Automated Systems Holdings Limited — Proxy Solicitation & Information Statement 2003

Jun 20, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in the Company, you should at once hand this circular with the accompanying form of proxy 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 and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Bermuda with limited liability)

PROPOSED CAPITAL REORGANIZATION INVOLVING A CAPITAL REDUCTION, A SHARE PREMIUM REDUCTION, A SHARE CONSOLIDATION AND AN INCREASE OF AUTHORIZED SHARE CAPITAL

AND

PROPOSED GENERAL MANDATES TO ISSUE AND REPURCHASE SECURITIES

A notice convening a special general meeting of the Company to be held at Board Room, 7th Floor, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, at 10:00 a.m. on Monday, 14th July, 2003 is set out on pages 19 to 24 of this circular. A form of proxy for use at the special general meeting is also enclosed.

Whether or not you are able to attend the special general meeting, you are requested to complete the enclosed form of proxy and return it in accordance with the instructions printed thereon and return the same to the office of the branch share registrars of the Company in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event by not later than 48 hours before the time appointed for holding of the special general meeting or any adjournment thereof.

Completion and return of the form of proxy will not prevent you from attending and voting at the special general meeting or at an adjourned meeting should you so wish.

20th June, 2003

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Expected	Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
2.	Proposed Capital Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
3.	General Mandates to Issue and Repurchase Securities . . . . . . . . . . . . . . . . .	13
4.	Application for Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
5.	Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
6.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix	I — Explanatory Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Notice of the Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		19

— i —

DEFINITIONS

In this circular (other than in the SGM Notice), the following expressions shall have the meanings correspondingly ascribed below, unless the context otherwise requires:

“Board”	the board of Directors
“Business Day”	a day (other than a Saturday or Sunday) on which banks in
	Hong Kong are generally open for business
“Capital Reduction”	the proposal to reduce the nominal value of (i) the existing
	issued Shares from HK$0.01 each to HK$0.0004 each by
	cancellation of HK$0.0096 paid up capital for each issued
	Share; and (ii) all authorized but unissued Shares from HK$0.01
	to HK$0.0004 each
“Capital Reorganization”	the proposed capital reorganization of the capital of the
	Company by way of the Capital Reduction, the Share Premium
	Reduction, the Share Consolidation and the Increase of
	Authorised Share Capital
“CCASS”	the Central Clearing and Settlement System established and
	operated by HKSCC
“Companies Act”	the Companies Act 1981 of Bermuda (as amended)
“Companies Ordinance”	the Companies Ordinance (Chapter 32 of the Laws of Hong
	Kong)
“Company”	China Online (Bermuda) Limited, an exempted company
	incorporated in Bermuda with limited liability, the Shares of
	which are listed on the Stock Exchange
“Credit Amount”	all surplus amounts arising from the Capital Reduction and
	Share Premium Reduction
“Director(s)”	director(s) of the Company
“Effective Date”	the date upon which the Capital Reorganization becomes
	unconditional and effective, which is expected to be Tuesday,
	15th July, 2003
“Group”	the Company and its subsidiaries

— 1 —

DEFINITIONS

“General Mandate”	the general and unconditional mandate proposed under ordinary
	resolution numbered 2 in the SGM Notice to be granted to the
	Directors to issue and allot Securities the details of which are
	described in pages 20 to 22 herein
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Increase of Authorized	the increase of the authorized share capital of the Company
Share Capital”	after the Capital Reduction and the Share Consolidation
	becoming unconditional and effective from HK$12,000,000 to
	HK$300,000,000 by the creation of 28,800,000,000 New Shares
“Latest Practicable Date”	17th June, 2003, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“New Share(s)”	ordinary share(s) of nominal value HK$0.01 each in the share
	capital of the Company upon completion of the Capital
	Reorganization
“Reduced Share(s)”	the share(s) of nominal value HK$0.0004 each in the share
	capital of the Company immediately after the Capital Reduction
“Registrars”	the branch share registrars of the Company in Hong Kong,
	Tengis Limited at G/F, Bank of East Asia Harbour View Centre,
	56 Gloucester Road, Wanchai, Hong Kong
“Repurchase Mandate”	the general and unconditional mandate proposed under ordinary
	resolution numbered 3 in the SGM Notice to be granted to the
	Directors to repurchase Securities the details of which are
	described in pages 22 to 23 herein

— 2 —

DEFINITIONS

“Share Premium Reduction”	the reduction of an amount of HK$375,995,500 standing to the
	credit of the share premium account of Company as at 31st
	December, 2002
“Securities”	shares of any and all classes in the capital of the Company
	including but not limited to the New Shares and other securities
	carrying a right to subscribe or purchase shares of the Company
	which the Company may from time to time issue
“SGM”	the special general meeting of the Company to be held at Board
	Room, 7th Floor, The Dynasty Club Limited, South West
	Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong
	Kong, at 10:00 a.m. on Monday, 14th July, 2003 to approve,
	inter alia, the Capital Reorganization
“Share Consolidation”	the proposal to consolidate all the Reduced Shares on the basis
	of 25 Reduced Shares into one New Share
“Share(s)”	ordinary share(s) of nominal value HK$0.01 each in the share
	capital of the Company currently in issue
“Shareholder(s)”	holder(s) of Share(s) or, where the context requires, New
	Share(s)
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“SGM Notice”	the notice convening the SGM as set out on pages 19 to 24 of
	this circular
“subsidiary(ies)”	a subsidiary or subsidiaries of the Company as defined under
	section 2 of the Companies Ordinance whether incorporated in
	Hong Kong or elsewhere
“Substantial Shareholder(s)”	shall have the meaning ascribed to it under rule 1.01 of the
	Listing Rules
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers and Share
	Repurchases

