Shandong Linglong Rubber Co., LTD

Building For a Successful FutureProposal for a $US 100 Million Pre-IPO Recapitalization  

By Grand Avenue Capital and Etech Securities, Inc.Members NASD SIPC

November 20, 2005

                                                                                       

 

Confidential Presentation to the Board of Directors of theShandong Linglong Rubber Company, LTD

This document is for informational purposes only, and information is not intended to be complete. The statements of fact, information, and opinion contained in this document have been obtained, compiled, or arrived at in good faith from brief meetings with shareholders, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. This suggested proposals and comments and recommendations contained herein will be modified when and if confidential financial documents and forward-looking business plans of the Shandong Linglong Rubber Company have been reviewed by Etech Securities on a confidential basis and Etech Securities has been engaged as Shandong Linglong Rubber Company’s investment banker.

                                                                                       

 

Presentation Outline to Linglong Board of Directors

1. Purpose of Investment Banking Engagement2. Proper capitalization 3. Scope of Investment Banking Work Proposed4. Financing Strategy5. Timeline6. Example of Pre-IPO Recapitalization of Actual Project

in Process (November, 2005)7. Valuation Parameters8. Prospective Investor Categories9. Elements of Engagement Agreement and Cost of

Engagement10. Etech Responsibilities and Capabilities

                                                                                       

演示大纲 (针对董事会 )1. 聘用专业投资银行的目的2. 适当的融资方式3. 专业投资银行工作范围4. 融资策略5. 融资时间表6. 本公司实际正在进行私募集资之案例 (2005年十一月 )7. 公司估值时考虑之要素8. 潜在投资者类型9. 聘顾合同内容和成本10. 美国亿泰证券之能力与责任

 

1. Purpose of Investment Banking Engagement

To provide valuation, financial analytical services and presentation materials in order to raise $100 million

equity for growth capital from a strategic or financial

investor.

                                                                                       

聘顾专业投资银行之目的为了能够从战略和机构投资者处成功融资一亿美元作为公司继续成长所需的资本支出的资金，公司应聘顾专业投资银行为其提供估值、财务分析和简报材料之服务

 

2. Proper capitalization  

Etech Securities believes that a properly recapitalized balance sheet with an appropriate equity infusion can insure Linglong’s continued profitable growth in its market, while providing an avenue for shareholder liquidity through an IPO at the appropriate time.

An important element of the appropriate structure recognizes that continued infrastructure development cannot come entirely from debt or internally generated funds. Etech is prepared to raise the necessary equity capital from financial or strategic sources eager to invest in profitable manufacturing companies in China.

                                                                                       

适当的融资方式美国亿泰证券相信一个合适的财务重整计划加上适当的资本抑注能够确保玲珑集团在轮胎市场持续的成长和获利之余，同时为其股东在适当的时机、利用上市的方式来达到手中持股全面流通的目的。我们体认到在持续投入基础建设的过程中，从合理财务架构的观点来看公司并不适合完全以举债或是自有资金的方式来筹募资金。因此，美国亿泰证券准备为玲珑集团从那些极力想要投资获利能力佳的中国公司之战略和机构投资者中，寻求最佳私募融资对象和有利于玲珑集团的方案。

 

3. Scope of Investment Banking Work Proposed

All necessary and appropriate investment banking activities to achieve a transaction that is acceptable to the shareholders on a best efforts basis, including:

• Preparation of a Confidential Investor Memorandum outlining the company, history, operations, financial analysis of performance, and forecast of financial proformas

• Valuation of the Company under various growth assumptions• Design and execution of the marketing of the Investor

Memorandum to approved strategic and financial investors• Solicitation of financing proposals after thorough management

screening, facility visits and interviews• Negotiation of financing proposals and Letters of Intent• Advice and recommendation to the board regarding the optimum

private placement proposal received• Supervision of due diligence process• Assistance and overview of legal document review• Closing of a transaction

                                                                                       

专业投资银行在本案之工作范围：• 以下所列举为投资银行为公司股东争取最佳融资利益并顺利完成资金到位所要做的工作：• 撰写具有保密性质的赋予投资者阅读投资备忘录，其内容包括公司发展历史、营运、财务分析、以及未来财务成长预测• 根据并考虑公司未来成长特性所作的公司估值• 设计并执行招股书，同时对於已经获得玲珑集团同意其资格的战略和机构投资者发出招募融资之投资备忘录• 在完成实地尽职调查、参观厂房、职工和高管的访谈等等活动后，将展开各种融资方案的收集和整合• 为公司和投资者谈判融资条件和争取投资意向书的签订• 在获得各个投资者的意见反馈和投资要求后，我们为玲珑董事会提供建议和推荐符合公司股东最佳利益的方案• 监督尽职调查的过程和其完整性• 协助审核相关法律文件• 完成最终私募融资一亿美元的交易

