THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR …tclcom.tcl.com/admin/documents/oannouncement/20071123120543… · Guo Aiping, George Independent Non-executive Directors: Shi Cuiming

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

If you have sold all your Shares in TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED (the‘‘Company’’), you should at once hand this circular and proxy form enclosed herein to the purchaser or tothe bank or stockbroker or other agent through whom the sale was effected for transmission to thepurchaser.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire,purchase or subscribe for securities of the Company.

(Stock Code: 2618)

DISCLOSEABLE AND SHARE TRANSACTIONAND CONNECTED TRANSACTION

FRAMEWORK AGREEMENT

DISCLOSEABLE AND CONNECTED TRANSACTIONISSUE OF CONVERTIBLE NOTES

Independent financial adviser to the Independent Board Committee

and the Independent Shareholders

A letter from the Board is set out on pages 5 to 18 of this circular. A letter from the

Independent Board Committee is set out on pages 19 to 20 of this circular. A letter from DBS

Asia containing its advice and recommendations to the Independent Board Committee and the

Independent Shareholders is set out on pages 21 to 35 of this circular.

A notice convening the EGM to be held on 22 June 2005 and a form of proxy for use at the

EGM is enclosed herein. Whether or not you are able to attend the meeting, please complete

the accompanying form of proxy in accordance with the instructions printed thereon and return

it to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at

Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong

Kong as soon as possible and in any event not later than 48 hours before the time appointed

for the EGM or any adjournment thereof. Completion and return of the form of proxy will not

preclude you from attending and voting in person at the meeting should you so wish.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

6 June 2005

Page No.

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Framework Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3. Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4. EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

6. Information to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

7. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

APPENDIX I — LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . 19

APPENDIX II — LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . 21

APPENDIX III — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

CONTENTS

— i —

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

following meanings:

‘‘Alcatel’’ Alcatel, a company incorporated in France with its shares listed on

Eurolist of Euronext Paris and the New York Stock Exchange

‘‘Alcatel Participations’’ Alcatel Participations, a company incorporated in France and an

indirect wholly owned subsidiary of Alcatel and currently owns

45% of issued share capital of T&A HK

‘‘Alcatel Shares’’ all Alcatel Participations’ shares in T&A HK, representing 45% of

the share capital of T&A HK

‘‘Announcement’’ The Company’s two separate announcements both dated 13 May

2005 in respect of the Framework Agreement and the Notes Issue

respectively

‘‘Announcement Date’’ 13 May 2005, the date of the Announcement

‘‘associate’’ has the meaning ascribed thereto under the Listing Rules

‘‘Board’’ the board of Directors

‘‘Company’’ TCL Communication Technology Holdings Limited, a company

incorporated in the Cayman Islands with limited liability, the shares

of which are listed on the main board of the Stock Exchange

‘‘Connected

Transactions’’

the Framework Agreement and the Notes Issue and all

transactions contemplated thereunder

‘‘controlling shareholder’’ has the meaning ascribed thereto under the Listing Rules

‘‘Conversion Period’’ the period commencing on the Issue Date and ending on the

Maturity Date

‘‘Conversion Price’’ HK$0.58175 per Share, subject to adjustment

‘‘Conversion Rights’’ the rights attached to the Convertible Notes to convert the same or

a part thereof into Conversion Shares

‘‘Conversion Shares’’ the Shares to be issued by the Company upon exercise by the

holder of the Convertible Notes of the Conversion Rights

‘‘Convertible Notes’’ the 3% Convertible Notes due after 3 years from the Issue Date

with an aggregate principal amount of 20,000,000 (in its HK$

equivalent of HK$199,510,000) to be issued by the Company

pursuant to the terms and conditions of the Subscription

Agreement

DEFINITIONS

— 1 —

‘‘DBS Asia’’ or ‘‘IFA’’ DBS Asia Capital Limited, the independent financial adviser to

advise the Independent Board Committee and the Independent

Shareholders in respect of the Framework Agreement and Notes

Issue

‘‘Directors’’ the directors of the Company

‘‘EGM’’ an extraordinary general meeting of the Company to be convened

to approve the Framework Agreement and the Notes Issue

‘‘Euro’’ or ‘‘ ’’ the currency introduced at the start of the third stage of European

economic and monetary union pursuant to the Treaty establishing

the European Community as amended by the Treaty on European

Union and the Treaty of Amsterdam or otherwise participates in

European economic and monetary union in a manner and with

similar effect to such third stage

‘‘Framework Agreement’’ the framework agreement dated 11 May 2005 entered into between

Alcatel and the Company in relation to the equity restructuring of

T&A HK and the future operation of T&A HK and its subsidiaries

‘‘Group’’ the Company and its subsidiaries

‘‘HK$’’ Hong Kong dollars, the lawful currency in Hong Kong

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

‘‘Independent Board

Committee’’

a board of committee comprising the 3 independent non-executive

Directors, namely Mr. Shi Cuiming, Mr. Wang Chongju and Mr. Lau

Siu Ki, Kevin, has been established to advise the Independent

Shareholders in respect of the Notes Issue

‘‘Independent

Shareholders’’

in respect of a connected transaction proposed to be voted on at a

general meeting of the Company, shareholders that are not

required under the Listing Rules to abstain from voting to

approve such connected transaction, and accordingly

‘‘Independent Shareholders’’ means any Shareholders other than

Alcatel and its associates in respect of the Framework Agreement

and means any Shareholder other than TCL Corporation and its

associates in respect of the Notes Issue

‘‘Issue Date’’ the date on which the Convertible Notes is issued pursuant to the

terms and conditions of the Subscription Agreement

‘‘JV Subscription

Agreement’’

the subscription agreement entered into between the Company

and Alcatel dated 18 June 2004 for the establishment of T&A HK

(details of which are set out in the Listing Document)

‘‘Latest Practicable

Date’’

30 May 2005, being the latest practicable date prior to the printing

of this circular for ascertaining certain information contained herein

DEFINITIONS

— 2 —

‘‘Listing Document’’ the listing document of the Company dated 20 September 2004

‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock

Exchange from time to time

‘‘Maturity Date’’ the third anniversary of the Issue Date

‘‘Notes Issue’’ the issue of the Convertible Notes pursuant to the terms and

conditions of the Subscription Agreement

‘‘Notes Issue

Completion’’

completion of the Convertible Notes pursuant to the terms and

conditions of the Subscription Agreement

‘‘Post-closing

Adjustment’’

the post-closing adjustment to be made pursuant to the JV

Subscription Agreement, the purpose of which is to maintain the

net asset value of Alcatel’s mobile handset business injected to

T&A HK as of the closing of the JV Subscription Agreement at nil

and should have no net cash impact on T&A HK (details of which

are set out in the Listing Document)

‘‘PRC’’ or ‘‘China’’ the People’s Republic of China, excluding Hong Kong, Macau and

Taiwan for the purpose of this circular

‘‘Pre-Closing IP

Agreement’’

the Pre-Closing Intellectual Property Assignment and License

Agreement entered into between Alcatel and T&A HK dated 31

August 2004 in connection with the establishment of T&A HK

(details of which are set out in the Listing Document)

‘‘Put and Call Option

Agreement’’

the Put and Call Option Agreement entered into between the

Company and Alcatel dated 31 August 2004 in connection with the

establishment of T&A HK (details of which are set out in the

Listing Document)

‘‘Relevant Ratio’’ any of the ratio (except the profits ratio) set out in Rule 14.07 of

the Listing Rules

‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of

Hong Kong (as amended from time to time)

‘‘Share(s)’’ share(s) of HK$0.10 each in the issued share capital of the

Company

‘‘Shareholder’’ holder of Share(s)

‘‘Share Swap’’ the transfer by Alcatel of Alcatel Shares in exchange for such

number of Shares representing 5% of the issued Shares on the

last trading day before the Share Swap Completion Date

‘‘Share Swap

Completion Date’’

the date which is 5 business days following the date on which the

conditions precedent of the Share Swap having been fulfilled

DEFINITIONS

— 3 —

‘‘Soft Landing’’ a restructuring plan to be implemented among certain members of

the Group with a view of transforming T&A SAS into a business

development, sales and marketing and product development

support centre focusing on the European market

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

‘‘Subscriber’’ TCL Corporation, the controlling shareholder of the Company

which indirectly holds about 57% interest of the Company

‘‘Subscription

Agreement’’

the conditional subscription agreement in connection with the

Notes Issue dated 11 May 2005 entered into between TCL

Corporation and the Company

‘‘subsidiary’’ has the meaning ascribed thereto in section 2 of the Companies

Ordinance (Cap. 32) of the Laws of Hong Kong

‘‘T&A HK’’ TCL & Alcatel Mobile Phones Limited, a company incorporated in

Hong Kong with limited liability and a 55% owned subsidiary of the

Company

‘‘T&A SAS’’ TCL & Alcatel Mobile Phones SAS, previously known as Sorelec

SA, a company incorporated in France and wholly-owned by T&A

HK

For your convenience, this circular contains translation between Hong Kong dollars and

Euro at the rate of HK$9.9755 = 1. The translation shall not be taken as representations that

the Hong Kong dollars amount could actually be converted into Euro at such rate, or at all.

DEFINITIONS

— 4 —

(Stock Code: 2618)

Executive Directors:

Li Dong Sheng

Yuan Xin Cheng

Wan Mingjian

Wong Toe Yeung

Yan Yong, Vincent

Du Xiaopeng, Simon

Guo Aiping, George

Independent Non-executive Directors:

Shi Cuiming

Wang Chongju

Lau Siu Ki, Kevin

Registered office:

Century Yard

Cricket Square

Hutchins Drive

P.O. Box 2681 GT

George Town

Grand Cayman

Cayman Islands

British West Indies

Head Office and principal place

of Business in Hong Kong

Room 1502, Tower 6

China Hong Kong City

33 Canton Road

Tsimshatsui, Kowloon

Hong Kong

6 June 2005

To the Shareholders,

Dear Sir or Madam,

DISCLOSEABLE AND SHARE TRANSACTIONAND CONNECTED TRANSACTION

FRAMEWORK AGREEMENT

DISCLOSEABLE AND CONNECTED TRANSACTIONISSUE OF CONVERTIBLE NOTES

1. INTRODUCTION

The Company had by two separate announcements, both dated 13 May 2005,

announced that the Company on 11 May 2005 entered into the following agreements with

the following parties:

(a) the Framework Agreement with Alcatel; and

(b) the Subscription Agreement with the Subscriber.

The two agreements are separate transactions and not conditional upon each other and

will be subject to separate resolutions at the EGM.

LETTER FROM THE BOARD

— 5 —

The Framework Agreement constitutes a discloseable and share transaction for the

Company under the Listing Rules. As Alcatel Participations by virtue of its 45% interest in

T&A HK is a connected person of the Company, the Framework Agreement will also constitute

a connected transaction for the Company under the Listing Rules. The Framework Agreement

is subject to the requirements of reporting, announcement and the Independent Shareholders’

approval in accordance with Chapter 14A of the Listing Rules given the amount involved

thereunder exceeds 2.5% of the Relevant Ratio.

