurchases of securities on the Stock Exchange by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval of a particular transaction.

Note: On 12th October, 2004, resolutions in writing of the sole Shareholder were passed whereby a general unconditional mandate was given to the Directors authorising repurchase by the Company on the Stock Exchange, or any other stock exchange recognised by the SFC and the Stock Exchange, of up to 10% of the aggregate nominal value of the share capital of the Company in issue and to be issued as mentioned herein at any time until (aa) the conclusion of the next annual general meeting of the Company, or (bb) the expiration of the period within which the next annual general meeting of the Company is required by any applicable law of the Cayman Islands or its articles of association to be held, or (cc) the passing of an ordinary resolution of the shareholders of the Company in general meeting revoking or varying such mandate, whichever is the earliest (the “Buyback Mandate”).

(ii) Source of funds

Repurchases must be funded out of funds legally available for the purpose. Any repurchase will be made out of funds of the Company legally permitted to be utilised in this connection, including out of the profits of the Company or out of the proceeds of a fresh issue of shares made for the purpose of the repurchase or, if so authorised by the Articles and subject to the applicable Cayman Islands laws, out of capital. Any premium payable on a repurchase over the par value of the Shares to be purchased must be made out of the profits of the Company or from sums standing to the credit of the Company’s share premium account, or, if so authorised by the Articles and subject to the applicable Cayman Islands laws, out of capital.

(iii) Trading restrictions

The securities proposed to be repurchased by the Company must be fully-paid up. A maximum of 10% of the existing issued share capital of the Company as at the date of the passing of the ordinary resolution granting the general mandate may be repurchased on the Stock Exchange.

– 272 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(b) Reasons for repurchase

The Directors believe that it is in the best interests of the Company and its Shareholder to have general authority from the sole Shareholder to enable the Directors to repurchase securities of the Company in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and its Shareholders.

(c) Funding of repurchases

(i) In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with its memorandum and articles of association, the applicable laws of the Cayman Islands and the Listing Rules.

(ii) The Directors do not propose to exercise the Buyback Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company. However, there might be a material adverse effect on the working capital requirements of the Company or the gearing level (as compared with the position disclosed in the accountants’ report, the text of which is set out in Appendix I to this prospectus) in the event the Buyback Mandate is exercised in full.

(iii) Exercise in full of the Buyback Mandate, on the basis of 500,000,000 Shares in issue immediately after the listing of the Shares on the Stock Exchange, could result in up to 50,000,000 Shares being repurchased by the Company during the period from the passing of the resolution granting the Buyback Mandate up to (aa) the conclusion of the next annual general meeting of the Company, or (bb) the expiration of the period within which the next annual general meeting of the Company is required by the Articles or any applicable laws of the Cayman Islands to be held, or (cc) the passing of an ordinary resolution by the Shareholders in general meeting of the Company revoking or varying such mandate, whichever is the earliest.

(d) General

(i) None of the Directors or, to the best of their knowledge having made all reasonable enquiries, any of their associates, has any present intention, if the Buyback Mandate is exercised, to sell any Shares to the Company or any of its subsidiaries.

(ii) The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Buyback Mandate in accordance with the Listing Rules and the applicable laws of the Cayman Islands.

– 273 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(iii) If as a result of a repurchase of Shares a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of the Hong Kong Code on Takeovers and Mergers (the “Takeovers Code”) issued by the SFC. As a result, a Shareholder, or group of Shareholders acting in concert, depending on the level of increase of the Shareholders’ interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with rule 26 of the Takeovers Code. Save as aforesaid, the Directors are not aware of any consequences which would arise under the Takeovers Code as a result of a repurchase of securities made immediately after the Listing Date.

(iv) No connected person (as defined in the Listing Rules) has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so, if the Buyback Mandate is exercised.

7. Registration under Part XI of the Companies Ordinance

The Company has established a place of business in Hong Kong at 11th Floor, Block E1, Hoi Bun Industrial Building, No. 6 Wing Yip Street, Kwun Tong, Kowloon, Hong Kong and was registered on 7th April, 2003 as an oversea company in Hong Kong under Part XI of the Companies Ordinance. Mr. Chui and Mr. Wan Tak Wing, Gary have been appointed as the agents of the Company for the acceptance of service of process in Hong Kong at the Company’s principal place of business in Hong Kong on 25th March, 2003 and 24th February, 2004, respectively.

– 274 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

B. FURTHER INFORMATION ABOUT THE BUSINESS OF THE GROUP

1. Summary of material contracts

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company or any of its subsidiaries within the two years preceding date of this prospectus and are or may be material:

(a) Sale and purchase agreement dated 6th November, 2002 between Mr. Li, Mr. Koitabashi Kunikatsu and Lewiston Group, pursuant to which Lewiston Group agreed, inter alia, to purchase an aggregate of 270 shares (mochibun) of ¥10,000 each in IPE (Japan), representing 90% equity interest of IPE (Japan), from Mr. Li (as to 183 shares (mochibun)) and Mr. Koitabashi Kunikatsu (as to 87 shares (mochibun)) at a consideration of ¥2,700,000.

(b) Sale and purchase agreement dated 6th November, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Anglo Dynamic, pursuant to which Anglo Dynamic agreed, inter alia, to purchase an aggregate of 1,200,000 shares of S$1 each in IPE (Singapore), representing the entire issued share capital of IPE (Singapore), from Mr. Chui (as to 615,600 shares), Mr. Ng (as to 300,000 shares), Mr. Ho (as to 166,800 shares), Mr. Lai (as to 72,000 shares) and Mr. Li (as to 45,600 shares) in consideration for the issue and allotment by Anglo Dynamic of an aggregate of 1,000 shares of US$1 each in the capital of Anglo Dynamic, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(c) Sale and purchase agreement dated 6th November, 2002 between IPE (HK) and Strengthen Asia, pursuant to which IPE (HK) agreed, inter alia, to sell an aggregate of 65 shares of HK$1 each in Detas Asia, representing 65% of the issued share capital of Detas Asia, to Strengthen Asia at a consideration of HK$65.

