THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Sinotrans Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. SINOTRANS LIMITED (A joint stock limited company incorporated in the People s Republic of China with limited liability) (Stock Code: 0598) CERTAIN CONTINUING CONNECTED TRANSACTIONS Independent financial adviser to the Independent Board Committee and the Independent Shareholders A notice convening the extraordinary general meeting of Sinotrans Limited to be held at No. 1 Meeting Room, 12th Floor, Sinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District, Beijing , the PRC on Monday, 11th June, 2007 at 9: 30 a.m. (or as soon thereafter as the annual general meeting of the Company to be held at the same place and date at 9: 00 a.m. shall have been concluded) is set out on pages 23 to 24 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon andreturnittoregisteredofficeofthecompanyatsinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District, Beijing, the People s Republic of China as soon as possible and in any event not less than twenty-four (24) hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment of it, if yousowish. 13th April, 2007

2 CONTENTS Page DEFINITIONS... 1 LETTER FROM THE BOARD... 3 INTRODUCTION... 3 TRANSACTIONS WITH CONNECTED JOINT VENTURE PARTNERS REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS.. 6 GENERAL... 6 RECOMMENDATION PROCEDURE FOR DEMANDING A POLL... 7 EGM... 7 LETTER FROM THE INDEPENDENT BOARD COMMITTEE... 8 LETTER FROM TAIFOOK... 9 APPENDIX GENERAL INFORMATION NOTICE OF EGM i

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meanings: Announcement the announcement dated 27th March, 2007; associates Board Company Connected Joint Venture Partner(s) Connected Non Wholly- Owned Subsidiaries Continuing Connected Transactions December 2006 Audited Accounts Director(s) EGM Group Independent Board Committee has the meaning ascribed thereto in the Listing Rules; the board of Directors; Sinotrans Limited, a company incorporated in the People s Republic of China with limited liability, the shares of which are listed on the Stock Exchange; (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*); (Shanghai Huasing International Container Freight Transportation Co., Ltd.*), (Ningbo Taiping International Trade Transportation Co., Ltd.*), (Ningbo Southeast International Freight Co., Ltd.*), (Jiangsu Fortunate International Freight Co., Ltd.*), (Jiangmen Foreign Transportation & Enterprises Co., Ltd.*), (Sinotrans Shandong Hongzhi International Container Transportation Co., Ltd.*) and (Sinotrans Guangdong Jiangmen Warehousing & Terminal Co., Ltd.*); the continuing connected transactions between the Group and the Connected Joint Venture Partners under the Master Services Agreements and the Supplemental Master Services Agreements, which constitute certain continuing connected transactions of the Company; the audited financial statements of the Group for the 12 months ended 31st December, 2006; the director(s) of the Company; an extraordinary general meetingofthecompanytobeheldonmonday, 11th June, 2007 at No. 1 Meeting Room, 12th Floor, Sinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District, Beijing, the People s Republic of China at 9: 30 a.m. (or as soon thereafter as the annual general meeting of the Company to be held at the same place and date at 9: 00 a.m. shall have been concluded) to approve, inter alia, the 2008 Revised Cap; the Company and its subsidiaries; an independent committee of the board appointed by the Directors to advise the Independent Shareholders in respect of the Transactions; 1

4 DEFINITIONS Independent Third Party Independent Shareholders Latest Practicable Date Listing Rules Master Services Agreements SFO Stock Exchange Supplemental Master Services Agreements Taifook to the best of the Directors knowledge, information and belief having made all reasonable enquiry, a third party independent of the Company and its connected persons; shareholders other than the Connected Joint Venture Partners and their respective associates, to the extent they hold any Shares in the Company; 11th April, 2007, being the latest practicable date for ascertaining certain information for inclusion in this Circular; the Rules Governing the Listing of Securities on the Stock Exchange; the business services agreements dated 13th June, 2006 between the Company and each of the Connected Joint Venture Partners in relation to the provision and receipt of services between the Group and each of the Connected Joint Venture Partners; The Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong); The Stock Exchange of Hong Kong Limited; the supplemental agreements dated 27th March, 2007 between the Company and each of (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) amending the expected transaction value under the Master Services Agreements for the years 2006, 2007 and 2008; Taifook Capital Limited, a licensed corporation under the SFO to carry out Type 6 regulated activity and an independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Continuing Connected Transactions; 2007 Revised Caps the revised caps for the Continuing Connected Transactions for the financial year ending 31st December, 2007; 2008 Revised Caps the revised caps for the Continuing Connected Transactions for the financial year ending 31st December, 2008; and Transactions the Supplemental Master Services Agreements, the 2007 Revised Caps and the 2008 Revised Caps. * for the purpose of identification 2