The Notes Issue constitutes a discloseable transaction for the Company under the Listing

Rules. As the Subscriber by virtue of its about 57% interest in the Company is a connected

person of the Company, the Notes Issue also constitutes a connected transaction for the

Company under the Listing Rules. The Notes Issue is subject to the requirements of reporting,

announcement and the Independent Shareholders’ approval in accordance with Chapter 14A

of the Listing Rules given the amount involved in the Notes Issue exceeds 2.5% of the

Relevant Ratio.

For administrative convenience purpose, the Board would like to seek your approval of

the aforesaid two agreements at the same EGM. The purpose of this circular is to provide you

with further information in respect of the two agreements. The recommendation of the

Independent Board Committee to the Independent Shareholders in respect of the two

agreements is set out on pages 19 to 20 of this circular and a copy of the letter from DBS

Asia to the Independent Board Committee and the Independent Shareholders containing its

advice in relation to the two agreements on pages 21 to 35 of this circular.

2. FRAMEWORK AGREEMENT

The Company entered into the Framework Agreement with Alcatel Participations on 11

May 2005.

As noted in the result announcement of the Company for the three months ended 31

March 2005, the Company strives to improve operating efficiencies and reduce operating cost.

Towards this end, the Company intends to further evolve the business platform of T&A HK and

transform T&A SAS, the direct wholly owned French subsidiary of T&A HK, into a business

development, sales and marketing and product development support centre focusing on the

European market. By entering into the Framework Agreement with Alcatel, adjustments to the

corporate structure of T&A HK are planned to better reflect the outlook on operations of the

Group.

2.1 Principal Terms of the Framework Agreement

The followings are the key terms of the Framework Agreement:

A. T&A SAS Reducing its Operating Costs

Alcatel undertakes to take over the employment contracts of all T&A SAS

employees of about 360 peoples in several steps over an 18-month period. The first

transfer of around 280 employees shall take place as soon as possible from 1 July

2005. The timing for the transfer of the remaining employees (maximum of 80) and

the actual number of such employees to be transferred will depend on the business

needs as determined by the management for transforming T&A SAS into the new

business undertaking as described below and the progress of such transformation.


— 6 —

T&A SAS is required to compensate Alcatel for certain liabilities (such as paid

vacation days, retirement indemnity and seniority award) accrued in connection with

the employees to be transferred. The transfer of T&A SAS employees together with

the transformation of T&A SAS into the new business undertaking as described

below will substantially streamline the operating scale of T&A SAS and thus reduce

its operating costs.

B. Acquisition of Alcatel Shares

The Alcatel Shares represent the shares allotted by T&A HK to Alcatel at the

time of the establishment of T&A HK for its contribution in cash of 45 million

(about HK$448.9 million) and its mobile handset business amounting to a total value

of 45 million (about HK$448.9 million) pursuant to the JV Subscription Agreement

(details of which are set out in the Listing Document). Closing of the JV

Subscription Agreement was completed on 31 August 2004.

The Framework Agreement requires the Company to acquire from Alcatel

Participations the Alcatel Shares by way of Share Swap. The Share Swap requires

approval of the Listing Committee of the Stock Exchange granting the listing of and

permission to deal in the Shares to be issued pursuant thereto, and failing which by

31 July 2005 (even if the Independent Shareholders have approved the Framework

Agreement (inclusive of the Shares Swap)), the Company or its affiliate is required

to acquire the Alcatel Shares for consideration of 10 million (about HK$99.76

million) by 16 August 2005. The cash payment will be funded by the Group’s

working capital.

The acquisition is subject to the payment by Alcatel to T&A HK of a sum of

1.28 million (about HK$12.77 million) in cash for the Post-closing Adjustment

pursuant to the JV Subscription Agreement which provides that if the net asset

value of Alcatel’s mobile handset business injected in T&A HK as of the closing

date of the JV Subscription Agreement is lower than the net asset value estimated

by Alcatel prior to such date, Alcatel shall be required to pay the difference in cash

to T&A HK (details of which are set out in the Listing Document).

After the acquisition of the Alcatel Shares by the Company, T&A HK will

become a wholly owned subsidiary of the Company. Accordingly, all directors of

T&A HK will be appointed by the Company. T&A HK, being the sole shareholder of

T&A SAS, will appoint the president of T&A SAS. Alcatel will then no longer be

involved in the operation of T&A HK or T&A SAS. Save for (i) the amendment to the

Pre-closing IP Agreement as mentioned under the paragraph headed ‘‘Alcatel Cash

Payment’’ below and (ii) the amendment to the Alcatel mark license agreement such

that the Alcatel name and logo can no longer be included in the company names of

the members of the group of T&A HK or used as part of the internet domain names

with a grace period until 30 September 2005, the entering into of the Framework

Agreement will not affect the transaction documents entered into between Alcatel

and T&A HK at the closing of the JV Subscription Agreement in relation to the

licences of intellectual property and trademark and provision of transitional services

by Alcatel to T&A HK (namely, the Pre-Closing IP Agreement, the post closing

intellectual property licence agreement, the Alcatel mark license agreement, the

trademark and domain name assignment and license agreement and the transitional

services agreement, all being dated 31 August 2004, details of which are set out in


— 7 —

the Listing Document). Currently, the involvement of Alcatel in T&A HK and T&A

SAS is related to the aforesaid transaction documents only. Accordingly, the

operation of T&A HK and T&A SAS will not be affected by Alcatel ceasing to be a

shareholder of T&A HK and have representation in the board of T&A HK.

As at the Latest Practicable date, the authorized share capital of the Company

was HK$500,000,000 divided into 5,000,000,000 Shares of HK$0.10 each, and the

issued share capital of the Company was HK$282,750,000 divided into

2,827,500,000 Shares of HK$0.10 each, which were all fully paid up.

The number of Shares to be issued pursuant to the Share Swap will be

equivalent to 5% of the issued Shares on the last trading day before the Share

Swap Completion Date. Based on a total of 2,827,500,000 Shares in issue as at the

Announcement Date and at the Latest Practicable Date (and assuming no further

Shares will be issued after the Latest Practicable Date until the Share Swap

Completion Date), 141,375,000 Shares will be issued upon completion of the Share

Swap (representing about 4.76% of the enlarged issued share capital of the

Company immediately after completion of the Share Swap). Based on the average

closing price of HK$0.448 per Share for the 5 trading days prior to the

Announcement Date, 141,375,000 Shares represent a market value of about

HK$63.34 million. Based on the average closing price of HK$0.417 per Share for

the 5 trading days prior to the Latest Practicable Date, 141,375,000 Shares

represent a market value of about HK$58.95 million.

The Share Swap will constitute material modifications to the terms of the Put

and Call Option Agreement (details of which are set out in the Listing Document),

under which, among other things, the Company granted to Alcatel a put option, in

consideration of a call option granted by the Company to Alcatel, to exchange the

Alcatel Shares to be exercised by Alcatel on or after 31 August 2008 for such

number of the Shares to be agreed between the parties or otherwise in accordance

with the formula as set out therein. The Put and Call Option Agreement will be

terminated upon completion of the acquisition of the Alcatel Shares by the

Company. Furthermore, the Shares to be acquired by Alcatel pursuant to the

Share Swap will not be subject to any lock-up period.


— 8 —

The shareholdings of the Company before and after completion of the Share

Swap are as follows:

Before completion of Share Swap

After completion of Share Swap

Notes:

(1) TCL Corporation holds interest in the Company through T.C.L. Industries Holdings (H.K.)

Limited, its wholly owned subsidiary.

(2) Jasper Ace Limited, Alcatel and other shareholders (save for certain Directors) are regarded

as public shareholders under the Listing Rules. (Please refer to Appendix III to this circular

for the interest of the Directors.)

As noted above, after the completion of Share Swap, TCL Corporation will

remain the controlling Shareholder of the Company holding over 50% of the issued

share capital of the Company. Accordingly, the Share Swap will not result in a

change of control of the Company.

Based on the audited accounts of T&A HK as at 31 December 2004 and the

unaudited accounts as at 31 March 2005, the net loss before taxation and

extraordinary items attributable to the Alcatel Shares for the financial year of 2004

and first quarter of 2005 amounted to about HK$119 million and HK$162 million

respectively, and the net loss after taxation and extraordinary items attributable to

the Alcatel Shares amounted to about HK$116 million and HK$161 million

respectively. Based on the audited accounts of T&A SAS as at 31 December

2004 and the unaudited accounts as at 31 March 2005, its net loss before taxation

and extraordinary items for the financial year of 2004 and first quarter of 2005


— 9 —

amounted to about HK$289 million and HK$309 million respectively, and its net loss

after taxation and extraordinary items amounted to about HK$285 million and

HK$302 million respectively.

Based on the net asset value of T&A HK as shown in its audited accounts of

T&A HK as at 31 December 2004, the Alcatel Shares represent a value of about

HK$342 million. Based on the average closing price of HK$0.448 per Share for the

5 trading days prior to the Announcement Date, 141,375,000 Shares to be issued

pursuant to the Share Swap (and assuming no further Shares will be issued

thereafter until the Share Swap Completion Date) represent a value of about

HK$63.34 million, and accordingly, the market value of the 141,375,000 Shares to

be issued pursuant to the Share Swap of about HK$63.34 million as arrived above

represents about a discount of 81% of the value of the Alcatel Shares. Based on the

average closing price of HK$0.417 per Share for the 5 trading days prior to the

Latest Practicable Date, 141,375,000 Shares to be issued pursuant to the Share

Swap (and assuming no further Shares will be issued thereafter until the Share

Swap Completion Date) represent a value of about HK$58.95 million which amounts

to a discount of about 83% of the value of the Alcatel Shares. The cash

consideration of 10 million (about HK$99.76 million) represents a discount of

about 71% of the value of the Alcatel Shares.

Based on the net asset value of T&A HK as shown in its unaudited accounts of

T&A HK as at 31 March 2005, the Alcatel Shares represent a value of about

HK$184 million. Based on the average closing price of HK$0.448 per Share for the

5 trading days prior to the Announcement Date, 141,375,000 Shares to be issued

pursuant to the Share Swap (and assuming no further Shares will be issued

thereafter until the Share Swap Completion Date) represent a value of about

HK$63.34 million, and accordingly, the market value of the 141,375,000 Shares to

be issued pursuant to the Share Swap of about HK$63.34 million as arrived above

represents about a discount of 66% of the value of the Alcatel Shares. Based on the

average closing price of HK$0.417 per Share for the 5 trading days prior to the

Latest Practicable Date, 141,375,000 Shares to be issued pursuant to the Share

Swap (and assuming no further Shares will be issued thereafter until the Share

Swap Completion Date) represent a value of about HK$58.95 million which amounts

to a discount of about 68% of the value of the Alcatel Shares. The cash

consideration of 10 million (about HK$99.76 million) represents a discount of

about 45.8% of the value of the Alcatel Shares.

The Directors are of the view that the cash consideration and the payment by

way of Share Swap for the acquisition of the Alcatel Shares were negotiated and

determined on an arm’s length basis and on normal commercial terms.

