Changyou International Group Limited — Proxy Solicitation & Information Statement 2004

Dec 1, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action you should take, you should consult your licensed securities dealer 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 Ruili Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer 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.

RUILI HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

PROPOSED SHARE CONSOLIDATION,

PLACING OF NEW SHARES

AND

PROPOSED INCREASE IN AUTHORIZED SHARE CAPITAL

A notice convening a special general meeting of Ruili Holdings Limited to be held at 2:30 p.m. on Friday, 17th December, 2004 at Macau Jockey Club (HK) Clubhouse Golden Restaurant, 1st Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong is set out on pages 18 to 19 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 in person and vote at such meeting, you are advised to read the notice and complete the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and return it to the Company’s branch share registrar in Hong Kong, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjourned meeting if you so wish.

* For identification only

1st December, 2004

CONTENTS

	Page
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

−i −

EXPECTED TIMETABLE

Set out below is a timetable for the SGM and the Share Consolidation. Shareholders and investors will be informed of any change to the timetable by press notice.

Despatch of circular with notice of the SGM . . . . . . . . . . . . . . . . . . . . . 1st December, 2004 Latest time for lodging proxy forms for the SGM. . . . . . 2:30 p.m. on 15th December, 2004 SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2:30 p.m. on 17th December, 2004 Effective date of Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . 20th December, 2004 Original counter for trading in board lot size of 10,000 existing Shares temporarily closes . . . . . . . . 9:30 a.m. on 20th December, 2004 Temporary counter for trading in board lot size of 250 Consolidated Shares opens (in the form of existing share certificates) . . . . . . . . . . 9:30 a.m. on 20th December, 2004 First day of free exchange of existing share certificates for Shares for new share certificates for Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20th December, 2004 Designated broker starts to stand in the market to provide matching service . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on 20th December, 2004 Original counter for trading in board lot size of 10,000 Consolidated Shares reopens (in the form of new share certificates) . . . . . . . . . . . . . . . 9:30 a.m. on 4th January, 2005 Parallel trading of Consolidated Shares (in the form of existing and new share certificates) commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on 4th January, 2005 Temporary counter for trading in board lot size of 250 Consolidated Shares closes . . . . . . . . . . . . . . . . . 4:00 p.m. on 25th January, 2005 Parallel trading in Consolidated Shares ends . . . . . . . . . . . 4:00 p.m. on 25th January, 2005 Designated broker ceases to stand in the market to provide matching service . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 25th January, 2005 Latest time and date for lodging certificates for existing Shares in exchange for new certificates for Consolidated Shares free of charge . . . . . . . . . . . . . . 4:00 p.m. on 1st February, 2005

−1 −

DEFINITIONS

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

• “2003 Convertible Bonds”

the 8% convertible bonds due 22nd December, 2004 issued with aggregate principal amount of HK$16,000,000 by the Company on 23rd December, 2003, the conversion rights attached to which have been fully exercised by the holder thereof by notice received by the Company on 29th November, 2004

“Announcement”	the announcement issued by the Company dated 12th
	November, 2004 in relation to the Placing and the
	proposed increase in the authorized share capital of the
	Company
“Associates”	has the meaning ascribed thereto under the Listing Rules
“Board”	board of Directors
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“Company”	Ruili Holdings Limited, a company incorporated in
	Bermuda with limited liability, the Shares of which are
	listed on the Stock Exchange
“Completion”	completion of the Placing
“Consolidated Share(s)”	new ordinary share(s) of HK$0.40 each in the capital of
	the Company (including the shares to be issued and
	allotted under the Placing) upon the Share Consolidation
	becoming effective
“Director(s)”	director(s) of the Company
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC

−2 −

DEFINITIONS

“Latest Practicable Date”	29th November, 2004, being the latest practicable date
	prior to the printing of this circular for ascertaining
	information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Long Stop Date”	14th January, 2005, or such other date as the Company
	and the Placing Agent may agree in writing, for the
	fulfilment of the conditions precedent set out in the
	Placing Agreement (as subsequently amended by the
	Supplemental Agreement)
“Placee(s)”	any individual, corporate and/or professional investor(s)
	procured by the Placing Agent to purchase any of the
	Placing Shares pursuant to the Placing Agent’s
	obligations under the Placing Agreement (as
	subsequently amended by the Supplemental Agreement)
“Placing”	the placing of the Placing Shares, on a best efforts basis,
	by the Placing Agent pursuant to the Placing Agreement
	(as subsequently amended by the Supplemental
	Agreement)
“Placing Agent”	Tai Fook Securities Company Limited, a licensed
	corporation to carry on regulated activities 1, 3 and 4 for
	the purpose of the Securities and Futures Ordinance
	(Chapter 571 of the Laws of Hong Kong)
“Placing Agreement”	the conditional placing agreement dated 12th November,
	2004 entered into between the Company and the Placing
	Agent in relation to the Placing, subject to the terms and
	conditions contained therein
“Placing Shares”	a total of 9,000,000,000 new Shares, or, if the Share
	Consolidation becomes effective, 225,000,000 Consolidated
	Shares
“PRC”	the People’s Republic of China
“SFC”	Securities and Futures Commission