— 3 —

DEFINITIONS

“Warrant(s)”	warrant(s) of the Company entitling the holders thereof to
	subscribe in cash for new Shares at any time on or before 6th
	June, 2003 (or such earlier date as prescribed by the Warrant
	Instrument) at the initial subscription price of HK$0.30 per
	Share (subject to adjustment) from 7th June, 2000 which have
	been expired on 6th June, 2003
“Warrant Instrument”	the instrument dated 15th May, 2000 executed by the Company
	constituting the Warrant(s)

— 4 —

EXPECTED TIMETABLE

Latest time for lodging proxy forms for the SGM . . . . . . . 10:00 am Saturday 12th July, 2003 Expected date of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 am Monday 14th July, 2003 Original counter for trading in existing Shares in board lots of 10,000 Shares temporarily closes . . . . . . . 9:30 am Tuesday 15th July, 2003 Effective Date of the Capital Reorganization . . . . . . . . . . . . . 9:30 am Tuesday 15th July, 2003 Dealings in New Shares commence . . . . . . . . . . . . . . . . . . . . . 9:30 am Tuesday 15th July, 2003 Free exchange of existing share certificates for new share certificates commences . . . . . . . . . . . . . . . . . 9:30 am Tuesday 15th July, 2003 Temporary counter for trading in New Shares in board lots of 400 New Shares (in the form of existing share certificates) opens. . . . . . . . . . . . . . . . . . . . . 9:30 am Tuesday 15th July, 2003 Designated broker starts to stand in the market to provide matching services . . . . . . . . . . . . . . . . . . . . . . . . 9:30 am Tuesday 15th July, 2003 Original counter for trading in New Shares in board lots of 4,000 New Shares (in the form of new share certificates) reopens. . . . . . . . . . . . . . . . . . . . . . . 9:30 am Tuesday 29th July, 2003 Parallel trading in New Shares (in the forms of new and existing share certificates) begins . . . . . . . . . . . . . 9:30 am Tuesday 29th July, 2003 Temporary counter for trading in New Shares in board lots of 400 New Shares (in the form of existing share certificates) closes . . . . . . . . . . . . . . . . . . 4:00 pm Tuesday 19th August, 2003 Designated broker ceases to stand in the market to provide matching services . . . . . . . . . . . . . . . . . . . . . 4:00 pm Tuesday 19th August, 2003 Parallel trading in New Shares (in the form of new and existing share certificates) ends . . . . . . . . . 4:00 pm Tuesday 19th August, 2003 Free exchange of existing share certificates for new share certificates ends . . . . . . . . . . . . . . . . . . . . . . . 4:00 pm Monday 25th August, 2003

— 5 —

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Directors:

Ms. Chong Sok Un (Chairman) Dato’ Wong Peng Chong (Executive Director) Mr. Kong Muk Yin (Executive Director) Mr. Cheng Mo Chi, Moses[#] Mr. Lo Wai On[#]

• # Independent Non-executive Director

Registered Office: Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong: 47/F, China Online Centre 333 Lockhart Road Wanchai, Hong Kong

20th June, 2003

To the Shareholders

Dear Sir or Madam,

PROPOSED CAPITAL REORGANIZATION INVOLVING A CAPITAL REDUCTION, A SHARE PREMIUM REDUCTION, A SHARE CONSOLIDATION AND AN INCREASE OF AUTHORIZED SHARE CAPITAL

AND

PROPOSED GENERAL MANDATES TO ISSUE AND REPURCHASE SECURITIES

1. INTRODUCTION

On 29th May, 2003, the Directors announced the proposals (a) to implement the Capital Reorganization by way of the Capital Reduction, Share Premium Reduction, Share Consolidation, and Increase of Authorized Share Capital; (b) to change the board lot size for trading in the New Shares on the Stock Exchange from existing 10,000 Shares to 4,000 New Shares upon the Capital Reorganization becoming effective; and (c) to renew the general mandates previously granted to the Directors for the issue and repurchase of securities of the Company.

— 6 —

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information on the said proposals and to give you notice of the forthcoming SGM at which resolutions will be proposed to seek your approval for, (i) the Capital Reorganization involving the Capital Reduction, Share Premium Reduction, Share Consolidation and Increase of Authorized Share Capital; and (ii) the granting of the General Mandate and Repurchase Mandate.

2. PROPOSED CAPITAL REORGANIZATION

As announced by the Company on 29th May, 2003, the authorized share capital of the Company was HK$300,000,000 divided into 30,000,000,000 Shares of which 9,286,519,956 Shares had been issued and are fully paid or credited as fully paid. Subsequent to 29th May, 2003, a total of 198,891 Shares were issued by the Company pursuant to the exercise of subscription rights attaching to the Warrants and as at the Latest Practicable Date, the authorized share capital of the Company was HK$300,000,000 divided into 30,000,000,000 Shares of which 9,286,718,847 Shares had been issued and are fully paid or credited as fully paid.

