China High Precision Automation Group Limited — Proxy Solicitation & Information Statement 2003

Aug 5, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult 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 Alco Holdings Limited, you should at once hand this circular together with the 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 takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

(incorporated in Bermuda with limited liability)

PROPOSAL FOR

ADOPTION OF NEW SHARE OPTION SCHEME AND CONFIRMATION OF TERMINATION OF THE 1992 SCHEME

Financial Advisor to Alco Holdings Limited

A notice convening a special general meeting of Alco Holdings Limited to be held on 21 August 2003 is set out on page 21 of this circular.

Whether or not you are able to attend the special general meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as practicable to Alco Holdings Limited’s principal place of business in Hong Kong at 11/F, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong and in any event no later that 48 hours before the time appointed for the holding of the special general meeting. Completion of a form of proxy will not preclude you from attending and voting at the special general meeting or any adjourned meeting should you so wish.

4 August 2003

CONTENTS

	Page
Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I – The Principal Terms of the New Share Option Scheme. . . . . . . . . . . . . .	11
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21

– i –

RESPONSIBILITY STATEMENT

This document includes particulars given in compliance with the Listing Rules for the purpose of giving information with regards to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this document and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

– 1 –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the meanings set out below:

• “1992 Scheme”

the share option scheme adopted by the Company on 6 November 1992 which expired on 5 November 2002

• “Associates”

has the same meaning ascribed to it under the Listing Rules

• “Associated Companies”

companies are related to each other (and thus an Associated Company of each other) for the purposes of the New Share Option Scheme if one of the companies or its subsidiary (within the meaning of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)) :–

• (a) has power to vote in respect of no less than 20% of the voting shares of the other company; or

• (b) holds no less than 20% of the issued share capital of the other company; or

• (c) is a subsidiary of the other company; or

• (d) is a subsidiary of a company that is an Associated Company of the other company pursuant to (a), (b) or (c) above;

• “Auditors”

the auditors for the time being of the Company

• “Board”

means the board of directors of the Company or the directors present at a duly convened meeting of the directors at which a quorum is present or the persons appointed by the board of directors to act as a committee of the board of directors of the Company for all or any matters relating to the New Share Option Scheme

“Business Day” any day on which the Stock Exchange is open for the business of trading in securities

• “Bye-laws”

Bye-laws of the Company in their present form or as supplemented or amended or substituted from time to time

• “Commencement Date”

in respect of any particular Option, the date on which the Option is granted in accordance with the terms of the New Share Option Scheme

– 2 –

DEFINITIONS

• “Companies Act”

• the Companies Act 1981 of Bermuda (as amended from time to time)

• “Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as amended from time to time

• “Company”

• Alco Holdings Limited, a company duly incorporated in Bermuda with limited liability

• “connected person” has the same meaning ascribed thereto in the Listing Rules

• “Directors” the directors of the Company

• “Effective Date”

• the date on which the Ordinary Resolution is passed at the SGM thereby rendering the New Share Option Scheme effective

• “Employee”

• any employee (whether full time or part time) of the Company or any of its Subsidiaries or Associated Companies, including any executive director (any of Mr Leung Kai Ching, Kimen, Mr Leung Wai Sing, Wilson and Mr Kuok Kun Man, Andrew) of the Company or any of such Subsidiaries or Associated Companies

• “Grantee or Option Holder” any Qualifying Grantee who accepts the offer of the grant of any Option in accordance with the terms of the New Share Option Scheme or (where the context so permit) a person entitled to any such Option in consequence of the death of the original Grantee

• “Group”

• the Company and its Subsidiaries

• “Latest Practicable Date”

• 28 July 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Listing Rules”

• Rules Governing the Listing of Securities on the Stock Exchange

• “New Share Option Scheme” the share option scheme to be adopted by the Company at the SGM, a summary of the principal terms of which is set out in Appendix I to this circular

• “Option”

• an option to subscribe for the Shares granted pursuant to the New Share Option Scheme

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DEFINITIONS

• “Option Period”

• in respect of any particular Option, the period within which the Shares must be taken up by the Grantee under the Option and such period as the Board may in its absolute discretion determine and in any event such period shall not be more than ten (10) years from the Commencement Date

• “Ordinary Resolution” the ordinary resolution to be proposed and passed at the SGM for the adoption of the New Share Option Scheme and confirmation of the termination of the 1992 Scheme

• “Proposal” means the proposal for confirmation of termination of the 1992 Scheme and the adoption of the New Share Option Scheme

• “Qualifying Grantee”