−3 −

DEFINITIONS

“SGM”	a special general meeting of the Company to be convened
	to approve, among other things, (i) the proposed Share
	Consolidation; (ii) the Placing; and (iii) the proposed
	increase in the authorized share capital of the Company
“Share(s)”	fully paid ordinary share(s) of HK$0.01 each in the share
	capital of the Company
“Share Consolidation”	the proposed consolidation of all the issued and unissued
	Shares on the basis of every 40 Shares into 1
	Consolidated Share
“Shareholder(s)”	shareholder(s) of the Company
“Share Options”	share options granted under the Share Option Scheme
“Share Option Scheme”	the share option scheme adopted and approved by the
	Company on 23rd November, 2001
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Supplemental Agreement”	the supplemental placing agreement dated 18th
	November, 2004 entered into between the Company and
	the Placing Agent to amend certain terms of the Placing
	Agreement for the proposed Share Consolidation
“Takeovers Code”	Code on Takeovers and Mergers

−4 −

LETTER FROM THE BOARD

RUILI HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

Directors:

Mr. Yu Kam Kee, Lawrence, M.B.E, J.P. (Chairman)

Mr. Carl Chang (Chief Executive Officer)

Mr. Yu Kam Yuen, Lincoln

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Mr. Wu Jiahong

Mr. Liao Chongde

Mr. Li Fui Lung, Danny[+] Mr. Ng Hoi Yue, Herman[+]

• Mr. John Paul McLellan[+]

Principal place of business in Hong Kong: 2nd Floor, Talon Tower 38 Connaught Road West Hong Kong

• • Independent Non-executive Directors

1st December, 2004

To the Shareholders

Dear Sir or Madam,

PROPOSED SHARE CONSOLIDATION,

PLACING OF NEW SHARES

AND

PROPOSED INCREASE IN AUTHORIZED SHARE CAPITAL

INTRODUCTION

On 12th November, 2004, the Company entered into the Placing Agreement with the Placing Agent in relation to the appointment of the Placing Agent for the placing of 9,000,000,000 new Shares at the issue price of HK$0.01 per Placing Share on a best efforts basis to not less than six Placees, who will be independent third parties not connected with the Company and the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective Associates.

* For identification only

−5 −

LETTER FROM THE BOARD

On 18th November, 2004, the Board announced that it proposed to consolidate every 40 issued and unissued ordinary shares of HK$0.01 each of the Company into 1 consolidated share of HK$0.40 each. In view of the proposed Share Consolidation, the Company further entered into the Supplemental Agreement with the Placing Agent on 18th November, 2004, pursuant to which, if the Share Consolidation becomes effective, the number of shares subject to the Placing will become 225,000,000 Consolidated Shares and the issue price will be adjusted to HK$0.40 per Placing Share.

As at the date of the Announcement, the principal amount of the 2003 Convertible Bonds outstanding was HK$16 million and the number of Shares to be issued under the Share Options was 50,000,000. On 29th November, 2004, the Company received exercise notices from the holders of the 2003 Convertible Bonds and the Share Options to fully exercise the conversion rights and exercise rights attached to the 2003 Convertible Bonds and the Share Options respectively. Based on a conversion price of HK$0.018 per Share for the 2003 Convertible Bonds, a total of 888,888,888 new Shares were duly issued and allotted by the Company on 29th November, 2004 in accordance with the terms of the 2003 Convertible Bonds. In addition, based on an exercise price of HK$0.017 per Share for the Share Options, a total of 50,000,000 new Shares will be issued and allotted by the Company in accordance with the rules of the Share Option Scheme. It is expected that such new Shares will be issued and allotted to the holder of the Share Options on or before 20th December, 2004.

Assuming that all the Placing Shares are successfully placed by the Placing Agent and before taking into account the exercise notices received by the Company on 29th November, 2004 for the conversion of the 2003 Convertible Bonds and the exercise of the Share Options, the Placing Shares represent approximately 84.79% of the issued share capital of the Company and approximately 45.88% of the issued share capital of the Company as further enlarged by the Placing, whether before or after the Share Consolidation becoming effective.