The Directors propose that the Capital Reorganization will be effected by way of the Capital Reduction, the Share Premium Reduction, the Share Consolidation and the Increase of Authorized Share Capital, aside from the Share Premium Reduction all of which are inter-conditional, in the following manner:—

Capital Reduction

The Directors propose that the nominal value of (i) each issued Share be reduced from HK$0.01 to HK$0.0004 by the cancellation of HK$0.0096 paid up capital on each issued Share; and (ii) all authorised but unissued Shares be reduced from HK$0.01 to HK$0.0004 each.

Based on the 9,286,718,847 Shares in issue as at the Latest Practicable Date, the issued share capital of the Company will be reduced from approximately HK$92,867,188 to HK$3,714,688 and a credit of approximately HK$89,152,500 arising therefrom will be applied to set off against the accumulated losses of the Company as at 31st December, 2002 in accordance with the Companies Act and the Bye-laws of the Company.

Share Premium Reduction

The Directors also propose a reduction of an amount of HK$375,995,500 standing to the credit of the share premium account of the Company as at 31st December, 2002, and to apply such amount arising therefrom to set off against the accumulated losses of the Company as at 31st December, 2002.

— 7 —

LETTER FROM THE BOARD

Share Consolidation

Immediately after the Capital Reduction, the Directors will then effect the Share Consolidation whereby every 25 Reduced Shares will be consolidated into one New Share.

Based on the 9,286,718,847 Shares in issue as at the Latest Practicable Date, the issued share capital of the Company after the Share Consolidation will be HK$3,714,688 divided into 371,468,754 New Shares.

Any fractional entitlements to the New Shares will be aggregated and sold and the proceeds will be retained for the benefit of the Company. The New Shares will rank pari passu in all respects with each other and the Capital Reduction and Share Consolidation will not result in any change in the relative rights of the Shareholders.

Increase of Authorized Share Capital

As a result of the Capital Reduction, the authorized share capital of the Company will be reduced from HK$300,000,000 to HK$12,000,000.

The Directors further propose that immediately after the Capital Reduction and the Share Consolidation becoming unconditional and effective, the authorized share capital of the Company be increased from HK$12,000,000 to HK$300,000,000 by the creation of 28,800,000,000 New Shares of HK$0.01 each.

Upon the Capital Reduction and the Share Consolidation becoming effective and after the Increase of Authorized Share Capital, on the basis of 371,468,754 New Shares in issue, the authorized share capital of the Company will be HK$300,000,000 divided into 30,000,000,000 New Shares of HK$0.01 each and the issued share capital of the Company will be HK$3,714,688 divided into 371,468,754 fully-paid New Shares of HK$0.01 each. The Directors confirm that there is no present intention to issue any New Shares from the authorized share capital of the Company after the Capital Reorganization has been completed.

Change of board lot size for New Shares

The Directors also propose to change the board lot size for trading in the New Shares of the Company on the Stock Exchange from the existing 10,000 Shares to 4,000 New Shares upon the Capital Reorganization becoming effective.

— 8 —

LETTER FROM THE BOARD

Effects of the Capital Reorganization

Following the Capital Reorganization, a total of approximately HK$465,148,000 being the aggregate Credit Amount arising from the Capital Reduction and the Share Premium Reduction will be used to set off against the accumulated losses of approximately HK$465,890,000 of the Company as at 31st December, 2002 and the accumulated losses of the Company will be reduced to approximately HK$742,000 upon the Capital Reorganization becoming effective.

The Capital Reorganization will not, of itself, alter the underlying assets, business operations, management or financial position of the Company or the proportionate interests of the Shareholders aside from the payment of legal and administrative expenses. The Directors believe that the Capital Reorganization will not have any adverse effect on the financial position of the Group as a whole.

On the basis that there are 9,286,718,847 Shares in issue as at the Latest Practicable Date and that no Shares will be issued or repurchased by the Company between the Latest Practicable Date and the date of the SGM, the effects of the Capital Reorganization are summarized below:

			After the Capital
			Reduction, Share
			Consolidation
	Prior to	After	and Increase of
	the Capital	the Capital	Authorized
	Reorganization	Reduction	Share Capital
Nominal value of
each Share	HK$0.01	HK$0.0004	HK$0.01
Number of
authorized Shares	30,000,000,000	30,000,000,000	30,000,000,000
Authorized share capital	HK$300,000,000	HK$12,000,000	HK$300,000,000
Number of Shares
in issue	9,286,718,847	9,286,718,847	371,468,754
Issued and fully paid
share capital	HK$92,867,188	HK$3,714,688	HK$3,714,688

— 9 —

LETTER FROM THE BOARD

Conditions of the Capital Reorganization

The Capital Reorganization is conditional, amongst other things, upon:

1. the passing by the Shareholders at the SGM of ordinary resolutions to approve the Share Consolidation and Increase of Authorized Share Capital and special resolutions to approve the Capital Reduction and Share Premium Reduction;

2. the compliance with section 46 of the Companies Act; and

3. the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the New Shares.