(d) Sale and purchase agreement dated 6th November, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Tai Situpa, pursuant to which Tai Situpa agreed, inter alia, to purchase an aggregate of 3,000,000 shares of HK$1 each in IPE (HK), representing the entire issued share capital of IPE (HK), from Mr. Chui (as to 1,539,000 shares), Mr. Ng (as to 750,000 shares), Mr. Ho (as to 417,000 shares), Mr. Lai (as to 180,000 shares) and Mr. Li (as to 114,000 shares) in consideration for the issue and allotment by Tai Situpa of an aggregate of 1,000 shares of US$1 each in the capital of Tai Situpa, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

– 275 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(e) Sale and purchase agreement dated 6th November, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Best Device, pursuant to which Best Device agreed, inter alia, to purchase an aggregate of 1,000 shares of US$1 each in Cyber Starpower, representing the entire issued share capital of Cyber Starpower, from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(f) Sale and purchase agreement dated 28th November, 2002 between IPE Holdings and Lewiston Group, pursuant to which IPE Holdings agreed, inter alia, to sell an aggregate of 61,000 shares of Euro 1 each in IPE (Europe), representing 61% equity interest of IPE (Europe), to Lewiston Group at a consideration of Euro 61,000.

(g) Sale and purchase agreement dated 6th December, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Best Device, pursuant to which Best Device agreed, inter alia, to purchase an aggregate of 2,000 shares of US$1 each in Anglo Dynamic, representing the entire issued share capital of Anglo Dynamic, from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(h) Sale and purchase agreement dated 6th December, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Best Device, pursuant to which Best Device agreed, inter alia, to purchase an aggregate of 2,000 shares of US$1 each in Tai Situpa, representing the entire issued share capital of Tai Situpa, from Mr. Chui (as to 1,026 shares), Mr. Ng (as to 500 shares), Mr. Ho (as to 278 shares), Mr. Lai (as to 120 shares) and Mr. Li (as to 76 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

(i) Sale and purchase agreement dated 6th December, 2002 between Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai, Mr. Li and Best Device, pursuant to which Best Device agreed, inter alia, to purchase an aggregate of 1,000 shares of US$1 each in Lewiston Group, representing the entire issued share capital of Lewiston Group, from Mr. Chui (as to 513 shares), Mr. Ng (as to 250 shares), Mr. Ho (as to 139 shares), Mr. Lai (as to 60 shares) and Mr. Li (as to 38 shares) in consideration for the issue and allotment by Best Device of an aggregate of 1,000 shares of US$1 each in the capital of Best Device, at par and credited as fully paid, as to 513 shares to Mr. Chui, as to 250 shares to Mr. Ng, as to 139 shares to Mr. Ho, as to 60 shares to Mr. Lai and as to 38 shares to Mr. Li.

– 276 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(j) Deed of confirmation dated 3rd April, 2003 entered into between IPE (HK), Mr. Chui and Dongguan Koda, pursuant to which the parties thereto confirmed and acknowledged, inter alia, that during the period from 21st October, 1997 to 28th February, 2002, IPE (HK) was holding the property situated at 北京市 朝陽區安貞西里四區23號樓16E (Room E on Level 16, Block 23 An Zhen Xi Li Si Qu, Chaoyang District, Beijing) (the “Beijing Property”) in trust for Mr. Chui, and that on 1st March, 2002, IPE (HK) acquired the Beijing Property from Mr. Chui at a consideration of HK$1,500,000.

(k) Agreement dated 23rd May, 2003 entered into between 增城市國土資源和 房屋管理局 (Zengcheng City Land Resources and Buildings Management Bureau) (the “Zengcheng Authority”) and Xing Hao, pursuant to which Xing Hao bought from the Zengcheng Authority the land use right in respect of a parcel of land with site area of 16.6534 hectare located at 增城市仙村鎮岳湖 村上圍沙河社 (Shang Wei Sha He She, Yue Hu Cun, Xian Cun Zhen, Zengcheng City) at a consideration of RMB2,498,010.

(l) Sale and purchase agreement dated 2nd June, 2003 entered into between IPE (Thailand) and IPE (Singapore), pursuant to which IPE (Singapore) agreed, inter alia, to transfer to IPE (Thailand) all its machinery/equipment at the latest net book value of the assets in an aggregate sum of S$855,571.

(m) Sale and purchase agreement dated 16th October, 2003 entered into between Lewiston Group and Mr. Scandolo Francesco, pursuant to which Lewiston Group agreed, inter alia, to sell 61,000 shares of Euro 1 each in IPE (Europe), representing 61% equity interest of IPE (Europe), to Mr. Scandolo Francesco at a consideration of Euro 61,000.

(n) Agreement (evidenced by share transfer instrument dated 8th December, 2003) between Cyber Starpower and Mr. Lee Kian Heng, pursuant to which Mr. Lee Kian Heng agreed to transfer to Cyber Starpower his one share of par value Baht 100 in IPE (Thailand) at a consideration of Baht 100.

(o) Supplemental agreement dated 18th December, 2003 entered into between “廣 州市長洲城建開發有限公司” (Guangzhou Changzhou Chengjian Development Company Limited (“Party A”)) and Xing Hao, pursuant to which the agreement dated 31st October, 2001 between Party A and IPE (HK) (the investor of Xing Hao) was supplemented to the effect that Party A agreed to identify and procure the acquisition by Xing Hao of a piece of land with site area of approximately 166,667 sq.m. located at 增城市仙村鎮岳湖村 (Yue Hu Cun, Xian Cun Zhen, Zengcheng City) at an aggregate consideration of RMB28,800,000.

– 277 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(p) Deed of variation dated 3rd April, 2004 entered into between IPE (HK) as mortgagor, Detas Asia as outgoing principal, IPE (HK) as remaining principal and Dah Sing Bank Limited (“Dah Sing”) as the lender, pursuant to which, inter alia, the terms of the mortgage dated 11th December, 2001 in respect of the property situate at Unit B comprising the Ground and First Floors and the Roof thereof, Parking Area, and Terrace and Garden Area of Golden Lake Villa, Clearwater Bay Road, Silverstrand, New Territories, Hong Kong (the “Golden Lake Mortgage”) were varied to the effect that as if Detas Asia were not a party to the Golden Lake Mortgage, and that the Golden Lake Mortgage would only secure all sums of money due to Dah Sing by IPE (HK).

(q) Deed of variation dated 3rd April, 2004 entered into between King Mighty Limited (“King Mighty”) as mortgagor, IPE (HK) as outgoing principal, Detas Asia as remaining principal and Dah Sing as the lender, pursuant to which, inter alia, the terms of the mortgage dated 11th December, 2001 in respect of the property situate at Flat C, 27th Floor with Sun Deck immediately above thereof of Tower 6, Bayshore Towers, No. 608 Sai Sha Road, New Territories (the “Bayshore Mortgage”) were varied to the effect that as if IPE (HK) were not a party to the Bayshore Mortgage, and that the Bayshore Mortgage would only secure all sums of money due to Dah Sing by Detas Asia.