Assuming that all the Placing Shares are successfully placed by the Placing Agent and after taking into account that 888,888,888 new Shares were issued as a result of the conversion of the 2003 Convertible Bonds and 50,000,000 new Shares to be issued pursuant to the exercise notice received by the Company on 29th November, 2004 for the exercise of the Share Options, the Placing Shares represent approximately 77.90% of the issued share capital of the Company and approximately 43.79% of the issued share capital of the Company as further enlarged by the Placing, whether before or after the Share Consolidation becoming effective.

In order to enable the issue and allotment of the Placing Shares, the Board also proposes, subject to the approval by the Shareholders at the SGM, to increase the authorized share capital of the Company from HK$200,000,000 to HK$500,000,000 by the creation of 30,000,000,000 new Shares or, upon the Share Consolidation having been approved by the Shareholders at the SGM and becoming effective, 750,000,000 new Consolidated Shares.

The purpose of this circular is to provide you with further information on (i) the proposed Share Consolidation; (ii) the Placing Agreement; and (iii) the proposed increase in the authorized share capital of the Company and to give you notice of the SGM at which resolutions approving (i) the proposed Share Consolidation; (ii) the Placing; and (iii) the proposed increase in the authorized share capital of the Company will be sought.

−6 −

LETTER FROM THE BOARD

THE PROPOSED SHARE CONSOLIDATION

Basis of the proposed Share Consolidation

The Board proposes to consolidate every 40 issued and unissued ordinary shares of HK$0.01 each of the Company into 1 consolidated share of HK$0.40 each. Subject to the satisfaction of all of the conditions set out in the paragraph headed “Conditions of the proposed Share Consolidation” below, the Share Consolidation will become effective on the next business day after the date of the SGM.

The Consolidated Shares will rank pari passu in all respects with each other and there will be no change in the relative rights of the Shareholders. The size of each board lot of the Consolidated Shares will be 10,000 Consolidated Shares, which is the same as that of the existing Shares. Fractions of Consolidated Shares arising from and upon the Share Consolidation will be aggregated and sold for the benefit of the Company.

Save for the expenses to be incurred, the implementation of the Share Consolidation will not result in any material change to the net asset value, business operations, management or financial position of the Group.

Reasons for the proposed Share Consolidation

As the proposed Share Consolidation will increase the nominal value of the shares of the Company and it is expected that the trading price of the shares of the Company will also increase, the Directors consider that the proposed Share Consolidation will make the shares of the Company more attractive to investors and is beneficial to the Company for its future fund-raising activities.

Conditions of the proposed Share Consolidation

The Share Consolidation is conditional on the fulfillment of the following conditions:

• (i) the passing by the Shareholders of an ordinary resolution to be proposed at the SGM approving the Share Consolidation;

• (ii) compliance with any applicable legal procedures and requirements under Bermudan law; and

• (iii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consolidated Shares in issue upon the Share Consolidation becoming effective.

Arrangement for odd lot trading

To facilitate trading of odd lots (if any) arising from the proposed Share Consolidation, the Company will procure Tai Fook Securities Company Limited of 25th Floor, New Would

−7 −

LETTER FROM THE BOARD

Tower, 16-18 Queen’s Road Central, Hong Kong to arrange for the sale and purchase of odd lots on behalf of the Shareholders and potential investors. Tai Fook Securities Company Limited will provide this facility in the period from 20th December, 2004 to 25th January, 2005 (both dates inclusive). Holders of odd lots of the Consolidated Shares who wish to take advantage of this facility either to dispose of their odd lots of Consolidated Shares or to top up to board lots of 10,000 Consolidated Shares may contact Mr. Gilbert Lam of Tai Fook Securities Company Limited at telephone number (852) 2160 9963 during such period. Holders of odd lots of the Consolidated Shares should note that the facility will be made on a best efforts basis only. Hence, successful matching of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed. Shareholders are recommended to consult their advisers in respect of the odd lot trading arrangement.

Trading arrangements for the Consolidated Shares

1. Dealings

Subject to the Share Consolidation becoming effective, dealings in the Consolidated Shares are expected to commence on 20th December, 2004 and the arrangements proposed for dealings in the Consolidated Shares are expected to be as follows:

• (a) From 9:30 a.m. on 20th December, 2004, the existing original counter for trading in the Shares in board lots of 10,000 Shares will be temporarily closed and a temporary counter for trading in the Consolidated Shares in board lots of 250 Consolidated Shares will be set up. Accordingly, 1 Consolidated Share will be deemed to represent 40 Shares. Share certificates for existing Shares in grey colour may only be traded at the temporary counter.

• (b) With effect from 9:30 a.m. on 4th January, 2005, the existing original counter will be reopened and used as a counter for trading in the Consolidated Shares in board lots of 10,000 Consolidated Shares. Only new share certificates in pink colour can be traded at this counter.