Section 46(2) of the Companies Act provides that no company shall reduce the amount of its share capital (a) unless, at a date not more than 30 days and not less than 15 days before the date on which the reduction of the share capital is to have effect, the company causes a notice to be published in an appointed newspaper in Bermuda stating the amount of the share capital as last determined by the company, the amount to which the share capital is to be reduced, and the date on which the reduction is to have effect; and (b) if, on the date of the reduction is to be effected, there are reasonable grounds for believing that the company is, or after the reduction would be, unable to pay its liabilities as they become due.

The Capital Reorganization will become effective when the above conditions are fulfilled, which is expected to be on or about Tuesday, 15th July, 2003.

Reasons for the Capital Reorganization

The Shares have recently been trading close to the nominal value. Under the laws of Bermuda, a company may not issue shares at a discount to the nominal value of its shares. In view of this, the Company is practically precluded from raising capital in the stock market by way of allotment or placement of Shares. The Capital Reorganization is intended to allow flexibility in pricing for the issue of New Shares so as to facilitate any fund-raising or asset acquisition by way of allotment or placement of New Shares, when the Directors consider that circumstances so require in the future.

Further, as at 31st December, 2002, the accumulated losses of the Company were approximately HK$465,890,000. The Directors believe it is unlikely that the Company will generate sufficient profits in the near future from its businesses to eliminate the accumulated losses and that it would be inappropriate for the Company to pay dividends while these accumulated losses remain. Accordingly, the Directors propose to apply the Credit Amount resultant from the Capital Reduction and the Share Premium Reduction to set off against these accumulated losses. Subject to the Companies Act and the Bye-

— 10 —

LETTER FROM THE BOARD

laws of the Company, such Credit Amount may be applied by the Company for such purposes, including the writing off against any accumulated losses of the Company. As a result, the Company would be able to declare dividends to Shareholders at an earlier opportunity than by generating profits to offset such accumulated losses.

The Directors consider that the Capital Reorganization is in the interests of the Company and the Shareholders as a whole.

Free exchange of share certificates for the New Shares and parallel trading arrangements

Subject to the Capital Reduction and Share Consolidation becoming effective, Shareholders may on or after Tuesday, 15th July, 2003 until Monday, 25th August, 2003 submit certificates for the existing Shares (in light blue color) to the Registrars, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong for exchange, at the expense of the Company, for certificates for New Shares in issue (in pink color).

Thereafter, certificates for the existing Shares will be accepted for exchange only on payment of a fee of HK$2.50 to the Registrars (or such higher amount as may from time to time be allowed by the Stock Exchange) for each new certificate to be issued for New Shares.

Certificates for the existing Shares will only be valid for delivery and settlement in respect of dealings for the period up to Tuesday, 19th August, 2003, after which trading will be in New Shares only and the existing share certificates for the Shares will cease to be marketable and will not be acceptable for dealings purpose.

Subject to the above arrangement, certificates for the existing Shares will continue to be good evidence of legal title and may be exchanged for certificates for the New Shares at any time.

It is expected that new share certificates for the New Shares will be available for collection on or about the 10th Business Day from the date of submission of the existing share certificates for existing Shares to the Registrars. Unless otherwise instructed, new share certificates for the New Shares will be issued in board lots of 4,000 New Shares.

The New Shares will be traded in the new board lot size of 4,000 New Shares. Subject to the approval by the Shareholders of the Capital Reorganization, dealings in the New Shares are expected to commence on the Effective Date and it is proposed that the arrangements for dealings in the New Shares will be as follows:

• (a) From 9:30 a.m. 15th July, 2003, the original counter for trading in the existing Shares in board lots of 10,000 Shares will be temporarily closed;

— 11 —

LETTER FROM THE BOARD

• (b) From 9:30 a.m. 15th July, 2003, a temporary counter will be established for trading in the New Shares in board lots of 400 New Shares (in the form of existing certificates). Certificates for existing Shares may only be traded at this temporary counter;

• (c) With effect from 9:30 a.m. 29th July, 2003, the original counter for trading in Shares will be reopened for trading in New Shares in board lots of 4,000 (in the form of new certificates); and

• (d) From 9:30 a.m. 29th July, 2003 to 4:00 p.m. 19th August, 2003, both dates inclusive, there will be parallel trading at the two counters described in sub-(b) and (c) above. The temporary counter for trading in the New Shares in board lots of 400 New Shares will be closed after the close of trading on 19th August, 2003.

Arrangement for the matching services of odd lots of New Shares resulting from the Capital Reorganization

In order to alleviate any difficulties arising from the existence of odd lots of New Shares as a result of the Share Consolidation, Sun Hung Kai Investment Services Limited of Level 12, One Pacific Place, 88 Queensway, Central, Hong Kong, has agreed to stand in the market to provide matching services for the odd lots of New Shares on a best effort basis, during the period commencing Tuesday, 15th July, 2003 and ending on Tuesday, 19th August, 2003, both dates inclusive. Shareholders who wish to take advantage of this matching facility either to dispose of their odd lots of New Shares or top up to board lots of 4,000 New Shares are asked to contact Miss Connie Cheung (Tel:2822-5432) of Sun Hung Kai Investment Services Limited. Any fractional entitlements to the New Shares will be aggregated and sold and the proceeds will be retained for the benefit of the Company.

