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

Jul 29, 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 enclosed 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.

ALCO HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

GENERAL MANDATES TO ISSUE

AND

REPURCHASE SHARES

Ordinary resolutions will be proposed at the Annual General Meeting of Alco Holdings Limited to be held at Aberdeen Room, JW Marriott Hotel, Level 3, Pacific Place, 88 Queensway, Hong Kong on Thursday, 21st August 2003 at 11:00 a.m. to grant General Mandates to the Directors of the Company to issue Shares and to repurchase Shares.

21st July 2003

DEFINITIONS

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

“Annual General Meeting (AGM)”	the annual general meeting of the Company to be held on 21st
	August 2003 and any adjournment thereof
“Company”	Alco Holdings Limited, a company incorporated in Bermuda with
	limited liability and whose shares are listed on the Stock
	Exchange
“Director(s)”	the director(s) of the Company
“General Mandates”	the Share Issue Mandate and the Share Repurchase Mandate (as
	defined in the Letter from the Chairman), approvals of which are
	to be sought at the AGM
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Latest Practicable Date”	21st July 2003, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information in
	this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Share(s)”	share(s) of par value HK$0.10 each in the capital of the Company
“Share Buy Back Rules”	the relevant rules set out in the Listing Rules to regulate the
	repurchase by companies with primary listing of their own
	securities on the Stock Exchange
“Shareholder(s)”	registered holder(s) of Share(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeover Code”	the Hong Kong Code on Takeovers and Mergers

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LETTER FROM THE CHAIRMAN

ALCO HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors:

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

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

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business and head office: 11th Floor Zung Fu Industrial Building 1067 King’s Road Quarry Bay Hong Kong

21st July 2003

To the Shareholders

Dear Sir or Madam,

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

INTRODUCTION

At the Annual General Meeting of the Company held on 22nd August 2002, general mandates were given to the Directors to exercise the powers of the Company to issue Shares and to repurchase Shares. These general mandates will lapse at the conclusion of the forthcoming AGM. Ordinary resolutions will therefore be proposed at the AGM to grant new General Mandates to issue Shares and to repurchase Shares.

GENERAL MANDATE TO ISSUE SHARES

At the AGM, an ordinary resolution will be proposed to grant to the Directors a general and unconditional mandate to exercise all the powers of the Company to allot, issue and deal with Shares not exceeding 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of the relevant resolution (“the Share Issue Mandate”) provided that, in any event, any Shares to be allotted and issued pursuant to this general mandate shall not be allotted and issued at a discount of 5% or more to the Benchmarked Price of the Shares.

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LETTER FROM THE CHAIRMAN

For the purpose of this resolution, the “Benchmarked Price” shall be a price which is the higher of:

• (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date of signing of the agreement to which the transaction relates; and

• (ii) the average closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet for the five trading days immediately preceding the earlier of:

• (a) the date of signing of the agreement to which the transaction relates;

• (b) the date on which the relevant transaction is announced; and

• (c) the date on which the price of the Shares to be issued pursuant to the transaction is fixed.

GENERAL MANDATE TO REPURCHASE SHARES

At the AGM, an ordinary resolution will also be proposed to grant to the Directors a general mandate to exercise all the powers of the Company to repurchase Shares with an aggregate nominal amount not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of the passing of the relevant resolution (the “Share Repurchase Mandate”). An explanatory statement as required under the Share Buy Back Rules, giving certain information regarding the Share Repurchase Mandate, is set out in the Appendix to this circular.

RECOMMENDATION

The Directors consider that the granting of the General Mandates to the Directors is in the best interests of the Company and the Shareholders. Accordingly, the Directors recommend Shareholders to vote in favour of the resolutions to be proposed at the AGM relating to the granting of the General Mandates.

Yours faithfully On behalf of the Board

LEUNG Kai Ching, Kimen

Chairman

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APPENDIX

This Appendix serves as an explanatory statement, as required by the Share Buy Back Rules, to provide Shareholders with all the information reasonably necessary to enable them to make an informed decision on whether to vote for or against the granting of the Share Repurchase Mandate.

1. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company comprised 511,435,894 fully paid-up Shares. Subject to the passing of the resolution at the AGM granting the Share Repurchase Mandate and on the basis that no further Shares are issued or repurchased before the AGM, the Company would be allowed to repurchase a maximum of 51,143,589 Shares representing 10% of the Shares in issue as at the date of the AGM.