(r) Deed of novation dated 15th June, 2004 entered into between IPE (HK), Mr. Chui and Best Device, pursuant to which, inter alia, Best Device agreed to assume by way of novation the obligations and liabilities of IPE (HK) to pay the Debt, and for the purpose of paying the Debt, to capitalize the Debt by allotting and issuing 528 shares of US$1 each in Best Device at par and credited as fully paid up, to Mr. Chui.

(s) Sale and purchase agreement dated 25th June, 2004 entered into between Tottenhill and the Company, pursuant to which Tottenhill agreed, inter alia, to sell to the Company an aggregate of 5,528 shares of US$1 each in Best Device, representing the entire issued share capital of Best Device, in consideration for the issue and allotment by the Company of an aggregate of 99,999,999 Shares, credited as fully paid, to Tottenhill.

(t) Deed of indemnity dated 18th October, 2004 given by the Indemnifiers in favour of the Group in respect of any claims for taxation including estate duty claims against any member of the Group as referred to in the section headed “Estate duty and tax indemnities” in this Appendix VII.

(u) Underwriting Agreement.

– 278 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

2. Intellectual property rights of the Group

Trade marks

As at the Latest Practicable Date, the Group has registered the following trade marks:

Trade Place ofRegistration Registration Expiry mark registration Class number date date

Hong Kong 7 (Note 1) 16317/2003 30th September, 30th September, 2002 2009

Hong Kong 9 (Note 2) 16316/2003 30th September, 30th September, 2002 2009

Hong Kong 10 (Note 3) 16318/2003 30th September, 30th September, 2002 2009

Hong Kong 12 (Note 4) 16319/2003 30th September, 30th September, 2002 2009

Hong Kong 35 (Note 5) 16320/2003 30th September, 30th September, 2002 2009

Hong Kong 37 (Note 6) 16321/2003 30th September, 30th September, 2002 2009

Hong Kong 40 (Note 7) 16322/2003 30th September, 30th September, 2002 2009

– 279 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

Notes:–

1.The goods covered under this application in Class 7 are machines and machine tools; motors and engines (except for land vehicles); machine coupling and transmission components (except for land vehicles); agricultural implements other than hand-operated; machines for the manufacture of electronic components and printed circuit boards; bearing (parts of machines); brushes (part of machines); chucks (parts of machines); control mechanisms for machines, engines or motors; hydraulic controls for machines, motors and engines; pneumatic controls for machines, motors and engines; cranks (parts of machines); drum (parts of machines); feeders (parts of machines); filters (parts of machines or engines); hydraulic engines and motors; parts and fittings for the aforesaid goods; all included in class 7.

2.The goods covered under this application in Class 9 are scientific, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signalling, checking (supervision) and teaching apparatus and instruments; apparatus and instruments for recording, receiving, transmitting and/ or reproducing data, information, pictures, images and/or sound; apparatus and instruments for displaying and/or printing out data, information, pictures and/or images; magnetic data carriers, recording discs; automatic vending machines; all included in class 9.

3.The goods covered under this application in Class 10 are medical and surgical apparatus and instruments; apparatus and instruments for medical treatment; microwave power generation and delivery apparatus adapted for medical use; miniature electrochemical sensors for medical use; parts and fittings for the aforesaid goods; all included in class 10.

4.The goods covered under this application in Class 12 are vehicles; apparatus for locomotion by land, air or water, engines for land vehicles; gearing for land vehicles; motors for land vehicles; all included in class 12.

5.The services covered under this application in Class 35 are retailing, wholesaling and distribution services in the fields of machines and machine tools, motors and engines (except for land vehicles), machine coupling and transmission components (except for land vehicles), agricultural implements other than hand-operated, machines for the manufacture of electronic components and printed circuit boards, scientific, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signalling, checking (supervision) and teaching apparatus and instruments, apparatus and instruments for recording, receiving, transmitting and/or reproducing data, information, pictures, images and/or sound, apparatus and instruments for displaying and/or printing out data, information, pictures and/or images, magnetic data carriers, recording discs, automatic vending machines, medical and surgical apparatus and instruments, apparatus and instruments for medical treatment, vehicles, apparatus for locomotion by land, air or water, engines for land vehicles; import-export agencies; home shopping by means of a global computer network; advertising, publicity publication and distribution of printed advertising materials; business appraisals; cost price analysis; marketing research; retail store and catalogue order services in the aforesaid fields; all included in class 35.

6.The services covered under this application in Class 37 are repair, installation and maintenance of electronic, electric and mechanical instruments and apparatus; consultancy, information and advisory services relating to repair or installation of electronic, electric and mechanical instruments and apparatus; all included in class 37.

7.The services covered under this application in Class 40 are treatment of materials relating to electronic, electric and mechanical instruments and apparatus; metal casting; metal plating; metal tempering, metal treating; information, advisory and consultancy services relating to all the aforesaid services; all included in class 40.

Domain name

As at the Latest Practicable Date, IPE (Singapore) has registered the following domain name:

Domain name Registration Date Expiration Date

ipegroup.com 30th May, 2001 30th May, 2006

– 280 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

3. Information about the Group’s wholly-foreign owned enterprises in the PRC

The Group has established two wholly foreign-owned enterprises in the PRC (namely, Dongguan Koda and Xing Hao), the summaries of their information and their principal terms are as follows:

(a) Dongguan Koda

Economic nature : Wholly-foreign-owned enterprise

Total investment : HK$133,000,000

Total registered capital : HK$133,000,000 (contributed up to HK$121,109,868.78)

Term : 12 years from 6th September, 1994 to 5th September, 2006

Scope of business : Production and sale of precision metal components and high capacity hard disk drive components

(b) Xing Hao

Economic nature : Wholly-foreign-owned enterprise

Total investment : HK$140,000,000

Total registered capital : HK$140,000,000 (contributed up to HK$56,950,113.20)

Term : 20 years from 19th June, 2002 to 19th June, 2022

Scope of business : Production and sale of high capacity hard disk drives and related components, precision shafts and specialised shafts and automobile key components