Holders of odd lots of the New Shares should note that match up of the sale and purchase of odd lots of the New Shares is not guaranteed. Shareholders are recommended to consult their professional advisers if they are in any doubt about the facility described above.

No adjustment to Warrants

As the Warrants have expired on Friday, 6th June, 2003, the implementation of the Capital Reorganization will not result in any adjustment to the subscription price of the Warrants.

— 12 —

LETTER FROM THE BOARD

3. GENERAL MANDATES TO ISSUE AND REPURCHASE SECURITIES

In connection with the resolutions requiring approval of the Shareholders regarding the Capital Reorganization, the Directors will also propose at the SGM ordinary resolutions to grant new general mandates to the Directors, in substitution for the existing mandates, to exercise all powers of the Company (i) to allot and issue Securities up to a maximum of 20% of the aggregate nominal amount of the issued share capital of the Company as at the Effective Date; and (ii) to repurchase Securities up to a maximum of 10% of the aggregate nominal amount of the issued share capital of the Company as at the Effective Date.

The Directors will also seek the approval of Shareholders to grant a new general mandate to the Directors to exercise all the powers of the Company to allot and issue additional Securities under the General Mandate to issue securities described above by the number of fully paid-up Securities repurchased by the Company pursuant to the Repurchase Mandate as aforesaid.

In accordance with the requirements of the Listing Rules, Appendix I to this circular contains an explanatory statement which the Company is required to send to the Shareholders containing all information reasonably necessary to enable them to make an informed decision as to whether to vote for or against the grant of the Repurchase Mandate above.

Any general mandate for the issue and repurchase of Shares previously granted by the Shareholders will be replaced by the new general mandates for securities as aforesaid, if so approved by the Shareholders at the SGM. Such general mandates will remain effective until, the earlier of, the conclusion of the next annual general meeting of the Company, the period within which the next annual general meeting of the Company is required by the Bye-laws of the Company or any applicable laws to be held, or until being revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company.

4. APPLICATION FOR LISTING

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the New Shares. No part of the share capital of the Company is listed or dealt in on any other stock exchange and no such listing or permission to deal is being or proposed to be sought.

Subject to the granting of the listing of, and permission to deal in, the New Shares on the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New Shares on the Stock Exchange or such other date as

— 13 —

LETTER FROM THE BOARD

determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

5. SPECIAL GENERAL MEETING

The SGM Notice is set out on pages 19 to 24 of this circular. At the SGM, resolutions will be proposed to approve, inter alia, the Capital Reorganization and the grant of new General Mandate and Repurchase Mandate to the Directors.

A form of proxy for use at the SGM is enclosed with this circular. To be valid, the form of proxy must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power of attorney or authority, with the Registrars, Tengis Limited at G/F, 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 the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or an adjourned meeting should you so wish.

6. RECOMMENDATION

The Directors consider that the Capital Reorganization and the grant of the new General Mandate and Repurchase Mandate are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of such resolutions to be proposed at the SGM.

Yours faithfully,

On behalf of the Board of

China Online (Bermuda) Limited Chong Sok Un

Chairman

— 14 —

EXPLANATORY STATEMENT

APPENDIX I

This appendix serves as an explanatory statement as required by the Listing Rules to provide the requisite information to you for your consideration of the proposal regarding the grant of new general mandates to the Directors to issue and repurchase securities.

1. THE LISTING RULES

The Listing Rules require companies with a primary listing on the Stock Exchange to send to its shareholders an explanatory statement, at the same time as the notice of the relevant shareholders’ meeting, containing all the information reasonably necessary to enable those shareholders to make an informed decision on whether to vote for or against the ordinary resolution to approve purchase by the company of its own securities on the Stock Exchange, in such details as set forth below.

2. EXERCISE OF THE REPURCHASE MANDATE

As at the Latest Practicable Date, the issued share capital of the Company was HK$92,867,188 comprising 9,286,718,847 Shares. Subject to the passing of the proposed resolutions to approve the Capital Reorganization and on the basis that no further Securities will be issued or repurchased by the Company prior to the SGM, exercise in full of the Repurchase Mandate by the Directors will result in the repurchase by the Company of up to 928,671,885 Shares or 37,146,875 New Shares, representing approximately 10% of the total issued share capital of the Company comprising 9,286,718,847 Shares or, after completion of the Capital Reorganization, 371,468,754 New Shares.

The Repurchase Mandate will allow the Company to make or agree to make repurchases of Securities that have already been fully paid up during the period ending on the earliest of the date of its next annual general meeting, the expiration of the latest date by which the next annual general meeting of the Company is required to be held by law or under its Bye-laws or the date upon which such authority is revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company.

3. REASONS FOR REPURCHASES

The Directors believe that it is in the best interests of the Company and its Shareholders as a whole to have a general authority from the Shareholders enabling the Directors the flexibility to repurchase New Shares or other Securities of the Company in the market, as and when they consider such repurchase appropriate and beneficial to the Company. Such purchases may, depending on market conditions and funding arrangements at the time, enhance the net value and/or earnings per New Share of the Company.