Based on the audited accounts of T&A HK as at 31 December 2004, the total

assets attributed to the Alcatel Shares amounted to about HK$1,333 million. Based

on the unaudited consolidated accounts of T&A HK as at 31 March 2005, its

turnover and net loss for the three months ended 31 March 2005 amounted to about

HK$1,027 million and HK$357 million respectively, and its net asset value as at 31

March 2005 was about HK$409 million.


— 10 —

Based on the unaudited accounts of the Group as at 31 March 2005, the

turnover of T&A HK and T&A SAS attributed about 61% and 40% of the Group’s

turnover respectively.

C. Alcatel Cash Payment

After the acquisition of the Alcatel Shares by the Company, T&A HK will

become a wholly owned subsidiary of the Company, which will also affect certain

intellectual property relating to certain patent cross license agreements in force

between Alcatel and its telecommunication equipment peers as provided under

section 4 of the Pre-Closing IP Agreement as described below. In consideration of

the release of its obligation as mentioned below, Alcatel shall pay 20 million

(about HK$199.51 million) in cash to T&A HK on the later of 1 October 2005 or the

date on which the conditions precedent set out under the heading ‘‘Conditions

Precedent’’ below having been fulfilled. Such payment is subject to the completion

of the Company’s acquisition of the Alcatel Shares. Under section 4 of the Pre-

Closing IP Agreement, Alcatel is required to (a) insofar as it is capable to do so (for

instance by sub-licensing) make available to T&A HK benefit of intellectual property

rights relating to mobile handsets enjoyed by Alcatel under its cross licences with

other third parties; (b) provide assistance to T&A HK to negotiate for obtaining direct

cross licences (i.e. not through Alcatel but in its own name) or licences from parties

other than those involved in cross licences; and (c) to indemnify T&A HK under

certain circumstance in respect of cross licence payment. Upon payment by Alcatel

of the said 20 million (about HK$199.51 million) and in consequence of Alcatel

ceasing to hold directly or indirectly any shares in T&A HK, Alcatel will be fully

released from its obligation in respect of the patent cross licenses or third party

licenses under section 4 of the Pre-closing IP Agreement and any claims existing or

in connection therewith save for certain third party claims (Details of the Pre-closing

IP Agreement are set out in the Listing Document). The Board expects that the

future operation of the Group may not require such cross licences and accordingly

do not expect the intended release of Alcatel from the said obligations will have any

material adverse impact on the Group.

D. Conditions Precedent

The respective obligations of the parties to the Framework Agreement (save for

in respect of the Soft Landing) were subject to the satisfaction of the following

conditions:

(a) the Shareholders shall have approved the terms of the transactions

contemplated under the Framework Agreement (save for in respect of the

Soft Landing) at the EGM; and

(b) T&A HK shall have utilized the sum of 67.5 million (about HK$673

million) forming part of the subscription money paid by the Company and

Alcatel Participations for shares of T&A HK at the time when T&A HK was

established, to invest into T&A SAS.

If the condition (a) is not fulfilled on or prior to 31 July 2005 or if the condition

(b) is not fulfilled within 5 business days from the date of the Framework

Agreement, the Framework Agreement shall be terminated.


— 11 —

Condition (b) above-mentioned has already been satisfied as at the date hereof

and the sum of 67.5 million (about HK$673 million) will be used for funding part of

the Soft Landing and for T&A SAS’s general working capital needs which mainly for

settlement of payable due to the suppliers in connection with supply of goods or

services to T&A SAS and the balance for other operating costs for maintaining the

business of T&A SAS.

In case the acquisition of the Alcatel Shares is made by way of Share Swap,

the approval of the Listing Committee of the Stock Exchange granting the listing of

and permission to deal in the Shares to be issued under the Share Swap is also

required and an application will be made to the Stock Exchange for the listing of

and permission to deal in such Shares.

2.2 Reasons for Entering into the Framework Agreement

After running T&A HK for more than half a year, both the Company and Alcatel have

recognized that the current structure of operations is not fully optimized and has not

achieved the full synergies of the joint venture as they originally envisaged. Increasing

competition in the mobile phone market, especially in product development, urges them

to take necessary action to cope with the challenges. The Company has thus decided to

consolidate most research and development and manufacturing operations around its

existing centers in Shanghai and Huizhou of the PRC and to transform T&A SAS into a

business development, sales and marketing and product development support centre

focusing on the European market.

The key objective of the restructuring as contemplated in the Framework Agreement

is to enhance the competitiveness of the group of companies under T&A HK, especially

T&A SAS, by optimizing its operations and reducing its operating cost through the

transfer of the employees of T&A SAS to Alcatel and the Soft Landing in an effective and

responsible manner. T&A HK will as a result improve the overall operation efficiency and

have full control of the human resources deployment within its group.

Given T&A HK will become a direct wholly owned subsidiary of the Company, the

Company will have full control and higher flexibility in usage/allocation over its resources

and be able to speed up business integration within the Group. As a result, more

significant synergies resulting from the procurement, manufacturing, research and

development and economies of scale within different members of the Group are

expected to be realized and hopefully the Company will be in a better position to turn

around its current loss position. Although T&A HK and T&A SAS are now making a loss,

the Directors expect that through the restructuring as contemplated in the Framework

Agreement, T&A HK and the group of companies thereunder will achieve the aforesaid

synergies which are expected to contribute its profits to the Group in the future. The

Directors do not expect any adverse impact on the Group or any material impact on the

earnings, assets and liabilities of the Group as a result of the transactions contemplated

under the Framework Agreement.

The Framework Agreement was negotiated and entered into on an arm’s length

basis in the ordinary and usual course of business of the Group and on normal and

commercial terms which, in the Directors’ opinion, are fair and reasonable and in the

interests of the Shareholders as a whole.


— 12 —

2.3 Discloseable and Share Transaction and Connected Transaction


Company under the Listing Rules. As Alcatel Participations, by virtue of its 45% interest

in T&A HK, is a connected person of the Company, the Framework Agreement also

constitutes a connected transaction for the Company under the Listing Rules. As the

amount involved in the Framework Agreement exceeds 2.5% of the Relevant Ratio, the

Framework Agreement is subject to the requirements of reporting, announcement and the

Independent Shareholders’ approval in accordance with Chapter 14A of the Listing

Rules. In view of the interest of the Alcatel in the Framework Agreement, Alcatel and its

associates will abstain from voting at the EGM in respect of the resolution(s) in relation

to the Framework Agreement.

3. SUBSCRIPTION AGREEMENT

On 11 May 2005, the Company entered into the Subscription Agreement with its ultimate

controlling shareholder, TCL Corporation, pursuant to which the Company has agreed to issue

and TCL Corporation has agreed to subscribe for, subject to the terms and conditions stated

therein, an aggregate of 20,000,000 principal amount (in its HK$ equivalent of about

HK$199,510,000) of 3% Convertible Notes.

3.1 Principal Terms of the Convertible Notes

The principal terms of the Convertible Notes are as follows:

A. Issue Size

An aggregate of 20,000,000 principal amount (in its HK$ equivalent of about


B. Issue Price

The Convertible Notes will be issued at par of 20,000,000 principal amount

(in its HK$ equivalent of about HK$199,510,000).

C. Term and Maturity Date

Unless previously redeemed, converted or purchased and cancelled, the

Company shall repay such principal moneys outstanding under the Convertible

Notes to the holder of the Convertible Notes together with all interest accrued

thereon up to and including on the third anniversary of the Issue Date.

D. Interest

The Convertible Notes will bear interest from the Issue Date at the rate of 3%

per annum, payable semi-annually in arrears. The rate of interest was determined

with reference to the market interest rate for a comparable loan at the time of the

Notes Issue.


— 13 —

E. Conversion Period

The Conversion Period commences on the Issue Date and ending on the

Maturity Date.

F. Conversion Rights

The Subscriber will have the right at any time during the Conversion Period to

convert the Convertible Notes in whole or in part in the principal amount into Shares

in amounts of not less than HK$10,000,000 on each conversion, save that if at any

time, the principal outstanding amount of the Note is less than HK$10,000,000, the

whole (but not part only) of the principal outstanding amount of the Note may be

converted at the Conversion Price.

G. Conversion Price

The Convertible Notes will be convertible into Shares at an initial Conversion

Price of HK$0.58175 at the option of the Subscriber at any time during the

Conversion Period. The initial Conversion Price of HK$0.58175, subject to

adjustment in certain circumstances (including, among other things, consolidation

or sub-division of the Shares, capitalisation of profits or reserves, capital distribution

and rights issue), represents a premium of approximately 30% over the average of

the closing prices of the Shares on the Stock Exchange for the last 10 trading days

immediately before the date of the Subscription Agreement. The closing price as at

the date of the Subscription Agreement was HK$0.45 per Share and the average

closing price for the 5 trading days prior to the Announcement Date, and for the 5

trading days prior to the Latest Practicable Date were HK$0.448 per Share and

HK$0.417 per Share respectively.

H. Conversion Shares

Shares to be issued by the Company upon the exercise of the Conversion

Rights under the Convertible Notes will rank pari passu in all respects with the

Shares in issue as at the relevant conversion date. Assuming full conversion of the

Convertible Notes at the initial Conversion Price, the maximum number of Shares to

be issued will be 342,948,000, representing approximately 12.13% of the existing

issued share capital of the Company and approximately 10.82% of the issued share

capital of the Company as enlarged by the issue of such Shares. As the initial

Conversion Price will be subject to adjustment in certain circumstances (including,

among other things, consolidation or sub-division of the Shares, capitalisation of

profits or reserves, capital distribution and rights issue), the maximum number of

Shares to be issued upon full conversion of the Convertible Notes may be varied

from 342,948,000. Any conversion of the Convertible Notes (in part or in full) shall

be subject to the terms and conditions of the Notes Issue as set out in the

Subscription Agreement.


— 14 —

The Subscriber’s shareholdings in the Company before and after the

completion of full conversion of the Convertible Notes are as follows:

Before completion of full conversion of Convertible Notes

After completion of full conversion of Convertible Notes

Notes:

(1) TCL Corporation currently holds through T.C.L. Industries Holdings (H.K.) Limited, its wholly

owned subsidiary, about 1,622,748,516 Shares representing about 57.4% of the issued share

capital of the Company. After completion of full conversion of the Convertible Notes, TCL

Corporation will hold about 1,965,696,516 Shares representing about 62% of the issued

share capital of the Company.

(2) Jasper Ace Limited and other shareholders (save for certain Directors) are regarded as

public shareholders under the Listing Rules. (Please refer to Appendix III to this circular for

the interest of the Directors.)

I. Redemption at the option of the Issuer

The Company has option to redeem, in whole or any part, the Convertible

Notes (being HK$10,000,000 in principal amount or an integral multiple thereof) at

100% of their principal amount plus interest accrued to but excluding the date of

redemption after 24 months from the Issue Date.


— 15 —

J. Conditions Precedent

Completion of the subscription and issue of the Convertible Notes will be

conditional upon:

(a) the Listing Committee of the Stock Exchange granting listing of, and

permission to deal in, any new Shares arising on conversion of the

Convertible Notes; and

(b) the approval by the Independent Shareholders at the EGM of the Notes

Issue Agreement, the creation and issue of the Convertible Notes

pursuant thereto and the issue of Conversion Shares upon the exercise

of the Conversion Rights.