C. FURTHER INFORMATION ABOUT THE DIRECTORS, MANAGEMENT, STAFF, SUBSTANTIAL SHAREHOLDERS AND EXPERTS

1. Disclosure of interests

(a) Interests and short positions of the Directors in the shares, underlying shares or debentures of the Company and its associated corporations after the completion of the Offer and the Capitalisation Issue

Immediately following completion of the Offer and the Capitalisation Issue and taking no account of Shares which may be taken up pursuant to the Offer and Shares falling to be issued upon exercise of any options which may be

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granted under the Share Option Scheme, the Directors and chief executives of the Company will have the following interests and short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which will have 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 are taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange once the Shares are listed:

(i) Long positions in Shares

Percentage of shareholding immediately following completion of Name of Type of Number of the Offer and the Director interest Shares held Capitalisation Issue

Mr. Chui Corporate 372,500,000 74.5% (Note)

Note: These Shares are beneficially owned by Tottenhill, an investment holding company incorporated in BVI, the entire issued share capital of which is owned as to approximately 51.3% by Mr. Chui, as to approximately 25% by Mr. Ng, as to approximately 13.9% by Mr. Ho, as to approximately 6% by Mr. Lai and as to approximately 3.8% by Mr. Li. By virtue of his approximately 51.3% direct interest in Tottenhill, Mr. Chui is deemed or taken to be interested in the 372,500,000 Shares held by Tottenhill for the purpose of the SFO.

(ii) Long positions in the shares of US$1 each in the capital of Tottenhill (the “Tottenhill Shares”), an associated corporation (within the meaning of the SFO) of the Company

Approximate percentage Number ofholding of Type ofTottenhill Tottenhill Name of Director interest Shares held Shares

Mr. Chui Beneficial 1,134 51.3% Mr. Ng Beneficial 553 25.0% Mr. Ho Beneficial 307 13.9% Mr. Lai Beneficial 133 6.0% Mr. Li Beneficial 84 3.8%

– 282 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(iii) Other interests

Save as disclosed herein, none of the Directors or chief executives of the Company has any interest or short position in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of the SFO) which will have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange once the Shares are listed.

(b) Persons who have interests or short positions in the shares or underlying shares of the Company which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders

So far as is known to the Directors, and taking no account of any Shares which may be taken up under the Offer and Shares falling to be issued upon exercise of any options which may be granted under the Share Option Scheme, the following persons (other than the Directors or the chief executives of the Company) will, immediately following completion of the Offer and the Capitalisation Issue, have an interest or short position in the Shares or 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 be 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 any other member of the Group:

(i) Long positions in Shares

Percentage of shareholding immediately following completion Nature of Number of of the Offer and the Name interest Shares held Capitalisation Issue

Tottenhill Beneficial 372,500,000 74.5% (Note)

Note: These Shares are beneficially owned by Tottenhill, an investment holding company incorporated in BVI, the entire issued share capital of which is owned as to approximately 51.3% by Mr. Chui, as to approximately 25% by Mr. Ng, as to approximately 13.9% by Mr. Ho, as to approximately 6% by Mr. Lai and as to approximately 3.8% by Mr. Li. All the shareholders of Tottenhill are executive Directors.

– 283 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(ii) Other interests

Save as disclosed herein but taking no account of Shares which may be taken up under the Offer and Shares falling to be issued upon exercise of any options which may be granted under the Share Option Scheme, the Directors are not aware of any person (other than the Directors or the chief executives of the Company) who will, immediately following completion of the Offer and the Capitalisation Issue, have an interest or short position in the Shares or 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 be interested, directly or indirectly, 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 any other member of the Group.

2. Particulars of Directors’ service agreements

Each of Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li has entered into a director’s service agreement dated 17th February, 2004 (as amended by a supplemental agreement dated 27th May, 2004) with the Company under which he has been appointed to act as an executive Director for an initial term of three years commencing from 1st January, 2004 and shall continue thereafter until terminated by either party by giving to the other not less than six calendar months’ notice in writing expiring not earlier than the last day of the initial term of three years. Each of the executive Directors is entitled to the respective salary and director fee set out below:

Name Salary (per annum) Director fee (per annum)

Mr. Chui HK$1,219,980 HK$390,000 Mr. Ng Nil HK$360,000 Mr. Ho HK$1,176,996 HK$360,000 Mr. Lai HK$627,996 HK$360,000 Mr. Li HK$339,000 HK$200,004

In addition, each of the executive Directors is also entitled to a discretionary bonus calculated as a percentage of the audited consolidated profit of the Group attributable to the Shareholders (after tax but before extraordinary items and such bonus), which percentage shall be determined by the Board, but in any event, the aggregate amount of the bonuses payable to all the executive Directors in respect of any financial year of the Company may not exceed 15% of such profit. The salary and director fee of each of the executive Directors will be reviewed by the Board at each financial year end of the Company provided that: (a) in respect of each of the financial years during the initial term of 3 years, any increment will not exceed 5% of the aggregate of executive Director’s salary and director fee at the time of the relevant review; and (b) the executive Director shall abstain from voting and not be counted in the quorum in respect of the resolution proposed at any meeting of the Board regarding any amount including the monthly salary, the director fee, the discretionary bonus or other benefits or allowances payable to him.

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3. Directors’ remuneration

(i) The aggregate of the remuneration paid and benefits in kind granted to the Directors by any member of the Group for the year ended 31st December, 2003 was approximately HK$3,900,000.

(ii) The estimated aggregate remuneration payable to and benefits in kind receivable by the executive Directors (i.e. Mr. Chui, Mr. Ng, Mr. Ho, Mr. Lai and Mr. Li) and the independent non-executive Directors (i.e. Messrs. Cheng Ngok, Choi Hon Ting, Derek and Wu Karl Kwok) are approximately HK$5,000,000 and HK$30,000 respectively in respect of the year ending 31st December, 2004 under the arrangements currently in force.

4. Agency fees or commission

Save as disclosed in this prospectus, within the two years preceding the date of this prospectus, no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or any of its subsidiaries.