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EXPLANATORY STATEMENT

APPENDIX I

As compared with the financial position of the Group as at 31st December, 2002 (being the date to which the latest audited financial statements of the Group have been made up), the Directors consider that there might be adverse impact on the working capital and gearing position of the Company in the event the Repurchase Mandate is exercised in full, though the Directors have no present intention to effect any repurchase, and no repurchase would be made, in circumstances that would have a material adverse impact on the working capital or gearing ratio of the Company.

4. FUNDING AND LEGALITY OF REPURCHASES

The repurchase of Securities will be funded entirely from the cash flow or working capital facilities available to the Company, and will, in any event, be made out of funds legally available for the repurchase in accordance with its Bye-laws and the applicable laws of Bermuda.

Under the Companies Act, repurchased securities of a company will be cancelled and its issued share capital thereof will be reduced by the nominal value of the securities repurchased, however, the aggregate amount of the authorized share capital of the company will not be reduced.

5. DIRECTORS, THEIR ASSOCIATES AND CONNECTED PERSONS

None of the Directors nor, to the best of the knowledge and belief of the Directors having made all reasonable enquiries, any associate of any of the Directors (as defined in the Listing Rules) has any present intention, in the event the resolution proposing the Repurchase Mandate is approved by the Shareholders, to sell to the Company any of its Securities.

No connected person, as defined in the Listing Rules, has notified the Company that he has a present intention to sell to the Company any of its Securities, or has any undertaken not to sell any such Securities held by him to the Company, in the event that the resolution proposing the Repurchase Mandate is approval by the Shareholders.

6. DIRECTORS’ UNDERTAKING

The Directors have undertaken to the Stock Exchange that they will exercise the powers of the Company under the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Bermuda and the Bye-laws of the Company.

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EXPLANATORY STATEMENT

APPENDIX I

7. EFFECT OF THE TAKEOVERS CODE

If, on the exercise of the powers granted under the Repurchase Mandate, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of rule 32 of the Takeovers Code. As a result, a Shareholder or a group of Shareholders acting in concert (within the meaning under the Takeovers Code), depending on the level of such increase, may obtain or consolidate control of the Company and thereby obliged to make a mandatory general offer in accordance with rule 26 of the Takeovers Code.

As at the Latest Practicable Date and insofar the Directors are aware of, the Substantial Shareholders of the Company are as follows:

			Approximate
			percentage
			of voting power
		Approximate	if the Company
		percentage of	exercised in
Substantial	Number of	voting power	full the power to
Shareholder	Shares held	controlled	repurchase
			(Note 2)
Ms. Chong Sok Un	2,631,200,000	28.33%	31.48 %
(“Ms. Chong”)
(Note 1)
China Spirit Limited	2,631,200,000	28.33%	31.48 %
(“China Spirit”)
(Note 1)
Vigor Online Offshore	2,631,200,000	28.33%	31.48 %
Limited (“Vigor
Online”)(Note 1)

Notes:—

1. These Shares are held by Vigor Online, a company incorporated in the British Virgin Islands and a 67.7% owned subsidiary of China Spirit. China Spirit is a company incorporated in the British Virgin Islands, the entire share capital of which is in turn wholly-owned by Ms. Chong. Accordingly, China Spirit and Ms. Chong, by reason of their deemed indirect interests in the 2,631,200,000 Shares under Part XV of the SFO, are considered to be Substantial Shareholders of the Company.

2. Based on 371,468,754 New Shares in issue after the Capital Reorganisation and assume the exercise in full of the Repurchase Mandate by the Company.

In the event that the Directors shall exercise in full such powers under the Repurchase Mandate and on the basis that there is no other change in the then issued share capital of the Company, the interest of the above Substantial Shareholders would be increased

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EXPLANATORY STATEMENT

APPENDIX I

to approximately the percentage shown in the last column above, at which time such Substantial Shareholders would be required under rule 26 of the Takeovers Code to make a mandatory general offer in respect of the then issued share capital of the Company, other than those held by themselves or parties acting in concert with them. However, the Directors do not have the intention to exercise the power under the Repurchase Mandate to an extent which would make the Substantial Shareholders or any Shareholder whether singly or collectively to be obliged to make a mandatory general offer under rule 26 of the Takeovers Code.

8. SHARE REPURCHASE MADE BY THE COMPANY

Neither the Company nor any of its subsidiaries has purchased any of its Shares (whether on the Stock Exchange or otherwise) in the last six months preceding the date of this circular.

9. SHARE PRICES

The highest and lowest prices at which the Shares had been traded on the Stock Exchange in each of the twelve calendar months preceding the Latest Practicable Date, were respectively as follows:

	Price	of Shares
	Highest	Lowest
	HK$	HK$
2002
June	0.064	0.050
July	0.058	0.026
August	0.042	0.030
September	0.039	0.027
October	0.035	0.020
November	0.035	0.027
December	0.040	0.026
2003
January	0.032	0.025
February	0.029	0.025
March	0.026	0.018
April	0.027	0.018
May	0.029	0.018

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NOTICE OF THE SPECIAL GENERAL MEETING