If any of the above conditions precedent is not fulfilled on or before 31 July

2005 or such later date as the Subscriber and the Company may agree, it will lapse.

3.2 Use of Proceeds

Out of the entire amount of the net proceeds from the Notes Issue (which is

anticipated to be close to 20,000,000 (about HK$199,510,000) principal amount due to

minimal expenses to be involved in the Notes Issue), about HK$40 million is intended to

be applied to pay for the balance of the expenses incurred for the listing of the shares on

the Main Board of the Stock Exchange in September 2004, and about HK$120 million will

be applied to Huizhou TCL Mobile Communication Co., Ltd., a wholly-owned subsidiary

of the Company incorporated in the PRC, for its operating needs, and the remaining net

proceeds will be used as working capital of the Group for its general operating usage.

The Company has not raised any funds since its listing on the Stock Exchange on 27

September 2004.

3.3 Reasons for the Notes Issue

The Notes Issue on the principal terms set out above will increase the Group’s

working capital and can be used by the Group to finance its operation and is therefore

beneficial for the Company. The Directors do not expect any adverse impact on the

Group and or material impact on the earnings, assets and liabilities of the Group as a

result of the Notes Issue. The Directors believe that the Subscription Agreement was

entered into on an arm’s length basis in the ordinary and usual course of business of the

Group and on normal and commercial terms which are fair and reasonable and in the


3.4 Application for Listing

No application will be made for the listing of, or permission to deal in, the

Convertible Notes on the Stock Exchange or any other exchange. An application will be

made to the Stock Exchange for the listing of, and permission to deal in, the new Shares

which may be issued upon the conversion of the Convertible Notes.


— 16 —

3.5 Discloseable and Connected Transaction

The Notes Issue constitutes a discloseable transaction for the Company under the

Listing Rules. As the Subscriber is a connected person of the Company by virtue of its

indirect about 57.4% interest in the Company, the Notes Issue also constitutes a

connected transaction for the Company under the Listing Rules. As the amount involved

in the Notes Issue exceeds 2.5% of the Relevant Ratio, the Notes Issue is subject to the

requirements of reporting, announcement and the Independent Shareholders’ approval in

accordance with Chapter 14A of the Listing Rules. In view of the interest of the

Subscriber in the Notes Issue, the Subscriber and its associates will abstain from voting

at the EGM in respect of the resolution in relation to the Notes Issue.

4. EGM

A notice convening the EGM to be held at 11 : 45 a.m. (or so soon thereafter as the

annual general meeting convened for the same place and dated at 11 : 00 a.m. shall have

been concluded or adjourned) on 22 June 2005 at Chatham Room, 7th Floor, Conrad Hong

Kong, Pacific Place, 88 Queensway, Hong Kong is set out on pages 42 to 43 of this circular.

A form of proxy for use at the EGM or any adjourned meeting is enclosed. Whether or

not you are able to attend the EGM in person, please complete the form of proxy in

accordance with the instructions printed thereon and return the same to the Registrar, Tricor

Investor Services Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56

Gloucester Road, Wanchai, Hong Kong, as soon as possible and in any event not later than

48 hours before the time appointed for holding such meeting or any adjournment thereof.

Completion and return of the form of proxy shall not preclude you from attending and voting at

the EGM or any adjourned meeting should you so desire.

5. RECOMMENDATION

The Independent Board Committee, comprising the three independent non-executive

Directors namely, Mr. Shi Cuiming, Mr. Wang Chongju and Mr. Lau Siu Ki, Kevin, has been

established to advise the Independent Shareholders in respect of the terms of the Framework

Agreement and the Notes Issue. DBS Asia has been appointed as the independent financial

adviser to advise the Independent Board Committee and the Independent Shareholders in

respect thereof.

The letter to the Independent Shareholders from the Independent Board Committee

containing its advice and recommendations are set out on pages 19 to 20 of this circular.

Having regard to the opinion of DBS Asia, which is set out on pages 21 to 35 of this circular,

the Independent Board Committee is of the opinion that the terms of the Framework

Agreement and the Notes Issue were fair and reasonable so far as the Independent

Shareholders were concerned and that the Framework Agreement and the Notes Issue were

in the interests of the Company and the Shareholders as a whole.

The Independent Board Committee recommends the Independent Shareholders to vote in

favour of the ordinary resolutions to be proposed at the EGM to approve separately the terms

of the Framework Agreement and the Notes Issue.


— 17 —

6. INFORMATION TO SHAREHOLDERS

The Company is an investment holding company. The Group is principally engaged in

research, development, manufacturing and sale of mobile handsets. For further information on

the Group, please visit www.tclcom.com.

T&A HK is an investment holding company. T&A SAS currently is engaged in handset

research, development, distribution and sales businesses, but pursuant to the Framework

Agreement, it will be transformed into a business development, sales and marketing and

product development support centre focusing on the European market.

Alcatel is a major international company headquartered in France that primarily provides

infrastructure solutions to telecommunication operators, internet service providers and

enterprises for the delivery of voice, data and video applications to their customers or to

their employees.

The Subscriber is a major PRC conglomerate that designs, develops, manufactures and

markets a wide range of the electronic, telecommunications, information technology and

electrical products. The brand name ‘‘TCL’’ is among the most widely recognized in China.

According to recent survey by Beijing Famous-Brand Evaluation Co. Ltd., ‘‘TCL’’ was the sixth

most valuable brand name in China in 2004. For further information on the Subscriber, please

visit www.tcl.com.

7. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this

circular and the notice of the EGM set out in this circular.

Yours faithfully,

Li Dong Sheng

Chairman


— 18 —

(Stock Code: 2618)

6 June 2005

To: the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND SHARE TRANSACTION AND CONNECTEDTRANSACTION FRAMEWORK AGREEMENT

DISCLOSEABLE AND CONNECTED TRANSACTION ISSUE OFCONVERTIBLE NOTES

We refer to the circular dated 6 June 2005 of the Company (the ‘‘Circular’’), of which this

letter forms part. Terms defined in the Circular bear the same meanings in this letter unless

the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider and

advise the Independent Shareholders on the terms of the Framework Agreement and the

Notes Issue. DBS Asia has been appointed as the independent financial adviser to advise the

Independent Board Committee and the Independent Shareholders in respect of the terms of

the Framework Agreement and the Notes Issue.

We wish to draw your attention to the letter from the Board, as set out on pages 19 to 20

of the Circular which contains details of the terms of the Framework Agreement and the Notes

Issue, and the letter of advice from DBS Asia as set out on pages 21 to 35 which contains its

advice and recommendations in respect thereof.

Having taken into account the advice and recommendations of DBS Asia, we have the

following opinion and recommendation:

(A) FRAMEWORK AGREEMENT

We are of the opinion that the terms of the Framework Agreement are fair and

reasonable so far as the Independent Shareholders are concerned and that the

Framework Agreement is in the interests of the Company and the Shareholders as a

whole. We therefore recommend the Independent Shareholders to vote in favour of the

ordinary resolution to be proposed at the EGM to approve the Framework Agreement.

APPENDIX I LETTER FROM THE INDEPENDENT BOARD COMMITTEE

— 19 —

(B) NOTES ISSUE

We are of the opinion that the terms of the Notes Issue are fair and reasonable so

far as the Independent Shareholders are concerned and that the Notes Issue is in the

interests of the Company and the Shareholders as a whole. We therefore recommend the

Independent Shareholders to vote in favour of the ordinary resolution to be proposed at

the EGM to approve the Notes Issue.

Yours faithfully,

For and on behalf of

the Independent Board Committee

Shi Cuiming, Wang Chongju and Lau Siu Ki, Kevin

Independent Non-executive Directors

APPENDIX I LETTER FROM THE INDEPENDENT BOARD COMMITTEE

— 20 —

The following is the text of the letter of advice dated 6 June 2005 from DBS Asia to the

Independent Board Committee and Independent Shareholders in respect of the terms of the

Framework Agreement and the Notes Issue prepared for incorporation into this circular:

6 June 2005

To the Independent Board Committee

and Independent Shareholders of

TCL Communication Technology Holdings Limited

Dear Sirs,

DISCLOSEABLE AND SHARE TRANSACTIONCONNECTED TRANSACTIONFRAMEWORK AGREEMENT

ANDDISCLOSEABLE AND CONNECTED TRANSACTION

ISSUE OF CONVERTIBLE NOTES

We refer to our engagement as the independent financial adviser to the Independent

Board Committee and Independent Shareholders in relation to the Framework Agreement and

the Notes Issue, details of which are contained in a circular (the ‘‘Circular’’) to the

Shareholders of the Company dated 6 June 2005, of which this letter forms part.

Expressions used in this letter shall have the same meanings as defined in the Circular.


Company under the Listing Rules. As Alcatel Participations, by virtue of its 45% interest in

T&A HK, is a connected person of the Company, the Framework Agreement also constitutes a

connected transaction for the Company under the Listing Rules. As the amount involved in the

Framework Agreement exceeds 2.5% of the Relevant Ratio, the Framework Agreement is

subject to the requirements of reporting, announcement and the Independent Shareholders’

approval in accordance with Chapter 14A of the Listing Rules.

The Notes Issue constitutes a discloseable transaction for the Company under the Listing

Rules. As the Subscriber is a connected person of the Company by virtue of its indirect

approximate 57% interest in the Company, the Notes Issue also constitutes a connected

transaction for the Company under the Listing Rules. As the amount involved in the Notes

Issue exceeds 2.5% of the Relevant Ratio, the Notes Issue is subject to the requirements of

reporting, announcement and the Independent Shareholders’ approval in accordance with

Chapter 14A of the Listing Rules.

The Framework Agreement and the Notes Issue are separate transactions and will be

subject to separate resolutions at the EGM. Our scope of work under this engagement is to

assess the fairness and reasonableness of both the terms of the Framework Agreement and

the Notes Issue insofar as the Independent Shareholders are concerned and whether, from

this perspective, the Framework Agreement and the Notes Issue are in the interest of the

Company and its shareholders as a whole. It is not within our scope of work to opine on any

other aspects of the Framework Agreement and the Notes Issue.

APPENDIX II LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

— 21 —

In arriving at our opinion, we have relied on the information, opinions and facts supplied,

and representations made to us, by the Directors, and advisers and representatives of the

Company (including those contained or referred to in the Circular). We have also assumed

that the information and representations contained or referred to in the Circular were true and

accurate in all material respects at the time they were made and continue to be so at the date

of the dispatch of the Circular. We have no reason to doubt the truth, accuracy and

completeness of the information and representations provided to us by the Directors. We have

also relied on certain information available to the public and have assumed such information

to be accurate and reliable, and we have not independently verified the accuracy of such

information. We have been advised by the Directors and believe that no material facts have

been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view, to

justify reliance on the accuracy of the information contained in the Circular and to provide a

reasonable basis for our opinion. We have not, however, conducted independent verification

of the information nor have we conducted any form of in-depth investigation into the

businesses and affairs or the prospects of the Company or any of its respective subsidiaries

or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion with regard to the terms of the Framework Agreement and the

Notes Issue, we have considered the principal factors and reasons set out below.

