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Low-Profile Reverse Takeover Deal-Making

On June 7,2007, the China Securities Regulatory Commission gave its permission to the Dushi Corp's proposal to sell major assets and merge with Haitong Securities, with a bargained equivalence between one Haitong share and 0.347 Dushi share. By June 22, 2007, Haitong Securities had delivered to Dushi Corp. on a complete and legal basis, and Dushi Corp. had accepted without objection all assets and all liabilities of Haitong as of May 31, 2007. On July 6, 2007, Dushi Corp. obtained a new business license (registered capital: CNY 3.389 billion) and was renamed Haitong Securities Corp. Ltd. Before the merger, Haitong Securities had 8.734 billion shares and traded them for 3.031 billion Dushi shares.

Shareholders of the original Haitong Securities traded corporate net assets for a convenient path to go public. In addition, the new Haitong Securities paid a CNY 200 million compensation to shareholders of the former Dushi Corp. in consideration of their loss in the split-share structure reform. Haitong Securities paid a premium of CNY 188 million for the exchange of shares and took CNY 5.115 billion out of retained earnings to make up for the loss in the exchange.

After the completion of the merger, Haitong Securities became a listed company with 3.389 billion shares. According to the proposal, the equity arrangement among the three stakeholders is as follows:

- Bright Group, the controlling shareholder of the former Dushi Corp., would have a 7.12 percent stake in the surviving company and would pay CNY 756 million in cash in consideration of all assets, all liabilities, and the staff of Dushi Corp., whose net assets thereby would carry a 7 percent premium in the book value.

- The holders of marketable shares of the former Dushi Corp. would have a 3.45 percent stake in the surviving company (subject to dilution after a private placement), with net asset value per share (NAVPS) and earnings per share (EPS) significantly diluted.

- The 66 shareholders of the former Haitong Securities would have an 89.43 percent stake in the surviving company (subject to dilution after a private placement), with an equity downsizing ratio at 0.347.

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