 

 4. Financing Strategy  Etech Securities would evaluate several financing scenarios that would include, but not be limited to: 

1. recapitalization involving new equity infusion involving $ US 100 million through private placement from strategic or financial investor

2. structuring of an offshore holding company which would initially be the recipient of the private placement, and ultimately is the IPO vehicle for the

exit for the private placement investor providing offshore liquidity for the Chinese shareholders

                                                                                       

融资策略美国亿泰证券会评估几个不同的融资方案，包括以下所列但不限于这些：1. 招募战略和机构投资者以私募直接投资入股的方式来融资一亿美元，2. 在境外成立控股公司来获取私募资金，并且最后以海外上市作为战略和机构投资者以及部分玲珑股东套现和退出的机制。

 

5. Timeline 

                                                                                       

 

6. Example of Pre-IPO Recapitalization of Actual Project in Process (November, 2005)

ELEMENTS

$US 140 million being raised for specialty chemical company in Chongqing

Shareholders are diverse: SOE, US, Saudi Arabia

Valuation of company matched shareholders’ expectations

World-wide search of over 250 financially qualified private equity groups (US, HK, Singapore, Japan, UK) with over 40 responding initially positive and receiving financial materials….10 facility meetings with highly qualified investors, each with funds in excess of $US 1 billion

Client limited Etech to only 3 strategic prospects…one in active discussions

ETECH is selling only a “substantial minority interest” in effort to keep primary shareholder in control situation for financial consolidation purposes.

美国亿泰集团为客户进行私募融资之案例 (2005年十一月 )本案内容摘要：• 本案业主是一家玻璃纤维集团正在进行融资，规模在一亿四千万美元• 股东结构：国有股份、美国外资、沙特股东• 我们为其所作公司估值符合客户的期待• 总共发出 250个邀请，其中获得超过 40 家私募基金经理人 (美国、英国、新加坡、日本和其它地区 ) 正面的回应。其中有十家私募基金参与工厂参观和尽职调查的工作，每家参与的私募基金，其规模都超过 10亿美元。• 客户要求最终筛选出三家作为最后谈判对手• 美国亿泰证券根据客户要求，在谈判过程中只为客户让出少数股份，让客户仍然维持多数控股，而新进外资保持在实质少数的地位。

 

7. Valuation ParametersEtech has suggested that a value for Linglong would be in the range of 4-6 times EBITDA, adjusted for non-recurring expenses of the last 2 years.An Enterprise Valuation (debt plus equity) of 3.6 Billion RMB is possible based on EBITDA reported to Etech of:

200 million RMB after tax income150 million RMB income taxes160 million RMB depreciation 70 million RMB interest580 million RMB EBITDA

Valuation could be in the range: 3.6 billion RMBshort and long term debt (1.3 billion RMB)Equity value of business 2.3 billion RMB

An 800 million RMB post-acquisition value could result in an equity participation on the part of the new investor of 25% to 40%. Etech’s responsibility is to maximize shareholder value and minimize dilution.

                Note that the ultimate valuation is based on a thorough review of financials and assessment of Linglong’s financial plan….Etech has had an opportunity to review neither at this time.                                                                        

公司估值时考虑之要素• 美国亿泰证券评估玲珑集团公司价值估值范围在 EBITDA( 税前、息前、折旧前、和摊销前之利润 ) 之四到六倍，以过去两年一次性• 支出为调整范围。• 根据目前所得之大数估值，玲珑集团今年价值约在 36亿人民币左右：•• 二亿人民币税后纯利• 一亿五千万人民币所得税• 一亿六千万人民币折旧• 七千万人民币付息• 五亿八千万人民币 EBITDA ( 税前、息前、折旧前、和摊销前之利润 )

» 假设估值倍数为 4.5 倍，则整体价值约在 36亿人民币的范围内• 去债前价值： 36亿人民币• 长短期负债： 13亿人民币• 公司股东价值： 23亿人民币• 当募集 8亿人民币时，公司约淡化 25%到 40%的股权。而美国亿泰证券的责任在于为公司全体股东争取权益，做到最大化 股东权益，最小化股权稀释。在这里要特别注意的是，以上的初估值来自于口头报告的大数，实际数字必须等待玲珑集团提供正确财务报表作为依据方能精确估算。•                

 

8. Prospective Investor Categories

Strategic Investors

--- tire related companies not already in China, --- tire related companies in China already, interested in further consolidation opportunities.