5 LETTER FROM THE BOARD SINOTRANS LIMITED (A joint stock limited company incorporated in the People s Republic of China with limited liability) (Stock Code: 0598) Executive Directors: Zhao Huxiang Zhang Jianwei Tao Suyun Li Jianzhang Non-Executive Directors: Yang Yuntao Liu Jinghua Jerry Hsu Ken Torok Peter Landsiedel Independent Non-Executive Directors: Sun Shuyi Lu Zhengfei Miao Yuexin Registered Office and Headquarters: Sinotrans Plaza A43, Xizhimen Beidajie Beijing People s Republic of China Principal Place of Business in Hong Kong: 21st Floor, Great Engle Centre 23 Harbour Road Wanchai Hong Kong 13th April, 2007 To the Shareholders Dear Sir and Madam, INTRODUCTION CERTAIN CONTINUING CONNECTED TRANSACTION The Company stated in the Announcement that it has entered into the Supplemental Master Services Agreements with (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) amending each of the Master Services Agreements with regard to the expected annual transaction value of the Continuing Connected Transactions for the years 2006, 2007 and The 2008 Revised Caps for the Continuing Connected Transactions exceeds the de minimis thresholds under Rule 14A.34 of the Listing Rules. Hence the Company will put forward the Transactions for the approval by Independent Shareholders at the EGM. This circular contains further details on the Transactions as required under the Listing Rules. 3

6 LETTER FROM THE BOARD TRANSACTIONS WITH CONNECTED JOINT VENTURE PARTNERS Reference is made to the Company s announcements dated 26th January, 2006 and 13th June, 2006 and 19th January, 2007 in relation to certain Continuing Connected Transactions with the Connected Joint Venture Partners. The Group has been conducting businesses with the Connected Joint Venture Partners, (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*). Save that (Nippon Express Co., Ltd.*) is a substantial shareholder of one non-wholly owned subsidiary of the Company and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) is an associate of (Nippon Express Co., Ltd.*), each of the Connected Joint Venture Partners and their ultimate beneficial owners are third parties independent of the Company and the connected persons of the Company. On 13th June, 2006, the Company entered into the Master Services Agreements with each of the Connected Joint Venture Partners for the provision and receipt of transportation and logistics services (including freight forwarding services). The term of the Master Services Agreements with each of the Connected Joint Venture Partners is for a term of 3 years commencing on 1st January, 2006 and ending on 31st December, In light of the business growth of the Group, the Company has on 27th March, 2007 entered into the Supplemental Master Services Agreements with (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) amending each of the Master Services Agreements with regard to the expected annual transaction value of the Continuing Connected Transactions for the years 2006, 2007 and All other terms of the Master Services Agreements remain unchanged. Under the Master Services Agreements, the parties have agreed that the terms of services offered by such Connected Joint Venture Partners and their respective associates to members of the Group and by members of the Group to the Connected Joint Venture Partners and their respective associates under the Master Services Agreements will be on prices of similar products or services offered to or by independent third parties on normal commercial terms (in the same region). The settlement of the payment for the services will be based on the standard payment terms for the provision of such services consistent with previous practices of the Group and will be paid by the internal resources of the Group in cash. The Master Services Agreement and the Supplemental Master Services Agreement are not conditional upon Independent Shareholders approval. Nevertheless, the Company will put forward the Transactions (including the Supplemental Master Services Agreements) for approval by Independent Shareholders at the EGM as the 2008 Revised Caps is in excess of the de minimis thresholds under Rule 14A.34 of the Listing Rules. The Group will not (i) prior to the EGM or (ii) at any time after the EGM if the Transactions are not approved by Independent Shareholders conduct the Continuing Connected Transactions if the transaction amount (on an annual basis) is in excess of 2.5% of the size tests (other than the profits test). There is no minimum transaction amount which the Group must enter into with the Connected Joint Venture Partners under the Master Services Agreement and the Supplemental Master Services Agreements. The existing 2006 annual caps for (Nippon Express Co., Ltd.*) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) under the Master Services Agreements being RMB105,600,000, have been exceeded by approximately RMB27 million, based on the December 2006 Audited Accounts. 4