A. Framework Agreement

1. Business Strategy and Financial Performance of T&A HK

As noted in the result announcement of the Company for the three months ended 31

March 2005, the Company strives to improve operating efficiencies and reduce operating

cost. Towards this end, the Directors have stated that the Company intends to further

evolve the business platform of T&A HK and transform T&A SAS, the direct wholly-

owned French subsidiary of T&A HK, into a business development, sales and marketing

and product development support centre focusing on the European market. Accordingly,

the Directors consider that adjustments to the corporate structure of T&A HK, as

contemplated by the acquisition of the remaining 45% interest, are planned to better

reflect the outlook on its operations. We concur with the Directors that entering into the

Framework Agreement is consistent with the Company’s recently stated objectives.

Based on the audited accounts of T&A HK as at 31 December 2004 and the

unaudited accounts as at 31 March 2005, the net loss before taxation and extraordinary

items attributable to the Alcatel Shares for the financial year of 2004 and first quarter of

2005 amounted to approximately HK$119 million and HK$162 million respectively, and

the net loss after taxation and extraordinary items attributable to the Alcatel Shares

amounted to approximately HK$116 million and HK$161 million respectively. Based on

the audited accounts of T&A SAS as at 31 December 2004 and the unaudited accounts

as at 31 March 2005, T&A SAS’s net loss before taxation and extraordinary items for the

financial year of 2004 and first quarter of 2005 amounted to approximately HK$289

million and HK$309 million respectively, and its net loss after taxation and extraordinary

items amounted to approximately HK$285 million and HK$302 million respectively.


— 22 —

Based on the audited accounts of T&A HK as at 31 December 2004, the total assets

attributable to the Alcatel Shares amounted to approximately HK$1,333 million. Based on

the unaudited consolidated accounts of T&A HK as at 31 March 2005, T&A HK’s turnover

and net loss for the three months ended 31 March 2005 amounted to approximately

HK$1,027 million and HK$357 million respectively, and its net asset value as at 31 March

2005 was approximately HK$409 million.

Based on the unaudited accounts of the Group as at 31 March 2005, the turnover of

T&A HK and T&A SAS contributed approximately 61% and 40% of the Group’s turnover

respectively.

2. Reasons for Entering into the Framework Agreement

As discussed in the letter from the Board, the key objective of the restructuring as

contemplated in the Framework Agreement is to enhance the competitiveness of the

group of companies under T&A HK, especially T&A SAS, by optimizing its operations and

reducing its operating cost through the transfer of the employees of T&A SAS to Alcatel

and the Soft Landing in an effective and responsible manner. T&A HK will as a result

improve the overall operation efficiency and have full control of the human resources

deployment within its group. Given that T&A HK will become a direct wholly-owned

subsidiary of the Company, the Company will have full control over its resources and be

able to speed up business integration within the Group. As a result, more significant

synergies resulting from the procurement, manufacturing, research and development and

economies of scale within different members of the Group are expected to be realized

and hopefully the Company will be in a better position to turn around its current loss

position. Although T&A HK and T&A SAS are now making a loss, the Directors expect

that through the restructuring as contemplated in the Framework Agreement, T&A HK

and the group of companies thereunder will achieve the aforesaid synergies which are

expected to contribute positively to the Group in the future.

The Framework Agreement was negotiated and entered into on an arm’s length

basis in the ordinary and usual course of business of the Group and on normal and

commercial terms which, in the Directors’ opinion, are fair and reasonable and in the


Shareholders should note that the extent to which the synergies and economies of

scale can be realized as contemplated by the Directors will depend on various factors

such as, among other things, the speed of implementation of the plans and the

significance of the cost savings or earnings enhancements compared to the overall cost

structure. Nonetheless, we concur with the view of the Directors that after T&A HK

becomes a direct wholly-owned subsidiary of the Company, the Company will have full

control over its resources and be able to speed up business integration within the Group.

Having considered the above factors, we consider the reasons for entering into the

Framework Agreement to be reasonable and in the interest of Shareholders.

3. Acquisition of Alcatel Shares

The Alcatel Shares represent the shares allotted by T&A HK to Alcatel at the time of

the establishment of T&A HK for its contribution of cash of 45 million (about HK$448.9

million) and its mobile handset business amounting to a total value of 45 million (about


— 23 —

HK$448.9 million) pursuant to the JV Subscription Agreement (details of which are set

out in the Listing Document). Closing of the JV Subscription Agreement was completed

on 31 August 2004.

The Framework Agreement requires the Company to acquire from Alcatel

Participations the Alcatel Shares by way of Share Swap. The issue of new Shares

under the Share Swap requires approval of the Listing Committee of the Stock Exchange

(‘‘Listing Committee’’) granting the listing of and permission to deal in the Shares to be

issued pursuant thereto, and if the Company fails to obtain such approval from the

Listing Committee by 31 July 2005 even though the Independent Shareholders have

approved the Share Swap, the Company or its affiliate is required to acquire the Alcatel

Shares for a consideration of 10 million (about HK$99.76 million) by 16 August 2005.

The cash payment will be funded by the Group’s working capital. We note from the

Company’s consolidated balance sheet for the year ended 31 December 2004 that the

Company had cash and cash equivalents of approximately HK$ 2,005.7 million and

concur with the Directors that the cash payment can be funded by the Group’s working

capital.

The acquisition is subject to the payment by Alcatel to T&A HK a sum of 1.28

million (about HK$12.77 million) in cash for the Post-closing Adjustment pursuant to the

JV Subscription Agreement which provides that if the net asset value of Alcatel’s mobile

handset business injected in T&A HK as of the closing date of the JV Subscription

Agreement is lower than the net asset value estimated by Alcatel prior to such date,

Alcatel shall be required to pay the difference in cash to T&A HK (details of which are

set out in the Listing Document).

The number of Shares to be issued pursuant to the Share Swap will be equivalent

to 5% of the issued Shares on the last trading day before the Share Swap Completion

Date. Based on a total of 2,827,500,000 Shares in issue as at 13 May 2005, the date of

the Announcement (and assuming no further Shares will be issued thereafter until the

Share Swap Completion Date), 141,375,000 Shares will be issued upon completion of

the Share Swap (representing about 4.76% of the enlarged issued share capital of the

Company immediately after completion of the Share Swap). Based on the average

closing price of HK$0.448 per Share for the 5 trading days prior to 13 May 2005, the

date of the Announcement, 141,375,000 Shares represent a market value of about

HK$63.34 million.

The Share Swap is a modification to the terms of the Put and Call Option

Agreement (details of which are set out in the Listing Document), under which, among

other things, the Company granted to Alcatel a put option, in consideration of a call

option granted by the Company to Alcatel, to exchange the Alcatel Shares which can

only be exercised by Alcatel on or after 31 August 2008 for such number of the Shares

to be agreed between the parties or otherwise in accordance with the formula as set out

therein, with reference to the fair market value to be ascertained at the time of exercise

of the option. The Put and Call Option Agreement will be terminated upon completion of

the acquisition of the Alcatel Shares by the Company. We consider that this is consistent

with the Directors’ intention to address the corporate structure of T&A HK now in order to

have full control over its resources and be able to speed up business integration within

the Group, rather than after 31 August 2008.


— 24 —

The shareholdings of the Company before and after completion of the Share Swap

are as follows:

Before completion of Share Swap

After completion of Share Swap

Notes:

(1) TCL Corporation holds interest in the Company through T.C.L. Industries Holdings (H.K.) Limited,its wholly-owned subsidiary.

(2) Jasper Ace Limited, Alcatel and other shareholders (save for certain Directors) are regarded aspublic shareholders under the Listing Rules. (Please refer to Appendix III to the Circular for theinterest of the Directors.)

Based on the net asset value of T&A HK as shown in the audited accounts of T&A

HK as at 31 December 2004, the Alcatel Shares represent a value of about HK$342

million. Based on the average closing price of HK$0.448 per Share for the 5 trading days

prior to 13 May 2005, the date of the Announcement, 141,375,000 Shares to be issued

pursuant to the Share Swap (and assuming no further Shares will be issued thereafter

until the Share Swap Completion Date) represent a value of about HK$63.34 million.

Accordingly, the market value of the 141,375,000 Shares to be issued pursuant to the

Share Swap of about HK$63.34 million as arrived above represents a discount of

approximately 81% of the value of the Alcatel Shares, and the cash consideration of 10

million (about HK$99.76 million) represents a discount of approximately 71% of the value

of the Alcatel Shares.

Based on the net asset value of T&A HK as shown in the unaudited accounts of

T&A HK as at 31 March 2005, the Alcatel Shares represent a value of about HK184

million. Based on the average closing price of HK$0.448 per Share for the 5 trading days

prior to 13 May 2005, the date of the Announcement, 141,375,000 Shares to be issued


— 25 —

pursuant to the Share Swap (and assuming no further Shares will be issued thereafter

until the Share Swap Completion Date) represent a value of about HK$63.34 million.

Accordingly, the market value of the 141,375,000 Shares to be issued pursuant to the

Share Swap of about HK$63.34 million as arrived above represents a discount of

approximately 66% of the value of the Alcatel Shares, and the cash consideration of 10

million (about HK$99.76 million) represents a discount of approximately 46% of the value

of the Alcatel Shares.

The Directors are of the view that the cash consideration and the payment by way

of Share Swap for the acquisition of the Alcatel Shares were negotiated and determined

on an arm’s length basis and on normal commercial terms.

Since T&A HK is currently loss-making, we cannot assess the acquisition of Alcatel

Shares in terms of price-earnings multiple analysis. As mentioned above, the acquisition

of Alcatel Shares by way of Share Swap or the payment of the cash consideration

represents a discount of approximately 81% and 71% of the value of the Alcatel Shares

respectively based on the net asset value of T&A HK as shown in its audited accounts

for the year ended 31 December 2004. Also as mentioned above, the acquisition of

Alcatel Shares by way of Share Swap or the payment of the cash consideration

represents a discount of approximately 66% and 46% of the value of the Alcatel Shares

respectively based on the net asset value of T&A HK as shown in its unaudited accounts

for the period ended 31 March 2005. We consider that such discount to the net asset

value of T&A HK is not prejudicial to the interests of the shareholders of the Company.

The total consideration in terms of the Share Swap is lower than the cash consideration

and represents a steeper discount to net asset value. In light of this, we consider that the

dilution effect of the Share Swap is acceptable.

4. Alcatel Cash Payment

After the acquisition of the Alcatel Shares by the Company, T&A HK will become a

wholly owned subsidiary of the Company, which will also affect certain intellectual

property relating to certain patent cross license agreements in force between Alcatel and

its telecommunication equipment peers as described in the Letter from the Board herein.

In consideration of the release of this obligation, Alcatel shall pay 20 million (about

HK$199.51 million) in cash to T&A HK on the later of 1 October 2005 or the date on

which the conditions precedent set out under the heading ‘‘Conditions Precedent’’ in the

letter from the Board have been fulfilled. Such payment is subject to the completion of

the Company’s acquisition of the Alcatel Shares. Upon such payment and in

consequence of Alcatel ceasing to hold directly or indirectly any shares in T&A HK,

Alcatel will be fully released from its obligation in respect of the patent cross licenses or

third party licenses under the Pre-closing IP Agreement, and any claims existing or in

connection with such obligations save for certain third party claims (Details of the Pre-

closing IP Agreement are set out in the Listing Document). The Directors consider that

the terms of such payment by Alcatel is in the interest of the Shareholders as a whole

and will provide the Company with additional working capital for its operations.