---automotive parts companies manufacturing in China, or ( like WL Ross, moving auto parts businesses to China )

Financial Investors

(those with investment funds in excess of $US 1 Billion looking to make minority investments in Chinese manufacturing companies…..particularly those with automotive interests)

                                                                                       

潜在投资者类型战略投资者• 和轮胎行业相关但尚未进入中国的战略投资者• 和轮胎行业相关并且已经进入中国但想寻求企业整合机会的投资者• 在中国的汽车零部件制造商，比如说，WL Ross 现正将其零部件事业部以往中国机构投资者• 那些规模超过 10亿美元并且正寻求投资中国制造业的私募基金，尤其是那些对汽车行业拥有浓厚兴趣而愿意成为实质少数的投资基金。

 

Elements of Engagement Agreement and Cost of Engagement

Etech Investment Banking Proposed Engagement

Etech Securities Investment Banking Division is competitive in cost, and is highly focused on value-added, consultative services to our clients. We are not deal-centric, focused on the transaction fee as some of our competitors are focused.

• Exclusive engagement for 12 months• Responsibility for raising $US 100 million• Success fee (at closing of satisfactory transaction): 6.5% of transaction value• Retainer: $300,000….50% at start of work (after execution of contract) and 50%

when Investor Memorandum is complete• Reasonable and customary travel (coach) expenses• Warrants equal to 3% of the equity raised at a value equal to the investor’s value

with a 5 year life

  

                                                                                       

聘顾合同内容和成本美国亿泰证券集团提案聘顾内容• 美国亿泰证券集团是具有竞争性却又费用低廉特性的投资银行，并且我们高度集中在提供我们的客户增值和咨询服务。我们不像其它竞争对手般只着重于费用的收取而牺牲客户权益的投资银行。本公司提供合约内容大致如下：• 与贵公司签订十二个月独家财务顾问聘顾合同• 我们的责任在於为公司融资一亿美元• 成功融资后费用收取：融资总数的 6.5%• 前期劳务费用：总共 30 万美元。 15 万美元于签约后十天内收取；另外

15 万将于私募融资备忘录完成后收取• 合理的差旅费和相关的印刷费用等等• 股票认购权或称之为期权 3%， 5 年的有效期限。

 

Focus of Etech’s Financial Advisory Services:

• Mergers, Acquisitions & Divestitures• Corporate Finance (Recapitalizations)• Corporate Valuations• Equity / Mezzanine / Debt Placements

 

The individuals comprising Etech Securities have consulted in transactions having a total value in excess of $5 Billion. The Etech team members have over 125 years of business experience as owners, consultants and investment bankers. 

                                                                                       

亿泰证券集团所提供的财务顾问内容– 兼并收购企业– 企业金融 ( 增资 )– 企业估值– 股权或是举债方式融资亿泰证券集团高级管理阶层人员给予客户的咨询服务总值超过五十亿美元，并且我们所有高管在各方面业界的经验加总超过 125 年。

 

Etech Securities Investment Bankers

• highly skilled in orchestrating a confidential financing designed to create a competitive environment

• creative deal makers who maximize financial and non-financial objectives of our clients

• have experience in a wide variety of industrial projects and have specific understanding of the automotive products (tires, etc) markets

• Etech Partners have owned / operated / managed companies to the companies we seek as clients. Very few investment bankers have operating experience and without access to their research departments, they have little understanding of their clients’ industries.  

                                                                                       

 

Etech Investment Banking Team  N. Jay LiangChairman, CEO and President

Jay Liang has successfully led the firm and acquired several stock brokerage firms. He has built Etech into the largest Chinese owned financial service provider in Southern California. Etech has purchased Hanmi Securities, a Korean broker dealer in Los Angeles. Mr. Liang is a recognized speaker with expertise in the areas of economy and stock market, and can be heard on many radio and television stations in Southern California. 

                                                                                       

 

Etech Investment Banking Team Angel Y. Wang Co-Chairwoman

Ms. Wang is one of the most successful leaders in the U.S. financial industry. She has built Etech into the largest Chinese owned financial service provider in Southern California. Very active in the financial industry, business communities, and even the political arena, Ms. Wang initiated and organized the World Capital Forum with the China Council of Promotion for International Trade (CCPIT) and the China Capital Association.