7 LETTER FROM THE BOARD The table below sets out the amounts of the Continuing Connected Transaction with the Connected Joint Venture Partners during 2006 and the existing maximum cap of the transactions with each of the Connected Joint Venture Partners for the years 2006, 2007 and 2008 under the Master Services Agreements and Supplemental Master Services Agreements. Existing annual caps under Master Services Agreements (all amounts are in RMB) Actual Transaction Amount for the year ended 31st December, 2005 Actual Transaction Amount for year ended 31st December, 2006 Actual Transaction Amount for 1st January, 2007 to 31st March, Previous Caps RMB 2007 Previous Caps RMB 2008 Previous Caps RMB (Note 4) (Note 7) (Note 1) (Note 1) (Note 1) (Nippon Express Co., Ltd.*) (Note 2) (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) (Note 3) Provision of freight services by the Group Receipt of freight services by the Group Provision of freight services by the Group Receipt of freight services by the Group 50,244,573 86,489,841 16,630, ,600, ,700, ,000,000 16,785,890 23,134,010 6,641,383 11,164,479 19,782,688 2,720,520 2,699,662 3,170,602 1,551,053 Revised annual caps under Supplemental Master Services Agreements (all amounts are in RMB) Actual Revised Transaction Transaction Amount Amount Revised annual cap 2007 (Note 4) (Note 5) (Notes 5 and 6) Revised annual cap 2008 (Notes 5 and 6) (Nippon Express Co., Ltd.*) (Note 2) (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) (Note 3) Provision of freight services by the Group Receipt of freight services by the Group Provision of freight services by the Group Receipt of freight services by the Group 86,489, ,000, ,000, ,500,000 23,134,010 25,500,000 38,300,000 57,400,000 19,782,688 25,800,000 38,700,000 58,000,000 3,170,602 6,400,000 9,600,000 14,400,000 5

8 LETTER FROM THE BOARD Notes: 1. These figures represents the estimated maximum caps of transactions of the relevant type which the Group will undertake during the relevant financial years under the Master Services Agreements. These caps are aggregated caps for the provision and receipt of freight services to/from the Connected Joint Venture Partners. 2. (Nippon Express Co., Ltd.*) is a substantial shareholder of one other non-wholly owned subsidiary of the Company, owning approximately 49% interest in such subsidiary. Based on the information provided to the Company by (Nippon Express Co., Ltd.*), it is engaged in the business of provision of transportation and logistic services. 3. (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) is an associate of (Nippon Express Co., Ltd.*) because (Nippon Express Co., Ltd.*) holds 50% interest in (Nittsu Sinotrans Logistic Dalian Co., Ltd.*). Based on the information provided to the Company by (Nittsu Sinotrans Logistic Dalian Co., Ltd.*), it is engaged in the business of provision of transportation and logistic services. 4. These figures are extracted from the December 2006 Audited Accounts. 5. The relevant estimate have been determined by reference to (i) the historical value of the transactions with the Connected Joint Venture Partner for the years 2004, 2005 and 2006; (ii) the expected growth of operations of the Connected Joint Venture Partners in China in the next few years in accordance with the development strategies of these companies; and (iii) to allow a buffer for the inherent volatility of business in the transportation and logistics services industry and perceived increase in demand for the Group s services with continued economic growth of the PRC (which according to the National Bureau of Statistics of China, the real GDP of the PRC has experienced a growth rate of 10.7% for the year 2006 compared to the year 2005) and on the implementation of the Group s strategy to expand its domestic operations, overseas network, scope of services and newly-developed services and products. 6. These figures represents the estimated maximum caps of transactions of the relevant type which the Group will undertake during the relevant financial years under the Supplemental Master Services Agreements. Based on the 2008 Revised Cap, Independent Shareholders approval is required under the Listing Rules for the Transactions. The actual amount of transaction may be different. 7. Based on the actual transaction amount for the Continuing Connected Transactions, the 2007 Cap under the Master Services Agreements has not been exceeded up to 31st March, REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS The Group is principally engaged in the provision of freight forwarding services, logistics, transportation and supply chain management services and solutions, including freight forwarding, express services, shipping agency, storage and terminal services, trucking and marine transportation services. The Continuing Connected Transactions are essential for the continuing operation and growth of the business of the Group. The provision and receipt of freight services forms part of the logistics business conducted by the Group which, in turn, forms part of the revenue base of the Group. Some of the transportation and logistic services provided by the Connected Joint Venture Partners will enable the Group to provide end-to-end transportation and logistics services to customers covering locations in which the Group does not have operations. GENERAL The 2008 Revised Cap for the Continuing Connected Transactions is in excess of 2.5% of one of size tests. Hence the Company will put forward the Transactions for the approval by Independent Shareholders at the EGM by way of poll. As at the Latest Practicable Date and so far as the Company is aware having made all reasonable enquiries, the Connected Joint Venture Partners and their associates do not hold any Shares. In the event the Connected Joint Venture Partners or their respective associates hold any Shares, they are required to abstain from voting on the resolution to approve Transactions at the EGM. 6