The Share Repurchase Mandate may continue in force until the earliest of: (i) the conclusion of the next annual general meeting of the Company for the year of 2004; (ii) the expiration of the period within which the next annual general meeting of the Company is required by law to be held; and (iii) the revocation or variation of the Share Repurchase Mandate by ordinary resolution of the Shareholders in general meeting.

2. REASONS FOR REPURCHASES

The Directors consider that the Share Repurchase Mandate is in the best interests of the Company and the Shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net assets of the Company and/or its earnings per share and will only be made when the Directors believe that such repurchases will benefit the Company and the Shareholders.

3. FUNDING OF REPURCHASES

In repurchasing Shares the Company may only apply funds legally available for such purpose in accordance with its memorandum of association and bye-laws, the laws of Bermuda and any other applicable laws. The laws of Bermuda provide that the amount of capital repaid in connection with a share repurchase may only be paid out of the funds of the Company otherwise available for dividend, or distribution or out of the proceeds of a fresh issue of Shares made for the purposes of the repurchase and the premium, if any, payable on the repurchase, may only be provided for out of the funds of the Company which would otherwise be available for dividend or distribution or out of the share premium account of the Company before the Shares are repurchased. It is envisaged that the Company would derive the funds from such sources.

There might be an adverse impact on the working capital or gearing position of the Company as compared with the position disclosed in the audited consolidated accounts contained in the annual report for the year ended 31st March 2003 in the event that the proposed repurchases of Shares were to be carried out in full at any time during the proposed repurchase period. However, the Directors do not propose to exercise the Share Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

4. SHARE PRICES

The highest and lowest prices at which the Shares were traded on the Stock Exchange during each of the previous twelve months before the Latest Practicable Date were as follows:

	Highest	Lowest
Month	traded price	traded price
	HK$	HK$
2002
July	1.00	0.78
August	0.95	0.83
September	0.87	0.80
October	0.91	0.82
November	1.17	0.90
December	1.22	1.11

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APPENDIX

	Highest	Lowest
Month	traded price	traded price
	HK$	HK$
2003
January	1.28	1.15
February	1.40	1.23
March	1.38	1.28
April	1.33	1.18
May	1.42	1.18
June	1.70	1.39

5. UNDERTAKING

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Share Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Bermuda and as permitted by the regulations set out in the memorandum of association and bye-laws of the Company.

6. DISCLOSURE OF INTERESTS

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, their associates (as defined in the Listing Rules), has any present intention to sell any Shares to the Company under the Share Repurchase Mandate if such is approved by the Shareholders.

No connected person (as defined in the Listing Rules) has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so, in the event that the Share Repurchase Mandate is approved by the Shareholders.

7. EFFECT OF TAKEOVER CODE

If, on the exercise of the power to repurchase Shares pursuant to the Share Repurchase Mandate, a shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of Rule 32 of the Takeover Code. As a result, a shareholder or a group of shareholders acting in concert, depending on the level of such increase, could obtain or consolidate control of the Company and may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeover Code.

As at the Latest Practicable Date, the substantial Shareholder of the Company is as follows:

		Approximate	If exercised in
Substantial	Number of	percentage of	full the power
Shareholder	Shares	voting power	to repurchase
Kimen Leung UT Limited	170,018,000	33.24 %	36.94 %

In the event that the Directors shall exercise in full the power to repurchase Shares of the Company in accordance with the Share Repurchase Mandate and if there is no other change in the issued share capital of the Company, the interest of the above substantial shareholder would be increased to approximately the percentage shown in the last column above. As a result, Kimen Leung UT Limited would be obliged to make a mandatory offer in accordance with Rule 26 of the Takeover Code. However, the Directors do not have the intention to exercise the power to repurchase Shares of the Company to an extent which would make the substantial Shareholder or any Shareholder or group of Shareholders obliged to make a mandatory offer under Rule 26 of the Takeover Code in this respect.

In the event that the Share Repurchase Mandate is exercised in full, the number of Shares held by the public would not fall below 25% of the issued share capital of the Company.

8. SHARE REPURCHASE MADE BY THE COMPANY

The Company had not repurchased any of its shares (whether on the Stock Exchange or otherwise) in the six months preceding the date of this circular.

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