• as defined in the principal terms of the New Share Option Scheme to this circular

• “SGM” the special general meeting of the Company to be held on 21 August 2003 at Aberdeen Room, JW Marriott Hotel, Level 3, Pacific Place, 88 Queensway, Hong Kong, notice of which is set out on page 21 of this circular

• “Share(s)” ordinary share(s) of HK$0.10 each in the capital of the Company (or such other nominal value as shall result from a subdivision, consolidation, reclassification or re-structuring of such shares from time to time)

• “Shareholder(s)” holder(s) of the Share(s)

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Subscription Price”

• the price per Share at which the Grantee may subscribe for the Shares on the exercise of an Option

• “Subsidiary”

• a company which is for the time being and from time to time a subsidiary (within the meaning of section 2 of the Companies Ordinance) of the Company

• “Substantial Shareholder” has the same meaning ascribed in the Listing Rules

• “Takeover Code”

The Hong Kong Code on Takeovers and Mergers

• “Warrantholder(s)”

• a holder of warrant(s) issued by the Company

• “%”

• per cent.

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LETTER FROM THE BOARD

(Incorporated in Bermuda with limited liability)

Executive Directors:

Mr. LEUNG Kai Ching, Kimen (Chairman) Mr. LEUNG Wai Sing, Wilson Mr. KUOK Kun Man, Andrew

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent Non-executive Directors:

Mr. WONG Po Yan, G.B.M., J.P. The Hon. LI Wah Ming, Fred, J.P. Mr. LAU Wang Yip, Derrick

Principal Place of Business: 11th Floor Zung Fu Industrial Building 1067 King’s Road Quarry Bay Hong Kong 4 August 2003

To the Shareholders,

To the Warrantholders (for information only)

Dear Sir and Madam,

PROPOSAL FOR ADOPTION OF NEW SHARE OPTION SCHEME AND CONFIRMATION OF TERMINATION OF 1992 SCHEME

1. INTRODUCTION

The Board proposes to seek the approval of the Shareholders at the SGM for the confirmation of termination of the 1992 Scheme which was adopted on 6 November 1992, and the adoption of the New Share Option Scheme. Principal terms of the New Share Option Scheme are set out in Appendix I to this circular.

The purpose of this circular is to provide you with information in respect of the Ordinary Resolution to be proposed at the SGM for the approval of (i) the confirmation of termination of the 1992 Scheme and (ii) the adoption of the New Share Option Scheme.

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LETTER FROM THE BOARD

2. THE PROPOSAL

Confirmation of termination of the 1992 Scheme and adoption of the New Share Option Scheme

As at the Latest Practicable Date, there were 512,838,894 Shares in issue. The particulars of the options granted under the 1992 Scheme are set out below:

	First grant	Second grant
	**(Sept 1994 - Sept 1997) **	(Nov 1997 - Nov 2000)
Number of Share subject to total options granted under the
1992 Scheme as at the Latest Practicable Date	13,000,000 Shares	47,000,000 Shares
Number of Shares that have been issued pursuant to
exercise of options under the 1992 Scheme
as at the Latest Practicable Date	Nil	45,190,000 Shares
Number of Shares subject to options lapsed under
the 1992 Scheme	13,000,000 Shares	1,810,000 Shares
Percentage of Shares issued pursuant to
exercise of the options under the 1992 Scheme in the issued
share capital as at the Latest Practicable Date	Nil	8.81%

As at the Latest Practicable Date, the Company has not adopted any share option scheme other that the 1992 Scheme. Share Option granted under 1992 Scheme has expired on 5 November 2002, and no further options have been granted thereafter.

The total number of Shares which may be issued on the Effective Date under the New Share Option Scheme and any other share option scheme(s) of the Group must not in aggregate exceed 51,283,889 Shares, representing 10 per cent of the total issued Share Capital of 512,838,894 Shares as at the date of the passing of the Ordinary Resolution, assuming that no further Shares shall have been issued between the Latest Practicable Date and the Effective Date.

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LETTER FROM THE BOARD

The maximum aggregate number of Shares to be issued upon exercise of all outstanding options granted and yet to be exercised under the New Share Option Scheme and any other share option scheme(s) of the Group must not in aggregate exceed 30 per cent of the Shares in issue from time to time. No options may be granted under any schemes of the Company (or the Subsidiary) if this will result in such limit being exceeded.

The Company will publish an announcement on the outcome of the SGM for the adoption of the New Share Option Scheme on the business day following the SGM.

The Company will comply with the relevant requirements under Chapter 17 of the Listing Rules in respect of the operation of the New Share Option Scheme.