9 LETTER FROM THE BOARD The Continuing Connected Transactions are subject to reporting and annual review requirements under Chapter 14A of the Listing Rules. RECOMMENDATION The Directors (excluding the independent non-executive Directors) consider that the terms of the Supplemental Master Services Agreements (including the 2007 Revised Caps and the 2008 Revised Caps as set out in the table above) are on normal commercial terms, fair and reasonable and in the interest of the Company and its shareholders as a whole. The terms of the Supplemental Master Services Agreements are no less favourable to the Group than those available to the Group from/to Independent Third Parties. The Independent Board Committee, having taken into account the advice of Taifook, considers that the terms of the Transactions are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the issue of the Transactions. PROCEDURE FOR DEMANDING A POLL Pursuant to article 72 of the Articles of Association, a resolution put to the vote of a general meeting shall be decided on a show of hands unless (before or after any vote by show of hands) a poll is demanded: (a) (b) (c) by the Chairman of such meeting; or by at least two shareholders present in person or by proxy for the time being entitled to vote at the meeting; or by a shareholder or shareholders present in person or by proxy and representing one-tenth or not less than one-tenth of the total voting rights of all shareholders having the right to vote at the meeting. EGM Ademandbyapollmaybewithdrawnbythepersonwhomakessuchdemand. The EGM Notice is set out on pages 23 to 24 of this Circular. A form of proxy is enclosed for use at the EGM. Whether or not you intend to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to registered office of the Company at Sinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District, Beijing, the People s Republic of China as soon as possible and in any event not less than twenty-four (24) hours before the time appointed for holding the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment of it, if you so wish. Yours faithfully, By order of the Board of Sinotrans Limited Gao Wei Secretary * for the purpose of identification 7

10 LETTER FROM THE INDEPENDENT BOARD COMMITTEE SINOTRANS LIMITED (A joint stock limited company incorporated in the People s Republic of China with limited liability) (Stock Code: 0598) 13th April, 2007 To the Shareholders, Dear Sir or Madam, CERTAIN CONTINUING CONNECTED TRANSACTION We have been appointed as members of the Independent Board Committee to advise you in connection with the Transactions, details of which are set out in the letter from the Board in a circular dated 13th April, 2007 issued by the Company to the Shareholders (the Circular ), of which this letter forms a part. The terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires. Your attention is drawn to the letter from Taifook concerning its advice to us regarding the Transactions as set out on pages 9 to 16 of the Circular. Having considered the advice given by Taifook and the principal factors and reasons taken into consideration by them in arriving at its advice, we are of the opinion that the Transactions are on normal commercial terms, in the best interests of the Company and its Shareholders as a whole and are fair and reasonable so far as the Shareholders are concerned. Accordingly, we recommend the Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Transactions. Yours faithfully For and on behalf of Independent Board Committee Sun Shuyi, Lu Zhengfei & Miao Yuexin Independent Non-executive Directors 8

11 LETTER FROM TAIFOOK Set out below is the full text of the letter from Taifook Capital Limited to the Independent Board Committee and the Independent Shareholders prepared for inclusion in this circular. 25th Floor New World Tower Queen s Road Central Hong Kong 13 April 2007 To the Independent Board Committee and the Independent Shareholders Sinotrans Limited Sinotrans Plaza A43, Xizhimen Beidajie Beijing People s Republic of China Dear Sirs, INTRODUCTION CERTAIN CONTINUING CONNECTED TRANSACTIONS We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of certain Continuing Connected Transactions (including the 2007 Revised Caps and the 2008 Revised Caps) between the Company and each of the Connected Joint Venture Partners pursuant to the Supplemental Master Services Agreements, details of which are set out in the letter from the Board contained in the circular of the Company dated 13 April 2007 (the Circular ) of which this letter forms part. Terms used in this letter shall have the same respective meanings as defined in the Circular unless the context otherwise requires. The Connected Joint Venture Partners are (Nippon Express Co., Ltd.*) ( Nippon, together with its subsidiaries, Nippon Group ) and (Nittsu Sinotrans Logistic Dalian Co., Ltd.*) ( Nittsu ). Since Nippon is a substantial shareholder of a non-wholly owned subsidiary of the Company and Nittsu is an associate of Nippon, the provision and receipt of freight and logistics services by the Company under the Supplemental Master Services Agreements constitute Continuing Connected Transactions for the Company under the Listing Rules. As set out in the letter from the Board in the Circular, the Transactions (including the Supplemental Master Services Agreements) are subject to the approval by the Independent Shareholders at the EGM as the 2008 Revised Caps are in excess of the de minimis thresholds under Rule 14A.34 of the Listing Rules. The Connected Joint Venture Partners and their respective associates are required to abstain from voting on the resolution to approve such matters at the EGM. The Independent Board Committee comprising three independent non-executive Directors, namely Mr. Sun Shuyi, Mr. Lu Zhengfei and Mr. Miao Yuexin has been established to advise the Independent Shareholders in respect of the terms of the Supplemental Master Services Agreements and the 2007 Revised Caps and the 2008 Revised Caps. In our capacity as the independent financial adviser to the Independent * for identification purpose only 9

