China Literature Limited — Proxy Solicitation & Information Statement 2002

Jul 2, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about 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 Hai Xia Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited 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.

==> picture [68 x 68] intentionally omitted <==

HAI XIA HOLDINGS LIMITED 海峽集團有限公司[*]

(Incorporated in Bermuda with limited liability)

GENERAL MANDATES TO ISSUE NEW SHARES

A notice convening the special general meeting of Hai Xia Holdings Limited to be held at 22nd Floor, World Wide House, Central, Hong Kong at 9:30 a.m. on Thursday, 18th July, 2002 is set out on pages 4 to 5 of this circular. Whether or not you intend to attend the meeting, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to Room 2601, 26th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so desire.

* for identification purpose only

2nd July, 2002

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4

DEFINITIONS

In this circular, the following expressions (other than in the notice of the SGM) have the meanings unless the context otherwise requires:

“Board”	board of Directors
“Convertible Preference Shares”	Convertible Preference Shares I and Convertible Preference
	Shares II
“Convertible Preference Shares I”	the 7,298,571 convertible non-voting redeemable preference
	shares of nominal value of HK$1.00 each in the capital of
	the Company, convertible into a maximum of 56,142,853
	Shares at a conversion price of HK$0.13 per Share (subject
	to adjustment)
“Convertible Preference Shares II”	the 20,373,906 convertible non-voting redeemable
	preference shares of nominal value of HK$1.00 each in the
	capital of the Company, convertible into a maximum of
	101,869,530 Shares at a conversion price of HK$0.20 per
	Share (subject to adjustment)
“Company”	Hai Xia Holdings Limited, a company incorporated in
	Bermuda with limited liability and the shares of which are
	listed on the Stock Exchange
“Director(s)”	director(s) of the Company
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“SGM”	the special general meeting of the Company to be held at
	9:30 a.m. on Thursday, 18th July, 2002 and any adjournment
	thereof, the notice of which is set out on pages 4 to 5 of
	this circular
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of
	the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

– 1 –

LETTER FROM THE BOARD

==> picture [68 x 68] intentionally omitted <==

HAI XIA HOLDINGS LIMITED 海峽集團有限公司[*]

(Incorporated in Bermuda with limited liability)

Directors: Mr. Li Xiaoyun (Co-Chairman) Mr. Chan Heng Fai (Co-Chairman and Managing Director) Ms. Chan Yoke Keow Ms. Chan Sook Jin, Mary-ann Mr. Fong Kwok Jen Mr. Xu Ying Mr. Liu Ming Hui Mr. Wooldridge Mark Dean Mr. Chan Tong Wan

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business: 326 Kwun Tong Road Kwun Tong Kowloon Hong Kong

Independent non-executive Directors:

Mr. Lee Ka Leung, Daniel Mr. Wong Dor Luk, Peter Mr. Da Roza Joao Paulo

2nd July, 2002

To the Shareholders and, for information only, the holders of Convertible Preference Shares

Dear Sir or Madam,

GENERAL MANDATES TO ISSUE NEW SHARES

INTRODUCTION

At the special general meeting of the Company held on 8th January, 2002, general mandates were given to the Directors to exercise the powers of the Company to issue Shares. Pursuant to such general mandates, a total of 43,333,333 new Shares, representing about 9.36% of the issued share capital of the Company as at the date of such special general meeting were issued upon completion of a placing of new Shares and the acquisition of natural gas project agreement which were announced by the Company on 9th May, 2002.

The purpose of this circular is to provide you with further information regarding the general mandates to issue Shares to be granted at the SGM.

* for identification purpose only

– 2 –

LETTER FROM THE BOARD

GENERAL MANDATES TO ISSUE SHARES

In order to maintain the flexibility of the Company, an ordinary resolution will be proposed at the SGM to give the Directors a new general and unconditional mandate to allot, issue and deal with Shares not exceeding 20 per cent of the issued share capital of the Company at the date of the resolution.

SGM

Set out on pages 4 to 5 of this circular is a notice convening the SGM to consider the ordinary resolutions relating to the general mandates to issue Shares.

A form of proxy for use at the SGM is enclosed. Whether or not you intend to attend the SGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to Room 2601, 26th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so desire.

RECOMMENDATION

The Directors believe that the grant of the general mandates to issue Shares is in the best interests of the Company and its shareholders. Accordingly, the Directors recommend that you vote in favour of the resolutions to be proposed at the SGM.

Yours faithfully, By Order of the Board Hai Xia Holdings Limited Li Xiaoyun

Co-Chairman

– 3 –

NOTICE OF THE SGM

==> picture [68 x 68] intentionally omitted <==

HAI XIA HOLDINGS LIMITED 海峽集團有限公司[*]

(Incorporated in Bermuda with limited liability)

NOTICE is hereby given that a special general meeting of Hai Xia Holdings Limited (the “Company”) will be held at 9:30 a.m. on Thursday, 18th July, 2002 at 22nd Floor, World Wide House, Central, Hong Kong for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT :

• (a) subject to paragraph (c) below, the exercise by the directors of the Company (the “Directors”) during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company and to make or grant offers, agreements and options (including warrants, bonds, debentures, notes and other securities which carry rights to subscribe for or are convertible into shares of the Company) which would or might require the exercise of such powers subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved in substitutions for and to the exclusion of any existing authority previous granted;

• (b) the approval in paragraph (a) above shall authorize the Directors during the Relevant Period to make or grant offers, agreements and options (including warrants, bonds, debentures, notes and other securities which carry rights to subscribe for or are convertible into shares of the Company) which would or might require the exercise of such powers after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined), or (ii) an issue of shares under any option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company, or (iii) any scrip dividend scheme or similar arrangement providing for the allotment of shares in the Company in lieu of the whole or part of a dividend on shares of the Company in accordance with the byelaws of the Company, shall not exceed 20 per cent of the nominal amount of the share capital of the Company in issue at the date of this Resolution and the said approval shall be limited accordingly; and

– 4 –

NOTICE OF THE SGM

• (d) for the purpose of this Resolution:

“Relevant Period means the period from the passing of this Resolution until whichever is the earlier of:

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or any applicable law to be held; and

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

“Rights Issue” means an offer of shares or other securities of the Company open for a period fixed by the Directors to the holders of shares or any class thereof whose names appear in the register of members of the Company on a fixed record date in proportion to their then holdings of such shares or class thereof (subject to such exclusion or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of any relevant jurisdiction, or the requirements of any recognized regulatory body or any stock exchange in any territory applicable to the Company).”

Yours faithfully, By Order of the Board Hai Xia Holdings Limited Li Xiaoyun

Co-Chairman

Hong Kong, 2nd July, 2002

Principal place of business:

326 Kwun Tong Road

Kwun Tong Kowloon Hong Kong

Notes:

(1) A member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and to vote in his stead. A proxy need not be a member of the Company.

• (2) A form of proxy of the meeting is enclosed. If the appointer is a corporation, the form of proxy must be under its common seal or, under the hand of an officer or attorney duly authorised on its behalf.

(3) To be valid, a form of proxy must be deposited at Room 2601, 26th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of above meeting or any adjournment thereof.

• for identification purpose only

– 5 –