Reasons for the Proposal

On 23 August 2001, the Stock Exchange announced amendments to Chapter 17 of the Listing Rules, which came into effect on 1 September 2001. In compliance with the amendments to the Listing Rules and the announcement of the Stock Exchange and for reasons set out in this letter, the Directors consider that it is in the interest of the Company to confirm the termination of the 1992 Scheme and to adopt the New Share Option Scheme.

Chapter 17 of the Listing Rules deals with the share option schemes of listed companies. The amendments introduced expand the classes of potential grantees of share options, relax certain requirements relating to the maximum number of shares comprised in share options that can be granted under the share option schemes of listed companies and, at the same time, impose new disclosure and approval requirements on listed and, at the same time, impose new disclosure and approval requirements on listed companies. In general, these amendments are designed to facilitate the giving of incentives and rewards to employees and other stakeholders of listed companies through the grant of share options while improving transparency and accountability over the grant of share options by these companies.

All share option granted under 1992 Scheme has either been exercised or lapsed and no further options are granted. The Board wishes to propose to the Shareholders that the Company should confirm the termination of its 1992 Scheme and adopt the New Share Option Scheme, the terms of which comply with the amended Chapter 17 of the Listing Rules. The Directors consider that the adoption of the New Share Option Scheme is in the interests of the Company and the Shareholders as a whole because it enables the Company to reward and provide incentives to the Qualifying Grantees to work for the best interests of the Group and to reward for their contributions to the Group.

Although there will be no performance target imposed on the Grantee under the New Share Option Scheme, the Directors believe that (a) the minimum period (if any) (which is not fixed and will be decided on a case basis by the Board) for which an Option has to be held

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LETTER FROM THE BOARD

before it is exercised; and (b) the Subscription Price is determined by the highest of (i) the closing price of Shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant of the Offer, which must be a Business Day; (ii) the average closing price of Shares as stated in the Stock Exchange’s daily quotations sheets for the five (5) Business Days immediately preceding the date of grant of the Offer; and (iii) the nominal value of a Share, mean that the Grantees would only be able to obtain benefits from the Options granted to them if the price of Shares rises after the date of grant. The Directors therefore believe the setting of the minimum period (if any) and the mechanism in determining the Subscription Price enable the purposes of the New Share Option Scheme to be achieved, which, as stated above, are to provide incentives to the Qualifying Grantees to work for the best interests of the Group and to reward them accordingly.

No Directors are trustees of the New Share Option Scheme or have a direct or indirect interest in such trustees.

Set out on page 11 to 20 of this circular are the principal terms of the New Share Option Scheme.

Conditions of the adoption of the New Share Option Scheme

The adoption of the New Share Option Scheme is conditional upon:

• (i) the passing of the Ordinary Resolution at the SGM approving the adoption of the New Share Option Scheme;

• (ii) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in any Shares which may be allotted and issued upon the exercise of the Options to be granted under the New Share Option Scheme; and

• (iii) the Bermuda Monetary Authority granting its consent to the New Share Option Scheme, if so required.

At the SGM, the Ordinary Resolution will be proposed for the Company to confirm the termination of the 1992 Scheme and to approve the adoption of the New Share Option Scheme pursuant to which the Qualifying Grantees many be granted Options to subscribe for Shares upon and subject to the terms and conditions of the rules of the New Share Option Scheme.

Application will be made to the Listing Committee of the Stock Exchange for approval of the listing of, and permission to deal in, the Shares which may be issued pursuant to the exercise of any Options to be granted under the New Share Option Scheme.

– 8 –

LETTER FROM THE BOARD

If any of the above conditions are not satisfied on or before 21 November 2003, the New Share Option Scheme shall forthwith terminate and no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the New Share Option Scheme. Further announcement will be made on the outcome of the SGM in respect of the adoption of the New Share Option Scheme.