— 26 —

5. T&A SAS Reducing its Operating Costs

Alcatel undertakes to take over the employment contracts of all T&A SAS

employees of about 360 peoples in several steps over an 18-month period. The first

transfer of employees shall take place as soon as possible from 1 July 2005. The timing

for the transfer of the remaining employees and the actual number of such employees to

be transferred will depend on the business needs as determined by the management for

transforming T&A SAS into the new business undertakings and the progress of such

transformation. T&A SAS is required to compensate Alcatel for certain liabilities (such as

paid vacation days, retirement indemnity and seniority award) accrued in connection with

the employees to be transferred. The Directors expect that the transfer of T&A SAS

employees together with the transformation of T&A SAS into the new business

undertaking will substantially streamline the operating scale of T&A SAS and thus

reduce its operating costs. We concur with the Directors’ view that the transfer of T&A

SAS employees may reduce its operating costs but the extent of such impact cannot be

ascertained now as the timing and actual number of employees involved cannot be

confirmed yet.

B. Notes Issue

1. Background and reasons for the Notes Issue

The Directors consider that the Notes Issue will increase the Group’s working

capital and can be used by the Group to finance its operation and is therefore beneficial

for the Company. The Directors believe that the Subscription Agreement was entered into

on an arm’s length basis in the ordinary and usual course of business of the Group and

on normal and commercial terms which are fair and reasonable and in the interests of

the Shareholders as a whole.

Out of the entire amount of the net proceeds from the Notes Issue, which is

estimated to be close to 20,000,000 (approximately HK$199,510,000), about HK$40

million is intended to be applied to pay for the balance of the expenses incurred for the

listing of the shares on the Main Board of the Stock Exchange in September 2004, and

about HK$120 million will be applied to Huizhou TCL Mobile Communication Co., Ltd., a

wholly-owned subsidiary of the Company incorporated in the PRC, for its operating

needs, and the remaining net proceeds will be used as working capital of the Group for

its general operating usage. The Company has not raised any funds since its listing on

the Stock Exchange on 27 September 2004.

2. The Subscription Agreement

Date: 11 May 2005

Issuer: the Company

Subscriber: TCL Corporation


— 27 —

3. Principal Terms of the Convertible Notes

The principal terms of the Convertible Notes are as follows:

Issue Size

An aggregate of 20,000,000 principal amount (in its HK$ equivalent of about


Issue Price

The Convertible Notes will be issued at par.

Term and Maturity Date

Unless previously redeemed, converted or purchased and cancelled, the

Company shall repay such principal moneys outstanding under the Convertible

Notes to the holder of the Convertible Notes together with all interest accrued

thereon up to and including on the third anniversary of the Issue Date.

Interest

The Convertible Notes will bear interest from the Issue Date at the rate of 3%

per annum, payable semi-annually in arrears. The rate of interest was determined

with reference to the market interest rate for a comparable loan at the time of the

Notes Issue.

Conversion Period

The Conversion Period commences on the Issue Date and ending on the

Maturity Date.

Conversion Rights

The Subscriber will have the right at any time during the Conversion Period to

convert the Convertible Notes in whole or in part in the principal amount into Shares

in amounts of not less than HK$10,000,000 on each conversion, save that if at any

time, the principal outstanding amount of the Note is less than HK$10,000,000, the

whole (but not part only) of the principal outstanding amount of the Note may be

converted at the Conversion Price.

Conversion Price

The Convertible Notes will be convertible into Shares at an initial Conversion

Price of HK$0.58175 at the option of the Subscriber at any time during the

Conversion Period. The initial Conversion Price of HK$0.58175, subject to

adjustment in certain circumstances, represents a premium of approximately 30%

over the average of the closing prices of the Shares on the Stock Exchange for the

last 10 trading days immediately before the date of the Subscription Agreement. The


— 28 —

closing price as at the date of the Subscription Agreement was HK$0.45 per Share

and the average closing price for the 5 trading days prior to 13 May 2005, the date

of the Announcement was HK$0.448 per Share.

Conversion Shares

Shares to be issued by the Company upon the exercise of the Conversion

Rights under the Convertible Notes will rank pari passu in all respects with the

Shares in issue as at the relevant conversion date. Assuming full conversion of the

Convertible Notes at the initial Conversion Price, the maximum number of Shares to

be issued will be 342,948,000, representing approximately 12.13% of the existing

issued share capital of the Company and approximately 10.82% of the issued share

capital of the Company as enlarged by the issue of such Shares. As the initial

Conversion Price will be subject to adjustment in certain circumstances (including,

among other things, consolidation or sub-division of the Shares, capitalisation of

profits or reserves, capital distribution and rights issue), the maximum number of

Shares to be issued upon full conversion of the Convertible Notes may be varied

from 342,948,000. Any conversion of the Convertible Notes (in part or in full) shall

be subject to the terms and conditions of the Notes Issue as set out in the

Subscription Agreement.

Redemption at the option of the Issuer

The Company has an option to redeem, in whole or any part, the Convertible

Notes (being HK$10,000,000 in principal amount or an integral multiple thereof) at

100% of their principal amount plus interest accrued to but excluding the date of

redemption after 24 months from the Issue Date.

4. The Subscriber’s shareholdings in the Company before and after the

completion of full conversion of the Convertible Notes are as follows:

Before completion of full conversion of Convertible Notes


— 29 —

After completion of full conversion of Convertible Notes

Note:

(1) TCL Corporation currently holds through T.C.L. Industries Holdings (H.K.) Limited, its wholly-ownedsubsidiary, about 1,622,748,516 Shares representing about 57.4% of the issued share capital of theCompany. After completion of full conversion of the Convertible Notes, TCL Corporation will holdabout 1,965,696,516 Shares representing about 62% of the issued share capital of the Company.

(2) Jasper Ace Limited and other shareholders (save for certain Directors) are regarded as publicshareholders under the Listing Rules. (Please refer to Appendix III to the Circular for the interest ofthe Directors.)

As noted in the above diagram, the interest of Shareholders, other than TCL

Corporation, will be diluted from 42.6% to 38%, assuming after completion of full

conversion of the Convertible Notes. We consider that such dilution is acceptable in the

light of the increase in the working capital of the Company without material impact on the

earnings, assets and liabilities of the Group and the conversion premium of

approximately 30% over the average closing prices of the Shares on the Stock

Exchange for the last 10 trading days immediately before the date of the Subscription

Agreement.


— 30 —

5. Recent issues of convertible notes or bonds

In order to assess the fairness and reasonableness of the key terms of the

Convertible Notes, we have looked into certain recent issues of convertible notes or

bonds (the ‘‘Comparables’’) by listed companies in Hong Kong since 1 February 2005,

being 66 trading days prior to the Announcement as we consider that this period reflects

the market condition of the time when the Subscription Agreement was entered into. The

Comparables are all the companies identified by us in our research in convertible notes/

bonds during the said period by searching through published information on the Stock

Exchange’s website. Set out below is a summary of the key terms of the Comparables.

Issuer (Stock code)Date ofannouncement

Principalamount

Interest rate(per annum) Maturity

Conversion pricepremium over/

(discount) to thelatest closingprice of the

shares prior tothe related

announcement(HK$ million) (%) (years) (%)

Universal Holdings Limited (419) 2 February 2005 287.3 — 5 4.30SMI Publishing Group Limited

(8010)3 February 2005 50.0 1.50 2 66.70

Town Health International HoldingsCompany Limited (8138)

3 February 2005 32.0 2.50 2 8.80

China Sci-Tech Holdings Limited(985) (Note 1)

3 February 2005 60.0 3.00 3 3.50(i)

20.70(ii)

37.90(iii)

Nippon Asia Investment HoldingsLimited (603)

17 February 2005 21.8 1.00 1 —

Moulin Global Eyecare HoldingsLimited (389)

21 February 2005 321.0 1.95 5 10.90

Hon Po Group (Lobster King)Limited (228)

21 February 2005 40.0 — 2 (69.70)

Get Nice Holdings Limited (64)(Note 1)

22 February 2005 200.0 3.00 3 (4.30)(i)

22.30(ii)

48.90(iii)

Chinese Estates Holdings Limited(127) (Note 2)

10 March 2005 1,500.0 — 5 10.80

Orient Industries Holding Limited(353)

15 April 2005 33.0 — 2 (52.00)

Cheung Tai Hong Holding Limited(199)

20 April 2005 1,000.0 — 5 8.60

China Healthcare Holdings Limited(673)

29 April 2005 51.5 3.00 4 (6.50)

Chinainfo Holdings Limited (8206) 11 May 2005 5.0 4.00 2 2.40The Company* 13 May 2005 200.0 3.00 3 29.28

Premiums(Note 3)

Mean 1.53 3 Mean 12.9Minimum — 1 Minimum 0.0Maximum 4.00 5 Maximum 66.7Median 1.50 3 Median 8.6

DiscountsMean (33.1)Minimum (69.7)Maximum (4.3)Median (29.3)

Source: http://www.hkex.com.hk/

* For reference only


— 31 —

Note 1 : (i), (ii) and (iii) represent the premiums/(discount) of the first year conversion price, the secondyear conversion price and the third year conversion price of the respective Comparables overtheir respective closing price prior to the date of the related announcement.

Note 2 : subject to a conditional one-off adjustment at the first anniversary date.

Note 3 : Only premiums of the first year conversion prices are used.

(i) Interest

The Comparables carry annual interest rates ranging from nil interest to 4%

p.a.. It should however be noted that the Comparables are not necessarily

comparable with the Convertible Notes given the differences in (i) the industries

and businesses in which the Comparables are involved; (ii) the credit rating of the

Comparables; (iii) the liquidity of the securities; and (iv) the issue or redemption

price, conversion restrictions and/or other features.

The interest rate of 3% per annum for the Convertible Notes is higher than the

mean and median interest rate of 1.5% for the Comparables but within the

Comparables’ range of 0% to 4.0%, therefore we consider that the interest rate of

the Convertible Notes is reasonable so far as the Independent Shareholders are

concerned.

(ii) Conversion Price

The conversion premium of the Comparables range from nil to 66.7% with

mean and median being 12.9% and 8.6% respectively; whilst the discount range

from 4.3% to 69.7% with mean and median being 33.1% and 29.3% respectively.

The proposed conversion price of HK$0.58175, which represents a premium of

approximately 29% over the closing share price on the date of the Subscription

Agreement is higher than the mean and median conversion premium as set out

above, which is beneficial to the Company. Further discussion of the conversion

premium is set out below.


— 32 —

The following table sets out the historical monthly/period highest and lowest

closing price of the Shares and the month end closing price of the Shares traded on

the Stock Exchange from 27 September 2004 (date of the Company’s listing on the

Main Board of the Stock Exchange) to the Latest Practicable Date (‘‘Period’’).