• (c) During the period from 4th January, 2005 to 25th January, 2005 (both days inclusive), there will be parallel trading at the above two counters.

• (d) After 4:00 p.m. on 25th January, 2005, trading will only be in the Consolidated Shares in board lots of 10,000 Consolidated Shares in the existing original counter and the temporary counter for trading in the Consolidated Shares in board lots of 250 Consolidated Shares will be removed.

Share certificates for existing Shares will only be valid for delivery and settlement in respect of dealings for the period up to 25th January, 2005 and thereafter will not be accepted for dealing and settlement purposes. However, the certificates for existing Shares will continue to be good evidence of legal title to the Consolidated Shares on the basis of 40 Shares for 1 Consolidated Share and may be exchanged for new certificates for Consolidated Shares at any

−8 −

LETTER FROM THE BOARD

time. Such Shareholders shall be entitled to tender their certificates for existing Shares in exchange for new certificates for the Consolidated Shares in board lots of 10,000 Consolidated Shares so that their shareholding may be accurately represented by the new certificates for the Consolidated Shares in pink colour.

2. Free exchange of share certificates

The following arrangement will be implemented upon the Share Consolidation becoming effective:

• (a) New share certificates for the Consolidated Shares will be in pink colour in order to distinguish them from existing share certificates for Shares which are in grey colour.

• (b) Shareholders may exchange their existing share certificates for Shares for new share certificates for Consolidated Shares on business days between 9:00 a.m. to 4:00 p.m. on or after 20th December, 2004. This may be done free of charge by delivering the share certificates for existing Shares to the Company’s branch share registrar in Hong Kong, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong until 4:00 p.m. 1st February, 2005. Thereafter, the share certificates for the existing Shares will remain effective as documents of title, on the basis of 40 Shares for 1 Consolidated Share, and may be accepted for exchange only on payment of a fee of HK$2.50 (or such other amount as the Stock Exchange may approve from time to time) for each new share certificate to be issued or each old share certificate submitted, whichever number of share certificates is higher. A Shareholder will be entitled to aggregate his/her/its Shares registered in his/her/its name in order to obtain new share certificates for Consolidated Shares in board lot(s) of 10,000 Consolidated Shares.

• (c) It is expected that new share certificates for Consolidated Shares will be available for collection on or after the tenth business day from the date of submission of the share certificates for existing Shares to the branch share registrar at the above address for exchange. Unless instructed otherwise, new share certificates for Consolidated Shares will be issued in board lots of 10,000 Consolidated Shares. Holders of the Consolidated Shares in odd lots may either dispose of or top up their odd lots to a board lot of 10,000 Consolidated Shares by making use of the facility as described in the section headed “Arrangement for odd lot trading” above.

THE PLACING AGREEMENT

On 12th November, 2004, the Company entered into the Placing Agreement with the Placing Agent in relation to the Placing. In view of the proposed Share Consolidation described above, the Supplemental Agreement was subsequently entered into between the Company and the Placing Agent on 18th November, 2004 to amend certain terms of the Placing Agreement.

−9 −

LETTER FROM THE BOARD

Placing Agent

Each of the Placing Agent and its holding company, Tai Fook Securities Group Limited, the shares of which are listed on the Stock Exchange, is an independent third party not connected with the Company and the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective Associates. The Placing Agent will receive a placing commission of 2.5% on the gross proceeds of the Placing, which commission shall be payable by the Company upon Completion.

Placees

The Placing Shares will be placed to not less than six Placees, who are individual, corporate and/or professional investors. All the Placees and their respective ultimate beneficial owners will be independent of, not connected and not acting in concert with the Company and the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective Associates. None of the Placees will become a substantial Shareholder (as defined under the Listing Rules) as a result of the Placing.

Placing Shares

Pursuant to the Placing Agreement, the Placing Agent agrees to place a total of 9,000,000,000 new Shares or, if the Share Consolidation becomes effective, 225,000,000 Consolidated Shares, on a best efforts basis.

Assuming that all the Placing Shares are successfully placed by the Placing Agent and before taking into account the exercise notices received by the Company on 29th November, 2004 for the conversion of the 2003 Convertible Bonds and the exercise of the Share Options, the Placing Shares represent approximately 84.79% of the issued share capital of the Company and approximately 45.88% of the issued share capital of the Company as enlarged by the Placing, whether before or after the Share Consolidation becoming effective.