12 LETTER FROM TAIFOOK Board Committee and the Independent Shareholders, our role is to provide the Independent Board Committee and the Independent Shareholders with an independent opinion as to whether (i) the terms of the Continuing Connected Transactions under the Supplemental Master Services Agreements are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) the 2007 Revised Caps and the 2008 Revised Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. BASIS OF OUR OPINION In formulating our opinion, we have relied on the information, financial information and facts supplied to us and representations expressed by the Directors and/or the management of the Company and have assumed that all such information, financial information and facts and any representations made to us, or referred to in the Circular, in all material aspects, for which they are fully responsible, are true, accurate and complete as at the time they were made and as at the date of the Circular, has been properly extracted from the relevant underlying accounting records (in the case of financial information) and made after due and careful inquiry by the Company and/or management of the Company. We have been advised by the Directors and/or the management of the Company that all relevant information has been supplied to us and that no material facts have been omitted from the information supplied and representations expressed to us. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable. We have no reason to doubt the completeness, truth or accuracy of the information and facts provided and we are not aware of any facts or circumstances which would render such information provided and representations made to us untrue, inaccurate or misleading. We consider we have reviewed sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs of the Company. PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion in respect of the terms of the Continuing Connected Transactions, we have considered the following principal factors and reasons: I. Background and reasons for the Continuing Connected Transactions The Group is principally engaged in the provision of freight and logistics services (including freight forwarding services), supply chain management services and solutions, express services, shipping agency, warehousing, and terminal services. The Company s operation mainly covers fast developing coastal areas and other strategic areas in the PRC, such as Guangdong, Fujian, Shanghai, Zhejiang, Jiangsu, Jiangxi, Hubei, Shandong, Tianjin and Liaoning (the Core Operation Regions ), with a comprehensive nationwide service network and overseas agency network. Nippon, a company listed in Japan, is a substantial shareholder of a non-wholly owned subsidiary of the Company and Nittsu is an associate of Nippon. Both Nippon and Nittsu are principally engaged in the business of provision of freight and logistics services mainly in Japan. 10

13 LETTER FROM TAIFOOK The Continuing Connected Transactions principally comprise the following: (i) (ii) provision of freight and logistics services (including freight forwarding, express services and shipping agency, warehousing, customs clearing and inspection declaration, transhipment, terminal services, land transportation and marine transportation services) (the Services ), which means the Company may from time to time provide such Services to the Connected Joint Venture Partners who do not operate freight and logistics business in the Core Operation Regions and/or do not possess the same transportation routes as the Company does; and receipt of Services, which means the Company may from time to time receive such Services from the Connected Joint Venture Partners so as to enable the Company to provide point-to-point freight and logistics services to customers covering locations in which the Company does not have operations. The Continuing Connected Transactions with the Connected Joint Venture Partners have been taking place since the Company was listed on the Stock Exchange in 2003 and the Company had obtained the required waiver (the Waiver ) in respect of such continuing connected transactions. Subsequently, on 13 June 2006, the Company entered into the Master Services Agreements with each of Nippon and Nittsu after the expiry of the Waiver in December As mentioned in the Company s 2006 annual results announcement published on 28 March 2007, the Company will continue to upgrade the unified marketing platform of shipping agency so as to consolidate the Group s pioneer position in the market and formulate and implement the development plan of marine transportation. Moreover, in order to further capture the opportunities brought by the rapid growing economy of the PRC, it was the intention of the Company to further improve resources and transportation routes integration such that the Company would be able to provide more comprehensive and professional freight and logistics services. In light of the above, the Company anticipates that each of the existing caps of the Continuing Connected Transactions with Nippon and Nittsu is not likely to be sufficient for the Group s requirements for 2007 and On 27 March 2007, the Company entered into the Supplemental Master Services Agreements with each of Nippon and Nittsu amending each of the Master Services Agreements with regard to the expected annual transaction value of the Continuing Connected Transactions for the years 2006, 2007 and All other terms of the Master Services Agreements remain unchanged. The Master Services Agreements and the Supplemental Master Services Agreements are not conditional upon the Independent Shareholders approval. However, the Transactions (including the Supplemental Master Services Agreements) are subject to the approval by the Independent Shareholders at the EGM as the 2008 Revised Caps are in excess of the de minimis thresholds under Rule 14A.34 of the Listing Rules. The Group will not (i) prior to the EGM; or (ii) at any time after the EGM if the Transactions are not approved by the Independent Shareholders to conduct any Continuing Connected Transactions if the transaction amount (on an annual basis) is in excess of 2.5% of any of the size tests (other than the profits test). The Continuing Connected Transactions are recurring in nature and are in line with the principal business of the Company. As advised by the Company, the Supplemental Master Services Agreements have been negotiated and agreed on an arm s length basis between the Company and each of the Connected Joint Venture Partners based on normal commercial terms. The Directors have also confirmed that the Continuing Connected Transactions will be conducted on an arm s length basis. On this basis, and after taking into account of the reasons for entering into the Supplemental Master 11