Value of all Options that can be granted under the New Share Option Scheme

The Directors consider that it is not appropriate to state the value of all the Options that can be granted under the New Share Option Scheme given that the variables which are crucial for the calculation of the value of such Option cannot be determined. The variables which are critical for the determination of the value of such Options include, the subscription price for the Shares upon the exercise of the subscription rights attaching to the Options, whether or not Options will be granted under the New Share Option Scheme and the timing of the granting of such Options, the period during which the subscription rights may be exercised and any other conditions that the Board imposed on the Options and whether or not such Options if granted will be exercised by the Grantees. The Subscription Price depends on the price of the Shares as quoted on the Stock Exchange, which in turn depends on when the Board is to grant any Option under the New Share Option Scheme. With a scheme life of ten (10) years, the Board is of the view that it is too premature to state whether or not Options will be granted under the New Share Option Scheme, and if so, the number of Options will be granted under the New Share Option Scheme, and if so, the number of Options that may be granted. It is also difficult to ascertain with reasonable accuracy the Subscription Price given the volatility the Share price may be subject to during the 10-year life span of the New Share Option Scheme. On these premises, the Directors are of the view that the value of the Options depends on a number of variables which are either difficult to ascertain or can only be ascertained subject to a number of theoretical basis and speculative assumptions. Accordingly, the Directors believe that any calculation of the value of the Options as at the Latest Practicable Date will not be meaningful and may be misleading to Shareholders in the circumstances.

3. RECOMMENDATION

The Directors consider that the Proposal is in the interests of the Group and the Shareholders. Accordingly, the Directors recommend Shareholders to vote in favour of the Ordinary Resolution to be proposed at the SGM.

4. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at 11th Floor, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong during normal business hours from the date hereof up to and including the date of the SGM:

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LETTER FROM THE BOARD

• (i) the bye-laws of the Company;

• (ii) the rules of the 1992 Scheme; and

• (iii) the rules of the New Share Option Scheme.

5. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in Appendix I and the notice of the SGM set out in this circular.

6. THE SGM

The notice of the SGM is set out on page 21 to 22 of this circular. At the SGM, the Ordinary Resolution will be proposed to, among other things, approve (i) the confirmation of termination of the 1992 Scheme and (ii) the adoption of the New Share Option Scheme.

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 certified copy of that power of attorney or authority at the Company’s principal place of Business in Hong Kong, at 11/F, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong not less that 48 hours before the time appointed for holding the SGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the SGM if you so wish.

Yours faithfully,

By order of the Board Alco Holdings Limited Leung Kai Ching, Kimen Chairman

– 10 –

APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

The following is a summary of the terms required to be included in the New Share Option Scheme as required by the Listing Rules:

1. The purpose of the New Share Option Scheme is to provide Qualifying Grantees with the opportunity to acquire proprietary interests in the Company and to encourage Qualifying Grantee to work towards enhancing the value of the Company and its Shares for the benefit of the Company and its shareholders as a whole.

2. The New Share Option Scheme is to be administered by the Board, and the decision of the Board shall be final and binding on all parties.

3. On and subject to the terms of the New Share Option Scheme and the requirements of the Listing Rules, the Board may offer to grant an Option to any Qualifying Grantee as the Board may in its absolute discretion select.

4. The Board is entitled during the life of the New Share Option Scheme to make an offer in writing to any Qualifying Grantee in the scheme selected by the Board in its absolute discretion, to take up Options for such number of Shares during such period and at such price determined by the Board.

5. Each grant of Options to any director, chief executive or substantial shareholder of the Company or any of their respective associates (as defined in the Listing Rules) shall be approved by the independent non-executive directors of the Company (excluding independent non-executive director who is the grantee of the Options). Where any grant of Options to a substantial shareholder or an independent nonexecutive director of the Company, or any of their respective associates, would result in the Shares issued and to be issued upon exercise of all Options already granted and to be granted (including Options exercised, cancelled and outstanding) to such person in the 12 month period up to and including the date of such grant:

6. (a) representing in aggregate over 0.1% of the Shares in issue; and

7. (b) having an aggregate value, based on the closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange on the Date of Grant, in excess of HK$5 million,

such further grant of Options must be approved (voting by way of poll) by the Shareholders. All connected persons (as defined in the Listing Rules) of the Company must abstain from voting at such general meeting, except that any connected person may vote against the relevant resolution at the general meeting provided that his intention to do so has been stated in the circular to be sent to the Shareholders for the relevant resolution.

– 11 –

APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

1. An offer of the grant of an Option may not be made after a price sensitive event or a price sensitive matter has been the subject of a decision, until such price sensitive information has been publicly disseminated in accordance with the Listing Rules. In particular, no Option may be granted during the period commencing one month immediately preceding the earlier of:

2. (a) the date of the Board meeting (as such date is first notified to the Stock Exchange) for the approval of the Company’s interim or annual results; and

3. (b) the deadline for the Company to publish its interim or annual results announcement,

and ending on the date of the results announcement.

1. The overall limit on the number of Shares which may be issued upon exercise of all Options granted and yet to be exercised under the New Share Option Scheme and other share option schemes of the Company must not exceed 30% of the Shares in issue from time to time (the “Scheme Limit”).

