China Packaging Group Company Limited : Letter from Kingston Securities

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KINGSTON SECURITIES LIMITED

29 January 2013

To the Independent Sha.Tebolders a11d the Option Holders

Dear Siror Madam,

COMPOSITE DOCUMENT IN RELATION TO UNCONDITIONAL MANDATORY CASH OFFERS BY KINGSTON SECURITIES LIMITED

ON BEHALF OF ABLE SUCCESS ASIA LIMITED

FOR ALL THE ISSUED SHARES IN

CHINA PACKAGING GROUP COMPANY LIMITED (OTHER THAN THOSE SHARES ALREADY OWNED BY ABLE SUCCESS ASIA LIMITED AND

PARTIES ACTING IN CONCERT WITH IT)

AND TO CANCEL ALL OUTSTANDING SHARE OPTIONS

INTRODUCTION
Reference is made to the Announcement.
On 23 November 2012, the Board was informed by IAM and BGL that IAM, BGL and the Offeror entered into the Sale and Purchase Agreement pursuant to which IAM and BGL agreed to sell and the Offeror agreed to purchase the Sale Shares, the Sale CN and the Sale CPS for an aggregate cash consideration of HK$81,271,000 (equivalent to HK$0.1213 per Sale Share and per Conversion Share). The Sale Shares represent approximately 59.00% of the entire issued share capitai of the Company as at the Latest Practicable Date. Completion took piace on 26 November
2012.
This letter sets out, amongst other things, details of the terms of the Offers, information on the Offeror and the intention of the Offeror regarding the Group. Further details of the terms of the Offers and the procedures for acceptance of the Offers are set out in Appendix I to this Composite Document and in the accompanying Forms of Acceptance.

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Suite 2801, 28th Floor, One International Finance Centre, l Harbour View Street, Centrai, Hong Kong

Tel tJ!i : 2298-6200 Fax 1$1{ : 2552-6666

UNCONDITIONAL MANDATORY GENERAL CASH OFFERS
Upon Completion, the Offeror and parties acting in concert with it are interested in
201,000,000 Shares, representing approximately 59.00% of the entire issued share capitai of the Company. Save for the aforesaid, together with the Sale CN and the Sale CPS, the Offeror and parties acting in concert with it do not have any other interests in any securities of the Company. Pursuant to Rule 26.1 and Rule 13 of the Takeovers Code, the Offeror is required to make the unconditional mandatory generai offers in cash for ali the issued Shares and outstanding convertible securities of the Company other than those already owned by the Offeror and parties acting in concert with it and to cancel ali outstanding Share Options.
As at the Latest Practicable Date, the Company has 340,662,666 Shares in issue. In addition, the Company has outstanding (i) Convertible Notes, (ii) Convertible Preference Shares; and (iii)
1,430,862 Share Options conferring rights to subscribe for a total of 1,430,862 Shares. Save for the Convertible Notes, the Convertible Preference Shares and the outstanding Share Options, the Company does not have any outstanding options, derivatives, warrants or securities which are convertible or exchangeable into Shares and has not entered into any agreement for the issue of such options, derivatives, warrants or securities which are convertible or exchangeable into Shares as at the Latest Practicable Date.
Upon Completion, the outstanding Convertible Notes of HK$18,000,000 is owned as to: (i) HK$12,600,000 by the Offeror carrying rights to convert into 105,000,000 Conversion Shares, being the Sale CN; and (ii) HK$5,400,000 by BGL carrying rights to convert into 45,000,000
Conversion Shares; whereas the aggregate of 520,000,000 Convertible Preference Shares is owned as to: (i) 364,000,000 Convertible Preference Shares by the Offeror carrying rights to convert into
364,000,000 Conversion Shares, being the Sale CPS, and (ii) 156,000,000 Convertible Preference
Shares by BGL, carrying rights to convert into 156,000,000 Conversion Shares. Undertaking by BGL
Immediately after Completion, BGL remained interested in 29,000,000 Shares, 156,000,000
Convertible Preference Shares and the Convertible Notes in the principal amount of HK$5,400,000 entitling BGL to convert into 45,000,000 Shares. Pursuant to the Irrevocable Undertaking, BGL has irrevocably undertaken to the Offeror, inter alia, that it shali not sell, transfer, dispose of, or convert (in case of the Convertible Preference Shares and the Convertible Notes) the aforesaid from the date of the Irrevocable Undertaking to the Closing Date (both days inclusive). Furthermore, it shall not accept the Share Offer in respect of the 29,000,000 Shares and any offer by the Offeror for the Convertible Preference Shares and the Convertible Notes owned by BGL pursuant to the Offeror's obligations under the Takeovers Code relating to the Sale and Purchase Agreement.
After the close of the Offers, BGL may consider selling, transferring, disposing of, or converting any outstanding Convertible Preference Shares and the Convertible Notes owned by it, depending on the then market conditions and subject to the requirements of the Listing Rules.
As at the Latest Practicable Date, BGL does not have any pian as to when and the number of outstanding Convertible Preference Shares and Convertible Notes owned by it will be converted.