14 LETTER FROM TAIFOOK Services Agreements as stated above, we are of the view that the entering into of the Supplemental Master Services Agreements in relation to the Continuing Connected Transactions is fair and reasonable and is in the interests of the Company and the Independent Shareholders as a whole. II. Basis of determination Pursuant to the Supplemental Master Services Agreements, the Services offered by the Company to the Connected Joint Venture Partners will be determined with reference to market price. In this connection, we have reviewed sample copies of invoices issued by the Company to each of the Connected Joint Venture Partners and to other independent third party customers for similar services from January to March 2007 and the related payment records. We noted that the payment terms (including the prices and the settlement terms) for the Services offered by the Company to the Connected Joint Venture Partners were comparable to and no less favourable to the Group than the terms offered by the Company to other independent third party customers for similar services. In connection with the Services received by the Company from the Connected Joint Venture Partners, the price will also be determined with reference to market price according to the Supplemental Master Services Agreements. Similarly, we have reviewed sample copies of invoices issued by each of the Connected Joint Venture Partners and by other independent third party service providers who provide similar services to the Company from January to March 2007 and the related payment records. We noted that the payment terms (including the prices and settlement terms) for the Services received by the Company from the Connected Joint Venture Partners were comparable to and no more favourable to the Connected Joint Venture Partners than the terms offered to the Company by other independent third party service providers for similar services. After taking into account of (i) the nature of the Continuing Connected Transactions and our findings as described above; (ii) the reasons for entering into the Continuing Connected Transactions as described in the paragraph headed Background and reasons for the Continuing Connected Transactions ; (iii) the pricing policy of the Continuing Connected Transactions was and will continue to be determined on an arm s length basis with reference to market price, we are of the view that the terms of the Supplemental Master Services Agreements are on normal commercial terms, fair and reasonable and in the interest of the Company and its shareholders as a whole. 12

15 LETTER FROM TAIFOOK III. Basis of the transaction caps As stated in the letter from the Board contained in the Circular, the actual transaction amounts for 2005, 2006 and for the three months ended 31 March 2007 and the revised annual caps for 2007 and 2008 under the Supplemental Master Services Agreements (all amounts are in RMB) are as follows: Actual Transaction Amount for 2005 Actual Transaction Amount for 2006 Actual Transaction Amount for three months ended 31 March Revised Caps 2008 Revised Caps Provision of Services by the Group to Nippon 50,244,573 86,489,841 16,630, ,000, ,500,000 Receipt of Services by the Group from Nippon 16,785,890 23,134,010 6,641,383 38,300,000 57,400,000 Provision of Services by the Group to Nittsu 11,164,479 19,782,688 2,720,520 38,700,000 58,000,000 Receipt of Services by the Group from Nittsu 2,699,662 3,170,602 1,551,053 9,600,000 14,400,000 In determining the annual caps, the Company has primarily adopted the following bases and assumptions: (1) the aggregate historical value of the transactions with the Connected Joint Venture Partners of approximately HK$77.0 million, HK$80.9 million and HK$132.6 million for the years 2004, 2005 and 2006, respectively; (2) the expected annual growth of operations of the Connected Joint Venture Partners in China in 2007 and 2008 in accordance with the development strategies of Connected Joint Venture Partners; and (3) to allow a buffer in a range of approximately 10% to 20% to determine the 2007 Revised Caps and the 2008 Revised Caps, respectively for the inherent volatility of business in the transportation and logistics services industry and perceived increase in demand for the Company s services in the consideration of (i) the continued economic growth and increase in foreign trade of the PRC; (ii) the implementation of the Company s strategy to expand its domestic operations, overseas network, scope of services and newly-developed services and products; and (iii) the improvement of the quality of services provided by the Company. 13