Assuming that all the Placing Shares are successfully placed by the Placing Agent and after taking into account that 888,888,888 new Shares were issued as a result of the conversion of the 2003 Convertible Bonds and 50,000,000 new Shares to be issued pursuant to the exercise notice received by the Company on 29th November, 2004 for the exercise of the Share Options, the Placing Shares represent approximately 77.90% of the issued share capital of the Company and approximately 43.79% of the issued share capital of the Company as further enlarged by the Placing, whether before or after the Share Consolidation becoming effective.

A further announcement will be made by the Company in the event that the number of new Shares finally placed is less than 9,000,000,000 or, if the Share Consolidation becomes effective, the number of new Consolidated Shares finally placed is less than 225,000,000.

Ranking of Placing Shares

The Placing Shares, when fully paid, will rank pari passu in all respects with all existing Shares, or Consolidated Shares upon the Share Consolidation becoming effective, in issue.

−10 −

LETTER FROM THE BOARD

Placing price

The issue price per Placing Share is HK$0.01 or, if the Share Consolidation becomes effective, HK$0.40, which is the par value of the Share or, as the case may be, the Consolidated Share. The issue price of HK$0.01 per Placing Share represents:

• a discount of approximately 9.09% to the closing price of HK$0.011 per Share as quoted on the Stock Exchange on 12th November, 2004, being the date of the Placing Agreement;

• a discount of approximately 8.26% to the average closing price of HK$0.0109 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 12th November, 2004, being the date of the Placing Agreement; and

• a discount of approximately 62.96% to the closing price of HK$0.027 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Directors consider the issuance of Placing Shares at par value of HK$0.01 or, if the Share Consolidation becomes effective, HK$0.40 per Placing Share is fair and reasonable after considering that (i) the Group recorded losses from operations for the three financial years ended 30th June, 2004; (ii) the Group had net current liabilities of approximately HK$107 million and HK$7 million as at 30th June, 2003 and 30th June, 2004 respectively; and (iii) the Group had net liabilities of approximately HK$60 million and HK$6 million as at 30th June, 2003 and 30th June, 2004 respectively.

Conditions of the Placing

Completion is conditional upon:

• (i) the passing of the ordinary resolutions by the Shareholders at the SGM approving:

• (a) the increase in the authorized share capital of the Company from HK$200,000,000 to HK$500,000,000 by the creation of 30,000,000,000 new Shares or, upon the Share Consolidation having been approved by the Shareholders, 750,000,000 new Consolidated Shares; and

• (b) the Placing and the issue and allotment of the new Shares or, if the Share Consolidation has been approved by the Shareholders, new Consolidated Shares, under the Placing;

• (ii) the Listing Committee of the Stock Exchange agreeing to grant the listing of, and permission to deal in, the Placing Shares;

• (iii) the compliance of any other requirements under the Listing Rules and Takeovers Code or otherwise of the Stock Exchange and the SFC which requires compliance in relation to the Placing and the issue of the Placing Shares;

−11 −

LETTER FROM THE BOARD

• (iv) (where required) the Bermuda Monetary Authority granting its permission to the increase in the authorised share capital as contemplated under the Placing Agreement (as subsequently amended by the Supplemental Agreement) and the issue and allotment of the Placing Shares; and

• (v) the obtaining of all consents from any relevant persons which are necessary or desirable in connection with the Placing (and, where such consents are given subject to conditions, such conditions are on terms as may be reasonably acceptable to the Placing Agent and the Company).

If any of the conditions has not been fulfilled by the Long Stop Date, the Placing Agreement shall lapse and be terminated and all rights, obligations and liabilities of all parties thereunder in relation to the Placing shall cease and no party shall have any claim against the other under the Placing Agreement except for antecedent breach.

Completion

Completion is to take place on the fifth business day after the date upon which the conditions stated in the section headed “Conditions of the Placing” above are fulfilled or such other date as the Company and the Placing Agent may agree.

SHAREHOLDING STRUCTURE

Set out below is a table showing (i) the shareholding structure of the Company as at the date of the Announcement; (ii) its shareholding structure as at the Latest Practicable Date and assuming the Shares under the Share Options are duly issued and allotted; (iii) its shareholding structure immediately upon the Share Consolidation becoming effective; and (iv) its shareholding structure upon the Share Consolidation becoming effective and immediately after Completion, based on the assumption that all the Placing Shares are successfully placed by the Placing Agent:

Mr. Yu Kam Kee, Lawrence, M.B.E., J.P.1 Holder of the 2003 Convertible Bonds2 Holder of the Share Options3 Public Placees	As at the date of the Announcement Shares % 2,872,938,146 27.07 – – – – 7,741,185,986 72.93 – – 10,614,124,132 100	As at the Latest Practicable Date and assuming the Shares under the Share Options are fully allotted Shares % 2,872,938,146 24.87 888,888,888 7.69 50,000,000 0.43 7,741,185,986 67.01 – – 11,553,013,020 100	Immediately upon the Share Consolidation becoming effective Consolidated Shares % 71,823,453 24.87 22,222,222 7.69 1,250,000 0.43 193,529,649 67.01 − − 288,825,324 100	Upon the Share Consolidation becoming effective and immediately after Completion Consolidated Shares % 71,823,453 13.98 22,222,222 4.32 1,250,000 0.24 193,529,649 37.67 225,000,000 43.79 513,825,324 100

−12 −

LETTER FROM THE BOARD

• Note 1 : Mr. Yu Kam Kee, Lawrence, M.B.E., J.P. is an executive director and the chairman of the Company.

• Note 2 : A total of 888,888,888 new Shares resulting from the conversion of the 2003 Convertible Bonds were duly issued and allotted by the Company on 29th November, 2004.

• Note 3 : Assuming a total of 50,000,000 new Shares are duly issued and allotted by the Company after receiving the exercise notice for the exercise of the Share Options on 29th November, 2004. The holder of the Share Options is Mr. Wu Jiahong, who is an executive director of the Company.

INFORMATION ON THE GROUP

The Company is an investment holding company and the subsidiaries of which are principally engaged in the manufacture and sale of multimedia electronic products, toys and games and telecommunication components. The following table sets out a summary of the audited consolidated results of the Group for the three financial years ended 30th June, 2004:

	For the year	For the year	For the year
	ended	ended	ended
	30th June, 2002	30th June, 2003	30th June, 2004
	(Audited)	(Audited)	(Audited)
	HK$’000	HK$’000	HK$’000
Turnover	402,124	279,839	49,555
(Loss) from operation	(94,817)	(98,229)	(26,910)
Net (loss)/profit for the year	(106,133)	(104,571)	49,2661
	As at	As at	As at
	30th June, 2002	30th June, 2003	30th June, 2004
	HK$’000	HK$’000	HK$’000
Consolidated net asset value	41,460	(59,683)	(6,454)
Consolidated net asset value
per Share	HK$0.0063	HK$(0.0062)	HK$(0.0006)

• Note 1 : The net profit for the year ended 30th June, 2004 was mainly resulted from the non-recurring gain on disposal of subsidiaries of approximately HK$80 million. As stated in the 2004 auditors’ report of the Company, the accounts for the financial year ended 30th June, 2004 was qualified as the auditor failed to collect sufficient evidence to give reasonable assurance as to whether approximately HK$79 million of the above mentioned gain was free from material misstatement.

REASONS FOR THE PLACING AND USE OF PROCEEDS

The Company has recorded loss from operation since the financial year ended 30th June, 2000. As stated in the 2004 annual report of the Company, the loss-making Welback International Investment Limited and its subsidiaries and Ruian Weiye Technology Company Limited have been great burdens to the Group in the previous years and therefore the Group has disposed of the two subsidiaries during the year ended 30th June, 2004. However, the operation of the Group was significantly affected after such disposal. For the year ended 30th June, 2004, the Group experienced a decline in turnover by approximately 82% from

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LETTER FROM THE BOARD

approximately HK$280 million in 2003. Simultaneously, the cash generating ability of its operations further deteriorated for the year ended 30th June, 2004, with cash outflow from operating activities increased from approximately HK$18 million in 2003 to approximately HK$34 million in 2004. In addition, as at 30th June, 2004, the Group had net current liabilities, net liabilities and accumulated loss of approximately HK$7 million, HK$6 million and HK$228 million respectively.

In view of this, the Group has been exercising stringent cost control measures to enhance operational efficiency and as stated in the 2004 annual report of the Company, in order to improve the Group’s working capital, the Directors intend to, at appropriate time, consider raising additional funds to support and strengthen its existing operations. Besides, with a view to improving its operating performance, the Group has been continuously exploring new business opportunities which may offer growth and development potentials to the Group in the long run. As referred to the announcement issued by the Company dated 23rd November, 2004 and as at the Latest Practicable Date, the Company had preliminary discussion with an independent third party, who is not connected with the Company and the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective Associates, in relation to possible acquisition of certain interests in hotel and entertainment business in Macau. However, no contract, memorandum of understanding or letter of intent has been signed by the Company in connection with such investment (the “Possible Investment”). Appropriate announcement will be made by the Company as and when necessary in accordance with the Listing Rules.

The Group was also relatively highly geared with total interest bearing loans of approximately HK$26 million as at 30th June, 2004, of which HK$16 million represented the 2003 Convertible Bonds. In order to improve the financial structure of the Company paving way for its future expansion, the Directors intend to lessen the loan burden of the Company by raising capital funds through the Placing and consider that the Placing will put the Group in a better position to meet the challenges of the existing operating environment.