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(Incorporated in Bermuda with limited liability)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN (the “ Notice ”) that a special general meeting (the “Meeting”) of China Online (Bermuda) Limited (the “ Company ”) will be held at Board Room, 7th Floor, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Monday, 14th July, 2003 at 10:00 a.m. for the purposes of considering and, if thought fit, passing (with or without amendments) the following as, as appropriate, ordinary and special resolutions of the Company:—

SPECIAL RESOLUTION NO. 1

“ THAT , with effect from the next business day (being a day on which banks in Hong Kong are generally open for business) after the date on which this resolution is passed:—

• (a) (i) the issued share capital of the Company be reduced by cancelling paid-up capital of HK$0.0096 on each share of nominal value HK$0.01 in the issued share capital of the Company as at the date of the passing of this resolution so that each share shall be treated as one fully paid-up share of nominal value HK$0.0004 in the issued share capital of the Company and; (ii) the value of each of the authorized but unissued shares be reduced from HK$0.01 to HK$0.0004 each (whether issued or unissued, the “ Reduced Share(s) ”) so that the authorized share capital of the Company be reduced from HK$300,000,000 to HK$12,000,000, and any liability of the holders of such issued Reduced Share(s) to make further contribution to the capital of the Company on each issued Reduced Share shall be treated as duly satisfied (together, the “ Capital Reduction ”);

• (b) an amount of HK$375,995,500 standing to the credit in the share premium account of the Company as at 31st December, 2002 be reduced (the “ Share Premium Reduction ”) and together with the credit amount of HK$89,152,500 arising from the Capital Reduction be applied to eliminate or reduce the accumulated losses of the Company with accumulated balance of approximately HK$465,890,000 as at 31st December, 2002 in accordance with the Bye-laws of the Company and the applicable laws of Bermuda; and

• (c) one or more of the directors of the Company (the “ Directors ”), as permissible under the Bye-laws of the Company, be and are hereby authorized generally to do or execute for and on behalf of the Company all such acts, deeds and things as they may deem in their absolute discretion, necessary, desirable or appropriate to effect and implement any of the foregoing, including the Capital Reduction and Share Premium Reduction.”

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NOTICE OF THE SPECIAL GENERAL MEETING

ORDINARY RESOLUTION NO. 1

“ THAT , with effect from the next business day (being a day on which banks in Hong Kong are generally open for business) after the date on which this resolution is passed, and conditional upon the Capital Reduction (as defined in special resolution no. 1 set out in the Notice of which this resolution forms part) becoming unconditional and effective:—

• (a) every 25 Reduced Shares (as defined in the said special resolution no. 1) be and are hereby consolidated (the “ Share Consolidation ”) into one share of nominal value HK$0.01 each (the “ New Shares ”) whereupon all New Shares resulting from the Share Consolidation shall rank pari passu in all respects and have the same rights and privileges subject to the restrictions contained in the Bye-laws of the Company;

• (b) the authorized share capital of the Company be and is hereby increased from HK$12,000,000 to HK$300,000,000 by the creation of an additional 28,800,000,000 New Shares of nominal value HK$0.01 each in the capital of the Company following completion of the Capital Reduction and Share Consolidation (the “ Increase of Authorized Share Capital ”); and

• (c) one or more of the Directors, as permissible under the Bye-laws of the Company, be and are hereby authorized generally to do or execute for and on behalf of the Company all such acts, deeds and things as they may deem in their absolute discretion, necessary, desirable or appropriate to effect and implement any of the foregoing, including the Share Consolidation and Increase of Authorized Share Capital.”

ORDINARY RESOLUTION NO. 2

“ THAT , conditional upon the Capital Reduction, Share Premium Reduction (both terms as defined in special resolution no. 1 set out in the Notice of which this resolution forms part), Share Consolidation and Increase of Authorized Share Capital (both terms as defined in ordinary resolution no. 1 set out in the Notice of which this resolution forms part) (altogether the “ Capital Reorganization ”) becoming unconditional and effective:—

• (a) and subject to the following provisions of this resolution, the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with securities of any and all classes in the share capital of the Company (the “ Securities ”) including but not limited to the New Shares (as defined in ordinary resolution no. 1 set out in the Notice of which this resolution forms part) and other securities carrying a right to subscribe or purchase Securities which the Company may from time to time issue and to make or grant any offer, agreement or option (including bonds, warrants, debentures, notes, options or any securities derivative which carry the right to subscribe for or are convertible into shares of the Company) which would or might require the exercise of such powers be and is hereby generally and unconditionally approved in substitution for and to the exclusion of any existing authority previously granted;

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NOTICE OF THE SPECIAL GENERAL MEETING

• (b) the approval in paragraph (a) above shall authorize the Directors during the Relevant Period (as hereinafter defined) to make or grant any offer, agreement and option (including bonds, warrants, debentures, notes, options or any securities derivative which carry the right to subscribe for or are convertible into shares of the Company) which would or might require the exercise of such powers after the expiry of the Relevant Period;