5. Disclaimers

Save as disclosed in this prospectus:

(a) none of the Directors nor any of the experts whose names are listed in the paragraph headed “Consents of experts” in this Appendix has any direct or indirect interest in the promotion of, or in any assets which have within the two years immediately preceding the date of this prospectus been 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;

(b) none of the Directors nor any of the experts whose names are listed in the paragraph headed “Consents of experts” in this Appendix is materially interested in any contract or arrangement subsisting at the date of this prospectus which is significant in relation to the business of the Group;

(c) none of the experts whose names are listed in the paragraph headed “Consents of experts” in this Appendix has any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group or is an officer or servant, or in the employment of an officer or servant of the Group; and

(d) none of the Directors has any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).

– 285 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

D. SHARE OPTION SCHEME

The following is a summary of the principal terms of the Share Option Scheme conditionally approved by the resolutions in writing of the sole Shareholder dated 12th October, 2004:

(a) Purpose

The purpose of the Share Option Scheme is to enable the Company to grant options to any directors (including executive directors, non-executive directors and independent non-executive directors) and full-time employees of any member of the Group and any advisors, consultants, distributors, contributors, suppliers, agents, customers, joint venture business partners, promoters, service providers of any member of the Group who the Board considers, in its sole discretion, have contributed or will contribute to the Group (the “Participants”) as incentive and/or rewards for their contribution to the Company.

(b) Who may join

The Directors may, at their discretion, invite the Participants to take up options to subscribe for Shares at a price calculated in accordance with paragraph D(c) of this Appendix. The offer of grant of options is open for acceptance by the grantees for 28 days from the date of offer of the option (but not later than the earlier of the date of the tenth anniversary of the date of adoption of the Share Option Scheme or the date of termination of the Share Option Scheme). Upon acceptance of the option, the grantee shall pay HK$1 to the Company by way of consideration for the grant.

(c) Price of Shares

The subscription price for Shares under the Share Option Scheme shall be a price notified by the Directors to a Participant (subject to any adjustments made pursuant to paragraph D(o) of this Appendix) and shall be at least the higher of (aa) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets on the date on which the offer of an option is made (the “Offer Date”) which must be a Business Day; and (bb) the average of the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five Business Days immediately preceding the Offer Date provided that the subscription price shall not be lower than the nominal value of the Shares.

(d) Maximum number of Shares

(i) The maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option scheme of the Company must not exceed 30% of the Shares in issue from time to time. No options shall be granted under any scheme(s) of the Company if this will result in the 30% limit being exceeded.

(ii) The total number of Shares which may be issued upon exercise of all options that may be granted under the Share Option Scheme and any other schemes of the Company must not, in aggregate, exceed 50,000,000 Shares, representing 10% of the issued share capital of the Company on the date on which the Share Option Scheme becomes unconditional (which is expected to be on or before the Listing Date) (the “Scheme Mandate Limit”) unless an approval by the

– 286 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

Shareholders at general meeting has been obtained pursuant to paragraph D(d) (iii) of this Appendix. The Company may seek approval by Shareholders in general meeting to refresh the Scheme Mandate Limit and a circular shall be issued to the Shareholders.

(iii) Subject to paragraph D(d)(i) of this Appendix and without prejudice to paragraph D(d)(iv) of this Appendix, the Company may issue a circular to its Shareholders containing the information required under rule 17.02(2)(d) of the Listing Rules and the disclaimer required under rule 17.02(2)(4) of the Listing Rules and seek approval of its Shareholders in general meeting to refresh the Scheme Mandate Limit provided that the total number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option scheme of the Group under the limit as refreshed must not exceed 10% of the Shares in issue as at the date of approval of the limit and for the purpose of calculating the limit, options (including those outstanding, cancelled, lapsed or exercised in accordance with the Share Option Scheme and any other share option scheme of the Company) previously granted under the Share Option Scheme and any other share option scheme of the Company will not be counted.

(iv) Subject to paragraph D(d)(i) of this Appendix and without prejudice to paragraph D(d)(iii) of this Appendix, the Company may issue a circular to its Shareholders containing a generic description of the specified Participants who may be granted the relevant options, the number and terms of the options to be granted, the purpose of granting options to the specified Participants with an explanation as to how the terms of the options serve such purpose, the information required under rule 17.02(2)(d) of the Listing Rules and the disclaimer required under rule 17.02(4) of the Listing Rules, and seek separate Shareholders’ approval in general meeting to grant options beyond the Scheme Mandate Limit or, if applicable, the refreshed limit referred to in paragraph D(d)(iii) of this Appendix to Participants specifically identified by the Company before such approval is sought.

(e) Maximum entitlement of each Participant

The total number of Shares issued and to be issued upon exercise of the options granted and to be granted under the Share Option Scheme and any other share option scheme of the Company (including both exercised and outstanding options) in any 12-month period up to the date of grant to each Participant must not exceed 1% of the issued share capital of the Company at the date of grant. Any further grant in excess of this limit must be subject to separate Shareholders’ approval, all such Participants and their associates shall abstain from voting in such general meeting and a circular shall be issued to the Shareholders.

(f) Grant of options to connected persons

(i) Any grant of options to a connected person or its associates (as defined in the Listing Rules) shall be approved by all independent non-executive Directors (excluding any independent non-executive Directors who is the grantee of a prospective options in question).

– 287 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(ii) Grant of options to a connected person who is also a substantial shareholder of the Company or an independent non-executive Director or any of their respective associates would result in the number of Shares issued and to be issued upon exercise of the options granted and to be granted (including exercised, cancelled and outstanding options) to that connected person in the 12-month period up to and including the Offer Date of the proposed grant of options, (aa) representing in aggregate more than 0.1% of the total issued Share Capital of the Company for the time being, and (bb) having an aggregate value in excess of HK$5,000,000 based on the closing price of the Shares at the date of each grant, then the proposed grant of such options must be subject to approval by the Shareholders on a poll in general meeting where all connected persons of the Company shall abstain from voting in favour at such general meeting. The Company must comply with the requirements under rules 13.39(5), 13.40, 13.41 and 13.42 of the Listing Rules.

(iii) For the purposes of approving the proposed grant of options as described under paragraph D(f)(ii) of this Appendix, the Company shall issue a circular to Shareholders containing (aa) details of the number and terms (including the subscription price) of the options to be granted to each Participant (which must be fixed before the Shareholders’ meeting), and the date of the Board meeting for proposing such further grant is to be taken as the Offer Date for the purpose of calculating the subscription price, (bb) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is a prospective grantee of the options in question) as to voting, (cc) the information required under rules 17.02(2)(c) and (d) of the Listing Rules and the disclaimer required under rule 17.02(4) of the Listing Rules, and (dd) the information required under rule 2.17 of the Listing Rules.