Assuming that all the Placing Shares are successfully placed by the Placing Agent, the gross proceeds from the Placing amounts to HK$90 million. After deducting related expenses of approximately HK$3 million, approximately HK$87 million will be available for the Group. The net proceeds raised per Placing Share upon Completion will be approximately HK$0.0097 per Share or, if the Share Consolidation becomes effective, HK$0.3867 per Consolidated Share. As stated in the Announcement, it was originally intended that approximately HK$10 million of the net proceeds will be used for the repayment of certain borrowings and the related interest incurred, HK$30 million will be set aside for future investment purpose (which may be used for, but not limited to, the Possible Investment), HK$17 million will be reserved for the redemption of the 2003 Convertible Bonds and the related interest incurred and the remaining HK$30 million will be used for additional general working capital of the Group. However, as the holder of the 2003 Convertible Bonds has served the exercise notice on 29th November, 2004 to fully convert all the outstanding 2003 Convertible Bonds and 888,888,888 new Shares resulting from the conversion were duly issued and allotted on the same day, HK$17 million of the net proceeds originally reserved for the redemption of the 2003 Convertible Bonds and the related interest incurred will be used for the payment of the interest for the 2003 Convertible Bonds and the remaining will be used for additional general working capital of the Group instead.

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LETTER FROM THE BOARD

INCREASE IN AUTHORIZED SHARE CAPITAL

As at the Latest Practicable Date, the authorized share capital of the Company was HK$200,000,000 divided into 20,000,000,000 shares of HK$0.01 each. In order to enable the issue and allotment of the Placing Shares and to facilitate future expansion, the Board proposes to increase the authorized share capital of the Company to HK$500,000,000 comprising 50,000,000,000 Shares by the creation of 30,000,000,000 new Shares or, if the Share Consolidation is approved by the Shareholders at the SGM and becoming effective, HK$500,000,000 comprising 1,250,000,000 Consolidated Shares by the creation of 750,000,000 Consolidated Shares.

The proposed increase in the authorized share capital of the Company will be subject to the passing of the ordinary resolution by the Shareholders at the SGM to approve the increase in the authorized share capital of the Company.

SGM

Set out on pages 18 to 19 of this circular is a notice convening the SGM to be held at 2:30 p.m. on Friday, 17th December, 2004 at Macau Jockey Club (HK) Clubhouse Golden Restaurant, 1st Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong at which ordinary resolutions will be proposed to approve (i) the Share Consolidation; (ii) the Placing and the issue and allotment of the Placing Shares under the Placing; and (iii) the increase in the authorized share capital of the Company.

Whether or not you are able to attend the SGM in person and vote at such meeting, you are advised to read the notice and complete the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and return it to the Company’s branch share registrar in Hong Kong, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of 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 any adjourned meeting if you so wish.

PROCEDURE TO DEMAND A POLL

The bye-laws of the Company provide that a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman; or

• (b) by at least three members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (c) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or

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LETTER FROM THE BOARD

• (d) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a member shall be deemed to be the same as a demand by the member.

APPLICATION FOR LISTING

An application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, (i) the Consolidated Shares in issue upon the Share Consolidation becoming effective; and (ii) the Placing Shares to be issued under the Placing Agreement (as subsequently amended by the Supplemental Agreement).

Subject to the granting of the listing of, and permission to deal in, the Consolidated Shares on the Stock Exchange, the Consolidated 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 Consolidated Shares on the Stock Exchange or such other date as 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.

Dealings in the Consolidated Shares may be settled through CCASS. You should seek the advice of your stockbroker or other professional adviser for details of those settlement arrangements and how such arrangements will affect your rights and interests.

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LETTER FROM THE BOARD

GENERAL

The following sets out the capital raising activity of the Company for the 12 months immediately before the Latest Practicable Date:

					Actual use of net
					proceeds as at the
		Conversion	Net	Intended use of	Latest Practicable
Date	Event	Price	proceeds	net proceeds	Date
		(HK$)	(HK$’m)
23rd December,	Issue of 2003	0.0182	15.841	HK$12 million would	Approximately HK$8
2003	Convertible			be used for the	million was used for
	Bonds			repayment of 4%	the repayment of
				convertible bonds	2002 Convertible
				issued on 30th May,	Bonds and
				2002 (“2002	approximately
				Convertible Bonds”)	HK$7.84 million was
				and HK$3.84 million	used for the general
				would be used for the	working capital3
				general working
				capital1

Notes:

1. Information is extracted from the announcement of the Company dated 21st August, 2003.

2. Represents the conversion price before any adjustments which may be made in relation to the Placing.

3. The 2002 Convertible Bonds were in a principal of approximately HK$15.6 million and matured on 29th May, 2003. During the period between the date of announcement (21st August, 2003) and the date of issue (23rd December, 2003) of 2003 Convertible Bonds, approximately HK$10.5 million of the matured 2002 Convertible Bonds was demanded by the bondholders. The Company then used approximately HK$4 million from a shareholder’s loan to repay part of the 2002 Convertible Bonds. Therefore, the proceeds from 2003 Convertible Bonds used for the repayment of 2002 Convertible Bonds were decreased from originally HK$12 million to approximately HK$8 million.