Month/Period

Highest

closing

price of the

month/

period

Lowest

closing

price of the

month/

period

Month/

Period end

closing

price

Average

daily

closing

price of the

month/

period

(HK$) (HK$) (HK$) (HK$)

2004

September (Note 1) 1.16 1.10 1.10 1.14

October 1.27 0.89 0.89 1.05

November 0.92 0.71 0.71 0.85

December 0.71 0.58 0.65 0.65

2005

January 0.63 0.53 0.53 0.57

February 0.67 0.50 0.55 0.58

March 0.61 0.56 0.60 0.58

April 0.60 0.46 0.46 0.53

May (Note 2) 0.47 0.41 0.41 0.43

Latest Period (Note 3) 0.44 0.41 0.41 0.42

Source: Bloomberg.

Notes:

1. Period from 27 September 2004 (date of the Company’s listing on the Main Board of theStock Exchange) to 30 September 2004.

2. Period from 3 May 2005 (the first trading date in May 2005) to the Latest Practicable Date.Trading of the Shares was suspended from 12 May 2005 to 13 May 2005 pending therelease of the Announcement.

3. Latest Period covering the period from 17 May 2005 (being the first trading day after therelease of the Announcement) to the Latest Practicable Date.


— 33 —

The premiums/(discounts) of the Conversion Price to the closing prices of the

Share for different periods during the Period are set out in the following table:

Date/Period

Closing price/

average closing

price per Share

for the period

Premium/

(Discount) of

the Conversion

Price to the

closing/average

closing price

(HK$)

The Latest Practicable Date 0.41 41.89%

As at 11 May 2005 (being the last trading

date prior to the Announcement Date) 0.45 29.28%

10 trading days up to and including

11 May 2005 0.44 30.73%


11 May 2005 0.48 20.32%


11 May 2005 0.55 5.04%


11 May 2005 0.60 (3.06)%


11 May 2005 0.68 (14.34)%

The above table shows that the Conversion Price represents (1) premium

ranging from 5.0% to 30.7% over the average closing prices for the 10, 20 and 60

trading day periods; (2) a premium of 29.3% and 41.9% over the closing price as at

the last trading date prior to the Announcement Date and the Latest Practicable

Date respectively; and (3) discount ranging from 3.1% to 14.3% to the average

closing prices for the 120 and 150 trading day periods.

Given the facts that (1) the Conversion Price of the Convertible Notes

represents a premium to the average closing prices of the Shares over the 10, 20

and 60 trading day periods; (2) the Conversion Price represents a premium of

29.3% over the closing price of the last trading day prior to the Announcement Date;

(3) the Conversion Price represents a premium of 30.7% over the average closing

price of the 10 trading days up to and including the last trading day prior to the

Announcement Date; and (4) such premiums are higher than most of the

Comparables’ conversion premiums as disclosed above, we consider that the

Conversion Price as stipulated under the Convertible Notes is reasonable so far as

the Independent Shareholders are concerned.

(iii) Maturity

The maturity of the Comparables range from 1 year to 5 years with both the

mean and median maturity being 3 years. Given the fact that the maturity of 3 years

for the Convertible Notes is within the range of maturity of the Comparables and is

in line with both the mean and median of the maturity of the Comparables above,

we consider that the maturity of the Convertible Notes is fair and reasonable so far

as the Independent Shareholders are concerned.


— 34 —

(iv) Other considerations

The Directors consider that the Notes Issue will increase the Group’s working

capital and can be used by the Group to finance its operation and is therefore

beneficial for the Company. The Directors do not expect any adverse impact on the

Group and any material impact on the earnings, assets and liabilities of the Group

as a result of the Notes Issue. The Directors also believe that the Subscription

Agreement was entered into on an arm’s length basis in the ordinary and usual

course of business of the Group and on normal and commercial terms which are fair

and reasonable and in the interests of the Shareholders as a whole. We agree that

the Notes Issue will increase the Group’s working capital and will not have a

material impact on the earnings, assets and liabilities of the Group, in terms of the

proposed issue size and interest payable, based on the audited financial statements

of the Company for the year ended 31 December 2004.

RECOMMENDATIONS

A. Framework Agreement

Having considered the principal factors and reasons discussed above, we are of the

opinion that the terms of the Framework Agreement are on normal commercial terms, fair and

reasonable so far as the Independent Shareholders are concerned and that the Framework

Agreement is in the interests of the Company and the Shareholders as a whole. We therefore

recommend the Independent Shareholders to vote in favour of the ordinary resolution to be

proposed at the EGM to approve the Framework Agreement.

B. Notes Issue

Having considered the principal factors and reasons discussed above, we are of the

opinion that the terms of the Notes Issue was entered in the ordinary course of business and

on normal commercial term. We are also of the opinion that the terms of the Notes Issue are

fair and reasonable so far as the Independent Shareholders are concerned and that the Notes

Issue is in the interests of the Company and the Shareholders as a whole. We therefore

recommend the Independent Shareholders to vote in favour of the ordinary resolution to be

proposed at the EGM to approve the Notes Issue.

Yours faithfully,

For and on behalf of

DBS ASIA CAPITAL LIMITED

Kelvin S.K. Lau

Managing Director


— 35 —

1. RESPONSIBILITY OF THE DIRECTORS

This circular includes particulars given in compliance with the Listing Rules for the

purpose of giving information with regard to the Company. The Directors collectively and

individually accept full responsibility for the accuracy of the information contained in this

circular and confirm, having made all reasonable enquiries, that to the best of their knowledge

and belief there are no other facts the omission of which would make any statement herein

misleading.

2. DIRECTORS’ DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and

chief executive of the Company in the shares, underlying shares and debentures of the

Company and its associated corporations (within the meaning of Part XV of the SFO) which

were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7

and 8 of Part XV of the SFO (including interests and short positions in which he was taken or

deemed to have under such provisions of the SFO) or which were required, pursuant to

section 352 of the SFO, to be entered in the register referred to therein or which were

required to be notified to the Company and the Stock Exchange pursuant to the Model Code

for Securities Transactions by Directors of Listed Companies in the Listing Rules were as

follows:

(a) Long positions in the Shares of the Company

Directors Type of Interest

No. of

Shares held

Percentage of

issued share

capital of the

Company

Mr. Wong Toe Yeung Interest of controlled

corporation

401,505,000

(Note)

14.2%

Mr. Li Dong Sheng Beneficial owner 18,080,800 0.64%

Mr. Guo Aiping, George Beneficial owner 26,400 0.001%

Note: Mr. Wong Toe Yeung was deemed to be interested in the 118,755,000 shares of the Company held

by Mate Fair Group Limited, a company which is wholly owned by him and the 282,750,000 shares

of the Company held by Cheerful Asset Investments Limited (‘‘Cheerful Asset’’) in which he holds

35% interest through Total Harvest Ltd. (‘‘Total Harvest’’), a company which is wholly owned by

him.

APPENDIX III GENERAL INFORMATION

— 36 —

(b) Long positions in shares of associated corporations of the Company

Directors

Name of

associated

corporation

Type of

Interest

No. of

shares held

Approximate

percentage

of issued

share capital

in associated

corporation

Mr. Li Dong Sheng TCL Corporation Beneficial

owner

144,521,730 5.59%

Mr. Li Dong Sheng TCL Multimedia Beneficial

owner

23,232,000 0.84%

Mr. Yuan Xin Cheng TCL Corporation Beneficial

owner

24,791,527 0.96%

Notes:

(a) TCL Corporation is the ultimate controlling shareholder of the Company.

(b) TCL Multimedia Technology Holdings Limited (‘‘TCL Multimedia’’) formally known as TCL

International Holdings Limited), a company controlled by TCL Corporation, is the fellow

subsidiary of the Company.

(c) Options outstanding to subscribe for shares of associated corporations of the

Company

Directors

Name of

associated

corporation

Type of

Interest

No. of

shares held

Approximate

percentage

of issued

share capital

in associated

corporation

Mr. Du Xiaopeng,

Simon

TCL Multimedia Beneficial

owner

100,000 0.004%

Mr. Guo Aiping,

George


owner

68,000 0.002%

Mr. Yan Yong,

Vincent


owner

68,000 0.002%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or

chief executive of the Company had any interests or short positions in the shares, underlying

shares or debentures of the Company or any of its associated corporations (within the

meaning of Part XV of the SFO) which were required to be notified to the Company and the

Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and

short positions in which he was taken or deemed to have under such provisions of the SFO)

or which were required, pursuant to section 352 of the SFO, to be entered in the register

referred to therein or which were required to be notified to the Company and the Stock

Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed

Companies in the Listing Rules.


— 37 —

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors or chief

executive of the Company, the following persons (not being a Director or chief executive of

the Company) had an interest or short position in the Shares or underlying shares of the

Company which would fall to be disclosed to the Company under provisions of Divisions 2 and

3 of Part XV of the SFO or were directly or indirectly interested in 10% or more of the nominal

value of the issued share capital carrying rights to vote in all circumstances at general

meetings of the following subsidiaries of the Company:

(a) Long Positions in shares of the Company

Shareholders Type of Interest

No. of shares

held

Percentage of

issued share

capital of the

Company

TCL Corporation Interest of controlled

corporation

1,622,748,516

(Note (a))

57.4%

Cheerful Asset Beneficial owner 282,750,000 10.0%

Total Harvest Interest of controlled

corporation

282,750,000

(Note (b))

10.0%

Mr. Wong Ngok Chung Interest of controlled

corporation

282,750,000

(Note (c))

10.0%

Nam Tai Interest of controlled

corporation

254,475,000

(Note (d))

9.0%

Notes:

(a) TCL Corporation was deemed to be interested in the 1,622,748,516 shares of the Company held by

T.C.L. Industries Holdings (H.K.) Limited, a direct wholly owned subsidiary of TCL Corporation.

(b) Total Harvest was deemed to be interested in 282,750,000 shares of the Company held by Cheerful

Asset, a company in which Total Harvest has a 35% interest.

(c) Mr. Wong Ngok Chung was deemed to be interested in the 282,750,000 shares of the Company

held by Cheerful Asset, a company in which he has a 45% interest through Grand Mobile Limited

and Wan Yuen International Investments Limited.

(d) Nam Tai Electronics, Inc. (‘‘Nam Tai’’) was deemed to be interested in the 254,475,000 shares of

the Company held by Jasper Ace Limited, a company which is wholly owned by Nam Tai.

(b) Long positions in shares of subsidiaries of the Company

Name of subsidiary Name of substantial shareholder

Percentage of

share holding

T&A HK Alcatel Participations 45%

Save as disclosed above, the Directors and the chief executive of the Company are not

aware of any person (other than a Director or chief executive of the Company) who, as at the

Latest Practicable Date, had 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


— 38 —

Divisions 2 and 3 of Part XV of the SFO or, who was, directly or indirectly, interested in 10%

or more of the nominal value of the issued share capital carrying rights to vote in all

circumstances at general meeting of subsidiaries of the Company or any options in respect of

such capital.

4. MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse

change in the financial or trading position of the Group since 31 December 2004, being the

date to which the latest published audited consolidated financial statements of the Company

were made up.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed

service contract with the Company or any of its subsidiaries which will not expire or is not

determinable by the employer within one year without payment of compensation (other than

statutory compensation).