The total number of Shares which may be issued upon exercise of all Options to be granted under the New Share Option Scheme and any other Schemes must not exceed 10% of the Shares in issue on the Adoption Date (the “Scheme Mandate Limit”). Options lapsed in accordance with the terms of the New Share Option Scheme shall not be counted for the purpose of calculating the Scheme Mandate Limit.

The Company may renew the Scheme Mandate Limit at any time subject to prior Shareholders’ approval in general meeting. However, the Scheme Mandate Limit as renewed must not exceed 10% of the Shares in issue as at the date of the aforesaid Shareholders’ approval. Options previously granted under the New Share Option Scheme and other share option schemes (including those outstanding, cancelled, lapsed in accordance with the schemes or exercised share options) will not be counted for the purpose of calculating the limit as renewed. A circular must be sent to Shareholders in connection with the meeting at which their approval will be sought.

The Company may also seek separate Shareholders’ approval in general meeting for granting Options beyond the Scheme Mandate Limit to Qualifying Grantees specifically identified by the Company before the aforesaid Shareholders’ meeting where such approval is sought. A circular must be sent to Shareholders containing a generic description of the identified Qualifying Grantees, the number and terms of the Options to be granted, the purpose of granting Options to the identified Qualifying Grantees, and how these Options serve such purpose.

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APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

1. The total number of Shares issued and to be issued upon exercise of the Options granted and to be granted to each Qualifying Grantee or Option Holder (as the case may be) (including both exercised and outstanding Options) in any 12-month period must not exceed 1% of the Shares in issue (the “Individual Limit”). Any further grant of Options in excess of the Individual Limit shall be subject to Shareholders’ approval in general meeting with such Qualifying Grantee or Option Holder (as the case may be) and his associates (as such term is defined in the Listing Rules) abstaining from voting. A circular must be sent to the Shareholders disclosing the identity of the Qualifying Grantee or Option Holder (as the case may be) and the number and terms of the Options granted and to be granted. The number and terms of Options to be granted to such Qualifying Grantee or Option Holder, as the case may be, shall be fixed before Shareholders’ approval is sought and the date of the board meeting for proposing such further grant shall be taken as the Date of Grant for the purpose of calculating the Subscription Price.

The maximum number of Shares referred to in paragraph 8 shall be adjusted, in such manner as the Financial Advisor or Auditors shall certify to be appropriate, fair and reasonable in the event of a capitalisation issue, rights issue, consolidation or subdivision of Shares, or reduction of capital of the Company in accordance with paragraph 21.

1. The period (the “Option Period”) within which the Shares must be taken up under an Option shall be determined by the Board in its absolute discretion at the time of grant, but such period must not exceed 10 years from the date of grant of the relevant Option.

2. On and subject to the terms of the New Share Option Scheme, the Board shall be entitled at any time within ten years after the Adoption Date to make an Offer to any Qualifying Grantee, as the Board may in its absolute discretion select, to take up an Option pursuant to which such Qualifying Grantee may, during the Option Period, subscribe for such number of Shares as the Board may determine at the Subscription Price. The Offer shall specify the terms and conditions on which the Option is to be granted on a case by case basis. Such terms and conditions may include, but not limited to:

3. the exercise price subject to requirements set out in paragraph 12 below;

4. the period within which the Shares must be taken up under the Option, which must not be more than 10 years from the Date of Grant;

5. the minimum period, if any, for which an Option must be held before it can be exercised (the New Share Option Scheme itself does not specify any minimum holding period); and

– 13 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX I

• the performance targets, if any, that must be achieved before the Option can be exercised (the New Share Option Scheme itself does not specify any performance targets).

• An Offer shall be deemed to have been accepted and the Option to which the Offer relates shall be deemed to have been granted and to have taken effect when the duplicate of the offer letter comprising acceptance of the Offer duly signed by the Qualifying Grantee with the number of Shares in respect of which the Offer is accepted clearly stated therein, together with a remittance in favour of the Company of HK$5 by way of consideration for the grant thereof, is received by the Company. Such remittance shall not be refundable in any circumstances.