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Principal terms of the Offers

Taking into account the Irrevocable Undertaking, Kingston Securities will, on behalf of the Offeror, make the Offers to all the Independent Shareholders to acquire all the issued Shares, other than those already owned by the Offeror and parties acting in concert with it, and to cancel all the outstanding Share Options in compliance with the Takeovers Code on the following basis:
For every Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.1213 in cash
For every Share Option (note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.0001 in cash

Note: As at the Latest Practicable Date, the exercise prices of the outstanding Share Options are HK$4.9911, HK$6.3968 and HK$7.2024 respectively, which are ali out-of-money. Details of the Share Options are set out in the following table:-

Number of new Shares to be issued upon

Period during which exercise of

Share Options Exercise price Share Options Offer price Date of grant are exercisable per Share by Option Holders per Share Option HK$ HK$

l O February 2004 IO February 2004 to 6.3968 481,175 0.0001

9 February 2014

2 May 2007 2 May 2007 to 7.2024 316,562 0.0001 l May 2017

30 January 2008 30 January 2008 to 4.9911 633,125 0.0001

29 January 2018

The Offer Price of HK$0.1213 per Offer Share is equal to the price paid by the Offeror per Share issued and issuable (i.e. through the conversion of the Sale CN and the Sale CPS) under the Sale and Purchase Agreement. The Offer Shares acquired under the Share Offer shali be fuliy paid and free and clear from ali Encumbrances and together with ali rights attaching to them, including but not limited to ali rights to any dividend or other distribution declared, made or paid on or after the date on which the Share Offer is made, being the date of posting of this Composite Document.
As at the Latest Practicable Date, the Company has 1,430,862 outstanding Share Options conferring rights to subscribe for a total of 1,430,862 Shares. Arrangement will be made under the Option Offer to cancel the Share Options for a nominai payment of HK$0.0001 for each Share Option which was determined with reference to the intrinsic value of the Share Options. The exercise price of the Share Options of HK$4.9911, HK$6.3968 and HK$7.2024 per Share are substantially above the Offer Price of HK$0.1213 per Offer Share under the Share Offer and therefore the Share Options carry no intrinsic value.

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Highest and lowest Share prices
The highest closing price of the Shares as quoted on the Stock Exchange during the Relevant Period was 0.300 per Share on 27 August 2012. The lowest closing price of the Shares as quoted on the Stock Exchange during the Relevant Period was 0.164 per Share on 26 July 2012.
Value of the Offers
On the basis of the Offer Price of HK$0.1213 per Offer Share, offer price of HK$0.0001 per outstanding Share Option and 340,662,666 Shares in issue as at the Latest Practicable Date, the entire issued share capitai of the Company is valued at approximately HK$41.32 million. Excluding the 201,000,000 Sale Shares having been acquired by the Offeror pursuant to the Sale and Purchase Agreement and the 29,000,000 Shares andali conversion shares which may be issued under the 156,000,000 Convertible Preference Shares and the Conve1tible Notes of HK$5,400,000 owned by BGL pursuant to the Irrevocable Undertaking, 110,662,666 Shares will be subject to the Share Offer and 1,430,862 outstanding Share Options will be subject to the Option Offer, which in aggregate are valued at approximately HK$13.43 million.
Financial resources available for the Offers
The Offeror will finance and satisfy the cash consideration payable under the Offers by the
Facility granted by Kingston Securities.
Kingston Corporate Finance, being the financial adviser to the Offeror in respect of the Offers, is satisfied that there are sufficient financial resources available to the Offeror to satisfy full acceptances of the Offers.
Compulsory acquisition
The Offeror does not intend to apply any right which may be available to it under the
Companies Act to acquire compulsorily any Shares outstanding after the close of the Offers. Effects of accepting the Offers
By accepting the Offers, (a) the relevant Shareholders will sell their Shares to the Offeror free from Encumbrances and with all rights attached to them, including the right to receive all dividends and distributions declared, made or paid on which the Share Offer is made, that is, the date of posting of this Composite Document; and (b) as the case may be, the relevant holders of the Share Options will surrender to the Company their Share Options for cancellation by the Company.