• (c) the aggregate nominal amount of share capital of the Company allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by the Directors pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined); (ii) the exercise of subscription or conversion rights under any warrants, bonds, debentures, notes and any securities derivative of the Company to subscribe for or convert into shares of the Company; (iii) an issue of shares under any option scheme or similar arrangement for the time being adopted for grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or the rights to acquire shares of the Company; or (iv) an issue of shares of the Company as scrip dividends or similar arrangement providing for the allotment of shares in lieu of the whole or part payment of dividends by the Company in accordance with its Bye-laws as amended from time to time, shall not exceed 20 per cent. of the aggregate nominal amount of shares in issue in the capital of the Company, as at the date of passing of this resolution and as reduced by the Capital Reduction and consolidated by the Shares Consolidation and the said approval shall be limited accordingly; and

• (d) for the purpose of this resolution:—

“Relevant Period” means the period from the date of the passing of this resolution until whichever is the earliest of:—

• (i) the conclusion of the next annual general meeting of the Company following the passing of this resolution (unless the authority given under this resolution has been renewed by an ordinary resolution passed at the next annual general meeting);

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Bye-laws of the Company or the Companies Act 1981 of Bermuda (as amended) to be held; or

• (iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting; and

“Rights Issue” means an offer of shares for a period fixed by the Directors to holders of shares on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements

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NOTICE OF THE SPECIAL GENERAL MEETING

as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restriction or obligation under the laws of any relevant jurisdiction, or the requirements of any recognized regulatory body or any stock exchange in any territory applicable to the Company).”

ORDINARY RESOLUTION NO. 3

“ THAT , conditional upon the Capital Reorganization (as defined in ordinary resolution no. 2 set out in the Notice of which this resolution forms part) becoming unconditional and effective:—

• (a) and subject to the following provisions of this resolution, the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to repurchase issued securities of any and all classes in the share capital of the Company (the “ Securities ”) including but not limited to the New Shares (as defined in ordinary resolution no. 1 set out in the Notice of which this resolution forms part) and other securities carrying a right to subscribe or purchase Securities which the Company may from time to time issue on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) or any other stock exchange on which such Securities may be listed and recognized by the Securities and Futures Commission of Hong Kong and the Stock Exchange for this purpose (the “ recognized stock exchange ”), and to make or grant any offer, agreement or option (including bonds, warrants, debentures, notes, options or any securities derivative which carry the right to subscribe for or are convertible into shares of the Company) which would or might require the exercise of such powers subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on the Stock Exchange or those of any other recognized stock exchange as amended from time to time be generally and unconditionally approved in substitution for and to the exclusion of any existing authority previously granted;

• (b) the approval in paragraph (a) shall authorize the Directors on behalf of the Company during the Relevant Period to procure the Company to repurchase its Securities at a price determined by the Directors;

• (c) the aggregate nominal amount of Securities of the Company repurchased or agreed conditionally or unconditionally to be repurchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the Securities in issue in the capital of the Company, as at the date of the passing of this resolution and as reduced by the Capital Reduction (as defined in special resolution no. 1 set out in the Notice of which this resolution forms part) and as consolidated by the Share Consolidation (as defined in ordinary resolution no. 1 set out in the Notice of which this resolution forms part) and the said approval shall be limited accordingly; and

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NOTICE OF THE SPECIAL GENERAL MEETING

• (d) for the purpose of this resolution:—

“Relevant Period” means the period from the date of the passing of this resolution until whichever is the earliest of:

• (i) the conclusion of the next annual general meeting of the Company following the passing of this resolution (unless the authority given under this resolution has been renewed by an ordinary resolution passed at the next annual general meeting);

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Bye-laws of the Company or the Companies Act 1981 of Bermuda (as amended) to be held; or

• (iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting.”

ORDINARY RESOLUTION NO. 4

“ THAT , conditional upon (i) the passing of ordinary resolutions nos. 2 and 3 set out in the Notice to which this resolution forms part; and (ii) the Capital Reorganization becoming unconditional and effective, the aggregate nominal amount of Securities that may be allotted or agreed conditionally or unconditionally to be allotted by the Directors as defined in, pursuant to and in accordance with the said ordinary resolution no. 2 shall be and is hereby increased and extended by the aggregate nominal amount of Securities in the capital of the Company which are repurchased by the Company as defined in, pursuant to and in accordance with the authority under the said ordinary resolution no. 3 provided that such amount shall not exceed 10 per cent. of the aggregate nominal amount of Securities in issue as at the date of the passing of this resolution and as reduced by the Capital Reduction (as defined in special resolution no. 1 set out in the Notice of which this resolution forms part) and as consolidated by the Share Consolidation (as defined in ordinary resolution no. 1 set out in the Notice of which this resolution forms part) and the said approval shall be limited accordingly.”

By Order of the Board China Online (Bermuda) Limited Fung Ching Man, Ada Company Secretary

Hong Kong, 20th June, 2003

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NOTICE OF THE SPECIAL GENERAL MEETING

Registered office : Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong: 47/F, China Online Centre 333 Lockhart Road Wanchai, Hong Kong

Notes:—

1. Any member of the Company entitled to attend and vote at the Meeting may appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a member of the Company.

2. Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share of the Company as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

3. In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the office of the branch share registrars of the Company in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

4. Whether or not you propose to attend the Meeting in person, you are strongly urged to complete and return the form of proxy in accordance with the instructions printed thereon. Completion and return of the form of proxy will not preclude you from attending the Meeting and voting in person if you so wish. In the event that you attend the Meeting after having lodged the form of proxy, it will be deemed to have been revoked.

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