• The Subscription Price shall be such price determined by the Board at its absolute discretion and notified to the Qualifying Grantee in the Offer and shall be no less than the highest of:

• (a) the closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange on the date of grant of the Offer;

• (b) the average closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange for the five business days immediately preceding the date of grant of the Offer; and

• (c) the nominal value of a Share

• The Shares to be allotted and issued upon the exercise of an Option shall be subject to all the provisions of the memorandum of association and bye-laws of the Company for the time being in force and will rank pari passu with the fully paid Shares in issue on the date the name of the Option Holder is registered on the register of members of the Company. Prior to the Option Holder being registered on the register of members of the Company, the Option Holder shall not have any voting rights, or rights to participate in any dividends or distributions of any rights arising on a liquidation of the Company, in respect of the Shares to be issued upon the exercise of the Option.

• Subject to the provisions of the New Share Option Scheme, the New Share Option Scheme shall be valid and effective for a period of ten years commencing on the Adoption Date. After the expiry of the ten-year period, no further Options shall be offered or granted but in all other respects the provisions of the New Share Option Scheme shall remain in full force and effect. Options complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the New Share Option Scheme shall continue to be exercisable in accordance with their terms of issue after the end of the ten-year period.

– 14 –

APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

1. In the event the Option Holder ceasing to be a Qualifying Grantee for any reason (including his or her death) other than:

2. (i) the termination of his or her employment on one or more of the grounds specified in paragraph 20(f) below; or

3. (ii) the termination of his or her employment for any reason during the one month period following the commencement date of the Option Period in respect of his or her Option,

the Option Holder below (or his or her legal personal representatives) may, subject to paragraph 20(a), exercise the Option up to his or her entitlement at such date of cessation (to the extent not already exercised) within the period of 3 months following the date of such cessation, which date shall be the last actual working day on which the Option Holder was at work with the Company or any relevant Subsidiary or Associated Company on which salary is paid whether in lieu of notice or not or the date on which his contractual notice period expires, whichever is later or such longer period as the Board may determine;

1. If a general offer by way of takeover (other than by way of scheme of arrangement pursuant to paragraph 17 below) is made to all the holders of Shares (or all such holders other than the offeror, any person controlled by the offeror and any person acting in association or concert with the offeror) and such offer becomes or is declared unconditional prior to the expiry date of the relevant Option, the Company shall forthwith give notice thereof to the Option Holder and the Option Holder shall be entitled to exercise the Option either to its full extent or to the extent notified by the Company at any time within such period as shall be notified by the Company.

2. If a general offer by way of scheme of arrangement is made to all the holders of Shares and has been approved by the necessary number of holders of Shares at the requisite meetings, the Company shall forthwith give notice thereof to the Option Holder and the Option Holder may at any time thereafter (but before such time as shall be notified by the Company) exercise the Option either to its full extent or to the extent notified by the Company.

3. In the event a notice is given by the Company to its Shareholders to convene a shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to the Option Holder and the Option Holder may at any time thereafter but before such time as shall be notified by the Company, by notice in writing to the Company, exercise the Option either to its full extent or to the extent notified by the Company, such notice to be accompanied by a remittance of the full amount of the subscription price of

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APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

the Shares in respect of such exercise, and the Company shall as soon as possible and in any event no later than three days prior to the date of the proposed shareholders’ meeting, allot, issue and register in the name of the Option Holder such number of fully paid Shares which fall to be issued on exercise of such Option.

1. In the event of a compromise or arrangement, other than a scheme of arrangement contemplated in paragraph 17 above, between the Company and its members or creditors being proposed in connection with a scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof to all Option Holders on the same day as it gives notice of the meeting to its members or creditors to consider such a scheme or arrangement and the Option Holders may at any time thereafter but before such time as shall be notified by the Company, by notice in writing to the Company, exercise the Option either to its full extent or to the extent notified by the Company, such notice to be accompanied by a remittance of the full amount of the subscription price of the Shares in respect of such exercise, and the Company shall as soon as possible and in any event no later than three days prior to the date of the proposed meeting, allot, issue and register in the name of the Option Holders such number of fully paid Shares which fall to be issued on exercise of such Option.

2. Subject to the provisions of the New Share Option Scheme, an Option shall lapse automatically (to the extent not already exercised) on the earliest of:

3. (a) the expiry of the Option Period;

4. (b) the expiry of the periods for exercising the Option as referred to in paragraphs 15, 16, 18 and 19;

5. (c) subject to the scheme of arrangement (referred to in paragraph 17) becoming effective, the expiry of the period for exercising the Option as referred to in paragraph 17;

6. (d) subject to paragraph 18, the date of the commencement of the winding-up of the Company;

7. (e) the date on which the Option Holder commits a breach of paragraph 25;

8. (f) the date on which the Option Holder, if an employee, ceases to be an employee of the Group or the Company's Associated Companies by reason of the termination of his or her employment on the grounds that he or she has been guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his debts or has become bankrupt or

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THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX I

has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or on any other ground on which an employer would be entitled to terminate his or her employment summarily; and

• (g) subject to paragraph 15, the date the Option Holder, if an employee of a member of the Group or its Associated Companies, ceases to be an employee of the Group or its Associated Companies by any other reason.