Any change in the terms of any options granted to a grantee who is a substantial shareholder, an independent non-executive Director or their respective associates shall be approved by the Shareholders in general meeting and such grantee and his associates shall abstain from voting in such general meeting.

(g) Time of exercise of option

Subject to any restrictions which may be imposed by the Board (including but not limited to the minimum period for which an option must be held before it can be exercised), an option may be exercised in accordance with the terms of the Share Option Scheme at any time during the period commencing on the date on which the option is accepted (the “Commencement Date”) and expiring on the last day of the five-year period from the Commencement Date, or the last day of the ten-year period from the date on which the Share Option Scheme is conditionally adopted by resolution of the sole Shareholder, or the date on which the Share Option Scheme is terminated pursuant to the Share Option Scheme, whichever is the earliest (the “Option Period”).

(h) Performance targets

Unless the Directors otherwise determined and stated in the offer of the grant of options to a grantee, a grantee is not required to achieve any performance targets before any options granted under the Share Option Scheme can be exercised.

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(i) Rights are personal to grantee

An option may not be transferred or assigned and is personal to the grantee.

(j) Rights on ceasing employment

If the grantee of an option leaves the service of the Company for any reason other than death, serious misconduct or certain other grounds, the grantee may exercise the option up to the grantee’s entitlement at the date of cessation (to the extent not already exercised) within the period of one month following the date of such cessation, which date shall be the last actual working day with the Company or any of its subsidiaries whether salary is paid in lieu of notice or not.

(k) Rights on death

If the grantee of an option ceases to be a Participant by reason of death, his or her personal representative(s) may exercise the option in full (to the extent not already exercised) within a period of 12 months thereafter, failing which it will lapse.

(l) Rights on dismissal

If the grantee of an option leaves the service of the Group by the reason of serious misconduct or on certain other grounds, his or her option will thereupon lapse forthwith.

(m) Cancellation of options

Any cancellation of options granted but not exercised must be approved by Shareholders in general meeting, with Participants and their associates abstaining from voting. Where the Company cancels options and issues new ones to the same Participant, the issue of such new options may only be made under the Share Option Scheme with available unissued options (excluding the cancelled options) within the limit approved by Shareholders in general meeting as referred to in paragraph D(d) above.

(n) Termination of the Share Option Scheme

The Company may by resolution in general meeting at any time terminate the Share Option Scheme and in such event no further options shall be offered but in all other respects the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any options (to the extent not already exercised) granted prior to the termination or otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options (to the extent not already exercised) granted prior to such termination shall continue to be valid and exercisable in accordance with the Share Option Scheme.

(o) Effect of alteration to capital

In the event of any capitalisation issue, rights issue, sub-division or consolidation of shares or reduction of capital of the Company while any option remains exercisable, such corresponding alterations (if any) certified in writing by the auditors for the time being of the Company as fair and reasonable will be made to (aa) the Shares to which the option

– 289 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

relates, (bb) the number or nominal amount of Shares subject to the option so far as unexercised, (cc) the subscription price for the Shares subject to the option so far as unexercised, and/or (dd) the method of exercise of the option, provided that any such alteration will be made on the basis that the proportion of the issued share capital of the Company to which a grantee is entitled after such alteration will remain the same as that to which he was entitled before such alteration and that no Share will be issued at less than its nominal value. The issue of Shares as consideration in a transaction may not be regarded as a circumstance requiring adjustment. In respect of any such adjustments, other than any made on a capitalisation issue, the auditors must confirm to the Directors in writing that the adjustments satisfy the relevant requirements of the Listing Rules.

(p) Rights on General Offer

If a general offer (whether by way of a takeover offer scheme of arrangement or otherwise in like manner) is made to all the holders of Shares and such offer becomes or is declared unconditional, a grantee shall be entitled to exercise his or her option in full (to the extent not already exercised) until the earlier of the date of expiry of the Option Period or the last day of the period of 14 days after the date on which the offer becomes or is declared unconditional. Subject to the above, an option will lapse automatically (to the extent not exercised) on the expiry of the above 14-day period.

(q) Rights on voluntary winding up

In the event a notice is given by the Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind up the Company, the Company shall on the same date or as soon as practicable after it despatches such notice to each member of the Company give notice thereof to all the grantees and thereupon, each of the grantee (or his or her legal personal representative(s)) shall be entitled to exercise all or any of his or her option at any time not later than two Business Days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by the full amount of the subscription price for the Shares in respect of which the option is exercised whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the grantee credited as fully paid.

(r) Rights on compromise or arrangement

If, pursuant to the Companies Law, a compromise or arrangement (other than a scheme of arrangement contemplated in paragraph (p) above) between the Company and its members or creditors is proposed in connection with a scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof to all grantees on the same day or as soon as practicable after it despatches notice of the meeting to its members or creditors to consider such a scheme or arrangement, and thereupon the grantee shall be entitled to exercise his option by notice in writing to the Company accompanied by the remittance for the full amount of the subscription price for the Shares in respect of which the notice is given (such notice to be received by the Company not later than two Business Days prior to the proposed meeting) and the Company shall as soon as possible and in any event no later than 12 noon on the day immediately prior to the date of the proposed meeting, allot, issue and register in the name of the grantee such number of fully paid Shares which fall to be issued on exercise of such option.

– 290 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(s) Ranking of Shares

The Shares to be allotted upon the exercise of an option will be subject to all the provisions of the Articles and will rank pari passu with the fully paid Shares in issue on the date of allotment and accordingly will entitle the holders to participate in all dividends or other distributions paid or made on or after the date of allotment other than any dividend or other distributions previously declared or recommended or resolved to be paid or made if the record date therefor shall be before the date of allotment. A Share allotted upon the exercise of an option shall not carry voting rights until the completion of the registration of the grantee as the holder thereof.

(t) Period of option scheme

The Share Option Scheme will remain in force for a period of 10 years commencing on the date on which it is adopted conditionally by resolution of the sole Shareholder.