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Stamp duty

Se11er's Hong Kong ad valorem stamp duty at a rate of 0.1% of the market value of the Shares or consideration payable by the Offeror in respect of the relevant acceptances of the Share Offer, whichever is higher, will be deducted from the amount payable to the relevant Shareholders on acceptance of the Share Offer. The Offeror will arrange for payment of the se11er's Hong Kong ad valorem stamp duty on behalf of the accepting Shareholders and will pay the buyer' s Hong Kong ad valorem stamp duty in connection with the acceptances of the Share Offer and the transfers of the Shares. No stamp duty is payable in connection with the Option Offer.

Payment

Payment in cash in respect of acceptances of the Offers, net of seller's Hong Kong ad valorem stamp duty, will be made as soon as possible but in any event within 7 Business Days (as defined inthe Takeovers Code) from the date of receipt of the relevant documents of title and duly completed acceptance(s) by the Offeror to render each such acceptance complete and valid pursuant to Rule 20.1 and Note l to Rule 30.2 of the Takeovers Code.

Overseas Shareholders and Overseas Option Holders

The availability of the Offers to persons not resident in Hong Kong may be affected by the applicable laws of the relevant jurisdiction in which they are residents. Overseas Shareholders and Overseas Option Holders who are citizens, residents or nationals of a jurisdiction outside Hong Kong should observe any applicable legai or regulatory requirements in their own jurisdictions and, where necessary, seek legai advice. It is the responsibility of the Overseas Shareholders and Overseas Option Holders who wish to accept the Offers to satisfy themselves as to the full observance of the laws and regulations of the relevant jurisdictions in connection with the acceptance of the Offers (including the obtaining of any governmental or other consent which may be required or the compliance with other necessary formalities and the payment of any transfer or other taxes due by such Overseas Shareholders and Overseas Option Holders in respect of such jurisdictions).
The attention of the Independent Shareholders not being a resident in Hong Kong or with a registered address as shown in the register of members of the Company in Hong Kong to be outside Hong Kong is drawn to the section headed "Generai" in Appendix I to this Composite Document.

Comparisons of value

The Offer Price of HK$0.1213 per Offer Share represents:
(i) a discount of approximately 50.08% to the closing price of HK$0.243 per Share as quoted on the Stock Exchange on 25 January 2013, being the Latest Practicable Date;

(ii) a discount of approximately 43.32% to the closing price of HK$0.214 per Share as quoted on the Stock Exchange on 22 November 2012, being the Last Trading Day;

(iii) a discount of approximately 42.35% to the average closing price of approximately HK$0.2104 per Share, being the average of the closing prices of the Shares as quoted on the Stock Exchange for the 5 trading days up to and including the Last Trading Day;

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(iv) a discount of approximately 41.79% to the average closing price of approximately HK$0.2084 per Share, being the average of the closing prices of the Shares as quoted on the Stock Exchange for the 10 trading days up to and including the Last Trading Day; and
(v) a discount of approximately 46.89% to the average closing price of approximately HK$0.2284 per Share, being the average of the closing prices of the Shares as quoted on the Stock Exchange for the 30 trading days up to and including the Last Trading Day.
The Offers are unconditional and therefore are not conditional upon any minimum level of acceptances being received nor subject to any other conditions.
Please refer to the section headed "Market prices" in Appendix III to this Composite
Document for further information on the market prices of the Shares. INFORMATION ABOUT THE OFFEROR
The Offeror is an investment holding company incorporated in the BVI with limited liability. The sole shareholder and director of the Offeror is Mr. He. Immediately prior to the entering into of the Sale and Purchase Agreement, the Offeror and its ultimate beneficiai shareholder are Independent Third Parties and do not hold any Shares. Other than the entering into of the Sale and Purchase Agreement, the Offeror has not conducted any business since its incorporation.
Details of Mr. He are set out in the paragraph headed "Offeror' s intention in respect of the
Group" below.
As at the Latest Practicable Date, the Offeror was interested in 201,000,000 Shares, the Sale CN and the Sale CPS. Such Shares and convertible securities were acquired by the Offeror pursuant to the Sale and Purchase Agreement. Apart from the acquisition of the 201,000,000 Shares, the Sale CN and the Sale CPS by the Offeror pursuant to the Sale and Purchase Agreement during the Relevant Period, the Offeror, its sole director and their respective concert·parties did not deal for value in any relevant securities of the Company.
Save for the Offeror's interests in the issued share capitai of the Company as disclosed in the paragraph above, none of the other parties acting in concert with the Offeror held any relevant securities of the Company.
OFFEROR'S INTENTiON IN RESPECT OF THE GROUP Business of the Group
The Offeror intends that the Company will continue with its existing principal activities. The Offeror does not intend to introduce any major changes to the existing operations and business of the Company. The Offeror will conduct a more detailed review on the operations of the Group with a view to formulating a comprehensive business strategy for the Group and subject to the result of the review, the Offeror may explore other business opportunities and consider whether any assets and/or business acquisitions by the Group will be appropriate in order to enhance its growth. The Offeror has no intention to discontinue the employment of the employees (save for a change in the composition of the Board) orto dispose of or deploy the assets of the Group other than those in its ordinary com·se of business. As at the Latest Practicable Date, the Offeror has no intention or plans for any acquisition or disposal of assets and/or business by the Group.