• In the event of any alteration in the capital structure of the Company whilst any Option remains exercisable or the New Share Option Scheme remains in effect, and such event arises from a capitalisation issue, rights issue, consolidation or subdivision of any Shares of the Company or reduction of the share capital of the Company, then, in any such case the Company shall instruct the Financial Advisor or the Auditors to certify in writing the adjustment, if any, that ought in their opinion fairly and reasonably to be made either generally or as regards any particular Option Holder, to:

• (a) the number or nominal amount of Shares subject to the Option(s) already granted and to the New Share Option Scheme so far as unexercised; and/or;

• (b) the Subscription Price of the Option(s),

and an adjustment as so certified by the Financial Advisor or the Auditors shall be made, provided that:

• (i) the Financial Advisor or the Auditors shall be instructed to confirm to the Board in writing that the adjustment (other than any made on a capitalisation issue) satisfies the requirements set out in the note to Rule 17.03(13) of the Listing Rules;

• (ii) no such adjustment shall be made the effect of which would be to enable a Share to be issued at less than its nominal value; and

• (iii) any such adjustment shall give Qualifying Grantee the same proportion of the equity capital of the Company as that to which that person was previously entitled.

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APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

In respect of any such adjustments, other than any made on a capitalisation issue, the Financial Advisor or the Auditors must have confirmed to the Board in writing that the adjustments satisfy the requirements of the note to Rule 17.03(13) of the Listing Rules.

For the avoidance of doubt, the issue of securities as consideration in a transaction shall not be regarded as a circumstance requiring any such alteration.

1. Options granted but not exercised may be cancelled by the Company with the approval of the Option Holder. Where the Company cancels Options and offers to issue new ones to the same Qualifying Grantee, the issue of such new Options may only be made under the New Share Option Scheme with available unissued Options (excluding the cancelled Options) within the limits set out in paragraph 7 above.

2. The Shares issued on exercise of the Options will on issue be identical to the then existing issued Shares.

3. The Company by ordinary resolution in general meeting or the Board may at any time terminate the operation of the New Share Option Scheme and in such event no further Options will be offered or granted but in all other respects the provisions of the New Share Option Scheme shall remain in full force and effect. Options complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the New Share Option Scheme and remain unexpired immediately prior to the termination of the operation of the New Share Option Scheme shall continue to be exercisable in accordance with their terms of issue after the termination of the New Share Option Scheme.

4. An Option shall be personal to the Option Holder and shall not be assignable and no Option Holder shall in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any other person over or in relation to any Option. Any breach of the foregoing shall entitle the Company to cancel any outstanding Option or part thereof granted to such Option Holder without incurring any liability on the part of the Company.

5. Those specific provisions of the New Share Option Scheme which relate to the matters set out in Rule 17.03 of the Listing Rules cannot be altered to the advantage of Qualifying Grantees without prior approval of Shareholders in general meeting. Any change to the authority of the Directors or administrators of the New Share Option Scheme in relation to any alteration to the terms of the New Share Option Scheme shall be approved by Shareholders in general meeting. Any alterations to the terms and conditions of the New Share Option Scheme which are of a material nature, or any change to the terms of Options granted, must be approved by the

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APPENDIX I THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

Shareholders in general meeting, except where the alterations take effect automatically under the existing terms of the New Share Option Scheme. The New Share Option Scheme so altered must comply with Chapter 17 of the Listing Rules.

1. On exercise of an Option by an Option Holder, the Company may at its sole discretion (which discretion may or may not be exercised on request from a Qualifying Grantee) select to cancel such exercised Option and instead of issuing new Shares to the Option Holder, pay to the Option Holder the aggregate of:

2. (a) the subscription price received by the Company from the Option Holder with the notice of exercise of the Option; and

3. (b) if the average closing price of the Shares (as stated in the daily quotations sheets issued by the Stock Exchange for the five business days immediately preceding the date the Company receives notice of exercise of the Option) exceeds the subscription price, an amount equal to such excess multiplied by the number of Shares in respect of which the Option was exercised.

Any payment made by the Company pursuant to paragraph (b) above shall be accounted for in accordance with applicable laws and the generally accepted accounting principles in force at the time of such payment.