(u) Lapse of option

An option shall lapse automatically (to the extent not already exercised) on the earliest of:

(i) the expiry of the Option Period referred to in paragraph D(g) of this Appendix;

(ii) the expiry of any of the periods referred to in paragraphs D(j), (k), (p) or (q) of this Appendix;

(iii) the date of the commencement of the winding-up of the Company;

(iv) subject to paragraph D(p) of this Appendix, upon the compromise or arrangement referred to in paragraph D(r) of this Appendix becoming effective;

(v) the date on which the grantee (being an employee or director of the Company or another member of the Group) ceases to be Participant by reason of the termination of his employment or directorship on any one or more of the grounds that he has been guilty of serious misconduct, or has committed an act of bankruptcy or has become insolvent or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or (if so determined by the Board) on any other ground on which an employer would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with the Group. A resolution of the Board or the board of directors of the relevant subsidiary of the Company to the effect that the employment of a grantee has or has not been terminated on one or more of the grounds specified in this paragraph D(u)(v) of this Appendix shall be conclusive and binding on the Participant, and where appropriate his or her legal personal representative(s); or

(vi) the date on which the Board shall exercise the Company’s rights to cancel the option as a result of the grantee’s breach of paragraph D(i) of this Appendix.

– 291 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

(v) Alterations of the option scheme

The Share Option Scheme may be altered at any time in any respect by resolution of the Board or scheme administrators without the approval of Shareholders except that certain specified provisions of the Share Option Scheme (as contained in Rule 17.03 of the Listing Rules) shall not be altered to the advantage of the grantees or prospective grantees (as the case may be) except with the prior sanction of resolution by the Shareholders in general meeting. Any alterations to the provisions of the Share Option Scheme which are of a material nature or any change to the terms of options granted must first be approved by Shareholders except where the alterations take effect automatically under the existing provisions of the Share Option Scheme.

Amended terms of the Share Option Scheme or the options must comply with the relevant requirements of Chapter 17 of the Listing Rules. Any change to the authority of the Directors or the scheme administrators in relation to any alteration to the terms of the Share Option Scheme shall be approved by Shareholders in general meeting.

(w) Restrictions on the time of grant of options

For so long as the Shares are listed on the Stock Exchange, the Board shall not grant any option after a price sensitive development in relation to the securities of the Company has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been published in the newspapers and in particular, the Board is prohibited from granting any option during the period commencing one month immediately preceding the earlier of (aa) the date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules for the approval of the Company’s results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules); and (bb) the deadline for the Company to publish an announcement of its results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules) and ending on the date of the results announcement.

The Directors may not grant any option to a Participant who is a Director during the periods or times in which Directors are prohibited from dealing in shares pursuant to the Model Code for Securities Transactions by Directors of Listed Companies prescribed by the Listing Rules or any corresponding code or securities dealing restrictions adopted by the Company.

(x) Present status of the scheme

The Share Option Scheme was adopted by a resolution in writing passed by the sole Shareholder on 12th October, 2004.

The Share Option Scheme is conditional on the Listing Committee of the Stock Exchange granting approval of it and any options which may be granted thereunder and the granting of the listing of, and permission to deal in, the Shares to be issued as mentioned therein.

Unless the context otherwise requires, references to “Shares” in this section include shares in the Company of any other nominal amount as shall result from a sub-division or a consolidation of such shares from time to time.

– 292 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

As at the date of this prospectus, no option has been granted or agreed to be granted under the Share Option Scheme. Application has been made to the Listing Committee of the Stock Exchange for the approval of the listing of, and permission to deal in, the Shares which fall to be issued pursuant to the exercise of any options that may be granted under the Share Option Scheme.

E. OTHER INFORMATION

1. Estate duty and tax indemnities

Each of the Indemnifiers has given joint and several indemnities in connection with, inter alia, any liability for Hong Kong estate duty which might be payable by any member of the Group, by reason of any transfer of property (within the meaning of section 35 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong)) to any member of the Group and any other tax liabilities of the Group on or before the date on which the Offer becomes unconditional. The Indemnifiers will have no liability as aforesaid:–

(a) to the extent that provision has been made for such taxation in the audited accounts of the Group or any member of the Group for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 (the “Accounts”);

(b) for which any member of the Group is liable as a result of any event occurring or income, profits earned, accrued or received or alleged to have been earned, accrued or received or transactions entered into in the ordinary course of business or in the ordinary course of acquiring and disposing of capital assets after 30th June, 2004;

(c) to the extent that such taxation or liability would not have arisen but for any act or omission or delay by any member of the Group (whether alone or in conjunction with some other act, omission or transaction, whenever occurring) voluntarily effected without the prior written consent or agreement of the Indemnifiers, other than such act or omission carried out or effected in the ordinary course of business after the date of execution of the deed of indemnity (the “Effective Date”) or carried out, made or entered into pursuant to a legally binding commitment created on or before the Listing Date;

(d) to the extent that such claim arises or is incurred as a consequence of any retrospective change in the law or the interpretation or practice thereof by the Hong Kong Inland Revenue Department or the tax authorities of the PRC, Singapore, Thailand, Japan, Macau, BVI or any other authority in any part of the world coming into force after the Effective Date or to the extent such claim arises or is increased by an increase in rates of taxation after the Effective Date with retrospective effect; and

(e) to the extent of any provision or reserve made for taxation in the Accounts which is finally established to be an over-provision or an excessive reserve provided that the amount of any such provision or reserve applied pursuant to any of the above provisions to reduce the Indemnifiers’ liability in respect of taxation shall not be available in respect of any such liability arising thereafter.

– 293 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

The Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of its subsidiaries in the Cayman Islands.

2. Litigation

As at the Latest Practicable Date, no member of the Group is engaged in any litigation or arbitration of material importance, and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

3. Sponsors

MasterLink and Partners Capital have made an application on behalf of the Company to the Listing Committee of the Stock Exchange for granting approval of the listing of, and permission to deal in, all the Shares in issue and to be issued as mentioned herein and the Shares to be issued pursuant to the exercise of the options that may be granted under the Share Option Scheme as mentioned herein.

4. Preliminary expenses

The preliminary expenses of the Company are estimated to be approximately HK$20,000 and are payable by the Company.

5. Promoter

The promoter of the Company is Tottenhill, an investment holding company incorporated in BVI, the entire issued share capital of which is owned as to approximately 51.3% by Mr. Chui, as to approximately 25% by Mr. Ng, as to approximately 13.9% by Mr. Ho, as to approximately 6% by Mr. Lai and as to approximately 3.8% by Mr. Li. All the shareholders of Tottenhill are executive Directors.

Save as disclosed in this prospectus, no amount or benefit has been paid or given to or is intended to be paid or given to the promoter in connection with the Offer or related transactions described in this prospectus within the two years preceding the date of this prospectus.