                                                                                       

 

Etech Investment Banking Team Thomas R. KorzeneckiPrincipal Managing Director

Mr. Korzenecki has 14 years diversified operating and financial experience in the oil and chemical industry, with four years of merger, acquisition and divestiture work for ARCO and Occidental Petroleum. His responsibilities included divesting major assets in Europe and he was a key adviser in domestic acquisitions/divestitures involving businesses in the oil, gas, chemical, coal and food processing industries. He then initiated, financed and managed for 13 years four corporate acquisitions of manufacturing companies for his own account, one of which was involved in vulcanized rubber products. Since 1998, as a founding member of Grand Avenue Capital Partners, he has advised primarily private companies in the energy, engineered products, and a wide variety of manufacturing companies.

                                                                                       

 

Etech Investment Banking Team Michael Marevich Managing Director

Mike Marevich has been involved in mergers and acquisitions most of his working career as a principal, agent and chief financial officer with this responsibility. For the last five years, he was Managing Director of Gardiner & Rauen, a boutique investment banking firm focusing on middle market, primarily private, transactions. Prior to this time, Mike was CFO of DSL Transportation Services, SVP/CFO for Hollytron (a $60 million revenue chain of electronics retail stores), and CFO for Miller’s Outpost/Miller’s for Kids. During his tenure the chain grew from 31 to 330 stores and revenues grew from $60 million to over $700 million. Mike was also a shareholder and president of Hinshaw’s Department Stores, with prior experience as Director of Operations of the Bullocks-Wilshire chain. Mike has a BS in Finance/Accounting and an MBA in Finance, both from U. of Southern California.

January 30, 2005

                                                                                       

 

Etech Investment Banking Team 

Theodore C. NevinsExecutive Director

Twenty-one years of trading, sales, and client management experience with debt and debt-derivative products. Overseas responsibilities with Merrill Lynch, Lehman Brothers, and Bear Stearns in New York, Tokyo, and Hong Kong. Built Asia’s number one ranked business for Lehman Brothers Asia, Ltd. for U.S. Treasury bond Repo trading. Opened and managed Lehman’s Tokyo Capital Markets department with two other colleagues. Credited with first time placements for Bear Stearns Asia, Ltd of Collateralized Bond Obligations into parts of Southeast Asia. Introduced and placed U.S. Mortgage Neutral Duration structures into Southeast Asia.

                                                                                       

 

Etech Investment Banking Team 

Bradford W. AllenExecutive Director

Mr. Allen has over twenty-five years of investment banking and private banking experience including mergers, acquisitions, public and private financings and individual and institutional fund management in the both the US and Asian markets. Mr. Allen spent four years residing in Hong Kong and was most recently Managing Director for Bear Stearns Asia prior to founding his own firm, Pacific Investment Advisors, in 2002. Pacific Investment Advisors is an investment advisory and consulting firm focused on capital raising for emerging market, small to mid-cap companies with an emphasis in Asia, in particular Hong Kong and China. The firm has completed numerous share placement transactions as well as private equity investments and joint ventures. The company has offices in Los Angeles, Hong Kong and Shanghai. Mr. Allen is the founder and Managing Director of the company.

                                                                                       

 

Etech Investment Banking Team Daniel L. De TourManaging Director

Daniel L. De Tour, Managing director of Etech Securities, Inc.Vice President of First Wilshire Securities. First Wilshire often ranks as one of the best performing U.S. money managers. He is a Member of the Investment Committee and is Managing Director of Capital Markets. First Wilshire Securities Management is operated by a group of experienced money manager professionals dedicated to the pursuit of superior performance for their equity accounts. As a stock market portfolio manager First Wilshire has often out performed market indicators like the Russell 2000 and the S&P 500. The history of First Wilshire discovering unique stocks is well known on Wall Street. Major media over the years has consulted the company for its market analysis and opinions. First Wilshire specializes in the management of equity, concentrating in the area of Small Capitalization and Emerging Companies.

                                                                                       

 

Etech Investment Banking Team

Tom WangManaging Director  Tom Wang became a member of the Board of Directors of Werke in December 2000.  Mr. Wang is currently President of Shengyang Saiao Healthy Products Company, Ltd, U Mart and Meyyang International Group Corporation.  Mr. Wang is also Vice-Chairman of Shengyang Municipal Commission of Foreign Economic Relations and Trade.