16 LETTER FROM TAIFOOK We have reviewed the official publication namely China Statistical Yearbook 2006 and China Statistical Report 2006 issued by National Bureau of Statistics of China in relation to the economic and social development statistics of the PRC in 2005 and noted that: (1) gross domestic products of the PRC has been growing in the past few years and increased from approximately RMB10,966 billion in 2000 to approximately RMB20,941 billion in 2006, representing a compound annual growth rate of approximately 11.4%; (2) total consumption expenditures increased from approximately RMB8,703.3 billion in 2004 to approximately RMB9,691.8 billion in 2005, representing an annual growth rate of approximately 11.4%; (3) value of exports and imports in the PRC reached approximately US$969.1 billion and approximately US$791.6 billion, respectively in 2006, representing a growth of approximately 27.2% and approximately 20.0%, respectively as compared to those in 2005; (4) volume of cargo handled in major ports in the PRC increased from approximately 1.43 billion tonnes in 2001 to approximately 2.93 billion tonnes in 2005, representing a compound annual growth rate of approximately 19.6%; and (5) total volume of cargo handled in the PRC increased from approximately 14.0 billion tonnes in 2001 to approximately 18.6 billion tonnes in 2005, representing a compound annual growth rate of approximately 7.4%. We also noted that (i) the Company s proposed annual cap for the Services provided by the Company to the Connected Joint Venture Partners for each of the two years ending 31 December 2007 and 2008 of RMB191,700,000 and RMB287,500,000 respectively, represent an annual increment of approximately 80.4% comparing to the actual transaction amount for the year ended 31 December 2006, and approximately 50% comparing to the proposed cap for the year ending 31 December 2007, respectively; and (ii) the Company s proposed annual cap for the Services provided by the Connected Joint Venture Partners to the Company for each of the two years ending 31 December 2007 and 2008 of RMB47,900,000 and RMB71,800,000, respectively, represent an annual increment of approximately 82.1% comparing to the actual transaction amount for the year ended 31 December 2006, and approximately 50% comparing to the proposed cap for the year ending 31 December 2007, respectively. In addition, for each of the 2007 Revised Caps and the 2008 Revised Caps, we have reviewed and considered the information and factors as set out below: 1. Historical transactions The Continuing Connected Transactions are essential for the continuing operation and growth of the business of the Company and the transaction amounts have been increasing during the past years. As set out in the letter from the Board in the Circular, the actual transaction amounts for the provision of Services by the Group to each of Nippon and Nittsu in year 2006 reached approximately RMB86,489,841 and RMB19,782,688, respectively, which represent an annual increment of approximately 72.1% and 77.2% comparing to the respective actual transaction amount in year In respect of the receipt of Services by the Company from each 14

17 LETTER FROM TAIFOOK of Nippon and Nittsu, the actual transaction amounts in 2006 reached approximately RMB23,134,010 and RMB3,170,602, respectively, which represent an annual increment of approximately 37.8% and 19.6% comparing to the respective actual transactionamountin2005. For the three months ended 31 March 2007, the transaction amounts as recorded by the Company for its provision of Services to each of Nippon and Nittsu were approximately RMB16,630,990 and approximately RMB2,720,520, respectively whereas the actual transaction amounts for the receipt of Services from each of Nippon and Nittsu were approximately RMB6,641,383 and RMB1,551,053, respectively. We have discussed with the Directors and are given to understand that the business of the Company is subject to seasonality and, in general, winter (including January to March) is a slack season in the freight and logistics industry in the PRC. We noted that the above-mentioned seasonality factor has been taken into account when the 2007 Revised Caps and the 2008 Revised Caps were determined by the Company. 2. The anticipated continuing increase in demand for freight and logistics services China has maintained a rapid economic growth during the past few years. With the significant economic growth and trading activities in the PRC as described earlier, it is expected that there will be a growing demand for freight and logistics services in coastal regions of the PRC. According to China Statistical Yearbook 2006, the volume of cargo handled in major coastal ports of the PRC increased from approximately 1.43 billion tonnes in 2001 to approximately 2.93 billion tonnes in 2005 which represents a compound annual growth rate of approximately 19.6% while the total volume of cargo transported by ship in the PRC reached approximately million tonnes in 2005 representing a compound annual growth rate of 15.2% when comparing with approximately million tonnes in The Directors expect that the demand for the Company s freight and logistics services, both in the Core Operation Regions and non-core Operation Regions will continue to grow. Leveraging on its leading position in the industry, particularly, in the Core Operation Regions, the transaction volume of the Company is expected to increase to cater for the growing market demand. 3. Increased business collaboration with each of the Connected Joint Venture Partners The network coverage of the Company (principally focusing on the Core Operation Regions) and the Connected Joint Venture Partners (principally focusing in Japan) are complementary to each other. The Company is a dominant and well-established freight and logistics services provider in the Core Operation Regions, whereas the Connected Joint Venture Partners have more experience in overseas. The Continuing Connected Transactions will not only broaden the income stream of the Company but also enable the Company to provide pointto-point freight and logistics services to customers covering areas where the Company does not have operations. Moreover, as stated in the annual report of Nippon for the year ended 31 March 2006, Nippon Group has expanded its overseas network and enlarged its global logistics business with an aim to further accelerate the expansion of its international business. The Directors therefore consider that with the established relationship with each of the Connected Joint Venture Partners, the Continuing Connected Transactions will continue to increase and the scope of services offered to and by the Company thereunder will be further extended. 15