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In view of the experience its shareholder possesses in steel trading and manufacturing business in the PRC, the Offeror considers that its experience and business network will be able to benefit the Company' s development in the long run.
Change of board composition of the Company
The Board currently comprises two executive Directors and three independent non-executive
Directors.
The two executive Directors, namely Mr. Leung Heung Ying, Alvin and Mr. Wong Tat Wai Derek, and Dr. Lam Andy Siu Wing JP, an independent non-executive Director and the chairman of the audit, remuneration and nomination committees of the Company, will resign from their office with effect from the earliest time permitted under the Takeovers Code. The Offeror will nominate Mr. He and Mr. Zhang Zhantao as executive Directors and such appointment has not taken effect earlier than the date of posting of this Composite Document subject to the requirements under the Takeovers Code. The Board will appoint a new independent non-executive Director as soon as practicable after the resignation of Dr. Lam Andy Siu Wing JP. In any event the Board will ensure compliance to Rules 3.lO( l) and 3.11 of the Listing Rules.
The biographical details of Mr. He and Mr. Zhang Zhantao are as follows:
Mr. HE Jianhong, aged 42, is a Chinese entrepreneur engaging in the steel trading and manufacturing business. Mr. He has over 12 years' sales and marketing experience in steel and mould steel and over 10 years' production experience in mould steel. He has working experience in product development, business development, c01·porate strategy and corporate management. Mr. He is a director ( $) of the Shunde Young Entrepreneurs
Association ( )1 1!1f1f·1ì:: *t tiit") .
Mr. ZHANG Zhantao, aged 39, holder of a certificate in finance from the Guangdong
Radio & TV University (J.JD!tJltim 5t):. in September 2000. Mr. Zhang has over
1O years' working experience in a bank in the PRC. He has experience in bank finance
business operations. Mr. Zhang was a chief financial controller of a Chinese enterprise for five years. He established working experience in corporate financial planning and corporate management.
An announcement will be made by the Company in respect of the change of the composition of the Board in compliance with the Listing Rules.

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Maintaining the listing status of the Company

The Offeror intends to maintain the listing of the Shares on the Stock Exchange after closing of the Offers. As at the Latest Practicable Date, the Offeror intends to convert ali or part of the Sale CN and Sale CPS after the close of the Offers. The sole director of the Offeror and the new Directors to be appointed to the Board will jointly and severally undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists in the Shares.
As at the Latest Practicable Date, notwithstanding the Offeror has intention to convert the Sale CN and the Sale CPS, it does not bave any pian as to when and the number of outstanding Sale CN and Sale CPS will be converted.

The Stock Exchange has stated that if, at the closing of the Offers, less than 25% of the issued Shares are held by the public or if the Stock Exchange believes that: (i) a false market exists or may exist in the trading of the Shares; or (ii) there are insufficient Shares in public hands to maintain an orderly market, then it will consider exercising its discretion to suspend dealings in the Shares.

FURTHER TERMS OF THE OFFERS

Further terms and conditions of the Offers, including, among other things, procedures for acceptance and settlement, the acceptance period and taxation matters are set out in Appendix I to this Composite Document and in the Forms of Acceptance.

GENERAL

To ensure equality of treatment of all Shareholders, those registered Shareholders who hold Shares as nominee for more than one beneficiai owner should, as far as practicable, treat the holding of each beneficiai owner separately. In order for the beneficiai owners of the Shares whose investments are registered in nominee names to accept the Offers, it is essential that they provide instructions to their nominees of their intentions with regard to the Offers.
The Independent Shareholders are strongly advised to consider carefully the information contained in the "Letter from the Board", the "Letter from the Independent Board Committee" and the "Letter from Guangdong Securities" set out in this Composite Document and to consult their professional advisers as they see fit. Your attention is drawn to the additional.information set out in the Appendices to this Composite Document, which form part of this Composite Document.
Yours faithfully, For and on behalf of

Kingston Securities Limited

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