6. Qualification of experts

The following are the qualifications of the experts who have given opinions or advice which are contained in this prospectus:

Name Qualifications

Baker & McKenzie Limited Thai lawyers CCIF CPA Limited Certified public accountants Conyers Dill & Pearman, Cayman Cayman Islands attorneys-at-law King & Wood PRC lawyers MasterLink Registered investment adviser Partners Capital Registered investment adviser So Keung Yip & Sin Hong Kong lawyers Thai Property Appraisal Lynn Phillips Co., Ltd. Thai property valuers Vigers Appraisal & Consulting Limited Property valuers

– 294 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

7. Consents of experts

Each of Baker & McKenzie Limited, CCIF CPA Limited, Conyers Dill & Pearman, Cayman, King &Wood, MasterLink, Partners Capital, So Keung Yip & Sin, Thai Property Appraisal Lynn Phillips Co., Ltd. and Vigers Appraisal & Consulting Limited has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificate and/or opinion and/or the references to its name included herein in the form and context in which it is respectively included.

8. Binding effect

This prospectus shall have the effect, if an application is made in pursuance hereof, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of Sections 44A and 44B of the Companies Ordinance so far as applicable.

9. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

Profits from dealings in Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax for persons who carry on a business of trading or dealing in securities in Hong Kong.

The Shares are Hong Kong property for the purposes of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong) and, accordingly, Hong Kong estate duty may be payable in respect thereof on the death of an owner of Shares.

(b) Cayman Islands

Under the present Cayman Islands laws, transfers and other dispositions of Shares are exempt from Cayman Islands stamp duty.

(c) Consultation with professional advisers

Prospective holders of Shares are recommended to consult their professional advisers if they are in any doubt as to the tax implications of subscribing for, purchasing, holding or disposing of or dealing in Shares. It is emphasised that none of the Company, the Directors or other parties involved in the Offer will accept responsibility for any tax effect on, or liabilities of, holders of Shares resulting from their subscription for, purchase, holding or disposal of or dealing in Shares.

10. Register of members and branch register of members

The principal register of members of the Company will be maintained in the Cayman Islands by Bank of Butterfield International (Cayman) Ltd. and a branch register of members of the Company will be maintained in Hong Kong by Computershare Hong Kong Investor Services Limited. Unless the Directors otherwise agree, all transfers and other documents of title of Shares for the purpose of trading on the Stock Exchange must be lodged for registration with and registered by, the Company’s branch share registrar in Hong Kong and may not be lodged in the Cayman Islands.

– 295 – APPENDIX VII STATUTORY AND GENERAL INFORMATION

11. Miscellaneous

(a) Save as disclosed in this prospectus, within the two years preceding the date of this prospectus:

(i) no share or loan capital of the Company or any of its subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash; and

(ii) no share or loan capital of the Company or any of its subsidiaries is under option or is agreed conditionally or unconditionally to be put under option.

(b) There are no founders, management or deferred shares in the capital of the Company or any of its subsidiaries.

(c) No securities of the companies within the Group is presently listed or proposed to be listed on any stock exchange other than the Stock Exchange.

(d) All necessary arrangements have been made to enable the Shares to be admitted into CCASS for clearing and settlement.

(e) The Directors confirm that:

(i) since 30th June, 2004 (being the date to which the latest audited consolidated financial statements of the Group were made up), there has been no material adverse change in the financial or trading position or prospects of the Group; and

(ii) there has not been any interruption in the business of the Group which may have or has had a material adverse effect on the financial position of the Group in the twelve months preceding the date of this prospectus.

– 296 – APPENDIX VIII DOCUMENTS DELIVERED AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this prospectus delivered to the Registrar of Companies in Hong Kong for registration were copies of the white, yellow and pink application forms, the written consents referred to under the heading “Consents of experts” in Appendix VII and copies of the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix VII to this prospectus.

DOCUMENTS AVAILABLE FOR INSPECTION

The following documents (or copies thereof) will be available for inspection at the offices of So Keung Yip & Sin of 17th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this prospectus:–

(a) the memorandum and articles of association of the Company;

(b) the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix VII to this prospectus;

(c) the service agreements referred to in the paragraph headed “Particulars of Directors’ service agreements” in Appendix VII to this prospectus;

(d) the accountants’ report on the Group prepared by CCIF CPA Limited, the text of which is set out in Appendix I to this prospectus and the related statements of adjustments;

(e) the additional financial information of Dongguan Koda prepared by CCIF CPA Limited, the text of which is set out in Appendix II to this prospectus;

(f) the statement of the unaudited proforma financial information of the Group prepared by the Company and the comfort letter from CCIF CPA Limited on the unaudited proforma financial information, the text of which are set out in Appendix III to this prospectus;

(g) the valuation letter, summary of values and valuation certificates relating to the relevant property interests of the Group prepared by each of Vigers Appraisal & Consulting Limited and Thai Property Appraisal Lynn Phillips Co., Ltd., the texts of which are set out in Appendix IV to this prospectus;

(h) the letter of advice received from Baker & McKenzie Limited summarising certain Thai laws relevant to the Group’s business operations, the text of which is set out in Appendix V to this prospectus;

(i) the letter of advice received from Conyers Dill & Pearman, Cayman referred to in the paragraph headed “General” in Appendix VI to this prospectus summarizing certain aspects of Cayman Islands company law;

(j) the legal opinion received from So Keung Yip & Sin relating to the trust arrangement of Dongguan Koda;

– 297 – APPENDIX VIII DOCUMENTS DELIVERED AND AVAILABLE FOR INSPECTION

(k) the letters of advice/legal opinions received from King & Wood relating to, inter alia, the trust arrangements of Dongguan Koda and the Beijing Property, the Capital Contribution Provisions, the PRC properties of the Group and the agreements for the sale and purchase of the interest in Dongguan Koda;

(l) the property title report received from Baker & McKenzie Limited relating to the properties of the Group in Thailand;

(m) the Companies Law;

(n) the written consents referred to in the paragraph headed “Consents of experts” in Appendix VII to this prospectus;

(o) the rules of the Share Option Scheme; and

(p) the audited financial statements of the relevant subsidiaries of the Company for each of the three years ended 31st December, 2003 and the six months ended 30th June, 2004 or for the period from their respective dates of incorporation where there is a shorter period.

– 298 –