RECOMMENDATION

The Directors consider that the proposed Share Consolidation, the Placing and the proposed increase in the authorized share capital of the Company are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

Yours faithfully, By Order of the Board Ruili Holdings Limited Carl Chang Executive Director

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NOTICE OF SGM

RUILI HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

NOTICE IS HEREBY GIVEN that a special general meeting of Ruili Holdings Limited (the “ Company ”) will be held at 2:30 p.m. on Friday, 17th December, 2004 at Macau Jockey Club (HK) Clubhouse Golden Restaurant, 1st Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT , subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the Consolidated Shares (as defined below) in issue upon the Share Consolidation (as defined below) becoming effective, with effect from 9:30 a.m. on the next business day (not being a Saturday) after the date of the passing of this resolution:

2. (a) every 40 issued and unissued shares of HK$0.01 each in the share capital of the Company be consolidated (“ Share Consolidation ”) into 1 share of HK$0.40 each (“ Consolidated Share(s) ”);

3. (b) all of the Consolidated Shares resulting from such Share Consolidation shall rank pari passu in all respects with each other and have the rights and privileges and be subject to the restrictions contained in the bye-laws of the Company; and

4. (c) the directors of the Company be and are hereby authorized generally to do all such acts, deeds and things as they shall in their absolute discretion deem appropriate to effect and implement any of the foregoing.”

5. “ THAT the placing agreement dated 12th November, 2004 as supplemented by a supplemental agreement dated 18th November, 2004 (together “ Placing Agreement ”, a copy of which has been produced to this meeting marked “A” and initialled by the chairman of this meeting for the purpose of identification) made between the Company as issuer and Tai Fook Securities Company Limited (“ Placing Agent ”) as placing agent in relation to the appointment of the Placing Agent as placing agent to procure placees for an aggregate of 9,000,000,000 new ordinary shares of par value HK$0.01 each in the capital of the Company (each a “ Share ”), or if the Share Consolidation becomes effective, 225,000,000 new consolidated shares of par value HK$0.40 each in the capital

* For identification only

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NOTICE OF SGM

of the Company (each such new Shares or, as the case may be, new Consolidated Shares shall hereinafter be referred to as a “Placing Share”), at the issue price of HK$0.01 or, if the Share Consolidation becomes effective, HK$0.40 per Placing Share on a best efforts basis, all the transactions contemplated thereunder and all other matters thereof and incidental thereto or in connection therewith including (without limitation) the allotment and issue by the Company of the Placing Shares to the placees procured by the Placing Agent be and are hereby generally and unconditionally approved in all respects and that the Placing Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other Shares or, if the Share Consolidation becomes effective, Consolidated Shares, in issue at the date of such allotment and issue and further that the Directors be and they are hereby generally and unconditionally authorized to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which in the opinion of the Directors may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Placing Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors, in the interest of the Company.”

1. “ THAT the authorized share capital of the Company be and is hereby increased from HK$200,000,000 to HK$500,000,000 by the creation of 30,000,000,000 new ordinary shares of HK$0.01 each or, if resolution no. 1 is passed and the Share Consolidation becomes unconditional as therein mentioned, 750,000,000 new consolidated shares of HK$0.40 each, in the capital of the Company.”

Yours faithfully, By Order of the Board Ruili Holdings Limited Carl Chang Executive Director

Hong Kong, 1st December, 2004 Registered office: Principal place of business in Hong Kong: Clarendon House 2nd Floor, Talon Tower Church Street 38 Connaught Road West Hamilton HM 11 Hong Kong Bermuda

Notes:

1. A member entitled to attend and vote at the above-mentioned special general meeting is entitled to appoint one or more proxies to attend and, on a poll vote, vote instead of him. A proxy need not be a member of the Company. A member may appoint a proxy in respect of part only of his holding of shares in the Company. Completion and return of an instrument appointing a proxy will not preclude a member from attending and voting in person at the special general meeting.

2. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, must be lodged at the Company’s branch share registrar in Hong Kong, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding of the said meeting or any adjournment thereof.

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