6. COMPETING INTERESTS

As at the Latest Practicable Date, the directors were not aware that any of the Directors

has interest in any business which competes or is likely to compete, either directly or

indirectly, with the business of the Group which falls to be disclosed under the Listing Rules.

7. LITIGATION

Neither the Company nor any of its subsidiaries 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 the Company or any of its subsidiaries.

8. QUALIFICATION AND CONSENT

The following is the qualification of the expert who has given opinions or advice, which

are contained or referred to in this circular:

Name Qualification

DBS Asia a licensed corporation for types 1 (dealing in securities), 4 (advising

on securities) and 6 (advising on corporate finance) regulated

activities under the SFO

DBS Asia has given and has not withdrawn its written consent to the issue of this circular

with the inclusion of its letter dated 6 June 2005 and reference to its name, in the form and

context in which they appear. As at the Latest Practicable Date, DBS Asia did not have 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.


— 39 —

9. PROCEDURE TO DEMAND A POLL AT THE EGM

Pursuant to Article 66 of the Articles, at any general meeting of the Company, a

resolution put to the vote of the meeting shall 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:

(a) the chairman of the meeting; or

(b) at least three Shareholders present in person or in the case of Shareholder being a

corporation by its duly authorised representative or by proxy for the time being

entitled to vote at the meeting; or

(c) a Shareholder or Shareholders present in person or in the case of Shareholder

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 Shareholders

having the right to vote at the meeting; or

(d) a Shareholder or Shareholders present in person or in the case of Shareholder

being a corporation by its duly authorised representative or by proxy and holding

Shares conferring a right to vote at the meeting being Shares on which an

aggregate sum has been paid up equal to not less than one-tenth of the total sum

paid up on all the Shares conferring that right.

10. MISCELLANEOUS

(a) Save as disclosed herein, none of the Directors was materially interested, directly or

indirectly, in any contract or arrangement entered into by any member of the Group

subsisting as at the Latest Practicable Date and which was significant in relation to

the business of the Group.

(b) As at the Latest Practicable Date, none of the Directors nor the IFA was interested,

directly or indirectly, in any assets which had since 31 December 2004 (being the

date to which the latest published audited financial statements of the Company were

made up) 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.

(c) The secretary of the Company is Ms. Pang Siu Yin who is a practicing solicitor in

Hong Kong.

(d) The qualified accountant of the Company is Mr. Ng Kwok Lun. He is a fellow

member of the Chartered Association of Certified Accountants, and an associate

member of the Hong Kong Institute of Certified Public Accountants, the Institute of

Chartered Secretary and Administrators and the Hong Kong Institute of Company

Secretaries.


— 40 —

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business

hours at the principal place of business of the Company in Hong Kong at Room 1502, Tower

6, China Hong Kong City, 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong for a period of

14 days from the date of this circular:

(a) the Framework Agreement dated 11 May 2005;

(b) the Subscription Agreement dated 11 May 2005;

(c) the letter from the Independent Board Committee, the text of which is set out on

pages 19 to 20 of this circular;

(d) the letter from the IFA, the text of which is set out on pages 21 to 35 of this circular;

and

(e) the written consent of the IFA as referred to in paragraph 8 above.


— 41 —

(Stock Code: 2618)

NOTICE IS HEREBY GIVEN that the extraordinary general meeting of the Company will

be held at 11 : 45 a.m. (or so soon thereafter as the annual general meeting convened at the

same place and date at 11 : 00 a.m. shall have been concluded or adjourned) on 22 June 2005

at Chatham Room, 7th Floor, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong to

consider and, if thought fit, pass the following resolutions (with or without modifications):

ORDINARY RESOLUTIONS

1. ‘‘THAT the framework agreement (the ‘‘Framework Agreement’’) dated 11 May 2005

entered into between TCL Communication Technology Holdings Limited (the

‘‘Company’’), a copy of the Framework Agreement has been produced to this

meeting marked ‘‘A’’ and signed by the Chairman of this meeting for the purpose of

identification and the details of which are set out in the circular of the Company

dated 6 June 2005, and the transactions contemplated under the Framework

Agreement, be and are hereby approved, ratified, and confirmed and any director of

the Company be and is hereby authorized to take such action, do such things and

execute such further documents or deeds as such director may, in his opinion, deem

necessary or desirable for the purpose of implementing the Framework Agreement

including but not limited to proceed with the acquisition of the Alcatel Shares (as

defined in the Framework Agreement) by way of the Shares Swap (as defined in the

Framework Agreement) and to exercise any power of the Company to allot and

issue any share of the Company to be issued under the Share Swap.’’

2. ‘‘THAT the subscription agreement (the ‘‘Subscription Agreement’’) dated 11 May

2005 in respect of the issue by the Company of the Notes (as defined in the

Subscription Agreement), a copy of the Subscription Agreement has been produced

to this meeting marked ‘‘B’’ and signed by the Chairman of this meeting for the

purpose of identification and the details of which are set out in the circular of the

Company dated 6 June 2005, and the transactions contemplated under the

Subscription Agreement, be and are hereby approved, ratified, and confirmed and

any director of the Company be and is hereby authorized to take such action, do

such things and execute such further documents or deeds as such director may, in

his opinion, deem necessary or desirable for the purpose of implementing the

Subscription Agreement including but not limited to exercise of any power of the

Company to issue the Notes (as defined in the Subscription Agreement) and to allot

and issue any share of the Company which may fall to be issued upon conversion

of the Notes.’’

By order of the Board

Li Dong Sheng

Chairman

Hong Kong, 6 June 2005

NOTICE OF EGM

— 42 —

Notes:

1. The Hong Kong Branch Register of Members of the Company will be closed from 21

June 2005 to 22 June 2005 (both days inclusive), during which period no transfers of

Shares will be registered. In order to be eligible to attend and vote at the Extraordinary

General Meeting to be held on 22 June 2005, all transfers accompanied by the relevant

share certificates must be lodged with the branch share registrar of the Company in

Hong Kong, Tricor Investor Services Limited, at Ground Floor, Bank of East Asia Harbour

View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4 : 30 p.m. on 20

June 2005.

2. A member of the Company who is a holder of two or more Shares, and who is entitled to

attend and vote at the Extraordinary General Meeting is entitled to appoint more than

one proxy or a duly authorised corporate representative to attend and vote in his stead.

A proxy need not be a member of the Company. Completion and return of the form of

proxy will not preclude a member of the Company from attending the Extraordinary

General Meeting and vote in person. In such event, his form of proxy will be deemed to

have been revoked.

3. A form of proxy for the Extraordinary General Meeting is enclosed. In order to be valid,

the form of proxy together with the power of attorney or other authority, if any, under

which it is signed, or a notarially certified copy of such power or authority, must be

deposited at the branch share registrar of the Company in Hong Kong, Tricor Investor

Services Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56

Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time for

holding the Extraordinary General Meeting or any adjournment thereof.

4. As at the date of this notice, the board of Directors is composed of Mr. Li Dong Sheng,

Mr. Yuan Xin Cheng, Mr. Wan Mingjian, Mr. Wong Toe Yeung, Mr. Yan Yong, Vincent, Mr.

Du Xiaopeng, Simon and Mr. Guo Aiping, George as executive Directors, Mr. Shi

Cuiming, Mr. Wang Chongju and Mr. Lau Siu Ki, Kevin as independent non-executive

Directors.

NOTICE OF EGM

— 43 —

(the ‘‘Company’’)

(Stock Code: 2618)

PROXY FORM for the Extraordinary General Meeting of 22 June 2005

I/We(1)

of

being the registered holder(s) of(2) shares

of HK$0.10 each in the capital of the Company hereby appoint the Chairman of the Meeting,

or(3)

as my/our proxy to attend and vote for me/us and on my/our behalf at the Extraordinary General Meeting of the

Company to be held at Chatham Room, 7th Floor, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong on

22 June 2005 at 11 : 45 a.m. (or so soon thereafter as the annual general meeting convened at the same place and

date at 11 : 00 a.m. shall have been concluded or adjourned, and at any adjournment thereof) (the ‘‘EGM’’) and in

particular (but without limitation) at the EGM on a poll to vote for me/us and in my/our name(s) in respect of the

following resolutions as indicated below or, if no such indication is given, as my/our proxy thinks fit:

ORDINARY RESOLUTIONS FOR(4) AGAINST(4)

1. To approve the framework agreement dated 11 May 2005 entered into

between the Company and Alcatel as set out in the Ordinary Resolution

No. 1 of the notice of the EGM dated 6 June 2005(5); and

2. To approve the subscription agreement dated 11 May 2005 entered into

between the Company and TCL Corporation as set out in the Ordinary

Resolution No. 2 of the notice of the EGM dated 6 June 2005(6)

Dated Signature(7)(8)(9)(10)

(Full name in block capitals)

Notes:

1. Full name(s) and address(es) to be inserted in block capitals.

2. Please insert the number of shares registered in your name(s). If no number is inserted, this form of proxy will be deemed to relate to allthe shares in the Company registered in your name(s).

3. If you wish to appoint a proxy other than the Chairman of the Meeting, please strike out ‘‘the Chairman of the Meeting’’ and insert thename and address of the person you wish to appoint in the space provided. ANY ALTERATION MADE TO THIS FORM OF PROXYMUST BE INITIALLED BY THE PERSON WHO SIGNS IT. A proxy need not be a member of the Company.

4. IMPORTANT: If you wish to vote for any resolution, please indicate with an ‘‘x’’ in the appropriate space marked ‘‘For’’ beside theresolution. If you wish to vote against any resolution, please indicate with an ‘‘x’’ in the appropriate space marked ‘‘Against’’ beside theresolution. In the absence of any such indication, the proxy will be entitled to vote for or against the resolution or to abstain from votingat his/her discretion. Your proxy will also be entitled to vote at his/her discretion on any resolution properly put to the EGM other thanthose referred to in the Notice convening the EGM.

5. Alcatel and its associates are required to abstain from voting in respect of the Ordinary Resolution No.1 in accordance with the RulesGoverning the Listing of Securities on the Stock Exchange of Hong Kong Limited.

6. TCL Corporation and its associates are required to abstain from voting in respect of the Ordinary Resolution No.2 in accordance withthe Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

7. In the case of joint shareholders, the vote of the senior who renders a vote, whether in person or by proxy, shall be accepted to theexclusion of the vote(s) of other joint holder(s) and for this purpose seniority shall be determined by the order in which the names standin the register of members.

8. The form of proxy must be signed by you or your attorney duly authorised in writing. In the case of a corporation, this form must beexecuted under seal or under the hand of an officer or attorney duly authorised.

9. To be valid, this form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notariallycertified copy thereof must be deposited at the principal place of business of the Company in Hong Kong at Room 1502, Tower 6, ChinaHong Kong City, 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong as soon as possible and in any event not later than 48 hoursbefore the time appointed for the EGM or any adjournment thereof.

10. Completion and delivery of the form of proxy will not preclude you from attending and voting at the meeting if you so wish.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR …tclcom.tcl.com/admin/documents/oannouncement/20071123120543… · Guo Aiping, George Independent Non-executive Directors: Shi Cuiming

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