For the purpose of this Appendix I:–

• “Adoption Date”

means the date of adoption of the New Share Option Scheme by shareholders of the Company;

• “associates”

has the meaning ascribed to it under the Listing Rules

• “Associated Companies”

companies are related to each other (and thus an Associated Company of each other) for the purposes of the New Share Option Scheme if one of the companies or its subsidiary (within the meaning of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)):-

• (a) has power to vote in respect of no less than 20% of the voting shares of the other company; or

• (b) holds no less than 20% of the issued share capital of the other company; or

• (c) is a subsidiary of the other company; or

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APPENDIX I

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

• (d) is a subsidiary of a company that is an Associated Company of the other company pursuant to (a), (b) or (c) above;

• “Auditors”

means the auditors of the Group;

• “Board”

• means the board of directors of the Company or a committee thereof appointed for the purpose of administering the New Share Option Scheme;

• “Employee”

• means any employee of the Company or any of its Subsidiaries or Associated Companies and any person who is an officer or director (whether executive or non-executive or independent non-executive) of the Company or any of its Subsidiaries or Associated Companies. An Option Holder shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or the relevant Subsidiary or Associated Company; or (ii) transfers between the Company and any Subsidiary or Associated Company or between any members of the Group;

• “Financial Advisor”

• means an independent financial advisor who is appointed by the Board from time to time for the purpose of paragraph 21 above;

• “New Share Option Scheme” means the share option scheme of the Company to be adopted at the SGM or any adjourned meeting;

• “Offer”

• means the offer of the grant of an Option;

• “Option”

• means a right granted to subscribe for Shares pursuant to the New Share Option Scheme;

• “Option Holder”

• means any Qualifying Grantee who accepts an offer in accordance with the terms of the New Share Option Scheme, or (where the context so permits) any person who is entitled to such Option in consequence of the death of the original Option Holder, or the legal personal representative of such person;

• “Qualifying Grantee”

• means any Employee of the Company or any of its Subsidiaries or Associated Companies;

• “Subscription Price”

• means the price per Share at which an Option Holder may subscribe for Shares upon exercise of an Option.

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NOTICE OF SPECIAL GENERAL MEETING

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of Alco Holdings Limited will be held at Aberdeen Room, JW Marriott Hotel, Level 3, Pacific Place, 88 Queensway, Hong Kong, on 21 August, 2003 immediately after the closing of annual general meeting to be held at 11:00 a.m. on the same day and at the same place for the purpose of considering and, if thought fit, passing the following resolution, as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT subject to The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting listing of and permission to deal in the shares which may fall to be issued upon exercise of options granted under the New Scheme (as defined below) and with effect from the close of business of the day on which this resolution is passed:–

• (a) the termination of the share option scheme (the “ Existing Scheme ”) adopted by the Company pursuant to a resolution by the shareholders of the Company on 6 November 1992 with effect from 5 November 2002 be and is hereby confirmed and the Existing Scheme shall cease to have with any further effect save and except that the Existing Scheme will remain in force to the extent necessary to give effect to the exercise of the options granted thereunder prior to the termination thereof;

• (b) the rules of the share option scheme (the “ New Scheme ”), the principal terms of which have been summarised in the circular (the “ Circular ”) to the shareholders of the Company dated 4 August 2003) (a copy of the New Scheme and the Circular having been produced to the meeting marked “A” and “B” respectively and signed by the chairman of the meeting for the purpose of identification), be approved and adopted and the directors of the Company (“ Directors ”) be and are hereby authorised to take all such steps as they may deem necessary, desirable or expedient to carry into effect, waive or amend the New Scheme subject to the terms thereof and Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange; and

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NOTICE OF SPECIAL GENERAL MEETING

• (c) the Directors be and are hereby authorised to grant options to subscribe for shares of the Company under the New Scheme and to allot, issue and otherwise deal with the shares in the capital of the Company pursuant to the exercise of options granted under the New Scheme.”

By Order of the Board Leung Kai Ching, Kimen Chairman

Hong Kong, dated 4 August 2003

Principal Place of Business

11th Floor Zung Fu Industrial Building 1067 King’s Road Quarry Bay Hong Kong

Notes:

1. Any Shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and on a poll, vote instead of him. A proxy need not be a Shareholder.

2. To be valid, a proxy form, together with any power of attorney or other authority (if any) under which it is signed, or a certified copy thereof, must be lodged with the Company’s Principal Place of business at 11th Floor, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

3. A form of proxy for use at the meeting is enclosed herewith.

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