18 LETTER FROM TAIFOOK We understand from the Directors that the Revised 2007 Caps and the Revised 2008 Caps were determined with reference to historic growth rate of actual transaction amounts in respect of the provision of Services and the receipt of Services in We note that the actual transaction amounts for provision of Services to Nippon and receipt of Services from Nippon by the Group were increased by approximately 72% and 38%, respectively in 2006 as compared to 2005; whereas the actual transaction amounts for provision of Services to Nittsu and receipt of Services from Nittsu by the Group were increased by approximately 78% and 17%, respectively in 2006 as compared to We note that (i) the proposed caps for provision of Services to Nippon and receipt of Services from Nippon by the Group in 2007 represent an increase of approximately 77% and 65%, respectively as compared to the respective actual amounts in 2006; (ii) the proposed caps for provision of Services to Nittsu and receipt of Services from Nittsu by the Group in 2007 represent an increase of approximately 96% and 203%, respectively as compared to the respective actual amounts in 2006; and (iii) each of the 2008 Revised Caps represent an increase of approximately 50% to the respective 2007 Revised Caps. We therefore consider the increment in determining the 2007 Revised Caps and 2008 Revised Caps is reasonably determined with reference to the historic growth rate save for the receipt of Services by the Group from Nittsu. However, we note that actual transaction amounts for the three months ended 31 March 2007 in respect of receipt of Services by the Group from Nittsu accounted for approximately 50% of that for the year ended 31 December In addition, to allow for inherent volatility, the Company has taken into account a buffer of approximately 10% to 20% to determine the 2007 Revised Caps and the 2008 Revised Caps. We consider the 10% to 20% buffer is acceptable. To assess the reasonableness of the expected growth rate for the Continuing Connected Transactions, we have also (i) reviewed internal projection of the Company; (ii) discussed the underlying bases and assumptions of the projection with the Directors; (iii) taken into account the official statistics in relation to the PRC economy and the transportation and logistics industry as referred to above. Based on the above, we consider that the 2007 Revised Caps and the 2008 Revised Caps were made by the Directors after due and careful consideration and we are of the view that the bases and assumption adopted by the Company (including the estimation of the expected growth of the Joint Venture Partners and the expected increase in demand for the Services) in determining the 2007 Revised Caps and the 2008 Revised Caps, and the 2007 Revised Caps and the 2008 Revised Caps are fair and reasonable. RECOMMENDATION Having considered the above principal factors and reasons, we consider (i) the terms of the Supplemental Master Services Agreements are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) the 2007 Revised Caps and the 2008 Revised Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Supplemental Master Services Agreements, the 2007 Revised Caps and the 2008 Revised Caps. Yours faithfully, For and on behalf of Taifook Capital Limited Derek C.O. Chan April Chan Managing Director Executive Director 16

19 APPENDIX GENERAL INFORMATION 1. RESPONSIBILITY STATEMENT This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading. 2. DISCLOSURE OF INTERESTS I. Interests of Directors As at the Latest Practicable Date, so far as the Directors or supervisor of the Company are aware, none of the Directors or supervisor of the Company has interests and short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange. II. Interests of Shareholders discloseable pursuant to the SFO As at the Latest Practicable Date, so far as is known to the Directors or supervisor of the Company, the following persons (other than a Director or supervisor of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group are as follows: (a) Interests in the Shares Name of Shareholders Number of Shares held (Class of Shares) Long position Short position Nature of Interests %ofthe Company s issued total domestic share capital %ofthe Company s total issued Hshare capital %ofthe Company s total issued share capital China National Foreign Trade Transportation (Group) (Note 1) 2,461,596,200 (Domestic Shares) Beneficial owner Deutsche Post AG (Note 3) 237,468,000 (H Shares) Controlled corporation UPS Air Couriers of America Limited (Note 2) 124,657,000 (H Shares) Beneficial owner DWS Invest SICAV 97,932,000 (H Shares) Beneficial owner Oppenheimer Developing Markets Fund Templeton Investment Counsel LLC 91,900,000 Investment Manager 91,006,000 Investment Manager